Davaria Pty Limited v 7-Eleven Stores Pty Ltd (No 13)

Davaria Pty Limited v 7-Eleven Stores Pty Ltd (No 13) [2023] FCA 84 is a Federal Court decision about the supervision of a major class action settlement arising from 7-Eleven franchise-related claims. The parties had already agreed to settle for $98 million, but that did not end the Court's role.

The Court still had to decide whether the proposed distribution scheme was fair between different categories of group members, whether the legal costs claimed from the settlement fund were reasonable and proportionate, and whether the litigation funder could be paid through the common fund mechanism it sought. The clearest holding from the judgment is that the Court held it had no power to make the common fund order sought.

This matter involved two related representative proceedings, and that structure is central to understanding the case. The first proceeding, VID 180 of 2018, was brought by corporate franchisees of 7-Eleven stores. The applicants were Davaria Pty Ltd and Kaizenworld Pty Ltd. The second proceeding, VID 182 of 2018, was brought by the natural person principals and guarantors of those corporate franchisees, namely Pareshkumar Davaria, Khushbu Davaria, Jatinder Singh and Suman Kaur.

The distinction mattered because the Court was not dealing with one simple pool of claimants. It had to consider whether the settlement fairly divided money between the corporate franchisee claims and the separate claims of the individuals behind those businesses. For business readers, that is a useful reminder that in franchise disputes, the operating entity and the people standing behind it may not always have identical legal positions or settlement entitlements.

The proceedings had been listed for a 10-week trial commencing on 9 August 2021. Before trial, the parties went to mediation in June and July 2021 before the Honourable Susan Crennan AC QC, a former justice of the High Court of Australia. On 3 August 2021, certain individual applicants entered settlement deeds with ANZ. On 4 August 2021, a broader settlement deed was executed involving the corporate applicants, the individual directors or shareholders acting for the second proceeding, the applicants' solicitors, the litigation funder Galactic Seven Eleven Litigation Holdings LLC, and 7-Eleven.

The agreed settlement sum was $98 million. The applicants then sought Court approval under section 33V of the Federal Court of Australia Act 1976 (Cth). Earlier reasons had already approved the settlement against 7-Eleven, appointed an administrator, and made orders for payment of the settlement sum. The Court also later recorded that 7-Eleven paid the settlement sum on 2 June 2022 and that the proceeding against 7-Eleven was dismissed on 10 June 2022.

By the time of this judgment, the live controversy was no longer whether there was a settlement. The real dispute was about the settlement's internal mechanics. That included the fairness of the proposed distribution scheme, the treatment of different categories of claims, the legal costs to be deducted from the settlement fund, the role of the costs referee, the adequacy of costs disclosure and monitoring, and the proper way to remunerate the litigation funder.

The judgment is structured around a detailed list of agreed questions. That list is useful because it shows exactly how closely the Court examined the settlement administration issues.

First, the Court had to decide whether the proposed settlement distribution was fair and reasonable as between group members and different categories of group members across both proceedings. That broad question was broken into sub-questions. The Court considered whether allocating 60% of the net settlement proceeds to the corporate franchisee proceeding and 40% to the proceeding by principals and guarantors was within a rational range. It also considered whether, within the corporate franchisee proceeding, an 80% allocation to VID 180 loss claims and a 20% allocation to rebates claims was within a rational range.

The Court then examined the proposed relative weightings for certain claims. The extract shows that some claims were proposed to be weighted at 100%, some at 33%, and some at zero. Those weightings were linked to issues such as limitation risk for franchisees who entered into franchise agreements before 21 February 2012, whether a franchisee sold or disposed of the franchise before 1 October 2015, and whether a franchise agreement was entered after 1 October 2015. In practical terms, the Court was testing whether the settlement scheme rationally reflected differences in legal strength and recoverability across the group.

Second, the Court had to decide whether legal costs of $16,657,588.44 incurred up to 4 August 2021 were reasonable. It separately asked whether the total legal costs, or any substantial part of them, were proportionate to the expected benefits obtained by incurring those costs. It also had to decide whether the costs reports prepared by the court-appointed referee should be adopted, varied or rejected, in whole or in part.

