Bolitho v Banksia Securities Limited (No 5)
[2019] VSC 554
•22 May 2019, Reasons 20 August 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL DIVISION
CORPORATIONS LIST
S CI 2012 07185
| LAURENCE JOHN BOLITHO | Plaintiff |
| v | |
| BANKSIA SECURITIES LIMITED ACN 004 736 458 (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) & ORS | Defendant |
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JUDGE: | John Dixon J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 May 2019 |
DATE OF JUDGMENT: | 22 May 2019, Reasons 20 August 2019 |
CASE MAY BE CITED AS: | Bolitho v Banksia Securities Limited (No 5) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 554 |
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PRACTICE AND PROCEDURE — Group proceeding — Court–approved settlement —Interim distribution of Settlement Sum — Application for approval of proposed settlement distribution scheme — Whether proposed settlement distribution scheme fair and reasonable — Supreme Court Act 1986 (Vic) Part 4A, s 33V, s 33ZF.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms S M Jacobsen | Crow Legal |
| For Australian Funding Partners Limited | Mr S Horgan QC with Mr C Tan | Arnold Bloch Leibler |
| For Mr Lindholm and Mr McCluskey in their capacity as joint and several special purpose receivers of the Banksia Securities Limited (receivers and managers appointed) (in liquidation) | Mr R A Dick SC with Mr J Redwood | Maddocks |
| For the Contradictor | Mr P Jopling QC with Ms J Collins | Corrs Chambers Westgarth |
HIS HONOUR:
Banksia Securities Limited (Banksia) was a debenture issuer regulated by a trustee under Chapter 2L of the Corporations Act 2001 (Cth). The Trust Company Nominees Limited (Trust Co) acted as trustee pursuant to the terms of a trust deed.
On 25 October 2012, receivers and managers were appointed to Banksia. Mr John Ross Lindholm and Mr Peter Damien McCluskey were appointed the liquidators of Banksia on 24 June 2014 and subsequently the special purpose receivers (SPRs) of Banksia by orders of the Supreme Court of New South Wales. Banksia had approximately 15,622 debenture holders, a significant proportion of whom were at least 55 years old. The collapse left Banksia owing approximately $663 million to debenture holders. Following interim distributions, debenture holders were still owed approximately $172 million in outstanding principle and accrued interest under the Banksia Trust Deed.
Mr Bolitho commenced a group proceeding on his own behalf and on behalf of all debenture holders to recover losses in respect of the debentures held by them as a result of Banksia’s collapse. Mr Bolitho’s proceeding was funded by Australian Funding Partners Limited[1] (AFPL) which was incorporated for the purpose of funding this group proceeding. There were a number of defendants to Mr Bolitho’s proceeding that included certain company officers and external advisors. A partial settlement with those parties was approved by Robson J in March 2017 (Partial Settlement).[2]
[1]Formerly known as BSL Litigation Partners Limited.
[2]Re:Banksia Securities Ltd (Rec and Mgrs Apptd) [2017] VSC 148.
Other proceedings, initially commenced by the receivers of Banksia, were managed by the SPRs (Banksia proceeding) and settled as part of the partial settlement. The SPRs also took over a proceeding against Trust Co issued by the liquidators (SPR proceedings).
The total settlement sum received in the partial settlement was $13.25 million. Of this sum, $5.2 million was apportioned to Mr Bolitho’s proceeding and the balance of $8.05 million was apportioned to the Banksia proceeding.
A procedural history of the litigation was recited by the Court of Appeal in Botsman v Bolitho[3] and for present purposes it is sufficient to refer the reader to that judgment.
[3][2018] VSCA 278.
Following a number of mediations, both Mr Bolitho’s proceeding and SPR proceeding were settled as between Mr Bolitho, AFPL, Banksia, the SPRs and Trust Co. Terms of settlement were recorded in a single deed entered into on or about 4 December 2017 under which Trust Co would become obliged to pay a settlement sum of $64 million upon satisfaction of conditions precedent.
Mr Bolitho and the SPRs each brought applications seeking court approval of the settlement pursuant to s 33V and s 33ZF of the Supreme Court Act 1986 (Vic). On 30 January 2018, approval orders were made by a judge of the Commercial Court in each of Mr Bolitho’s proceeding and the SPR proceeding.
In the Court of Appeal, a debenture holder successfully objected to the approval of the settlement. The Court of Appeal upheld the primary judge’s finding that the settlement sum of $64 million was fair and reasonable. However, it concluded that the primary judge had erred in approving distribution to AFPL of its claimed commission and legal costs, concluding that it was within the court’s power under ss 33V and 33ZF of the Supreme Court Act 1986 (Vic) to approve the settlement of the group proceeding and authorise the SPRs to settle their proceeding while, at the same time, declining to approve the distributions in respect of commission and legal costs. Those matters were remitted for determination by a judge in the Trial Division.
