Camilleri v The Trust Company (Nominees) Limited
[2015] FCA 1468
•18 December 2015
FEDERAL COURT OF AUSTRALIA
Camilleri v The Trust Company (Nominees) Limited [2015] FCA 1468
Citation: Camilleri v The Trust Company (Nominees) Limited [2015] FCA 1468 Parties: GEORGE CAMILLERI and ANN CAMILLERI v THE TRUST COMPANY (NOMINEES) LIMITED File number(s): VID 410 of 2013 Judge(s): MOSHINSKY J Date of judgment: 18 December 2015 Catchwords: PRACTICE AND PROCEDURE – representative proceedings – approval of settlement by court – whether proposed settlement is fair and reasonable as between claimants and respondent – whether proposed distribution scheme is fair and reasonable as between group members Legislation: Corporations Act 2001 (Cth), Ch 2L; s 283DA(a)
Federal Court of Australia Act 1976 (Cth), s 33VCases cited: Australian Competition and Consumer Commission v Chats House Investments Pty Limited (1996) 71 FCR 250
Australian Securities and Investments Commission v Richards [2013] FCAFC 89
Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322
Downie v Spiral Foods Pty Ltd & Ors [2015] VSC 190
Matthews v Ausnet Electricity Services Pty Ltd [2014] VSC 663
Haslam v Money for Living (Aust) Pty Ltd (Administrators Appointed) [2007] FCA 897
Mercieca v SPI Electricity Pty Ltd [2012] VSC 204
Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626
Pharm-a-Care Laboratories Pty Ltd v Commonwealth (No 6) [2011] FCA 277
Rod Investments (Vic) Pty Ltd v Abeyratne [2010] VSC 457
Rowe v Ausnet Electricity Services Pty Ltd & Ors [2015] VSC 232
Taylor v Telstra Corporation Ltd [2007] FCA 2008
Wheelahan v City of Casey [2011] VSC 215
Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459
Wingecarribee Shire Council v Lehman Brothers Australia Ltd )(in liq) (No 9) [2013] FCA 1350
Wong v Silkfield Pty Ltd [2000] FCA 14211 Date of hearing:
2 18 December 2015
Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 60 Counsel for the Applicants: Mr LWL Armstrong QC with Mr C Young and Mr D Snyder Solicitor for the Applicants: Slater and Gordon Counsel for the Respondent: Mr J Delany QC Solicitor for the Respondent: Corrs Chambers Westgarth
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 410 of 2013
BETWEEN: GEORGE CAMILLERI
First ApplicantANN CAMILLERI
Second ApplicantAND: THE TRUST COMPANY (NOMINEES) LIMITED
Respondent
JUDGE:
MOSHINSKY J
DATE OF ORDER:
18 DECEMBER 2015
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
Confidentiality
1.Pursuant to section 37AF of the Federal Court of Australia Act 1976 (Cth) (the Act), and on the ground that the order is necessary to prevent prejudice to the proper administration of justice:
(a)the confidential affidavit of Odette Nigela Alaina McDonald affirmed 12 December 2015 (the Confidential McDonald Affidavit) set out in Annexure B to these orders;
(b)the parts of the affidavit of Odette McDonald affirmed 16 December 2015 and annexures (Objections Affidavit) set out in Annexure B to these orders;
(c)the parts of the affidavit of Cate Mary Dealehr sworn 11 December 2015 and annexures (Costs Affidavit) set out in Annexure B to these orders; and
(d)Exhibit ONAM-75 to the Affidavit of Odette Nigela Alaina McDonald affirmed 18 December 2015 (Fifth McDonald Affidavit):
be confidential, not be required to be served on the Respondent and be placed on the Court file in a sealed enveloped marked ‘Not to be opened without leave of the Court or a Judge’.
2.By 4:00pm on 21 December 2015 the Applicants file redacted copies of the Confidential McDonald Affidavit, Objections Affidavit and Costs Affidavit reflecting Order 1 above.
Settlement Approval
3.Pursuant to sections 33V and 33ZF of the Act, the Court approves the settlement of this proceeding upon the terms set out in the settlement agreement (the Terms of Settlement) exhibited to the affidavit of Odette Nigela Alaina McDonald affirmed 11 December 2015 (the Second McDonald Affidavit).
4.Pursuant to section 33ZF of the Act, the Court authorises the Applicants, nunc pro tunc, for and on behalf of the group members and each of them, to enter into and give effect to the Terms of Settlement as an agreement duly executed by the parties according to its terms, and enter into and give effect to the transactions contemplated by the Terms of Settlement.
5.Pursuant to section 33ZB and section 33ZF of the Act, the persons affected and bound by the settlement of the proceedings be the Applicants, the Respondent and Group Members.
