Batey-Smith v Vasco Trustees Limited

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FEDERAL COURT OF AUSTRALIA

Batey‑Smith v Vasco Trustees Limited [2022] FCA 1203

File number(s): VID 787 of 2020
Judgment of: O'CALLAGHAN J
Date of judgment: 12 October 2022
Catchwords: REPRESENTATIVE PROCEEDINGS – approval of proposed settlement of proceeding pursuant to ss 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth) – settlement approved
Legislation:

Australian Securities and Investments Commission Act 2001 (Cth)

Corporations Act 2001 (Cth)

Federal Court of Australia Act 1976 (Cth) ss 33V, 33ZF, 37AF, 37AF(1)(b), 37AG, 37AG(1)(a)
Cases cited:

Blairgowrie Trading Ltd v Allco Finance Group Ltd (receivers and managers appointed) (in liq) [2017] FCA 330; (2017) 343 ALR 476

Cantor v Audi Australia Pty Ltd (No 5) [2020] FCA 637

Clime Capital Ltd v UGL Pty Ltd (No 2) [2020] FCA 257

Dyczynski v Gibson (2020) 280 FCR 583

Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925; (2000) 180 ALR 459
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 108
Date of hearing: 4 October 2022
Counsel for the Applicant: Mr J Stoljar SC with Mr D Snyder
Solicitor for the Applicant: Slater and Gordon
Counsel for the Respondents: Mr MP O’Haire
Solicitor for the Respondents: Johnson Winter & Slattery

ORDERS

VID 787 of 2020
BETWEEN:

HELEN BATEY‑SMITH

Applicant
AND:

VASCO TRUSTEES LIMITED (ACN 138 715 009)

First Respondent

D H FLINDERS PTY LTD (ACN 141 601 596)

Second Respondent

ORDER MADE BY:

O'CALLAGHAN J

DATE OF ORDER:

4 OCTOBER 2022

THE COURT ORDERS THAT:

1.Until further order, pursuant to ss 37AF(1)(b) and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice in the proper administration of justice, the following documents are confidential and not to be published or made available to any person, to be marked or designated as confidential, and to be held on the Court file until further order of the Court:

(a)Confidential Annexure EPC‑1 to the affidavit of Emma Pelka‑Caven dated 17 May 2022;

(b)Confidential Annexure EPC‑3 to the affidavit of Emma Pelka‑Caven dated 17 May 2022;

(c)Confidential Bundle Exhibit EPC‑7 to the affidavit of Emma Pelka‑Caven dated 25 August 2022; and

(d)Affidavit of Craig Mathew Dunstan dated 3 May 2022.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


ORDERS

VID 787 of 2020
BETWEEN:

HELEN BATEY‑SMITH

Applicant
AND:

VASCO TRUSTEES LIMITED (ACN 138 715 009)

First Respondent

D H FLINDERS PTY LTD (ACN 141 601 596)

Second Respondent

ORDER MADE BY:

O’CALLAGHAN J

DATE OF ORDER:

12 OCTOBER 2022

THE COURT ORDERS THAT:

1.Pursuant to ss 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth) (the Act), settlement of the proceeding in the terms set out in the Deed of Settlement dated 8 April 2022 and the Settlement Distribution Scheme (and any annexures thereto) (SDS) exhibited to the affidavit of Emma Pelka‑Caven dated…

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Details
Case
[2022] FCA 1203
Decision Date

CaseChat Overview and Summary

In the case of Batey-Smith v Vasco Trustees Limited, the dispute involves claims against the respondents and their directors, which will be resolved upon final settlement approval. The nature of the claims relates to the subject matter of the proceeding. The court was required to determine the reasonableness of the proposed settlement, taking into account the financial position of the respondents and the available insurance coverage. The court considered the evidence provided by Ms Pelka-Caven, the head of Slater and Gordon’s Class Actions department, who had obtained a confidential opinion of counsel on the settlement's reasonableness. Ms Pelka-Caven's analysis and conclusions were supported by her extensive experience in large-scale representative proceedings in both the Federal Court and the Supreme Court of Victoria.