The settlement deed provided, by clause 2.1, that the deed was subject to and conditional on the making of approval orders (as defined) and, if the approval orders were made, the expiry of any appeal period in respect of either of the approval orders or the determination of any application for special leave to appeal to the High Court being refused resulting in the confirmation of the approval orders that were made. There could be no settlement sum while an appeal was extant.
AFPL filed an application for special leave to appeal. That application was dismissed by the High Court of Australia on 17 May 2019. On that day I made orders for the payment of the settlement sum to the solicitors for the SPRs to be held by them in an interest bearing trust account until further order of the court.
On 22 May 2019 I heard argument on the application for approval of a settlement distribution scheme for that portion of the settlement sum ($42 million) (interim sum) that was not affected by the remitted issues for which $22 million is to be retained. I ordered that the SPRs distribute the interim sum in accordance with their existing duties as liquidators, without any role in that distribution being given to the plaintiff’s solicitors or AFPL. These are my reasons for that order.
I will start with the history of this approval application.
On 30 January 2018, counsel for the plaintiff handed to the primary judge proposed orders that sought, inter alia, approval of a proposed distribution scheme (first proposed scheme) in similar terms to that later proposed to me. The SPRs were not on notice for this application.
Several characteristics of that proposed scheme may be noted. The plaintiff’s solicitors, Portfolio Law (a small, incorporated law practice) were to be administrators of the scheme. The funder was to be a Scheme Co-ordinator. The administrator and the co‑ordinator shared responsibilities for communications with debenture holders in respect of register details, conducting searches, and liaising with Link Market Services. The administrator would determine the amount available for distribution based on an estimate of the incurred and estimated costs necessary to give effect to the Scheme. Debenture holders had rights to contest any amendment to the register or calculation of entitlement by expert determination binding on the administrator but reviewable by the court. The administrator and the co-ordinator were to ‘work together’ to develop seven group lists of debenture holders and then to make 8 distributions over 8 months to those groups.
Mr Antony Zita, a principal of the plaintiff’s solicitors explained the basis for this scheme lay in the lack of accuracy of the register of debenture holders (Register). He observed that:
(a) of a notice sent to debenture holders, 745, or approximately 5%, were returned to Portfolio Law on the basis that the addressee was not known at the address listed in the Register;
(b) of the March 2017 distribution, 1,939 cheques remained unpresented, which, at worst suggested that up to 16% of debenture holder accounts details for that distribution may have been incorrect;
(c) a rigorous update to the register was required to ensure that debenture-holders receive distributions.
On behalf of the SPRs, Mr Lindholm expressed concern that the proposed scheme was not in the interest of debenture holders, for reasons including that:
(a) the legal costs of Portfolio Law as administrator, and the costs of the funder (at that time BSL Litigation Partners Limited) as coordinator in relation to the distribution scheme were estimated to be $1 million;
(b) neither the proposed scheme nor the costs of its administration/coordination had been disclosed to debenture holders;
(c) the proposed scheme was not raised during settlement discussions between the SPRs, the plaintiff, and the funder;
(d) the scheme contemplated a 12-month process, and permitted timeframes to be extended at Portfolio Law’s discretion;
(e) the SPRs had made six previous distributions within a much shorter timeframe, and at a small fraction of the estimated scheme costs.
Mr Lindholm considered the costs of the proposed scheme to be excessive and unnecessary. He noted two concerns about an estimate by Mr Peter Trimbos, a costs consultant, for legal costs of $755,056.44 as fair and reasonable to ‘finalise these proceedings and to distribute the funds to individual debenture holders’. First, these legal costs were apparently assessed on the basis of an inappropriate distribution scheme. Second, it was unclear whether Mr Zita’s reference to costs of $1 million was an additional sum to Mr Trimbos’ estimate.
Link Market Services (Link) managed prior distributions in this administration, and managed the register of Banksia’s debenture holders.
After the appointment of McGrath Nicol as receivers of Banksia on 25 October 2012, McGrath Nicol engaged Link to maintain the Register, which they had initially compiled from Banksia’s books and records. The engagement included the provision by Link of administrative and transactional services, including:
(a) receiving and responding to enquiries from debenture holders;
(b) issuing correspondence and statements to debenture holders;
(c) processing surety transfers;
(d) registering changes of address or name for debenture holders;
(e) requesting, reviewing and confirming evidence such as debenture holder identification, death certificates, wills and probate documents;
(f) making distributions to debenture holders, and necessary follow up steps; and
(g) bank reconciliation services to monitor the presentation of distributions made to debenture holders.
