Camping Warehouse v Downer EDI Administrator's second application for judicial advice
[2017] VSC 660
•31 October 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2014 1423
BETWEEN
| CAMPING WAREHOUSE AUSTRALIA PTY LIMITED (formerly Mountain Buggy Australia Pty Ltd) (ACN 097 355 578) | Plaintiff |
| and | |
| DOWNER EDI LIMITED (ACN 003 872 848) | Defendant |
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JUDGE: | DIGBY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | Determined ‘on the papers’ |
DATE OF JUDGMENT: | 31 October 2017 |
CASE MAY BE CITED AS: | Camping Warehouse v Downer EDI – Administrator’s second application for judicial advice |
MEDIUM NEUTRAL CITATION: | [2017] VSC 660 |
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PRACTICE AND PROCEDURE – Group proceedings – Orders made for approval of settlement of group proceeding – Supreme Court Act 1986 (Vic) Part 4A, ss 33V and 33ZF – Application by Administrator of Settlement Distribution Fund for judicial advice in respect of certain questions in relation to the payment of potential liabilities of the Fund under distribution and costs associated with the distribution of that Fund.
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TABLE OF CONTENTS
Background to the proceedings....................................................................................................... 2
Orders approving compromise........................................................................................................ 2
Issues arising – the Administrator’s application.......................................................................... 3
The Questions for Judicial Advice.................................................................................................. 4
Questions....................................................................................................................................... 4
The Court’s power to deal with the issues raised by the Administrator and CBP................ 5
The parties’ contentions in relation to the Administrator’s Application................................. 6
Question (a) – Tax liability............................................................................................................... 6
The Administrator’s submissions............................................................................................... 6
CBP’s Submissions........................................................................................................................ 9
Considerations............................................................................................................................... 9
Decision – Question (a).............................................................................................................. 11
Question (b) – Reasonable professional costs related to the tax liability.............................. 11
The Administrator’s submissions............................................................................................. 12
CBP’s Submissions...................................................................................................................... 12
Considerations............................................................................................................................. 13
Decision – Question (b).............................................................................................................. 14
Question (c) – Entitlement to variable monthly payment......................................................... 14
The Administrator’s Submissions............................................................................................ 14
Payments to Administrator....................................................................................................... 15
CBP’s Submissions...................................................................................................................... 18
CBP’s alternative argument....................................................................................................... 22
Additional Administrator Submissions.................................................................................. 22
Considerations............................................................................................................................. 23
Decision – Question (c).............................................................................................................. 28
Precise Calculation of the Administrator’s Fee under the Terms of Settlement Schedule (A)5(b) 28
Question (d) – Indemnification for the reasonable costs of the Expert review.................... 29
The Administrator’s Submissions............................................................................................ 29
CBP’s Submissions...................................................................................................................... 31
Considerations............................................................................................................................. 32
Decision – Question (d).............................................................................................................. 33
Question (e) – Indemnification for the costs of obtaining advice from counsel.................. 33
The Administrator’s Submissions............................................................................................ 34
CBP’s Submissions...................................................................................................................... 35
Considerations............................................................................................................................. 36
Decision – Question (e).............................................................................................................. 37
Summary of above advices............................................................................................................. 37
Questions..................................................................................................................................... 37
Declarations and Orders................................................................................................................. 39
HIS HONOUR:
On 3 May 2017, pursuant to liberty to apply the Administrator of the Fund established as a result of the settlement of these group proceedings sought advice from the Court in connection with certain cost and potential liabilities associated with the settlement fund and its administration.
Background to the proceedings
In 2014 the plaintiff commenced a group proceeding of the type authorised by Part 4A of the Supreme Court Act 1986 (Vic) (the Act).
On 5 February 2016, the fourth day of trial and approaching the conclusion of opening submissions, Camping Warehouse Australia Pty Ltd (Camping Warehouse) and Downer EDI Limited (Downer) informed the Court that an in-principle settlement agreement had been reached between the parties.
On 26 February 2016, I made orders, inter alia, for an approved Notice of Proposed Settlement to be sent to the group members and to be displayed on the website The Notice of Proposed Settlement informed the group members of the terms of settlement and informed the group members of their right to object to the proposed settlement if they chose to do so.
Orders approving compromise
On 3 May 2016, pursuant to ss 33V and 33ZF of the Act, Court approval was given in relation to the settlement of the above proceeding on the terms set out in Terms of Settlement between Camping Warehouse and Downer, executed on 9 February 2016 (the Terms of Settlement).
The Court orders of 3 May 2016 included an order pursuant to ss 33V and 33ZF of the Act also approving a Settlement Distribution Scheme (the Settlement Distribution Scheme) in the terms annexed to those orders. The Terms of Settlement and the Settlement Distribution Scheme provided a procedure for distributing the Settlement Amount to be paid by Downer under the Terms of Settlement.
The Orders of 3 May 2016 provided for notice of Settlement Approval pursuant to ss 33X and 33Y of the Act, and pursuant to s 33ZF of the Act also provided for the appointment of Elliott Legal Pty Ltd as Administrator of the Scheme in accordance with the Settlement Distribution Scheme.
The orders of 3 May 2016 also included the following:
Settlement Administration
8.Each party, and Elliott Legal Pty Ltd in its capacity as Administrator, have liberty to apply on not less than three clear business days’ notice to each party to the proceeding.
Other parties
11. Pursuant to section 33V(2) and section 33ZF of the Act, the amount of:
(a)$100,000.00 be approved as the amount of the Plaintiff’s Reimbursement Claim as defined in the Settlement Distribution Scheme; and
(b)$825,000.00 be approved as the amount of the Litigation Funder’s Consideration as defined in the Settlement Distribution Scheme.
Court supervision
12.The Administrator have liberty to apply by correspondence addressed to the Associates to the Honourable Justice Digby.
Issues arising – the Administrator’s application
By application dated 3 May 2017, Elliott Legal Pty Ltd (the Administrator) seeks judicial advice in accordance with the regime described in Camping Warehouse v Downer EDI – Administrator’s application for judicial advice.[1]
[1][2016] VSC 312.
More specifically, pursuant to orders of the Court made on 3 May 2016, the Administrator of the Fund seeks judicial advice as to whether the Trustees or the Administrator (as relevant) are entitled to indemnity from the Fund in respect of certain tax liabilities and other expenses, and judicial advise in relation to the construction of the ‘Terms of Settlement’ and Settlement Distribution Scheme (Attachments 1 and 2 of those orders) approved in this proceeding.
The Questions for Judicial Advice
Questions
The Administrator identifies the following questions:[2]
[2]Questions set out in Administrator’s Second Application for Judicial Advice, 3 May 2017, [2(a)-(e)].
(a) whether the Trustees of the Fund may be indemnified from the Fund in respect of any liability to tax arising by operation of s 99 of the Income Tax Assessment Act 1936 (Cth) and cognate provisions under Australian taxation laws on the Fund’s income;
(b) whether the Administrator of the Fund may be indemnified from the Fund in respect of the reasonable professional fees paid for accounting and taxation services connected with the preparation of income tax returns in respect of the Fund;
(c) whether after 1 March 2017:
(i) the Administrator continues to be entitled to the variable monthly payment agreed in Part A(5)(b) of the Schedule to the ‘Terms of Settlement’; or
(ii) the variable monthly payment should instead be calculated on the basis of the number of registered shareholders whose claims have not been fully paid;
(d) whether the Administrator may be indemnified from the Fund in respect of the reasonable costs of the Expert Review performed pursuant to clause 7 of the Settlement Distribution Scheme; and
(e) whether the Administrator may be indemnified from the Fund in respect of its own reasonable costs the reasonable costs of obtaining advice from counsel including as concerns the administration of the Fund and settling applications for judicial advice.