Settlement Distribution Scheme
6.Pursuant to sections 33V and 33ZF of the Act, the provisions of:
(a)the “Settlement Distribution Scheme” (Scheme) exhibited to the Fifth McDonald Affidavit; and
(b)the confidential “Loss Assessment Formula” (LAF) exhibited to the Fifth McDonald Affidavit.
be approved as the procedure for distributing among the Applicants and Group Members the Settlement Sum payable by the Respondent pursuant to the Terms of Settlement.
Notice of Settlement Approval
7.Pursuant to section 33X of the Act, the form and content of the notice set out in Annexure A to these orders be approved as a notice to advise group members of the approval of the settlement of the proceedings (the Notice of Settlement Approval).
8.Pursuant to section 33Y of the Act, the Notice of Settlement Approval be given to the group members by the Applicants’ solicitors, by not later than 4:00pm on 24 December 2015:
(a)causing the Notice of Settlement Approval to be sent by pre-paid ordinary post and/or by email to the Notification Addresses (as defined in the affidavit of Odette Nigela Alaina McDonald affirmed 13 November 2015); and
(b)posting a copy of the Notice of Settlement Approval on the website Administration
9.Pursuant to section 33ZF of the Act, Mr Ben Phi, National Practice Group Leader of Slater and Gordon, be appointed as Administrator of the Scheme (the Administrator) and act in accordance with the rules in the Scheme.
10.Each party, and Mr Ben Phi in his capacity as Administrator, have liberty to apply on not less than three clear business days’ notice to each party to the proceeding, including in respect of any application for approval of Administration Costs.
Costs inter partes
11.All costs orders made to date in the proceeding be vacated.
12.There be no order as to costs as between the Applicants and the Respondent.
Costs inter se
13.Pursuant to section 33ZF of the Act, the costs and disbursements of the Applicants in conducting the proceeding (including obtaining settlement approval but not including subpoena costs described in Order 16 below) be approved in the amount of $4,918,426.14.
14.Pursuant to section 33ZF of the Act, the amount of:
(a)$2,500.00 be approved as the amount of George Camilleri’s Expense Claim for the purpose of the Scheme; and
(b)$725.00 be approved as the amount of Ann Camilleri’s Expense Claim for the purpose of the Scheme.
Subpoenas
15.By 4:00pm on 22 December 2015, the Applicants serve upon each person referred to in Order 16 a written notice informing the person of Order 16 and enclosing a copy of these Orders.
16.By 14 February 2016, any addressee of a subpoena issued in this proceeding (Subpoena) must file and serve on the Administrator of the Settlement Distribution Scheme:
(a)written notice of any claims for costs or expenses of complying with the Subpoena; and
(b)any affidavit in support of such claim;
in default of which the subpoena shall stand discharged with no order as to the addressee’s costs of compliance.
17.Not later than 14 days prior to any application for Court approval of the Administration Costs (as defined in the Terms of Settlement) the Applicants’ solicitors:
(a)file in the Registry and serve upon any addressee referred to in Order 16 (Subpoena Party) above any submissions the Applicants propose to make in respect of the Subpoena Party’s claim for Subpoena costs; and
(b)file in the Registry (but not serve on any person) any submissions the Applicants propose to make in respect of the Applicants’ claim for reimbursement of any Subpoena costs payable to a Subpoena Party;
and for the avoidance of doubt, any costs referred to in (b) hereof shall, subject to further order of the Court, be Applicants’ Costs to be reimbursed to the Applicants (or their solicitors) from the Distribution Account pursuant to the Scheme.
Court supervision
18.The Administrator have liberty to apply by correspondence addressed to the Associate to his Honour Justice Moshinsky.
19.Within 30 days after the completion of distribution of the Distribution Account in accordance with the Settlement Distribution Scheme, the Applicants apply to list the proceeding for final orders, including orders that the proceeding be dismissed.
Annexure A
FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL RESERVE (ACR) CLASS ACTIONNOTICE OF SETTLEMENT
1.This notice contains important information about the settlement of a “class action” against The Trust Company (Nominees) Limited (TCL) (the ACR Class Action).
2.This notice is distributed to group members in the ACR Class Action pursuant to orders made by the Federal Court of Australia.
3.This notice is an important legal document and you should read it carefully. If there is anything that you do not understand, you should seek legal advice.
SETTLEMENT OF THE ACR CLASS ACTION
4.On or around 23 November 2015, you were sent a notice relating to the proposed settlement of the ACR Class Action. The notice was also placed on Slater and Gordon’s website. On 18 December 2015, the Court approved the settlement of the proceedings.
5.Under the terms of the Settlement Agreement, TCL is to pay a “Settlement Sum” of $25 million, inclusive of costs, to be distributed among group members according to a “Settlement Distribution Scheme”.