Both McGrathNicol and the SPRs have corresponded extensively with debenture holders seeking to update their details. This information was passed on to Link. Between November 2012 and January 2018 Link processed over 35,000 transactions/updates to the register.
Link has made six distributions to debenture holders between 7 December 2012 and 31 March 2012 of more than $542 million.
Mr Lindholm disputed Mr Zita’s statements about the distribution on 31 March 2017 but it is not necessary for present purposes to explore this issue. Mr Lindholm also rejected Mr Zita’s claims that the register is deficient as criticisms that lacked a proper basis and that had not been made in a timely manner.
In 2018, the SPRs proposed an alternative process:
(a) first, advertisements be placed in nominated newspapers advising debenture holders of the upcoming distribution and directing them to contact Link within 14 days to ensure their details are up to date;
(b) the SPRS will post a similar notice on their website, and ask members of the debenture holders committee to inform debenture holders to update their details through Link;
(c) Link will then distribute the Settlement Sum (less those amounts payable to the plaintiff, the plaintiff’s representatives and the funder) using the Register. This could be done within 15 days of receiving the Settlement Sum;
(d) Link will then monitor receipt of payments and presentation of cheques, and engage in further correspondence with debenture holders regarding unpresented payments;
(e) following this process, some further limited enquiries will be undertaken to find any missing debenture holders. It is suggested this process should be limited to those debenture holders above a materiality threshold;
(f) any unclaimed moneys at the end of this process will be transferred to ASIC unclaimed moneys; and
(g) Link will report on a monthly basis.
The SPRs costs were estimated at $127,000 plus GST. The costs of Link to undertake the distribution were estimated as $58,821.89 plus GST, which would be incurred regardless of which distribution process was adopted.
Mr Lindholm said that although it had not been possible to convene a meeting of the debenture holders committee in the time available, he had spoken to and explained the plaintiff’s proposed scheme to three members of the committee, each of whom expressed significant concerns about its costs and delays, and its non‑disclosure to debenture holders.
The court referred the issue of the proposed distribution scheme to a special referee, Mr Anthony Nolan QC, who submitted several reports to the Court. However, the question remained unresolved due to the appeal from the primary judge’s approval of the settlement.
The Court of Appeal noted that an interim distribution should be made of funds not in dispute pending resolution of the remitted issues.
The first directions hearing in the remitted proceeding took place on 22 November 2018. At that time, AFPL was considering seeking special leave to appeal to the High Court. The precise scope of any appeal was not revealed, but AFPL submitted the outcome of the appeal could affect the structure of the entire $64 million settlement and it would be premature to make an interim distribution.
Immediately prior to the next directions hearing on 1 February 2019, Portfolio Law circulated a proposed interim distribution scheme substantially in the form earlier proposed to the primary judge. The plaintiff applied for approval of this scheme by which Portfolio Law was to be appointed as Settlement Scheme Administrator (administrator), and AFPL appointed Scheme Coordinator (coordinator).
Following some discussion, the application for approval did not proceed that day. The court was not minded to approve a scheme with Portfolio Law, a private company about which the court had no information, as the administrator, and would prefer that an individual who was an officer of the court be the administrator.
AFPL’s application for special leave to the High Court remained extant. As counsel for AFPL acknowledged, an interim distribution was dependent on AFPL discontinuing its special leave application. He stated that AFPL would do so contemporaneously with the making of any approval orders.
The SPRs sought clarification of AFPL’s position and counsel for AFPL stated that he will be instructed to give an undertaking to withdraw the special leave application when the scheme is approved, meaning that at the time the court orders that a scheme of distribution for any interim distribution be approved, a settlement fund would exist once the undertaking was executed.
The application was adjourned to a further hearing on 1 March 2019, but AFPL had not discontinued its application for special leave, which was listed for oral argument on 17 May 2019. However, AFPL had stated its attitude in correspondence.
On 18 February 2019, AFPL stated ‘that if a special distribution scheme is made in a form which is agreed with, or otherwise to the satisfaction of, Mr Bolitho, it will withdraw its special leave application and will give an undertaking to that effect at the next directions hearing’. Given the close relationship between Mr Bolitho and AFPL, it now appeared to have reserved to itself an opportunity for veto if the court were to decide on a scheme for the interim distribution that AFPL considered did not suit its interests. It could take the position that Mr Bolitho was not satisfied with the scheme and its undertaking to withdraw the special leave application would not be enlivened.
I determined that it would be inappropriate for the court to make orders about any interim distribution, and I declined to entertain a hypothetical application for approval of the mechanism for doing so. It was not appropriate to invite the court to rule on this issue in such circumstances.[4] I determined that until the Settlement Sum came into existence, I would not further consider the application to approve a settlement distribution scheme.
[4]Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334, 356.