Only the matter of variable monthly payment and costs in relation to the Expert Review, referred to in 11(c) and 11(d) above, are directly addressed in the Settlement Distribution Scheme and ‘Terms of Settlement’ approved by the Court. The remaining questions concern costs or liabilities incurred by the Administrator and, given the constitution of the Trustee, costs or liabilities incurred by the Administrator and CBP (the solicitors for the defendant), in their capacities as Trustees of the Fund.
The materials relied upon by the parties in relation to the Administrator’s Application of 3 May 2017, in addition to that Application and the Orders of 3 May 2016 and attachments thereto, are the Administrator’s written Submissions on behalf of the defendant dated 3 May 2017 and the written Submissions of Colin Biggers & Paisley Pty Ltd (CBP)[3], as a joint Trustee of the Fund, dated 3 May 2017.
[3]Colin Biggers & Paisley Pty Ltd are also Downer EDI Limited’s lawyers.
The Court’s power to deal with the issues raised by the Administrator and CBP
The provisions of the Act, Part 4A Division 2 dealing with Group Proceedings includes the following in relation to the settlement and discontinuance of a group proceeding:
33V (i) A group proceeding may not be settled or discontinued without the approval of the Court.
(ii)If the Court gives such approval, it may make such orders as it thinks fit with respect to the distribution of any money, including interest, paid under a settlement or paid into Court.
In relation to the general power of the court to make orders in any group proceeding the Act provides:
33ZFIn any proceeding (including an appeal) conducted under this Part the Court may, of its own motion or on application by a party, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.
The orders made on 3 May 2016 in this proceeding, including by Order [1], approved Terms of Settlement which in turn contemplate a relatively lengthy administration of the agreed Scheme of Settlement between the parties in this Group Proceeding.
Order [8] of the Orders referred to above provides for ongoing liberty to each party and to the Administrator to apply to the Court and Order [12] provides for liberty to the Administrator to apply to the Court in relation to matters, including the proceedings, the settlement and its approval, and the administration of the Settlement Distribution Scheme.
Further, the terms of the Settlement Distribution Scheme agreed by the parties provides in clause 12.1 that the Administrator may refer any issue arising in relation to the Settlement Distribution Scheme or the administration of the Settlement Distribution Scheme to the Court for determination.
Accordingly, in my view, the Court has, and will until at the earliest the date of final orders in relation to this matter, continue to have power to provide advice, make rulings, decisions and appropriate orders, as it thinks fit, in connection with these proceedings, the approved Terms of Settlement, and their operation, and in respect of and in connection with the orders made on 3 May 2016 and the administration of the Settlement Distribution Scheme and related matters.
The parties’ contentions in relation to the Administrator’s Application
Question (a) – Tax liability
The Administrator seeks judicial advice as to whether the Trustees of the Fund may be indemnified from the Fund in respect of any liability to tax arising by operation of s 99 of the Income Tax Assessment Act 1936 (Cth) (1936 Tax Act) and cognate provisions under Australian taxation laws on the Fund’s income.
The Administrator’s submissions
The Administrator’s submissions inform that in respect of the income tax years ended 30 June 2016 and 30 June 2017, interest income has accrued on the Funds held jointly by the Administrator and CBP ‘on trust for Registrants with Downer as the residuary beneficiary of the trust, subject to and in accordance with the terms of this Settlement Distribution Scheme’ (Settlement Distribution Scheme [4.5]).
The Administrator submits that there is presently no beneficiary who appears to be entitled to the income in respect of either above Financial Year because:
(a) the mechanism for calculating each Registrant’s Assessment Value (Settlement Distribution Scheme [6.5(b)]) creates no entitlement in individual Registrants to any income of the Fund. The Registrant’s Assessment Value is calculated as a share of the Residual Settlement Amount, which is defined to be ‘the amount of the Settlement Amount after deduction of the Litigation Funder’s Consideration, the Plaintiff’s Reimbursement Costs and Administration Costs’; and
(b) Downer as the residuary beneficiary is only entitled to the remainder of the Settlement Distribution Fund after the final Distribution to Registrants (Settlement Distribution Scheme [10.2]).
The Administrator points out that because no person is presently entitled in respect of the interest income derived by the Fund, pursuant to s 99 of the 1936 Tax Act the Trustees are assessed and liable to pay tax on the net income of the trust estate as if it were the income of an individual who was a resident, as relevantly defined, and was not subject to any deduction.
The Administrator submits that the Trustees are not prohibited from recouping the tax liability borne by them from the Fund under the Settlement Distribution Scheme, however, no provision has been made in the Settlement Distribution Scheme giving the Trustees any explicit right of indemnity against the Fund in respect of any liability to tax.
The Administrator submits that while the tax liability borne by the Trustees in the year ended 30 June 2016, calculated on the basis referred to in the last preceding paragraph, was insignificant (approximately $1,250), it is estimated to be in the region of $140,000 for the year ending on 30 June 2017.
Given the quantum of the tax liability expected to be incurred by the Trustees in the year ending on 30 June 2017, it is appropriate that the Administrator approach the Court for confirmation that the Trustees may be indemnified from the Fund in respect of the subject tax liability.
The Administrator understands that the position under s 254(1)(f) of the 1936 Tax Act is that a Trustee ‘is hereby indemnified for all payments which he or she makes in pursuance of this Act or of any requirement of the Commissioner’ and submits that despite the absence of any language which specifically permits indemnification from the Fund, it is appropriate that the Court should exercise its discretion in supervising the Settlement Distribution Scheme to permit indemnification on this basis.
In the Administrator’s submission, this would be a just outcome. While not presently entitled to the interest which is accruing, Downer is the only beneficiary of the income derived from the investment of the monies which constitute the Fund and Downer will, subject to registered shareholders’ entitlements, receive the residue thereof by 31 December 2017.
The Administrator submits that it would be inappropriate for the Trustees to bear the tax burden on the generation of income which will ultimately become Downer’s property and with the effect that Downer receives tax-free income. Whereas, Indemnification of the Trustees from the Fund means that the tax burden will in due course be borne by the ultimate beneficiary, Downer.
The Administrator in its submissions foreshadows that it will seek to reach agreement with the defendant’s solicitor as to a suitable arrangement for the retention of sufficient funds to:[4]
(a) pay any tax payable to the Australian Taxation Office to which the Trustees are assessed in respect of the relevant financial years, including of the year ending on 30 June 2017; and
(b) pay the appropriate and reasonable professional costs in respect of the preparation and lodging of the returns, from the remainder of any moneys to be paid to Downer pursuant to [10.2(b)] of the Settlement Distribution Scheme.
[4]Administrator’s Submissions, 3 May 2017, [26]-[28].
The Administrator highlight that the Trustees are obliged by s 254(1)(d) of the 1936 Tax Act to:
He or she is hereby authorized and required to retain from time to time out of any money which comes to him or her in his or her representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains.