6.The Administrator of the Settlement Distribution Scheme will be Ben Phi of Slater and Gordon. As Administrator, Mr Phi will be supported by Slater and Gordon and will be obliged to act independently. Accordingly, Slater and Gordon will no longer act as lawyers for group members in relation to their individual claims.
7.Copies of the Settlement Agreement and the Settlement Distribution Scheme can be provided to group members on request by Slater and Gordon.
8.Copies of the confidential Loss Assessment Formula, which is annexed to the Settlement Distribution Scheme, can be provided to group members on request by Slater and Gordon, subject to the group member first signing an undertaking to keep it confidential.
HOW DOES THE SETTLEMENT AFFECT GROUP MEMBERS?
9.The settlement is binding on all group members, as defined in the Further Amended Statement of Claim filed in the proceeding, who did not file an opt-out notice.
10.As a consequence of the settlement, the claims which group members have against TCL as set out in the Further Amended Statement of Claim filed in the proceeding will be finally resolved.
WHAT GROUP MEMBERS MUST DO
11.You will be sent a Notice of Claim Data and a Preliminary Distribution Estimate (together the Claim Papers). These notices will present you with details of your Claim Data held by Slater and Gordon which will form the basis for your distribution under the Settlement Distribution Scheme, and will provide an estimate of what that distribution is likely to be.
12.The Administrator may, at his discretion, include in the Claim Papers a request for further evidence that you are a group member or that your Claim Data held by Slater and Gordon is accurate. The Administrator may make requests for other information at any time.
13.If you dispute the correctness of the Notice of Claim Data you must complete and return the Claim Papers to Slater and Gordon by the date and time specified in the documents. If you do not, you will be deemed to have accepted the correctness of the Notice of Claim Data.
14.If, by your Claim Papers, you notify the Administrator of an alleged error in the Notice of Claim Data the Administrator will within 21 days review the Claim Data and send to you an Updated Notice of Claim Data (which may confirm the correctness of the original Notice of Claim Data) and, at the Administrator’s discretion, an Updated Distribution Estimate.
15.There may be other deadlines for responding to information requests and subsequent reviews under the Settlement Distribution Scheme. Slater and Gordon will notify you of these deadlines as applicable.
16.It is important that you read and respond, if required, to these notices by the due dates. If you do not respond, if required, in a timely fashion, your Notice of Claim Data, or if applicable, your Updated Notice of Claim Data, will be deemed as accurate.
FURTHER INFORMATION
17.If you need further information about the settlement, please contact Slater and Gordon on 1800 751 301, or by email to [email protected].
Annexure B
Confidential materials
1.Costs Affidavit Annexure CMD-1:
(a)Final three sentences of paragraph 29 (AB98);
(b)paragraph 32 (AB100);
(c)Table 6 at paragraph 63 (AB109-10);
(d)Table 8 at paragraph 77 (AB114);
(e)Table 9 at paragraph 81 (AB115);
(f)Table 10 at paragraph 85 (AB116);
(g)Table 11 at paragraph 89 (AB117);
(h)Table 12 at paragraph 92 (AB118);
(i)Table 13 at paragraph 95 (AB119);
(j)Table 14 at paragraph 98 (AB120);
(k)Table 15 at paragraph 101 (AB121);
(l)Table 16 at paragraph 104 (AB122);
(m)Table 17 at paragraph 107 (AB123);
(n)Table 18 at paragraph 111 (AB124);
(o)paragraph 149;
(p)Table 27 at paragraph 150 (AB134);
(q)paragraph 151 (AB134);
(r)paragraph 162 (AB136); and
(s)the ‘Searches’ entry in the table at paragraph 168 (AB138).
2.Objections Affidavit:
(a)final sentence of paragraph 8(a) (AB385);
(b)paragraph 15 (AB387);
(c)final sentence of paragraph 23 (AB388);
(d)final sentence of paragraph 30 (AB390);
(e)second sentence of paragraph 31 (AB390);
(f)final sentence of paragraph 34 (AB390);
(g)final sentence of paragraph 35 (AB390-1);
(h)paragraphs 55 and 56 (AB395);
(i)second and third paragraphs, and passage in brackets in the fifth paragraph of the email from Odette McDonald sent at 3.12 pm, which appears in annexure ONAM-71 (AB400);
(j)the “Type of Claim” column in the table in ONAM-70 (AB397-8); and
(k)the third paragraph of the email of 1.22pm In ONAM 71.