Following the 1 March 2019 hearing, the Contradictor sought explanations of certain alleged conduct of Mr Zita, the plaintiff’s counsel Mr Norman O’Bryan AM QC and Mr Michael Symons, and AFPL and its director, Mr Mark Elliot. The Contradictor contended that, absent any explanation, it would be open to the court when considering AFPL’s claims for legal costs and funding commission to draw inferences that might be material considerations on the remitted issues. It is necessary to say more about these contentions when dealing with a later application made by Messrs Zita, O’Bryan and Symons. For present purposes, I note that the Contradictor contended, absent explanation to the contrary, that it was open to infer that misleading information might have been provided to the primary judge at the first approval hearing and subsequently to the Court of Appeal, either through instructions given to the costs consultant, Mr Trimbos, for his expert report or directly in submissions to the court.
The Contradictor identified six matters in respect of which they sought an explanation:
(a) the dates on counsel’s fee invoices in respect of the period following the partial settlement were not the dates on which they had been issued;
(b) invoices provided to Mr Trimbos and attached to his third report of 4 January 2018 were stamped as paid when they had not been paid;
(c) no written fee agreements existed with counsel with respect to the period following the partial settlement, but written fee agreements were created and provided to Mr Trimbos when he asked for them;
(d) senior counsel told Mr Trimbos that his fees had been duly paid by AFPL when in fact none of senior counsel’s fees that Mr Trimbos was asked to opine upon had been paid;
(e) the summons by Portfolio Law seeking approval of the settlement asked the court to approve the settlement on the basis of the settlement deed including a claim in respect of ‘reimbursement’ of legal costs and disbursements; and
(f) the time charged to this proceeding by senior counsel appeared to be inconsistent with senior counsel’s involvement in other matters.
On 29 March 2019, Mr O’Bryan returned his brief to act for the plaintiff, informing the court that the circumstances of his retainer had been the subject of an ethics committee ruling that he do so. Mr O’Bryan indicated that Mr Symons was away from Melbourne, but he understood that he would also be returning his brief upon his return. Apparently, he did so.
On 16 April 2019, as foreshadowed at the hearing on 29 March 2019, the Contradictor provided a revised list of issues to be determined on the retainer. That revised list contained a section entitled ‘Disentitling Conduct’ that identified an issue for resolution in these terms:
Has there been any conduct by AFPL/Mr Elliot, Mr O’Bryan AM SC, Mr Symons and/or Portfolio Law/Mr Zita in respect of the applications brought by Mr Bolitho and AFPL for payment to AFPL of:
(a) legal costs and disbursements; and/or
(b) funding commission,
by reason of which the court should exercise its discretion under section 33ZF of the Supreme Court Act 1986 (Vic) to reduce or disallow AFPL’s claims for those payments so that justice is done in the proceeding?
Substantial particulars of the conduct were annexed.
On 22 May 2019, apart from some minor changes, this application proceeded on the plaintiff’s amended second proposed scheme advanced at the hearing on 1 March. Although Mr Zita had been substituted as administrator for Portfolio Law, the plaintiff now did not oppose the SPRs undertaking the role of administrator of the plaintiff’s proposed scheme in his stead. The plaintiff maintained his position that his scheme with AFPL remaining involved in its capacity as coordinator was in the best interests of debenture holders. AFPL estimated its costs in this role at approximately $40,000.
The dispute now centred on:
(a) whether the SPRs should distribute the funds, subject only to their existing legal constraints, or whether they should distribute as the administrator, in place of Mr Zita, under a scheme modelled on the plaintiff’s second proposed scheme; and
(b) the role, if any, AFPL should play in the interim distribution.
The plaintiff’s scheme now provided for a series of steps or tasks to be performed by the SPRs (or Mr Zita) with AFPL in a supervisory role. The plaintiff contended these steps were essential for a proper distribution:
(a) communication: managing communication with debentures holders;
(b) identification and updating of register: identifying debenture-holders and updating the register of debenture-holders;
(c) verification: verifying debenture-holders’ entitlement to participate in the distribution;
(d) dispute resolution: determining questions arising in relation to entitlement to receive a distribution;
(e) payment: performing the distribution;
(f) management: co-ordination of the performance of roles and responsibilities allocated between the administrator, solicitors for the representative plaintiff, AFPL, the liquidators, including in their capacity as Special Purpose Receivers, Link, and service providers and professional advisors engaged in relation to the performance of the distribution;
(g) seeking judicial advice: seeking the Court’s direction or advice;
(h) reporting: to the Court;
(i) cost recoupment: recouping the costs of communication, identification and updating of register, verification, dispute resolution, payment, management, the seeking of judicial advice, and reporting to the Court to the extent to which those costs are not otherwise paid pursuant to the Deed; and
(j) payment of remainder: paying any sum remaining after performance of the distribution and payment of costs as permitted under the Settlement Scheme into an account controlled by the liquidators.