CBP’s Submissions
In relation to its position as Joint Trustee of the Fund, CBP[5] in its submissions confirms that as a Trustee of the Fund it agrees with the Administrator that the Trustees ought be indemnified from the Fund in respect of any liability to tax on the Fund’s income.
[5]Colin Biggers & Paisley are Joint Trustees of the Fund and also the lawyers for the defendant.
Considerations
The fund established pursuant to the Terms of Settlement is accruing interest which is taxable under the 1936 Tax Act.
Pursuant to s 254(1)(d) of the 1936 Tax Act the income earned by the fund is taxable in the hands of the Trustees of the fund.
Further, s 254(1)(d) of the 1936 Tax Act authorises and obliges the Trustees to retain from money coming into the Trustees’ hands, a sufficient amount thereof to enable the Trustees to pay tax which is or will become due in respect of the relevant income, profits or gains.
Further, pursuant to s 254(1)(f) of the 1936 Tax Act a relevant Trustee to whom the provisions of that Act apply, is indemnified in respect of all payments which he or she makes in pursuance of the 1936 Tax Act or any requirement of the Commissioner referred to in that Act.
The practical outcome in respect of the corpus of interest generated by the Fund will be the defrayal of the Fund by the amount paid by the Trustees on account of the tax assessed as payable by the Commissioner for Taxation. Furthermore, after the accrual of all interest and the payment of all tax assessed as payable, pursuant to the Settlement Distribution Scheme clause 10.2(b), the remainder of the sum of accrued interest will be payed to the residuary beneficiary, Downer.
It need not be elaborated upon that in respect of any taxable income generated by the Fund established pursuant to the Terms of Settlement, tax, as assessed, must be paid.
It is also clear that the Trustee of the Fund established pursuant to the Terms of Settlement must make timely payment of tax assessed as payable in respect of any taxable sums which from time to time are received by the Trustees.
Pursuant to s 254(1)(f) of the 1936 Tax Act, and consonant with the position of a Trustee pursuant to the Trustee Act 1958 (Vic), s 36(2), Trustees are obliged to pay an impost such as tax and are entitled, as explained above, to be indemnified from the fund of the relevant trust in relation to such payments. Here neither the Terms of Settlement nor the Settlement Distribution Scheme contradiction this position.
Further, The position here is that both the Administrator and CBP, that is both Trustees, consider that the tax payable on interest generated by the Fund should be paid from the Fund.
Furthermore, I note that no beneficiary under the Settlement Distribution Scheme appears to be presently entitled to any income accumulated in respect of the Fund to date. Clauses 6.5(b) – 6.7 and Clause 10 of the Settlement Distribution Scheme do not create an entitlement in individual Registrants to any income of the Fund, although Registrants are ultimately entitled to share in the Residual Settlement Amount as defined.
Downer is the residuary beneficiary entitled to the remainder of the Settlement Distribution Fund after final Distribution to Registrants (Settlement Distribution Scheme [10.2]).
It is because there is no person presently entitled in respect of the interest income derived by the Fund that pursuant to s 99 of the 1936 Tax Act the Trustee is assessable for income tax in respect of the net income of the trust estate in their hands.
No express provision of the Terms of Settlement or the Settlement Distribution Scheme prohibits the Trustees from recouping the tax payable in respect of tax liability borne by them in respect of the Fund, from the Fund. Furthermore, in my view no implication arises from the Terms of Settlement or the Settlement Distribution Scheme to the contrary.
Finally, it would be unreasonable and inappropriate for the Trustees to have to bear the tax burden arising as a result of income accruing by way of interest on the Fund, in circumstances where it is Downer which is ultimately the beneficiary of the remainder of the Settlement Distribution Funds after the final Distribution to Registrants.
Decision – Question (a)
For the reasons I have outlined above, I consider it to be necessary, appropriate and in accord with the scheme of the Terms of Settlement and the Settlement Distribution Scheme for the Trustees of the Fund to be indemnified from the Fund in respect of any liability to tax arising by operation of s 99 of the 1936 Tax Act and cognate provisions under Australian Taxation laws on the Fund’s income.
Question (b) – Reasonable professional costs related to the tax liability
The Administrator seeks judicial advice as to whether the Administrator of the Fund may be indemnified from the Fund in respect of the reasonable professional fees paid for accounting and taxation services connected with the preparation of income tax returns in respect of the Fund.
The Administrator’s submissions
The Administrator raises the same arguments in respect of the professional fees incurred by the Trustees (and more particularly, the Administrator) in satisfying the Trustees’ obligation to prepare and submit tax return(s) as Trustees of the Fund.
The Administrator points out that the language of s 254(1)(f) of the 1936 Tax Act refers to payments made ‘in pursuance of this Act’, and submits that where professional fees are incurred for the purpose of satisfying taxation obligations imposed by the Act, which are ordinarily regarded as deductible expenses under s 25-5 of the Income Tax Assessment Act 1997 (Cth), that gives rise to a right of indemnity from the Fund which arises either on the basis of s 254(1)(f) of the 1936 Tax Act because such payments are made in pursuance of the 1936 Tax Act or on the basis stated in s 36(2) of the Trustee Act 1958 (Vic), namely that ‘[a] Trustee may reimburse himself or pay or discharge out of the trust premises all expenses incurred in or about the execution of the trusts or powers’.
CBP’s Submissions
CBP has highlighted the relevance of clause 4.6 of the Settlement Distribution Scheme, as follows:
CBP have noted in correspondence that they consider that the Court’s attention should be drawn to clause 4.6 of the Settlement Distribution Scheme which provides that ‘Elliott Legal Pty Ltd undertake not to seek to recover from the Settlement Sum, the Settlement Distribution Fund or from any individual Group Member any cost incurred in connection with the Claims of the individual Group Member’.
CBP submits that it is for the Court to determine whether the reasonable professional fees paid for accounting and taxation services connected with the preparation of income tax returns in respect of the Fund constitute ‘any costs incurred in connection with the Claims of the individual Group Member’ given the undertaking in clause 4.6 by Elliott Legal Pty Limited not to seek to recover such costs.
Otherwise CBP does not oppose this question being answered in the affirmative.
Considerations
In my view given the obligations imposed on the Trustees to ensure that all tax owing in relation to the Fund is disclosed and paid, for the reasons expressed above in respect of Question (a), I consider that it is in the nature of a necessary legal intendment of the Trustees’ administration of the Fund under the Settlement Distribution Scheme and Terms of Settlement, that the Trustees incur any necessary and reasonable professional fees, for accounting and tax services, in connection with the preparation of income tax returns in respect of, or in connection with, the Fund. Accordingly, such professional fees are in the nature of costs and disbursements incurred as part of the proper and necessary administration of the Fund.
Such costs and disbursements are also costs in respect of which the Administrator of the Fund should be indemnified from the Fund, together with the Administrator’s, and if so incurred its co-trustee’s, necessary and reasonable professional costs directly incurred in relation to instructing and liaising with any necessary accounting and tax services professionals in that regard.