Third, the Court considered process and transparency issues around costs. It asked whether there had been adequate disclosure and monitoring of legal costs throughout the proceedings, and whether any deferred fee arrangements existed between the applicants' solicitors and the litigation funder. Those issues matter because the Court's supervisory role in class action settlements extends beyond the final number claimed for costs. It also includes scrutiny of how those costs were managed and disclosed during the life of the case.

Fourth, the Court had to deal with litigation funding. Galactic sought approval of a payment to it in the amount of $24.5 million, being 25% of the $98 million settlement sum, in the form of a common fund order, plus reimbursement for legal costs it had incurred and paid and return of its security for costs. The applicants also sought, in the alternative, a fund equalisation order if the Court did not make the common fund order. The proposed fund equalisation structure was detailed and was designed to equalise the burden of funding contributions between funded and unfunded group members.

That funding issue generated several separate questions. The Court asked whether it had power to make a common fund order of the kind sought under section 33V(2) of the Federal Court of Australia Act or in its equitable jurisdiction under section 5(2). It also asked, if such a power existed, whether it should be exercised in the circumstances, whether 25% of the gross settlement proceeds would be fair and reasonable, what methodology should be used to determine a fair and reasonable funding commission, whether a fund equalisation order should instead be made, whether the terms of the funding agreements had been sufficiently proved, and whether the funder was entitled to a gross-up in its commission.

The Court also had to deal with procedural matters, including post-hearing submissions filed by the applicants that went beyond the leave granted, an application to re-open the case to adduce further evidence, and an application to amend the settlement scheme so that the administrator could temporarily transfer settlement funds into accounts earning higher interest.

The clearest holding from the judgment is stated in the catchwords and in the list of questions answered by the Court: the Federal Court had no power to make the common fund order sought. The Court applied Cantor v Audi Australia Pty Ltd (No 5) [2020] FCA 637 on that point. For businesses, funders and claimant groups, that is the most concrete doctrinal outcome from this decision.

The judgment also shows that the Court undertook a detailed fairness review of the proposed distribution scheme and the legal costs position. The extract identifies specific answers to the questions concerning the 60/40 allocation between the two proceedings, the 80/20 allocation within the corporate franchisee proceeding, the proposed claim weightings, the reasonableness and proportionality of legal costs, the adequacy of costs disclosure and monitoring, the existence of any deferred fee arrangements, the proof of funding agreements, and the proposed gross-up. However, the extract provided here does not reproduce all of the Court's detailed reasoning on each answer.

What is clear is that the Court did not simply accept every post-settlement proposal at face value. It considered the costs referee's reports, heard from a contradictor, dealt with expert evidence relevant to funding commission issues, and ignored certain post-hearing submissions that went beyond the leave granted. It also considered an application to re-open the case to adduce further evidence. That procedural history reinforces the point that settlement administration in representative proceedings can be heavily contested even after the main commercial compromise has been reached.

The Court also made orders amending the settlement scheme to permit the administrator temporarily to transfer part or all of the settlement sum from a settlement distribution account to other bank accounts for the purpose of accruing higher rates of interest. In the formal orders attached to this judgment, the Court ordered that the further hearing of the proceedings be adjourned to a date to be fixed. The reasons also record that the judge intended to publish reasons first and then allow the parties to confer about the form of orders needed to give effect to those reasons before any further hearing resumed.

So, in practical terms, the outcome was not a simple one-line approval or rejection. The settlement against 7-Eleven had already been approved earlier. This judgment dealt with the contested machinery around distribution, costs and funding, and it definitively rejected the proposed common fund order as beyond power.

For franchise businesses, the first practical point is that a network dispute can produce multiple claimant classes. The operating company may have one set of claims, while directors, principals or guarantors may have another. If a settlement is later negotiated, the Court may require a rational explanation for how money is split between those groups. A business owner should not assume that everyone in the broader dispute will be treated the same way.