The scheme allocated functions. AFPL would correspond concerning the distribution with all debenture-holders. The administrator would correspond with and in relation to debenture-holders where the identity of holders has changed or the address of the debenture-holder has changed. AFPL would search to identify the current details of debenture-holders. The administrator would approve amendments to the identity or recorded addresses of debenture-holders where sufficient information is provided. AFPL would work with Link, using information received from its own searches, from the liquidators and from the administrator, to bring the Register up to date. The administrator would determine an amount available for distribution and the entitlement of each debenture holder. AFPL and the administrator would work together to develop eight lists of groups of debenture-holders in respect of whom the register has been brought up to date or confirmed and in respect of whom review/reference rights had been exhausted or not pursued on a monthly basis, preparing the final list by 13 December 2019. AFPL would assist the administrator to make distributions to these groups monthly through to 13 December 2019, the date for the effective completion of the interim distribution.
The plaintiff submitted his proposed scheme was a fair and reasonable means, in the interest of debenture holders, to distribute the interim sum that took into account:
(a) the existing relationship between debenture-holders and the plaintiff, Mr Zita/Portfolio Law and AFPL;
(b) the need for a personal and responsive approach to communication with debenture holders, many of whom are elderly;
(c) the need to provide advice and assistance to debenture-holders; and
(d) the state of the Register.
AFPL submitted that the SPRs should be subject to such a scheme because:
(a) it was an issue at mediation and on an ‘expert determination before Mr Nolan’. It asserted the parties ‘came close to agreeing to something similar’ to the SDS, albeit with AFPL as the distributor of the funds;
(b) under the Settlement Deed, and unless otherwise ordered by the Court as permitted by cl 4.1 of the Settlement Deed, the Settlement Sum is to be paid into the plaintiff’s solicitor’s trust account and the plaintiff’s solicitor is to be given responsibility for its distribution.
(c) the scheme provides for a dispute resolution process, important in circumstances where insolvencies, divorces or other such circumstances may cause uncertainty as to the appropriate recipient of the distribution; and
(d) the SPRs’ proposal only provides for one distribution, but makes no provision for what would happen if there was a need for subsequent distributions, and the costs of such further distributions are unclear but would in any event be a further burden on the fund.
AFPL submitted its involvement in the distribution was appropriate as:
(a) both AFPL and Mr Elliot have experience in relation to settlement distribution, pointing in particular to that approved by Digby J in Camping Warehouse v Downer;[5] and
(b) AFPL have contractual responsibilities to 57%, by value, of debenture holders, or 5,413 individuals. It was submitted that if AFPL were to have these individuals approaching it regarding the distribution, which is likely given Mr Elliot is a ‘natural port of call’ for them, AFPL’s role in the distribution should be formalised.
[5][2016] VSC 784.
AFPL described the role envisaged for it as essentially managing communications, although it was a ‘high level management role’. However, AFPL submitted that beyond the cost of such a role, no reason had been advanced as to why it was not appropriate. Such costs would be incurred anyway by debenture holders.
AFPL accepted that many such queries or communications would be about providing up to date names, addresses, and banking details, in which case the debenture holders could simply be referred to Link or the SPRs. However it was also submitted that more complicated queries may arise, such as in cases where a debenture holder has died.
The plaintiff submitted that AFPL had intimate knowledge regarding certain group members and may be able to assist in ensuring distributions are received. Further, the plaintiff submitted, without explanation or evidence, that the estimated cost of Link performing skip trace searches (which was in any event only proposed as an available option) would not be incurred if AFPL were involved in helping to track down debenture holders.
The SPRs indicated they were prepared to assume whatever role, if any, in relation to the distribution of the Settlement Sum the Court considered appropriate and in the best interests of debenture holders. However, they reiterated their concerns as noted by Mr Lindholm in previous affidavits, referred to above.
In the context of the focus on the state of the register, Mr Lindholm provided details of unpresented payments in the six distributions previously managed by Link.
Mr Lindholm accepted that it was clear that accuracy of the register had declined over time, and an increasing portion of payments remained unpresented. As at 29 January 2019, 97.5% of the funds from the Partial Settlement distribution had been banked. The remaining 2.5% comprised of 1,894 debenture holder accounts totalling $334,519.
The SPRs and Link took a number of steps to follow up unpresented or outstanding payments, including ‘reverse look up’ searches, ‘person look up searches’, White Pages searches, ‘professional services’ searches, ASIC business name searches, ‘Linked-In’ searches and Google searches. Following this process, 428 debenture holders were categorised as uncontactable, and 1,448 debenture holders were categorised as uncommercial to pursue, being below a materiality threshold of unpresented payments of less than $100.