3.Confidential McDonald Affidavit:
(a)Table of contents;
(b)Paragraphs 1-72;
(c)Paragraph 77;
(d)Paragraphs 89-90;
(e)All annexures, save for the following parts of ONAM-69:
(i)paragraphs 6–9;
(ii)paragraph 10, but not the second sentence and not subparagraph 10(b);
(iii)paragraph 10(a);
(iv)paragraphs 11–19;
(v)paragraph 21–27;
(vi)paragraph 31–56; and
(vii)paragraph 58–63.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 410 of 2013
BETWEEN: GEORGE CAMILLERI
First ApplicantANN CAMILLERI
Second ApplicantAND: THE TRUST COMPANY (NOMINEES) LIMITED
Respondent
JUDGE:
MOSHINSKY J
DATE:
18 DECEMBER 2015
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
Introduction
This is an application for approval of a settlement of a representative proceeding brought by the applicants against the Trust Company (Nominees) Limited (TCL).
The parties have agreed upon terms of settlement of the proceeding, but their agreement is not effective unless and until it is approved by the Court pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act) and related sections.
By an interlocutory application dated 16 November 2015, the applicants seek a series of orders for and in connection with that approval.
For the reasons that follow, I consider it appropriate to approve the settlement and make the orders sought by the applicants. Having considered the evidence that has been filed, in my view the settlement is fair and reasonable as between the applicants and group members, on the one hand, and TCL, on the other hand. Further, I consider the settlement to be fair and reasonable on an inter se basis, that is, as between the members of the group. Accordingly, I consider the settlement to be fair and reasonable in the interests of group members considered as a whole. Further, I consider that the amount proposed to be applied towards costs should be approved.
Applicable principles
The following principles can be distilled from the case law and applicable practice notes regarding applications brought under s 33V of the Act, or cognate provisions in other jurisdictions:
(a)the central question for the Court is whether the proposed settlement is fair and reasonable in the interests of the group members considered as a whole: Australian Competition and Consumer Commission v Chats House Investments Pty Limited (1996) 71 FCR 250 at 258; Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 (Williams) at [19]; Wheelahan v City of Casey [2011] VSC 215 (Wheelahan) at [57]-[59]; and Matthews v Ausnet Electricity Services Pty Ltd [2014] VSC 663 (Matthews) at [34];
(b)there will rarely be one single or obvious way in which a settlement should be framed, either between the claimants and the defendants (inter partes aspects) or in relation to sharing the compensation among claimants (the inter se aspects) – reasonableness is a range, and the question is whether the proposed settlement falls within that range: Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd(No 2) (2006) 236 ALR 322 (Darwalla) at [50];
(c)it is not the task of the Court to ‘second-guess’ or go behind the tactical or other decisions made by the plaintiff’s legal representatives, but rather to satisfy itself that the decisions are within the reasonable range of decisions, having regard to: the circumstances which are ‘knowable’ to the plaintiffs and their representatives; and a reasonable assessment of risks, based on those circumstances: Darwalla at [50]; Pharm-a-Care Laboratories Pty Ltd v Commonwealth (No 6) [2011] FCA 277 at [22]; Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626 (Modtech) at [12];
(d)the list of factors typically relevant to an assessment of the reasonableness of a proposed settlement, set out in Williams at [19], is a useful guide but is neither mandatory nor necessarily exhaustive – it is just a guide (see Haslam v Money for Living (Aust) Pty Ltd (Administrators Appointed) [2007] FCA 897 at [19]-[20]; Taylor v Telstra Corporation Ltd [2007] FCA 2008 at [65]; Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (No 9) [2013] FCA 1350 at [47]; Mercieca v SPI Electricity Pty Ltd [2012] VSC 204 (Mercieca) at [32]), and additional consideration needs to be given to factors relevant to the fairness of the settlement inter se;
(e)in relation to the inter se fairness, a particular concern of the Court is to confirm that the interests of the lead plaintiff, or signed-up clients of a given firm of solicitors, are not being preferred over the interests of other group members: see, eg, Rod Investments (Vic) Pty Ltd v Abeyratne [2010] VSC 457 (Abeyratne) at [19]. The arrangement should be framed to achieve a broadly fair division of the proceeds, treating like group members alike, as cost-effectively as possible: see, eg, Mercieca at [37]-[39];
(f)an important consideration will be whether group members were given timely notice of the critical elements, so that they had an opportunity to take steps to protect their own position if they wished. Once appropriate notice is given, the absence of objections or other response action from group members is a highly relevant consideration in support of a settlement, and all its elements: see, eg, Abeyratne at [22]; and Mercieca at [38];
(g)where a group member does object to the settlement, an important further question is whether the objector is prepared to assume the role − and risks – of being lead plaintiff: cf Wong v Silkfield Pty Ltd [2000] FCA 1421 at [24]-[30];
(h)in relation to provisions for costs-sharing among the successful group members, again an important consideration is where the group members were alerted at an early stage to the potential costs-sharing consequences of subsequent participation in the action: cf Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [46]. It is not, thereafter, the role of the Court to go behind the costs agreements (see Wheelahan at [103]), but rather to satisfy itself that the agreements have been applied reasonably according to their terms;
(i)further, the level of detail which the Court will require in order to be satisfied that costs have been calculated in accordance with the applicable agreements will vary, depending on factors such as whether the group members are all clients, or include non-client claimants, and the proportion of the settlement funds to be applied to costs.