I do not consider that the above mentioned Administrator’s undertaking not to seek to recover from the Settlement Sum, the Settlement Distribution Fund or from any individual Group Member any cost incurred in connection with the Claims of the individual Group Member precludes the recovery from the Fund of the necessary and reasonable Tax assessment and payment related costs and disbursements of the Administrator, and its co-trustee CBP if so incurred. Such costs and disbursements are not in my view costs incurred in connection with “the Claims of the individual Group Member”. The accounting and taxation costs contemplated above are expenses which arise as a result of the receipt of interest generated by the Fund in the nature of income for tax purposes and not costs in respect of the administration of the Claims of Individual Group Members.
I also observe that the necessary and reasonable professional fees paid for accounting and taxation services purposes are incurred by the Administrator as Trustee so as to satisfy the tax obligations of the Trustees imposed by the 1936 Tax Act, and are therefore costs which are likely to be deductable expenses in respect of the administration of the Fund in due course.
Decision – Question (b)
I consider that the Administrator of the Fund may be indemnified from the Fund in respect of the necessary and reasonable professional fees paid for accounting and taxation services in connection with the preparation of income tax returns in respect of the Fund.
Question (c) – Entitlement to variable monthly payment
The Administrator seeks judicial advice as to whether after 1 March 2017:
(a) the Administrator continues to be entitled to the variable monthly payment agreed in Part A(5)(b) of the Schedule to the ‘Terms of Settlement’; or
(b) the variable monthly payment should instead be calculated on the basis of the number of registered shareholders whose claims have not been fully paid.
The Administrator’s Submissions
In its submissions the Administrator describes a disagreement which has arisen between the Administrator and its joint Trustee CBP concerning the Administrator’s ongoing entitlement to the variable monthly payment provided for in Part A(5)(b) of the ‘Terms of Settlement’, beyond the final date for Group Member Registration, namely 1 March 2017.
Part A(5)(b) of the Terms of Settlement provides that the Administrator receive the variable payment on the following basis:
Elliott Legal’s reasonable fees for contact with class and provision of administration services to each class member payable out of the Fund - agreed as $22 per shareholder per annum inclusive of GST payable monthly in respect of each shareholder on a pro-rated basis up to and including the month in which the funds clear for each individual shareholder or 31 December 2017, whichever occurs first.
Payments to Administrator
The Administrator notes the introductory words of Part A(5) of the Schedule to the Terms of Settlement executed on 9 February 2016, namely that payments to the Administrator were in respect of its reasonable fees for contact with class members and provision of administrative services to each class member payable out of the Fund.
The Administrator summarises the general nature of the services performed pursuant to Part A(5) as:
(a) performing services for the benefit of the class, reflecting that the Administrator is facilitating settlement in the interests of class members including communicating with the class, and acting as the ‘public face of the settlement of the group proceedings’,
(b) continuing the administrative role in respect of each class members until their claim is satisfied and/or the Settlement Distribution Scheme is completed and final orders have been made in the proceedings.
The Administrator notes that in respect of an individual class member, their claims are only satisfied when ‘the funds clear for each individual shareholder’, and it also notes that the Settlement Distribution Scheme will be complete on 31 December 2017.
The Administrator further observes however that in relation to class members who have neither opted out nor received clear funds, the Administrator continues to fill an important role in responding to their enquiries and providing other services to them.
The Administrator submits that many class members who have not exercised their rights have sought, and will probably continue to seek, to communicate with the Administrator well out of time under the timetable set by the Settlement Distribution Scheme. This likelihood, the Administrator submits, will probably generate considerable costs for the Administrator in maintaining the personnel and infrastructure to continue to address such enquiries. The Administrator also submits that ongoing costs of this nature were not expected to be borne from the originally estimated ongoing costs.
The Administrator maintains therefore that the Variable Monthly Fee ought continue to be calculated on:
(a) the number of group members who traded in Downer Securities during the period (10,747 shareholder accounts)
[which number is irrespective of whether the account holders
(iii) had a net positive variance enabling them to fall within the Group definition, or
(iv)failed to register to participate in the distribution of Settlement Funds] less
(b) the number of group members who either –
(i) validly opted out of the proceedings (78 shareholder accounts), or
(ii) have already been paid (via an interim distribution) at 100% of their calculated entitlement (338 shareholder accounts).
The Administrator also submits that it was well known at the time of entering into the Terms of Settlement that there would be a need for it to maintain the necessary personnel and infrastructure to manage enquiries from class members who did not register and did not receive clear funds at an early stage as well as those group members who did register but were ineligible to receive their entire entitlement at the interim distribution stage.
The Administrator submits that Downer’s interpretation of Part A(5) is inconsistent. The Administrator points out that CBP considers that the entitlement to a variable payment for each month from March 2017 onwards is limited to a payment of $22 per registered shareholder per annum payable monthly in respect of each registered shareholder on a pro-rated basis up to and including the month in which the funds clear for each individual registered shareholder or 31 December 2017, whichever occurs first. However, for every month prior to March 2017, CBP’s interpretation of Part A(5) did not seek to limit the payment to the Administrator on the basis of limiting the Administrator’s entitlement to a fee in respect of registered shareholders. The Administrator adds that CBP’s current interpretation of Part A(5) of the Settlement Distribution Scheme in effect requires the addition of the word ‘registered’ importing that word’s appearance for a second time in that part of the Terms of Settlement.
The Administrator submits that without the addition of the word ‘registered’, the ordinary meaning of the relevant words in Part A(5) align with the construction proffered by the Administrator, namely payments to the Administrator (under Part A(5) of the Terms of Settlement), are calculated on the basis of:
(a) a monthly payment to the Administrator for its estimated ongoing costs; and
(b) a variable monthly payment to the Administrator.
The sum payable in each month is calculated on the basis of a ‘$22 sum per shareholder per annum payable monthly in respect of each shareholder on a pro-rated basis up to and including the month in which the funds clear for each individual shareholder or 31 December 2017, whichever occurs first’.
The Administrator submits that the construction referred to immediately above also aligns with the construction which CBP appears to have considered was correct in the months up to March 2017.
The Administrator submits that the language of Part A(5) is unambiguous and does not require or permit the insertion of the additional word which it submits would be necessary to give the clause the meaning asserted by CBP.
The Administrator also observes that if CBP’s construction of Part A(5) had been suggested earlier the Administrator would have raised the per shareholder fee per annum to cover fixed overheads and over variable costs.
The Administrator submits that if it were to cease to have the resources to communicate with class members who failed to register, class members will no longer be likely to receive information concerning the status of their rights which would probably cause distress amongst class members who have failed to register and that this circumstance could bring the administration of justice into disrepute.
The Administrator submits that if CBP intended to contend for the construction which it now does, it should have raised this position well in advance of the Administrator incurring expenditure necessary to fulfil its functions under the Settlement Distribution Scheme in reliance on the provisions of the Terms of Settlement. The Administrator submits that this raises the prospect of prejudice to the Administrator and prejudice to the interests of class members in the way described above if CBP’s construction of the Terms of Settlement is preferred.
CBP’s Submissions
CBP’s submissions describe the difference between its position and the Administrator is in relation to the calculation of the variable monthly payment fee after closure of the registration period.[6]
[6]CBP points out that at [15] of the Administrator’s Submissions, reference is made to emails of 9 April 2017 from the Administrator and 13 April 2017 from CBP. Whilst clause 3 of the Second Application indicates CBP’s email of 27 March 2017 to the Administrator accompanies the application, it is not referenced in the Administrator’s Submissions.