Where new contact details were obtained during this process, Link was instructed to update the register. Link has always been, and remains, debenture holders primary point of contact to update their contact details. Based on the data produced regarding the Partial Settlement distribution, the SPRs prepared a forecast of those debenture holders who could receive an immediate distribution which estimated that 97.5% by value and 91.7% of accounts would be presented.
The SPRs could make a distribution within three weeks of receiving instructions to do so. The estimated total cost of the interim distribution by the SPRs according to this proposal would fall in the range of $242,605 to $279,605, noting that the costs incurred by the SPRs would be paid from funds held by the SPRs for the conduct of the special purpose receivership, and were subject to approval by the Supreme Court of NSW. Such costs, approximately $30,000 - $60,000 would not be deducted from the interim distribution.
The SPRs drew attention to the various estimates of the estimated costs of performing the plaintiff’s proposed distribution scheme. By a series of reductions that invited scrutiny, the costs to be paid to Mr Zita and AFPL have gone from $1 million as initially proposed before the primary judge on the basis of a cost’s consultant’s certification, to $690,800 plus GST, and ending at $396,000 plus administration costs and disbursements of $110,000. The reductions appeared responsive to the costs proposed for the SPRs’ alternative scheme.
The Contradictor submitted, the court should direct the SPRs to distribute the interim settlement proceeds. This would not require a scheme of the kind proposed by the plaintiff, as the SPRs would simply distribute the agreed interim sum in accordance with their statutory obligations and duties to the Court. Alternatively, should the court require such a scheme the SPRs should be appointed its administrator. This course was said to be preferable to that proposed by the plaintiff for a number of reasons.
The single most persuasive consideration for appointing the SPRs to complete the interim distribution is that they are court appointed liquidators of Banksia. Rule 5.6.67(1) and (2) of the Corporations Regulations 2001 (Cth) give a statutory mandate to the SPRs to make distributions to the group members:
5.6.67 Declaration and distribution of dividend
(1)The liquidator must, as soon as practicable, declare and distribute a dividend among the creditors whose debts or claims have been admitted.
(2)The liquidator must distribute as dividend all money in hand except enough:
(a) to meet the costs of administration; or
(b) to give effect to the provisions of the Act.
The SPRs are regulated by the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth), and must act in the best interests of the debenture holders.[6]
[6]Botsman v Bolitho [2018] VSCA 278 [260].
While the practice of plaintiff law firms in class actions being appointed administrator of settlement distribution schemes might be common, this is not always the best or cheapest option, nor is it an automatic entitlement.[7] Here the entitlement of each debenture holder is capable of straightforward mathematical calculation, such that distribution by an accounting firm or share registry service may be a more cost effective and efficient method.[8] Further there is nothing unusual about the process of maintaining or updating a registry. This circumstance may be compared with a settlement where complex assessments of individual losses are required as was the case with the Black Saturday bushfire class actions.
[7]Lifeplan Australia Friendly Society Ltd v S&P Global Inc [2018] FCA 379 [54].
[8]For example, as occurred in Peterson Superannuation Fund Pty Ltd v Bank of Queensland Ltd (No 3) [2018] FCA 1842 [259], or in the case of liquidators Goodman Re Glenhurst Corporation Pty Ltd (in liq) [2010] FCA 667; Clarke v Great Southern Finance Pty Ltd (managers and receivers appointed) (in liq) [2014] VSC 516 [68].
The Contradictor submitted that Mr Zita/Portfolio Law and AFPL were inappropriate candidates for scheme administrator or coordinator roles given their conduct in this proceeding, and in previous class actions. I briefly referred earlier to the conduct characterised by the Contradictor as ‘disentitling conduct’. It might be the case that conduct of the sort alleged might militate against a conclusion that it was in the best interests of debenture holders for those parties to be responsible for the distribution.
Further, by its conduct to date in the application, AFPL has failed to demonstrate it is a suitable party to do so. The Contradictor relied in particular on AFPL’s conduct in:
(a) adopting the position that it would discontinue its High Court special leave application only if it were given a role in the distribution of the settlement proceeds;
(b) attempting to intimidate a debenture holder from appealing against approval of payments to AFPL in respect of costs and commission; and
(c) by its application for special leave, seeking to overturn the settlement in its entirety, which has resulted in a significant delay in the distribution of the settlement sum to debenture holders, as well as incurring additional costs.
The Contradictor submitted that it was inappropriate to give AFPL and/or Portfolio Law a role in administering the interim distribution when the court may later find they are seeking to recover unreasonable sums in respect of the remitted issues.