Overview of the proceeding
Over a period from 2000 until 2007, Australian Capital Reserve Limited (ACR) issued certain “unsecured notes” to the applicants and group members (claimants). The notes were issued pursuant to a series of prospectuses, the most relevant of which were prospectuses 7 to 9. The notes were debentures within the meaning of the Corporations Act 2001 (Cth). TCL was the trustee for the noteholders, pursuant to a deed entitled “Unsecured Note Trust Deed” dated 10 March 2000 executed by ACR and TCL (then called Permanent Nominees (Aust) Limited) (the Trust Deed).
As trustee, TCL had various rights and responsibilities under Chapter 2L of the Corporations Act 2001 (Cth). Most importantly, it was obliged under s 283DA(a) to exercise reasonable diligence to ascertain whether the property of ACR that is or should be available (whether by way of security or otherwise) would be sufficient to repay the amount deposited or lent by ACR when it became due.
The applicants claim that by late 2005, proper diligence from TCL would have led it to reach certain conclusions, to the effect that it could not be confident that ACR would be able to meet its obligations to noteholders as those obligations fell due through 2006 and later. The applicants contend that ACR’s proposals for increased note issues involved a real risk that the operation would become, or resemble, a ‘Ponzi scheme’ during 2006. The applicants contend that TCL ought to have taken steps, either directly or by informing ASIC of its concerns, and that those steps would have had two consequences:
(a)first, it would have meant that the notes actually issued after November 2005 would not have been issued. There would have been ‘no transaction’ for new investors who invested after that date;
(b)second, although the halt in ACR fundraising might perhaps have led to the Estate Property Group Limited (EPG) and its subsidiaries (together, the EPG Group) selling off some of its projects in order to release cash to enable it to complete that subset of its properties that had the best potential, the more likely outcome would have been that ACR and the EPG Group entered administration in 2005 rather than in 2007, as eventually occurred. The applicants contend that the existing investors (rollover investors) would still have suffered losses, but they would have suffered less loss in 2005.
The applicants contend that TCL took no such steps; that ACR did not halt fundraising in late 2005; and that it proceeded to increase the value of notes on issue until 2007. In 2007, ASIC issued a series of stop orders, as a result of certain disclosure problems in the later ACR prospectuses. The halt in fundraising at that time led quickly to ACR and the EPG Group entities being placed into voluntary administration.
The applicants contend that, while the noteholders have been repaid part of their investments, the post-2005 investors suffered losses that otherwise would have been avoided altogether, and the rollover investors suffered a loss comprised of lower returns from the 2007 administration, relative to the returns that they would have obtained in a 2005 administration.
As indicated above, the claimants’ claims can be broadly divided into two categories, being:
(a)losses from investments first made after November 2005 – the applicants allege that if TCL had acted diligently then ACR would have halted fundraising by late November 2005, so for these investments there would have been ‘no transaction’;
(b)losses from investments first made before November 2005, but which were ‘rolled over’ rather than paid out, so that they continued until the administration in 2007 – the applicants contend that these existing investments would have suffered some loss in a 2005 administration, but at a lower rate than actually was suffered in the 2007 administration.
Some claimants have claims in both categories.
The applicants’ material indicates that, based on records maintained by ACR regarding investor details, there are currently:
(a)1,545 ‘no transaction’ group members;
(b)2,632 ‘rollover’ group members; and
(c)287 group members who are both ‘rollover’ and ‘no transaction’ investors.
The proceedings commenced on 27 May 2013, brought under Part IVA of the Act.
The statement of claim has been amended on two occasions. On 8 October 2015, the Court made orders allowing certain amendments to the existing pleading. A further amended statement of claim dated 20 November 2015 (FASOC) accordingly has been filed. TCL is yet to file a defence to the FASOC. It should be noted, however, that the recent amendments set out in the FASOC are relatively confined.
The applicants have filed affidavits from Mr Camilleri, essentially attesting to the fact of the applicants having made various investments in notes issued by ACR.
TCL has not filed any lay evidence.
Putting aside expert evidence, the applicants’ case is largely documentary.
The parties each filed expert accounting evidence, the applicants calling Mr David Ferrier and TCL calling Mr Greg Meredith. Mr Ferrier opined on a relatively broad range of matters, while the questions asked of Mr Meredith were considerably narrower in scope. Mr Ferrier delivered a reply report, which responded to the questions asked of Mr Meredith. The experts recently prepared a joint report dated 8 October 2015.
The trial of this matter had been set down for December 2015 on an estimate of ten days.