CBP maintain that the option in [59(b)] above is the correct method of calculating the variable monthly fee after 1 March 2017, and that is to undertake that calculation on the basis of the number of registered shareholders whose claims have not been fully paid. Accordingly, following closure of the registration period on 1 March 2017, the pro-rata fee should be calculated on the number of registered shareholders with whom the Administrator is obliged to deal over the remaining life of the Settlement Distribution Scheme.
CBP’s email of 27 March 2017 relevantly states:
In respect to the per shareholder pro-rated monthly administrative fee, this falls within the administration costs as defined at clause 2.1 of the Settlement Distribution Scheme which refers one back to the Terms of Settlement -Conditions Part (A)5 as approved by the Court. Subsection (A)5b dealing with the ongoing fund administration costs, entitles your firm to:
Reasonable fees for contact with class and provision of administration services to each class member payable out of the Fund -agreed at $22.00 per shareholder per annum inclusive of GST payable monthly in respect of each shareholder on a pro-rated basis up to and including the month in which the funds clear for each individual shareholder or 31 December 2017, whichever occurs first.
In previous accounts, this fee has been calculated on 10, 747 registered shareholders less 78 in time opt out shareholders.
Following on from the payment out made at the end of November 2016, both on a final and interim basis to registered shareholders in the 1st - 5th tranches inclusive, the number of shareholders on whom the fee was calculated reduced by the 338 registered shareholders to whom final payment was made.
Given the registration period closed on 1 March 2017, as a joint Trustee of the fund, we submit that your administration services should be restricted to those who have registered and not been fully paid. There is no work for you to do in terms of having contact with the balance of the class or providing administration services to each class member following the closure of the registration period on 1 March 2017, other than in respect of the registered shareholders who have not at this date been fully paid out.
Accordingly, we submit that your per shareholder pro-rated monthly administrative fee should now be calculated for March 2017 as:
923 registered shareholders
Less
338 paid out registered shareholders
Equals585 registered shareholders x $22/12 = $1,072.50
We arrive at the figure of 923 registered shareholders from the fact that there were 800 registered shareholders in tranches 1 - 7 and you have advised that the final tranche of registrants which we are to receive this week comprises 123 registrants plus the revised group member registration forms for the Master Trust Bank of Japan. We are unaware until we receive that tranche as to whether the Master Trust Bank of Japan registrants are actually within the 123. If they are not, then clearly your entitlement to administrative services to each class member should be increased from 923 to the actual number of registrants that will have been provided to us.
CBP also submit that there is no evidence –
(a) as to how the annual fee was struck or
(b) that the Administrator would have sought a much higher fee to cover the actual cost of servicing each individual class member than the capped annual fee that was struck, or
(c) whether the case would have settled if ‘a much higher fee (possibly 5-6 times the current fee of $22 per annum per class member) to cover the actual cost of servicing each individual class member’ was sought by the Administrator, or
(d) to support the Administrator’s contention that the variable payment simply would not address the substantial time cost in responding to enquiries and undertaking any necessary communication or whether there will be a substantial time cost incurred.
Further, CBP highlight that an explanation as to the variable monthly fee now in issue was sought at the time of the Court hearing to deal with the plaintiff’s application for settlement approval. At that hearing on 29 April 2016 the following exchanges occurred between the Court and Senior Counsel for the plaintiff:
At page 33 -
HIS HONOUR: Just one last point about the costs, if you can 11 touch on it. Do I understand this correctly: there is still quite a significant ongoing cost in the nature of administering the fund and also a separate running charge, as I saw it described, predicated on a cost per shareholder of liaising or something similar to that? Is that how it operates?
MR O’BRYAN: That’s exactly right, Your Honour. There’s what I might describe as a sort of annual cost of administering the fund, and there is a cost for the communications which are required, depending upon how difficult it is to communicate in respect of individual shareholders. Those costs, however, Your Honour, we expect will all be met out of the interest to be earned on that fund, we expect.[7]
[7]T33.10-25.
At page 34 -
HIS HONOUR: It is on page 2 of that document, last paragraph, where the document says, ‘This figure also assumes that the costs payable to the plaintiff’s solicitors is reasonable fees for the conduct of the class, and provision of administration services will have no negative impact on the fund after interest on the fund’. So it is contemplated that interest on the fund would be available to apply to some component of the legal fees; is that correct?
MR O’BRYAN: It’s not legal fees, Your Honour, it’s really administration fees.
HIS HONOUR: That is what I was concerned to clarify. Those concepts are all rolled up in that sentence, but it is not the legal fees, it is the administration fees?
MR O’BRYAN: That’s right, Your Honour.
HIS HONOUR: So there is not any top up of the legal fees as such from interest?
MR O’BRYAN: No, no, there’s not. We are hopeful the interest will cover the costs of running the fund.
HIS HONOUR: This is the $25,000 a month-type figure, is it?
MR O’BRYAN: That’s right. They’re the figures of $25,000 per calendar month, which is an administration cost.[8]
[8]T34.6-28.
At page 35 –
MR O’BRYAN: … a conflict. And so, if anybody needs to get any legal assistance in connection with this, Your Honour, they get their own, so all of these costs then become administration costs of running the fund; it’s $25,000 per month plus the - - -
HIS HONOUR: Yes, I see, the cost per shareholder.
MR O’BRYAN: Yes, for communications.[9]
[9]T35.8-14.
CBP submit that the fee per shareholder is for communication by the Administrator with the shareholders.[10]
[10]T33-35.
CBP also submits that the pro-rated Variable Monthly Fee ought not be payable in respect of an individual class member who did not register by 4pm (AEDST) on 1 March 2017 because such shareholders:[11]
[11]CBP’s Submissions, 13 April 2017.
(a) now have no right against Downer,
(b) have no ongoing reason to seek to communicate with the Administrator, and/or
(c) have no ongoing reason to require administration services.
Information about the status of their rights if they do not register has already been given via notices issued.
CBP’s alternative argument
CBP also put the alternative argument that if the Court does not accept the above and considers that for Group Members who have not registered the Variable Monthly Fee ought to continue on a pro-rated monthly basis until the Settlement Distribution Scheme is brought to a close, then that fee should only be applied in respect of unregistered shareholders who actually make an enquiry of Elliott Legal and to which it responds and the fee claim should be based on admissible evidence in respect of the number of unregistered class members who do make contact with Elliott Legal and the date of contact and response.
As Elliott Legal is not permitted to act as the solicitor for any group member (see clause 4.2(b) of the Settlement Distribution Scheme) subject to any Orders of the Court, CBP suggest that there will be little communication required with such an unregistered class member other than to advise that in accordance with the Orders of the Court, their failure to register within time precludes them from participating in the distribution of the settlement monies.
CBP’s submission of 3 May 2017 confirms that the alternative submission outlined above is advanced only as an alternative argument to CBP’s principal position.