The Contradictor based this contention on the following conduct:
(a) multiple findings by this Court that companies associated with Mr Elliot have abused the processes of this court to generate income for Mr Elliot and/or associated companies;[9]
[9]Treasury Wine Estates Ltd v Melbourne City Investments Pty Ltd (2014) 45 VR 585 [11]-[14]; Melbourne City Investments Pty Ltd v Myer Holdings Ltd [2016] VSC 655 [129]; Melbourne City Investments Pty Ltd v Leighton Holdings Ltd [2015] VSCA 235 [45]; Melbourne City Investments Pty Ltd v Myer Holdings Ltd (2017) 53 VR 709 [40], [48], [56], [58]-[75].
(b) a finding by Robson J that AFPL and Mr Elliot intentionally attempted to intimidate an objecting debenture holder (Mr Botsman);[10]
(c) a finding by Robson J that Mr Elliot and Mr Zita were acting in concert with a view to deterring or preventing Mr Botsman from prosecuting the appeal;[11]
(d) AFPL’s conduct in maintaining its special leave application in case this court made orders for an interim SDS that was not to its satisfaction.
[10]Australian Funding Partners Ltd v Botsman (No 3) [2018] VSC 507 [21], [49], [54], [56].
[11]Ibid [53], [70].
The plaintiff rejected the Contradictor’s claims regarding Mr Zita/Portfolio Law’s track record of managing and distributing settlement funds, describing this concern as ‘an invented issue’. I have not found it necessary to resolve this aspect of the dispute between the parties in order to explain my reasons for directing that the SPRs manage the interim distribution. I have made no finding about such alleged conduct and I am not presently in a position to do so. I do not take account of it in the manner submitted by the Contradictor.
A further persuasive consideration was that in contrast to AFPL and Portfolio Law, the SPRs have a proven track record and experience in distributions in this proceeding and in others. AFPL and Portfolio Law pointed to their appointment to a like role by this court in Camping Warehouse v Downer,[12] but filed no evidence about its experience in distributing class action settlement proceeds.
[12][2016] VSC 784.
As at 15 February 2018, the SPRs, with Link, had completed six distributions totalling over $543 million to debenture holders. These distributions have been efficient. On the partial settlement approved by Robson J on 26 August 2017, the SPRs received settlement proceeds of $8.05 million on 9 December 2016, and distributed the entire sum to debenture holders on 31 March 2017 at a cost of approximately $115,000.
As part of that settlement, Portfolio Law received $5.2 million, which was to be distributed to group members following deduction of AFPL’s costs and commission. An opt out notice, approved by Robson J on 2 June 2016, stated inter alia that the sum remaining, after costs and commission, would be distributed to debenture holders. No distribution to debenture holders of these funds has been made to date. Rather, on 12 December 2016, Portfolio Law transferred the entire sum to AFPL. The Contradictor submitted this may have been a breach of trust, having regard to the terms of the funding agreement with approximately 55% of debenture holders, and the orders of Robson J of 26 August 2016. Again, I need not make any finding about the basis of this submission and accordingly I disregard this submission, except to the extent that at a high level of generality the distribution of the sum of $5.2 million does not compare favourably with the six distributions administered by the SPRs.
As the Contradictor noted, in contrast to the SPRs’ experience and proven ability to distribute assets, Mr Zita/Portfolio Law appeared to require the support of AFPL to perform the distribution, adding a further a layer of cost to the scheme.
The issue of costs also supported distribution by the SPRs. The second proposed scheme would cost at least $500,000, comprising costs of $396,000 and disbursements of $110,000. AFPL and the plaintiff submitted that the cost of their proposed SDS would be no more expensive than if the SPRs ‘properly’ conducted the distribution. They submitted that the SPRs’ estimate was taken out of context, in the absence of a formal distribution scheme, and used an ‘imperfect methodology’. The Contradictor submitted that it was not clear in what respects the plaintiffs’ methodology was better, or even materially different from, the process that the SPRs would undertake.
The plaintiff contended that the Contradictor’s proposal suggests a cost of making the distribution slightly more than $200,000, whereas the SPRs’ costing suggests a minimum true cost of over $466,000. Further, it was submitted that adopting the SPRs proposal would save a small sum, but would result in a ‘cheaper and inadequate distribution’, in the sense that the work of communicating with debenture holders adequately would not be performed; or be performed at a ‘hidden cost’ to be deducted from funds held by the SPRs that would otherwise have been available for distribution to debenture holders. In fact, Mr Zita contended that once these costs are factored in, the alternative proposal would cost at least as much as the proposed scheme.
Mr Zita explained that the reason the estimated costs of the second proposed scheme had reduced to $396,000 (including GST) plus disbursements of $110,000, was a change in approach from the plaintiff’s initial assumption that ‘a rigorous approach to checking all debenture-holders’ details were correct’ to ‘an approach that now accepts the validity of a large part of the register of debenture-holders and will instead only seek to confirm the details of those debenture-holder for whom there is a basis to consider that the register is out-dated’.