The court also examined the financial reports of the respondents, which indicated limited assets and non-current assets. The respondents held approximately AUD$779,574.65 in current assets and AUD$37,023.92 in non-current assets. Additionally, property searches revealed that the respondents did not hold any real property. The court further considered the insurance policy provided by Mr Craig Dunstan, a director of the respondents, which indicated an available insurance coverage of approximately AUD$8.07 million after deducting legal costs. The court found that the settlement was reasonable given the respondents' limited financial position and insurance coverage.

The court's reasoning and outcome were based on the evidence presented regarding the financial position and insurance coverage of the respondents. The court concluded that the proposed settlement was reasonable and in the interests of the group members. The final orders of the court included the approval of the settlement, the resolution of all claims against the respondents and their directors, and the release of any other claims relating to the subject matter of the proceeding.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

Upon final settlement approval being obtained, all claims against the respondents and their directors will be resolved and any other claims against them relating to or arising from the subject matter of the proceeding will be released.The evidence about the reasonableness of the settlement Ms Pelka‑Caven is the head of Slater and Gordon’s Class Actions department. She deposed that she has been employed by it since 2018, and that between 2018 and June 2022, she was a Practice Group Leader. She assumed her current role in July this year. During her employment, she has exclusively worked on large scale representative or group proceedings in this court and the Supreme Court of Victoria. Ms Pelka‑Caven deposed that her firm obtained a confidential opinion of counsel as to the reasonableness of the proposed settlement, and that she agreed with counsel’s analysis and conclusions. Ms Pelka‑Caven exhibited a copy of this opinion on a confidential basis. Ms Pelka‑Caven deposed as to the insurance and financial position of the respondents, as follows:A significant factor influencing my opinion that the Proposed Settlement is reasonable and in the interests of Group Members is the limited asset and insurance position of the Respondents. In the course of the Proceeding, I have undertaken extensive investigations on behalf of the Applicant to ascertain the Respondents’ capacity to honour a greater settlement or award of damages in the Applicant and Group Members’ favour. In particular I have:(a)closely examined relevant documentation (including as exhibited to the confidential affidavit of Craig Matthew Dunstan affirmed 3 May 2022 (Dunstan Affidavit) including:i.financial reports between financial year end 2018, 2019 and 2020 for each Respondent;ii.profit and loss and balance statements for the financial year end 2021 for each Respondent;iii.a copy of an initial insurance policy issued for the period 12 December 2019 and 12 December 2020 to the First Respondent and certificates of currency;iv.as a result of further inquiries by me including without prejudice correspondence dated 23 February 2022, the responding insurance policy for both the First and Second Respondents.(b)engaged in extensive confidential, without prejudice, negotiations with the Respondents’ solicitors including the full‑day mediation.Based on their most recent financial reports for the financial year ending 30 June 2021, it appears that the Respondents hold the following assets: (a) Vasco: (i) $749,119 of current assets, of which $620,167 were in cash and cash equivalents; and (ii) $25,252 of non‑current assets. (b) DH Flinders: (i) $330,455.65 of current assets, of which $173,804 were in cash and cash equivalents; and $11,771.92 of non‑current assets. The applicant has undertaken property searches for the respondents in each of Victoria, New South Wales, Queensland and Western Australia, noting that the First Respondent has offices in Victoria, New South Wales and Queensland and the Second Respondent is located in Victoria. Those searches do not record the Respondents as holding any real property.I also caused enquiries to be made with the Respondents’ solicitors in relation to the availability of updated financial reports, or alternatively, further evidence from Mr Dunstan confirming whether or not the financial position of the Respondents has materially changed since 30 June 2021. I am informed by Johnson, Winter & Slattery [the solicitors for the respondents] that their instructions are that the FY2022 financial reports for their clients are yet to be prepared. Johnson, Winter & Slattery advised me, on a confidential basis, of the current draft net asset position of each of the Respondents. I have been informed that there has not been a material improvement in the net asset position of either Respondent since FY2021 as set out in the Dunstan Affidavit.…Pursuant to clause 10(b)(iii) of the Deed of Settlement, the Respondents provided the Applicant with [the] Dunstan Affidavit, which attests to matters including:(a) That there is one insurance policy that is responsive to this proceeding.(b)That insurance policy provides coverage to both the first and second respondents, as well as the directors of the respondents.(c)That there are other claims that have been made on the same insurance policy by ASIC and [the Australian Financial Complaints Authority] and the insurer has agreed to pay legal fees and disbursements associated with these other claims, which have diminished the amount of available insurance to meet the proceeding.(d)The amount of insurance cover currently available to meet any settlement or judgment in favour of the Applicant in the Proceeding;(e)The Respondents’ legal fees and disbursements which have and are estimated to be paid from this insurance policy incurred in the course of defending the Proceeding; and(f) The assets of the Respondents, which are limited.After deduction of their legal costs incurred to date, the total amount of insurance held by the Respondents is approximately AUD$8.07 million. Based on my years as a solicitor acting on behalf of insurers, I also independently considered the insurance policy wording and schedule and formed the view that: the respondents’ directors are covered by the same policy; the relevant cover is the one that the insurer has confirmed cover in respect of the proceeding (i.e. there is no error in that determination in my opinion) and the policy is a “defence costs inclusive” policy. This means that the amount of the cover available under the policy diminishes as the insured incurs reasonable legal fees and disbursements responding to the Claim (as defined in the policy).