Additional Administrator Submissions
The Administrator submits that CBP’s alternative proposal at [35] and [36] of its Submission dated 30 April 2017 is unworkable in that it requires the Administrator to keep the business architecture for communicating with the class in place, and therefore to continue to bear the overhead expenses, while leaving the Administrator’s entitlement to fees for providing that service made dependent upon the number of group members that seek to contact the Administrator. The monthly pro-rated sum per group member who contacts the Administrator would be only $1.83 including GST (being the annual amount of $22 divided by 12). There would be no logic to the ‘Terms of Settlement’ if the Administrator were to be paid $183 for addressing 100 group members’ enquiries in a month as suggested by CBP. The variable payment simply would not address the substantial time cost in responding to enquiries and undertaking any necessary communication. The Administrator adds that CBP’s proposal is unworkable and demonstrates that CBP now seek to rewrite the Terms of Settlement and the Settlement Distribution Scheme and seeks to hinder the Administrator’s ability to perform its role and also seeks to impose uncommercial terms on the Administrator retrospectively.
The Administrator contends that the very modest annual fee charged by it for each group member was agreed by the Administrator on the basis that it applied across all class members and not just Registrants or shareholders who make contact with the Administrator. The Administrator also contends that if the Administrator’s monthly payment entitlement was as argued by CBP, then the Administrator would have sought a much higher fee (possibly 5-6 times the current fee of $22 per annum per class member) to cover the actual cost of servicing each individual class member that would no doubt have far exceed the capped annual fee of $22 per class member.
Considerations
Clause 2.1 of the Settlement Distribution Scheme provides as follows:
2.1In this Settlement Distribution Scheme, the following terms have the meanings defined below (clause references are references to the clauses of this document unless otherwise specified):
…
Administration Costs means the costs and disbursements incurred by Elliott Legal Pty Ltd agreed in the sums set out in the Terms of Settlement – Conditions Part A(5), subject to Court approval, in connection with administering the Settlement Distribution Scheme.
Attachment 2 to the Orders made 3 May 2016 is the Settlement Distribution Scheme which contains the following definitions in clause 2.1:
Group Member means a Group Member within the meaning of paragraph 2 of the Further Amended Statement of Claim and who has not opted out in accordance with the orders of the Court made on 6 November 2015.
Registrant means a Group Member who returns a Registration Form to Elliott Legal Pty Limited by 4pm on 1 March 2017.
Clause 4.4 of the Settlement Distribution Scheme deals with ‘any Registrant or Group Member’ and recognises that registrants are a sub-set of Group Members under that Scheme.
The claims of Registrants are assessed pursuant to clause 6 of the Settlement Distribution Scheme and if necessary are the subject of Expert review, and thereafter possible judicial review as provided for in clause 7 of the Terms of Settlement.
A Distribution is defined at clause 2.1 of the Settlement Distribution Scheme as the amount of money distributed to a Registrant from the Settlement Distribution Fund in accordance with clauses 9 or 10 of the Settlement Distribution Scheme.
Clause 2.1 of the Settlement Distribution Scheme employs the provisions of the Terms of Settlement – Conditions Part A(5), in defining the ongoing fund administration costs to which the Administrator is entitled. Subsection A(5)(b) of the Terms of Settlement is in the following terms:
5
Inclusive of ongoing Fund administration costs
a. Elliott Legal’s estimated ongoing costs involved in the administration of the Fund — $25,000 per calendar month, inclusive of GST and inclusive of out-of-pocket expenses, until 31 December 2017
b. Elliott Legal’s reasonable fees for contact with class and provision of administration services to each class member payable out of the Fund — agreed as $22 per shareholder per annum inclusive of GST payable monthly in respect of each shareholder on a pro-rated basis up to and including the month in which the funds clear for each individual shareholder or 31 December 2017, whichever occurs first
c. $100,000 payable to the plaintiff in respect of reimbursement of the plaintiff’s reasonable costs.
d. $825,000 payable to BSL Litigation Partners Limited (the plaintiff’s litigation funder).
e. Indemnification of Trustees in respect of tax liabilities.
f. Downer’s costs involved in the administration: to be borne by Downer.
g. Interest earned on the Fund to accrue to the Fund net of tax
In the evolution of the administration of the Settlement Distribution Scheme a large number of payments have been made to registered shareholders at about the end of November 2016. Some of those payments were made on a final basis and some payments were made on an interim basis to registered shareholders in the first to the fifth tranches. The summary of what has occurred in relation to this aspect of the Settlement Scheme administration is detailed in CBP’s written submissions and is not refuted by the Administrator.
One of the payments to be received by the Administrator is the Variable Monthly Fee referred to in paragraph 5(b) of that part of Schedule part A to the Terms of Settlement, set out above. That fee is expressed to be a fee ‘for contact with class and provision of administration services to each class member … payable in respect of each shareholder ... up to and including the month in which the funds clear for each individual shareholder or 31 December 2017, whichever occurs first “.
Elliott Legal accepts in its email of 9 April 2017 that:
For individual class members, their claims are only satisfied when ‘funds clear for each individual shareholder’. Once funds clear, the individual class member has no right against Downer and they have no ongoing reason to seek to communicate with the Administrator and/or require administration services.
As the Settlement Distribution Scheme appears to operate, individual class members who did not register with Elliott Legal by 4pm (AEDST) on 1 March 2017 have:
(a) no right against Downer. Such persons are specifically bound by the settlement of the proceedings as group members (paragraph 3 of the Order of 3 May 2016) and would also probably be statute barred from bringing any action based on acts or omissions in the Period ending 31 May 2010;
(b) no ongoing reason to seek to communicate with the Administrator; and/or
(c) no ongoing reason to require administration services.
Therefore, after 1 March 2017 there will be no likely work for the Administrator to do in respect of class members who failed to register.
Furthermore, even if there were some unregistered shareholders who sought to make enquiries of the Administrator after the March 2017 closure date the extent of such enquiries is likely to be small given the extensive and clear public notifications as to Shareholders’ registration rights and in relation to critical closure dates under the class action Settlement Distribution Scheme and their consequences.
At all events the likely work for the Administrator in respect of the persons referred to in the last preceding paragraph would also be small, and as submitted by CBP, would probably only entail the Administrator sending a short formal pro-forma letter to any untimely unregistered shareholder.
Further, I reject the Administrator’s argument that to interpret Schedule (A), part 5(b) of the Terms of Settlement as contended by CBP it would be necessary to add the word “registered” before the words “shareholder” where they appear.
In my view, on the plain meaning of the words in clause (A)5(b), it is likely that the parties intended that the $22 per shareholder fee per annum was, after 1 March 2017, to apply to the remaining relevant shareholders who had registered under the Scheme and had not been paid out.
Clause (A)5(b) is expressly concerned to remunerate the Administrator for contact with class and provision of administrative services to each member of the class up until the defined date when funds clear for each shareholder, or 31 December 2017, whichever occurs first. In my view the scheme reflected by that clause, within the overall Terms of Settlement, is one under which the parties intent was to pay the $22 agreed remuneration to the Administrator in respect of administrative work likely to be required in relation to relevant shareholders. After 1 March 2017, for the reasons outlined, that contemplated administrative work is in respect of those registered shareholders who have not yet been yet paid out, and only then in respect of the defined time frame applicable to those shareholders.
The above construction ought applies from the date that registrations closed on 1 March 2017 because after that date it will only be in respect of the registered shareholders who have not by then been paid out that the Administrator will be required to undertake any substantial administrative work; as explained above unregistered shareholder enquiries after 1 March 2017 are likely to be minimal and involve only perfunctory work by the Administrator.