On 8 October 2015 the parties attended a Court-ordered mediation. Both parties were represented by senior and junior counsel and solicitors. In the result, terms of settlement were agreed subject to a condition requiring confirmation of TCL’s overseas insurers’ approval, to be obtained by 30 October 2015. That deadline was later extended by agreement and the insurer approval was eventually confirmed in early November.
The applicants then informed the Court, and the parties jointly requested that the trial date be vacated to enable the present application to be made pursuant to s 33V of the Act.
Overview of the settlement
The settlement is contained in a settlement agreement made on or about 10 December 2015, which is in evidence before me. It provides for TCL to pay the sum of $25 million, together with simple interest on that sum accrued from 5.00 pm on 30 October 2015 to the date of payment at the rate of 2.85 percent. The settlement agreement includes clauses relating to release of claims; indemnity to certain persons; distribution of the settlement sum; final orders; and no admission of liability by TCL.
The evidence also includes a document entitled “Settlement Distribution Scheme” (SDS) which sets out how the settlement sum is to be distributed among group members. The scheme for distribution involves a process for calculation of the estimated loss of each group member, but with a different methodology applicable in the case of “No Transaction Notes” and “Rollover Notes”. These reflect the two categories of investments referred to earlier. The details of the methodology are set out in a confidential schedule to the SDS, entitled the “Loss Assessment Formula”. Once the loss applicable to the notes has been calculated, the settlement proceeds are applied on a pro rata basis as between group members. The mechanism for distribution of the settlement sum as between group members is a largely mathematical exercise.
Notification of group members and objections raised
The evidence demonstrates that, in accordance with orders which I made on 18 November 2015, group members have been given notice of the proposed settlement by mail and email. An advertisement regarding the proposed settlement was also published in The Australian newspaper. The settlement has also been reported in the media.
The evidence indicates that Slater and Gordon (the solicitors for the applicants) have also taken steps to notify group members by alternative means, where a “return to sender” notification was received for notifications by post. However, there remain around 85 group members (out of approximately 4,621 potential group members) for which updated address details have not been able to be found.
In light of the steps that have been taken for notifying group members, I am satisfied that all reasonable steps have been taken to notify group members of the proposed settlement.
The evidence filed by the applicants includes copies and details of objections against the proposed settlement, which have been received from group members. 67 objection forms have been received. Of these:
(a)46 do not actually contain an objection (and may well have been sent in error); and
(b)seven contain ambiguous comments which do not appear to be objections.
Thus, there are 14 group members who have raised substantive objections.
The principal complaint amongst those objectors is that the settlement sum is insufficient. Some objectors express grievances about the culpability of ACR and others. These are matters which I deal with below in the context of the fairness and reasonableness of the settlement.
It appears from the evidence that some objectors have apparently misunderstood (and underestimated) their likely returns under the proposed settlement. Those individuals have since been informed of that misunderstanding.
In general, the other complaints appear to be based on incorrect factual assumptions or legal misconceptions.
Fairness and reasonableness inter partes
First principles, and the cases, indicate the kinds of considerations which will be relevant in assessing whether the inter partes aspects of a proposed settlement are fair and reasonable. They include:
(a)the risks faced by the claim group in establishing (relevantly to the present case) that any defendant owed and breached a duty of care – liability risk;
(b)the risks faced by the claim group in proving that any and if so what compensable damage resulted from a defendant’s breach of duty – quantification risk;
(c)the risks faced by the claim group in executing any damages award against a given defendant – recovery risk;
(d)the proportion which the settlement payment bears to the estimated ‘best case’ outcome for the claimants;
(e)the extent to which the ‘best case’ outcome would, even if it occurred, be devalued by reason of:
(i)the delays of trials and appeals; and
(ii)the unrecoverable ‘solicitor-client’ costs that would be incurred in those further proceedings.
These factors are addressed in detail in a confidential affidavit of the applicants’ solicitor and a confidential opinion of the applicants’ trial counsel, comprising a senior counsel and two junior counsel.
In considering the fairness and reasonableness of the settlement, I have placed great weight on these documents. In these documents, the applicants’ legal team set out in careful detail the issues that arise in the proceeding, what they consider to be the strengths and weaknesses of the applicants’ case in respect of each of those issues, and their assessment of the likelihood of success in respect of each issue, and overall. Against that discussion, they then opine on the fairness and reasonableness of the settlement.
There are several factors, in particular, which give me comfort in relying on the opinions expressed in these documents. First, the proceeding is at a very advanced stage, with all the lay and expert evidence already filed. The settlement has occurred virtually on the eve of the trial. This places the parties and their lawyers in a good position to assess the strengths and weaknesses of the case. Secondly, the lawyers who have expressed the opinions have been involved in the proceeding for a long time and therefore are very familiar with the detail of the case. Thirdly, the opinions are well constructed and reasoned, giving me confidence in the opinions they express.