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

The Trustee and the Investment Manager entered into a written Investment Management Agreement dated 23 March 2017. It provided for the Investment Manager to provide certain portfolio management services to the Trustee, including all necessary and desirable instructions, directions and advice to the Trustee in respect of capital and investment matters, including the ongoing monitoring of the Fund’s assets. The agreement also provided that the Investment Manager was responsible for the promotion and marketing of the Fund. The Investment Manager was to prepare an offer document for the Fund and any promotional, marketing or advertising material in accordance with the Corporations Act 2001 (Cth) (the Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). In its capacity as investment manager for the Fund, the Investment Manager was also an authorised representative of the second respondent (DH Flinders). Investors invested in the Fund by subscribing for units in it. Each unit class had its own:(a)term of investment, such that units would not be eligible for redemption until the end of the investment term;(b)frequency of distributions, with distributions sometimes being on a monthly or quarterly basis, or sometimes with distributions only being made at the end of the investment term; and(c)“target rate of return”, being a percentage return which resembled an interest rate. The return varied considerably across different unit classes, typically being higher for classes with longer investment terms. The target return was sometimes also higher depending on the amount invested. The rate was not guaranteed. The Fund raised funds from the public in the period from around April 2017 until 26 March 2020. On or around 7 April 2020, the Trustee froze new applications, reinvestments and redemptions in the Fund. On 22 May 2020, receivers and managers were appointed by the Trustee and the Supreme Court of Victoria to the Borrower and the SPVs respectively. On 24 June 2020, Robson J ordered that provisional liquidators be appointed to the Borrower and the SPVs. On 17 September 2020, his Honour ordered that the Borrower and the SPVs be wound up. The applicant relied upon four affidavits affirmed by Ms Emma Pelka‑Caven (the solicitor with responsibility for the conduct of this proceeding) dated 21 May 2021, 17 May, 25 August, and 27 September 2022 respectively, and a confidential affidavit of Mr Craig Dunstan affirmed on 3 May 2022. Mr Dunstan is a director of both of the respondents, whose evidence concerns their financial position.Procedural history This proceeding was commenced on 10 December 2020. It is brought against the Trustee and DH Flinders on behalf of all persons who, at the date of commencement of the proceeding, held units in the Fund. The Investment Manager is not a party to this proceeding. Pleadings have closed. The respondents have filed a cross‑claim, to which a defence to cross‑claim has been filed. Discovery has not yet occurred, and evidence has not been filed.