I do not accept the Administrator’s unsupported contentions referred to at [66] and [68] hereof that the parties accepted the need for the ongoing maintenance of infrastructure and personnel as envisaged by the Administrator so as to provide administrative services. In this regard I accept the CBP submissions outlined at [79] hereof.
Conversely, the construction urged by the Administrator would in my view be likely to generate a windfall fee for the Administrator because the Administrator will probably only be required to administer to about 585 registered shareholders after 1 March 2017. In these circumstances it is unlikely that the parties would have intended that the Administrator should continue be paid its fee in relation to more than the 10,000 potential shareholders relevant at an earlier point of time.
In my view subsection A(5)(b) is intended to be applied on a monthly basis in respect of remaining unpaid registered shareholders after 1 March 2017.
I reject as impractical, including because of the need for case by case evaluation of enquiries, the CBP alternative submission outlined at [84] above.
Furthermore, I do not accept as relevant the assertions and observations made by the Administrator to the effect that the acceptance of the CBP construction of Part A(5) may result in it being unsustainable for the Administrator to continue to apply sufficient personnel and infrastructure to the administration of the Settlement Distribution Scheme and as a result class members will no longer be able to receive information concerning the status of their rights, causing possible distress to class members who have failed to register and giving rise to a risk that the administration of justice will be brought into disrepute.
In my view, there is no established basis upon which to conclude that either class members who failed to register could be justifiably distressed by not being able, now or hereafter, to receive information concerning the status of their rights, or that the Administrator not responding to unregistered individual class members requests and demands after 1 March 2017, could bring the administration of justice into disrepute.
In my view it can be anticipated that the unregistered class member would, or should, appreciate that it is the effect of Court Orders fixing 1 March 2017 as the deadline for shareholder registration which has resulted in unregistered shareholders being excluded from the administration of the ongoing Settlement Distribution Scheme, after 1 March 2017. So understood, it is unlikely that reasonable class members would be distressed or critical of the Administrator as suggested by the Administrator.
Decision – Question (c)
For the above reasons I consider that after 1 March 2017 the variable monthly payment to the Administrator should be calculated on the basis of the number of registered shareholders whose claims have not been fully paid.
Precise Calculation of the Administrator’s Fee under the Terms of Settlement Schedule (A)5(b)
As a joint Trustee of the Settlement Fund created by resolution of the proceedings, CBP has advised Elliott Legal that it maintains calculation of the Variable Monthly Fee should, from closure of the registration period be calculated on –
(a) The number of members who have registered to participate in the settlement distribution (933 shareholder accounts), less
(b) The number of shareholders whose claims have already been paid (via an interim distribution) at 100% of their calculated entitlement (338 shareholder accounts).
Thus going forward from closure of the registration period, CBP maintains the Variable Monthly Fee ought be calculated on 595 (933 less 338) shareholder accounts at most.
I do not however consider that on the submissions advanced by the Administrator and CBP it is necessary for me to add in any way to my conclusions and decision in relation to Question (c).
Put another way, the above conclusion and decision in relation to Question (c) are, I consider, sufficient to enable the parties to apply Part A (5)b of the Schedule to the Terms of Settlement and thereby calculate the Administrator’s entitlements under this Part.
Question (d) – Indemnification for the reasonable costs of the Expert review
The Administrator seeks judicial advice on whether the Administrator may be indemnified from the Fund in respect of the reasonable costs of the Expert Review performed pursuant to clause 7 of the Settlement Distribution Scheme.
The Administrator’s Submissions
The Administrator submits that the costs which it could reasonably have expected to bear in administering the Fund when the ‘Terms of Settlement’ were struck on 9 February 2016 could never have been expected to extend to costs beyond those of communicating with class members and administering the Fund, as provided for in Part C of the ‘Terms of Settlement’.
The ‘Terms of Settlement’ provide at Schedule Part C(6)(b) for the consideration of shareholders’ claims by an independent Expert. That Part makes the following provision in that regard:
To the extent that a shareholder’s claim is not admitted for the full extent claimed, Elliott Legal P/L will advise that shareholder and Downer’s solicitors, provide full and complete reasons, refer that shareholder’s claim to an agreed nominated Expert for consideration and Downer agrees to be bound by the decision of that Expert, whose decision will be notified to the affected shareholder and to Downer’s solicitors. Each party to the determination will bear its own costs, unless otherwise determined by the Expert.
The Administrator observes that the final sentence of Schedule (C)6b concerning costs makes no provision for the costs of the Expert themselves. The Administrator also observes that the only parties having any relevant interest are each shareholder whose claim has been rejected and Downer which is the residuary beneficiary of the Fund.
The Administrator’s submissions inform that the costs of the Expert have not been borne by the affected shareholders or Downer. To date, this cost has been borne by the Administrator out of its own pocket pursuant to clause 8.1 of the Settlement Distribution Scheme[12] despite the Administrator having no relevant interest in the outcome of any determination made by the Expert.
[12]While clause 8.1 obliges the Administrator to pay the Expert, no provision of the ‘Terms of Agreement of Settlement’ or the Settlement Distribution Scheme prevents the Administrator from seeking to be indemnified from the Fund in respect of payments made to the Expert. Clause 10.1(c) expressly refers to the Court’s approval of Administration Costs to be paid to the Administrator.
The Administrator’s submission also appears to be that clause 8.1 of the Settlement Distribution Scheme is only operative inter parties between it and the affected registrant and does not preclude the Administrator from being reimbursed/indemnified for the Expert’s costs.
The scope of the Administrator’s tasks associated with the expert Review process was unknown at the time of agreement of both the ‘Terms of Settlement’ and when the Settlement Distribution Scheme was approved.
The Administrator submits that given the Expert’s costs approximately $6,000 and involved multiple Registrants, it could not reasonably have been expected to be an expense covered by the fixed or variable payments made to the Administrator. The Administrator also observes that it is likely that further expense in engaging the Expert will be incurred in the future.
CBP’s Submissions
By its submissions CBP maintains that this question should be answered in the negative both in relation to the Expert’s fee and also in relation to the costs of Elliott Legal Pty Ltd in seeking the Expert Review of those registrants’ claims which were not fully admitted.
Clause 8.1 of the Settlement Distribution Scheme provides:
Where an Expert Review is undertaken pursuant to clause 7 the Expert’s costs of the Expert Review will be borne by the Administrator.
CBP submit that clause 8.1 of the Settlement Distribution Scheme is clear in respect of the Expert’s costs in that it was a term agreed between the parties in respect of which it is not pertinent for the Administrator to now say it had no knowledge of the scope of the task when the Settlement Distribution Scheme was approved. In CBP’s submission, the wording of clause 8.1 is clear and unambiguous as to the costs of the Expert being borne by the Administrator.
CBP submits that the Administrator is paid an administration fee for administering the Fund and the administration of the Fund includes the dispute resolution procedures set out in clause 7 of the Settlement Distribution Scheme.
Further, CBP point out that the Administrator’s Senior Counsel advised the Court in terms recorded in the exchange at T34.22-28 that there was no top up of legal fees from interest earned on the Fund.
Administration Costs are defined in clause 2.1 of the Settlement Distribution Scheme to mean –
the costs and disbursements incurred by Elliott Legal Pty Ltd agreed in the sums set out in the Terms of settlement -Conditions Part A(5), subject to court approval, in connection with administering the Settlement Distribution Scheme.