Having considered the opinions set out in the affidavit of the solicitor and the opinion of counsel, I consider the settlement to be fair and reasonable as between the applicants and group members, on the one hand, and TCL on the other hand.
Without going into the detail of the confidential opinions, I note the following:
(a)the settlement is for a substantial sum;
(b)the alternative to the settlement involves:
(i)a trial for an estimated ten days;
(ii)substantial liability risk and some quantification risk;
(iii)given those risks – a high likelihood of appeals by the unsuccessful party at trial, resulting in a fresh round of risks;
(iv)to the extent that the applicants have succeeded after all the appeals – the potential for further litigation in relation to rollover investor claims as a subclass, and by way of ‘mini-trials’ for individual group member claims;
(v)additional delays and stress for the applicants and group members associated with further litigation; and
(vi)considerable additional legal costs, only a portion of which would be recoverable from TCL with the shortfall to be paid from any compensation payable to the claimants.
Having regard to those considerations and the opinions expressed in the confidential affidavit and counsel opinion, I am satisfied that the proposed settlement is appropriate for approval pursuant to s 33V of the Act, so far as its inter partes aspects are concerned.
Fairness and reasonableness inter se
The next question is whether the proposed arrangements for distributing the fixed pool of settlement funds between the claimants are fair and reasonable.
In this case, as in many representative proceedings, the manner in which the settlement sum is to be distributed requires assumptions to be adopted and judgment calls to be made. There are different classes of claimants within the body of group members here, and it is necessary to arrive at some model that fairly and reasonably divides the settlement sum between those classes, recognising the differences in their respective claims. There is no single approach which alone can qualify as reasonable for sharing the fixed pool of funds among the claimants. Inevitably, adjustments in a given approach will be favourable for certain group members at the expense of others.
The question, therefore, can only be whether the model is within the bounds of fairness and reasonableness in its attempts to balance what are, unavoidably, conflicts between the interests of the different claimants.
As mentioned above, the applicants’ solicitors have constructed the SDS for managing the distribution of the settlement funds among the claimants. The SDS, including the Loss Assessment Formula, reflects various ‘judgment calls’. There is no doubt that other permutations of the distribution scheme could have been adopted. The question on this application is whether the SDS, as presented now, is within the bounds of reasonableness in achieving a broadly fair, ‘rule of thumb’ distribution between the claimants.
The cases indicate a number of factors relevant to the assessment whether a proposed distribution scheme is fair and reasonable having regard to the interests of the group as a whole. Some of these factors are as follows:
(a)whether the distribution scheme subjects all claims to the same principles and procedures for assessing compensation shares;
(b)whether the assessment methodology, to the extent that it reflects ‘judgment calls’ of the kind described above, is consistent with the case that was to be advanced at trial and supportable as a matter of legal principle;
(c)whether the assessment methodology is likely to deliver a broadly fair assessment (where the settlement is uncapped as to total payments) or relativities (where the task is allocating shares in a fixed sum);
(d)whether the costs of a more perfect assessment procedure would erode the notional benefit of a more exact distribution;
(e)to the extent that the scheme involves any special treatment of the applicants or some group members, for instance via ‘reimbursement’ payments – whether the special treatment is justifiable, and whether as a matter of fairness a group member ought to be entitled to complain.
There are also procedural factors which relate to the fairness of a proposed distribution process, such as:
(a)whether appropriate individuals have been nominated to administer the scheme;
(b)whether the procedures for lodging and assessing claims are appropriate and to be conducted in a timely manner;
(c)whether the scheme incorporates appropriate ‘checks and balances’, such as procedures for ensuring consistency between assessments and meaningful opportunities for review (and objection) by group members.
In my view, the proposed arrangements for distributing the fixed pool of settlement funds between the claimants are fair and reasonable. The rationale of the SDS, including the different treatment of “No Transaction Notes” and “Rollover Notes”, is discussed in detail in the confidential affidavit of the solicitor and the confidential opinion of counsel. I am satisfied on the basis of those opinions that the difference in treatment is appropriate and justified. Further, I note the following matters which support the fairness and reasonableness of the proposed arrangements.
First, the SDS does not distinguish between the applicants on the one hand and group members on the other in terms of the procedures to be followed. They are all subject to the same assessment methodology.
Second, the loss assessment formulae under the SDS have been constructed to ‘proxy’ the kinds of damages-assessment principles which the applicants’ representatives expect would in substance be adopted at trial. For example, the formulae take into account differing amounts in fact recovered to date by group members in respect of the notes the subject of the proceeding.
Third, apart from differences reflecting differences in quantum that likely could have been claimed by claimants respectively, the SDS otherwise does not discriminate between the applicants and the other claimants, or between different subcategories of claimants.
Fourth, under the SDS, claimants will be notified of the assessment made for them and will have an opportunity to seek a review, initially by the scheme administrator and then, if required, by independent counsel.