The second point is that limitation risk and claim timing can materially affect settlement outcomes. The Court's questions show that the proposed scheme differentiated between claims depending on when franchise agreements were entered, whether a franchise had been sold or disposed of before a particular date, and whether limitation issues affected recoverability. That means businesses joining a group claim should expect that older claims, or claims with more obvious legal obstacles, may be discounted in a settlement distribution model.

The third point is that legal costs are not just a background issue. The Court separately examined whether the costs were reasonable, whether they were proportionate, whether the referee's reports should be adopted, and whether costs had been properly disclosed and monitored. If your business is a group member, those questions matter because legal costs come out of the settlement pool and directly affect your net recovery. If your business is defending a class action, those same issues can shape settlement negotiations and approval risk.

The fourth point is about litigation funding. Businesses often hear the headline proposition that a funder will take a percentage of the recovery. This case shows that the legal mechanism for doing that matters. A proposed common fund order may not be available. A fund equalisation order may be considered instead, but that can raise separate evidentiary and fairness questions, including whether the funding agreements are properly proved and whether any gross-up is justified. If your business is considering signing a funding agreement, ask how the funder expects to be paid if the case settles, whether that depends on court approval, and how funded and unfunded group members will be treated.

The fifth point is procedural. Even after a settlement is reached, there can be further hearings, contradictors, referee reports, expert evidence, confidentiality issues and disputes about post-hearing submissions. Businesses should budget for the fact that settlement implementation in a representative proceeding can be slow and contested. The commercial deal may be done, but the path to actual distribution can still be complex.

If you are reading this case as a business owner, the most important documents are not only the pleadings and the settlement deed. You should also focus on the settlement scheme, any litigation funding agreement, any proposed common fund or fund equalisation mechanism, and the material explaining legal costs deductions. In this case, the Court's questions show that those documents and arrangements were central to the approval process.

The conduct that drew close attention included the way the applicants proposed to allocate the settlement between the two proceedings, the way they proposed to weight different claims, the way legal costs had been incurred and monitored, and the way the funder's entitlement was framed and evidenced. The Court also paid attention to procedural discipline, including whether post-hearing submissions stayed within the leave granted and whether further evidence should be admitted after the hearing.

For businesses, the practical message is straightforward. If you are entering a funded group proceeding, keep records, understand the contractual documents you sign, and ask for a clear explanation of how any future settlement will be distributed. If you are defending such a proceeding, expect the Court's scrutiny to extend beyond the settlement amount to the fairness and evidentiary basis of the whole settlement structure.

The proceedings were set down for trial on 9 August 2021 for an estimated 10 weeks. They were mediated in June and July 2021. Settlement deeds with ANZ were entered on 3 August 2021, and the broader settlement deed involving 7-Eleven was executed on 4 August 2021. The applicants sought approval under section 33V by application dated 11 August 2021, later amended. Earlier approval orders were made on 31 March 2022. The settlement sum was paid by 7-Eleven on 2 June 2022, and the proceeding against 7-Eleven was dismissed on 10 June 2022. This judgment was delivered on 14 February 2023 and adjourned the further hearing to a date to be fixed.

The published reasons clearly establish the Court's no-power holding on the proposed common fund order and the broad structure of the remaining settlement administration issues. Some later consequential detail is not set out here, so this page should be read as a practical explainer of the issues and holdings that are clear from the judgment.

This page is based on the Federal Court reasons in Davaria Pty Limited v 7-Eleven Stores Pty Ltd (No 13) [2023] FCA 84 and the procedural details stated in those reasons. The judgment gives a strong picture of the settlement approval issues, the two-proceeding structure, the legal costs and funding disputes, and the Court's holding that it had no power to make the common fund order sought.

The underlying commercial allegations in the franchise dispute are not fully narrated here, and the later consequential orders after the adjourned further hearing are not fully set out in the material used for this page. For that reason, this article focuses on the parts of the case that are clear and useful for business readers: the structure of the proceedings, the settlement mechanics, the funding issue, and the Court's supervisory approach.