Additionally, reliance on Link may not be sufficient for debenture holders seeking advice in situations of greater complexity such as upon death of debenture holders. Accordingly, such debenture holders or their representatives may need to seek independent advice or assistance, with resulting additional costs, which should be avoided. Doing so would also deprive debenture holders of the benefits of, in the case of those who have signed the litigation funding agreement, the pre-existing relationship with Portfolio Law and AFPL.
I was not persuaded of the need for multiple rounds of payments, or for a complex scheme to be imposed on the SPRs above their statutory obligations. Further, there was no convincing explanation as to why it is appropriate for AFPL to oversee the distribution, at a cost to debenture holders of approximately $40,000. The imposition of the SDS on the SPRs would cause an additional layer of work. Mr Lindholm has not estimated the additional costs to the SPRs of complying with the plaintiff’s proposed SDS. If the interim distribution is conducted in the way the last six distributions have been conducted, an estimation would be otiose. The SPRs observed that the costs of AFPL communicating with its clients and responding to questions could be included in its claim for its remuneration, and consequently it was unnecessary for any such role to formalised in the manner sought.
I agree. I saw no benefit for group members from the role proposed for a private funder, AFPL, as Coordinator. AFPL provided sparse material in support of this role to justify it, and in my view, given the additional $40,000 cost of the role to debenture holders, it was superfluous to the protection of their interests. There was no prejudice to AFPL by denying it such a role. The cost of any work AFPL was required to do by reason of the interim distribution, such as answering debenture holder queries, could be considered within its claim for costs on the remitter.
Nor did the plaintiff persuade me that an administrator and a coordinator were needed to undertake the work to update the register, presently managed by Link. I was not satisfied that the plaintiff’s concerns regarding the state of the Register were well founded. Those concerns were overstated. The evidence demonstrated that the register has somewhat declined in accuracy over the years since its inception. However, the SPRs identified a range of steps they and Link would take to follow up unpresented payments. I was not satisfied that the alternative proposal contained in the scheme for updating the register added any material benefit. I was also conscious of the use of the register in previous distributions indicate it is largely accurate and it would not be proportionate or cost effective to undertake extensive searches for many of those entitled to the unpresented sums. It also appeared that serious issues with the register were only raised by the plaintiff and or AFPL when the opportunity arose for an interim distribution to be made.
Even if the register requires work, the proposed scheme assumes as necessary the participation of both an administrator and a coordinator, but as the Contradictor submitted, the plaintiff did not demonstrate that necessity. Link does not need to be supervised and the SPRs have in six previous distributions in this administration successfully worked with Link in updating the register and distributing the funds.
I reject the plaintiff’s assertion that the SPRs supported the SDS because as parties to the settlement deed, they agreed to the distribution via a formal distribution scheme. The Settlement Deed does not detail a proposed settlement distribution scheme.
Moreover, there was evidence that Mr Zita and AFPL had applied commercial pressure to procure the SPRs agreement to the scheme. On 8 February 2018, Mr Zita wrote to the solicitors for the SPRs stating that the SPRs’ proposal for distributing the settlement proceeds ‘would impermissibly interfere with the operation of the Settlement Deed’ and for the SPRs to propose such orders to the court would amount to a breach of the Settlement Deed. Mr Zita stated: ‘I also have concerns that any person who induces BSL to breach the terms of the Settlement Deed may be liable in tort’. This was, the Contradictor submitted, a reason to scrutinise carefully the plaintiff’s proposed SDS.
I would respectfully adopt the observations of Lee J in McKenzie v Cash Converters International Ltd (No 4):
at the very least it seems to me a court must have the ability to take whatever steps are necessary or appropriate in relation to settlement distribution to minimise costs. Like the common fund condition precedent referred to in Cao (No 2) at [34], attempts to dictate a particular form of order to the court by, in effect, providing the court with no option but to refuse the settlement unless solicitors for the applicant are appointed the claims administrator, are inconsistent with assisting the court to discharge its protective and supervisory function in relation to group members properly. Moreover, and again without being critical of the highly respected solicitors and firm involved in the present application, it is, at best, a “bad look” for a representative applicant to give instructions that a settlement (presumably struck because it is perceived to benefit group members) is only to go ahead and provide benefits to group members, if the applicant’s solicitors obtain a contract for the provision of future services (presumably at a profit paid out of monies that would otherwise go to group members). In some cases it might amount to more than a mere “bad look”, although this is not such a case.[13]
[13][2019] FCA 166 [15].
The desire of Mr Zita and AFPL to undertake the distribution to complete their role/obligations to class members was irrelevant.
I concluded that there was no demonstrated benefit to imposing on the SPRs a scheme of the kind propounded by the plaintiff and AFPL.
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