Fifth, the proposed administrator and the solicitors supporting him are experienced with the administration of such schemes. Their specialised skills and background familiarity with the matter should assist in the smooth and efficient administration of the scheme.
Sixth, the scheme is designed to be implemented on a transparent, fair and timely basis.
Costs
The SDS covers two aspects of the legal costs associated with the overall resolution of the claims the subject of the proceeding:
(a)the SDS provides for the applicants’ costs and expenses (being the amounts referred to as the “Applicants’ Costs” and “Applicants’ Expense Claim” which amounts are subject to Court approval) to be paid out of the settlement sum, upon the sum being transferred into the distribution account; and
(b)the SDS prescribes that the future costs associated with the implementation of the scheme (being the amount referred to as the “Administration Costs”, which amount is subject to Court approval) will likewise be paid from the settlement funds (which will be accruing interest whilst held in the Court-approved bank account pending distribution to the participating group members).
The cases established that the precision with which a Court will require a plaintiff (or its representatives) to justify the quantum of costs incurred for the benefit of group members, before approving any mechanism for imposing those costs on the group members, will vary according to a number of factors including:
(a)the quantum of the costs;
(b)the quantum relative to the settlement sum;
(c)whether the group members have antecedent contractual obligations in respect of the costs (for instance, where they are all clients of the same solicitors, or of a commercial litigation funder);
(d)whether the group members were notified of the costs arrangements established for the proceeding; and
(e)the scale and duration of the steps in respect of which the costs were incurred.
Thus a very large costs sum might readily be approved in a settlement following a lengthy trial, while an apparently-modest costs sum might require more exacting validation if it is associated with a modest-sized proceeding and represents a significant proportion of the overall settlement sum. The relevant considerations are discussed in Modtech at [26]-[36], Matthews at [348]-[353] and Downie v Spiral Foods Pty Ltd [2015] VSC 190 (Bonsoy) at [179]-[181].
The applicants in the present case have obtained a costs assessment from an independent costs solicitor, Ms Dealehr. She was one of the costs consultants who provided opinions in Matthews, Bonsoy and Rowe v Ausnet Electricity Services Pty Ltd [2015] VSC 232. Her methodology was accepted by judges of the Supreme Court of Victoria in each of those cases (albeit that a general independent review was ordered in Bonsoy), and she appears to apply substantially the same methodology here.
The actual quantum – a gross sum of approximately $4.9 million – represents around 20 percent of the (costs-inclusive) settlement sum of $25 million. While a very large sum, in the circumstances of this case, I am prepared to approve it in light of the following factors:
(a)the advanced stage that the litigation had reached, the settlement taking place virtually on the eve of the trial;
(b)the significant legal and factual complexity of the issues of the proceeding; and
(c)the fee arrangements between the applicants and the solicitors, which reflected, permissibly, a 25 percent uplift as they were taking on the case on a no-win no-fee basis.
I appreciate that in some cases it will be appropriate to require or impose some additional layer of scrutiny in relation to the costs claimed by solicitors acting in a representative proceeding, for example, some form of review by a Registrar of the Court. However, in view of the matters I have referred to above, I do not consider this necessary in this case.
In relation to the “Administration Costs” as defined in the SDS, namely the costs and disbursements in connection with the administration of the scheme, the orders proposed by the applicants contemplate that those costs will be submitted to the Court for approval at a later date. This is, in my opinion, appropriate.
Confidentiality
The applicants seek an order that certain materials filed in support of the application be kept confidential. It is appropriate that the opinions of the applicants’ solicitor and counsel remain confidential. In the event that the approval were challenged and overturned on appeal, and the trial then proceeded, it would give TCL an unfair advantage if it had access to the opinions of the applicants’ lawyers. I raised with senior counsel for the applicants whether confidentiality needed to be maintained over the percentage which the settlement sum represents of the applicants’ lawyers’ estimated ‘best case’ outcome. I also raised whether the percentage applied in calculating loss in respect of “Rollover Notes” needed to be kept confidential. I am satisfied that it is appropriate for both of these percentages to remain confidential because, if the approval were to be overturned and the trial were to proceed, these figures could directly or indirectly assist TCL. Very briefly, this is because divulging the percentage applied to calculate loss in respect of “Rollover Notes” may implicitly convey information helpful to TCL if the matter were to proceed. And divulging the percentage which the settlement represents of the estimated ‘best case’ outcome would, through a process of ‘reverse engineering’, enable TCL to calculate the applicants’ lawyers’ estimate of loss in respect of “Rollover Notes”, which could be helpful to TCL if the matter were to proceed.
Conclusion
For these reasons, I am prepared to approve the settlement and make the other orders sought by the applicants.
I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky. Associate:
Dated: 24 December 2015
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