CBP’s submission is that the wording of clause 8.1 of the Settlement Distribution Scheme is consistent with regarding the Expert’s fee as a disbursement incurred by Elliott Legal Pty Ltd for which it agreed to accept the (A)5(a) fee in the schedule to the Terms of Settlement. That fee is specifically stated to be inclusive of out-of-pocket expenses.
Considerations
Clause 8.1 of the of the Settlement Distribution Scheme provides:
Where an Expert Review is undertaken pursuant to clause 7 the Expert’s costs of the Expert Review will be borne by the Administrator.
In my view this clause is unambiguous in its terms and reflects the intention of the parties to the Settlement Distribution Scheme, one of which was the Administrator, that the agreed remuneration paid to the Administrator for administering the Fund would include the Administrator’s costs in relation to facilitating and administering the dispute resolution procedures provided for in Clause 7 of the Settlement Distribution Scheme, including the Administrator absorbing out-of-pocket expenses associated with doing so.
The cost associated with the payment of any Expert involved in the Expert Review process contemplated by the Settlement Distribution Scheme, and the Terms of Settlement, was foreseeable as a future component of costs to be borne by the Administrator, which was to be remunerated pursuant to the Terms of Settlement, Schedule (A)5(a). Schedule (A)5(a) of the Terms of Settlement is expressed to include the Administrator’s out-of-pocket expenses and pursuant to clause 8.1 of the Settlement Distribution Scheme, the Expert’s costs of Expert Reviews was accepted and agreed as payable by the Administrator and in my view was such an out-of-pocket expense.
Given the terms of clause 8.1 of the Settlement Distribution Scheme, I see no merit in the Administrator’s submission that it did not anticipate that the costs of Experts associated with the Expert Review process contemplated by the Terms of Settlement, nor do I accept the Administrator’s argument that the cost of and associated with the Expert Review process would not reasonably have been expected to be an expense covered by the fixed and variable payment made to the Administrator under the Terms of Settlement and should be borne by others, probably the party with a relevant interest in the Expert Review process.
Likewise, for the same reasons, I do not accept the Administrator’s observation that although it recognises that clause 8.1 of the Settlement Distribution Scheme obliges the Administrator to pay the Expert, because there is no provision in the Terms of Settlement or the Settlement Distribution Scheme preventing the Administrator from seeking to be indemnified from the Fund in respect of payments made to the Expert, it should, by implication or otherwise, be recognised that the Administrator is entitled to recoup both the disbursements it has made to Experts and recoup the Administrator’s own costs associated with that process, which costs should be borne by the residuary beneficiary Downer.
My view is to the contrary. For the reasons I have outlined, the Administrator has agreed to bear the costs of the Expert Review and has accepted the risk that the extent of such costs and out-of-pocket expenses was not quantified at the time of the Terms of Settlement being entered into on 9 February 2016.
Decision – Question (d)
For the reasons outlined above, I do not consider that the Administrator is entitled to be indemnified from the Fund in respect of the reasonable costs of the Expert Review performed pursuant to clause 7 of the Settlement Distribution Scheme.
Question (e) – Indemnification for the costs of obtaining advice from counsel
The Administrator seeks judicial advice as to whether the Administrator may be indemnified from the Fund in respect of its reasonable costs of obtaining advice from counsel including as concerns the administration of the Fund and settling applications for judicial advice.
The Administrator’s Submissions
The Administrator submits that the costs of seeking judicial advice in connection with disagreements between the Trustees and as on this occasion to seek the Court’s direction as to the propriety of the Trustees/Administrator being indemnified in certain circumstances which were not addressed in the Settlement Distribution Scheme, have similarly been unexpected and has given rise to reasonably incurred expenses.
The Administrator also submits that its own reasonable costs, the costs of the expert and the cost of obtaining independent legal advice in respect of judicial advice and the administration of the Fund all fall within the term ‘expenses’ as used in s 36(2) of the Trustee Act 1958 (Vic) and the explanation of the scope of that section provided by Marks and Baxt in the ‘Law of Trusts’ (CCH, 1980) at 257:
The term ‘expenses’ is a very wide one and bears no technical meaning in this context; it includes such outgoing as payments to authorised agents for work done on behalf of the trust, stamp and other government duties, and telephone and stationery costs. The term ‘expenses’, however, is by no means limited to administrative expenses; it has, for example, been held to include a damages award made against a Trustee for conducting the trust business in such a way as to constitute a nuisance to neighbours, see Re Raybould [1900] 1 Ch. 199.
Although it should be noted that (at 258):
expenses incurred from pursuing an unauthorised course of action, such as carrying on a business without the power to do so, will not be reimbursed, Strickland v Symons (1884) 26 Ch. D. 245. Furthermore, a Trustee who is in breach of trust cannot assert his right to an indemnity until he has made good the breach, Re Knott (1887) 56 LJ Ch 318.
Furthermore, the Administrator submits that in performing the functions allocated to it under the Settlement Distribution Scheme, it is performing the role of Trustee (even if not strictly occupying that role as when the Administrator jointly holds the Fund with CBP). To the extent to which the expenses reasonably incurred by the Administrator are unexpected and could not reasonably have been expected to be covered by the fees which have been agreed to be paid for the Administrator performing the role of Administrator, the Administrator submits that it should be indemnified from the Fund.
The Administrator also submits that there is nothing in the Administrator’s conduct in paying an Expert or counsel which would disentitle the Administrator from recovering under s 36(2) of the Trustee Act 1958 (Vic).
CBP’s Submissions
CBP submits that given the second order made by the Court in relation to this class action administration, when considering the First Application by the Administrator for Judicial Advice and Order, CBP does not oppose an order being made in the following terms in relation to the Second Application:
The Administrator recover the Administrator’s costs of this application in respect of questions ... on a standard basis from the residue of the Fund which would otherwise be returned to the defendant pursuant to clause 10 of the Settlement Distribution Scheme on or before 31 December 2017.
CBP also submits that given there are presently four other questions on which judicial advice is sought, the court could nominate in respect of which questions it is ordering the recovery of costs if it is minded to do so. In this regard, CBP observes that the court may be against the Administrator on one or more of the positions for which it has contended. If so, CBP submit, it would be appropriate for any costs order to be made on an issues basis by reference to the questions on which the Administrator was successful.
CBP submits that given clause 10.1 (c) of the Settlement Distribution Scheme, in due course it will be a matter for the Court to approve an amount payable to the Administrator for Administration Costs incurred by it. CBP expect that attempts at agreeing quantification of any such costs will be made by it and the Administrator, and failing agreement, an assessment process made need to be undertaken. CBP also clarifies that its position as to costs in relation to Question (e) above is limited to the costs of obtaining judicial advice.
CBP maintain that the Administrator’s costs other than in relation to obtaining advice on, and bringing the application for judicial advice, should be covered by the Administration fee paid pursuant to (A)5(a) of the Schedule to the Terms of Settlement.
Considerations
The Court’s power to determine and/or advise the parties in relation to the above questions which have arisen concerning the meaning and effect of the Orders of 3 May 2016, the Terms of Settlement and the Settlement Distribution Scheme, is clear on the bases identified above.[13]
[13]Reasons [7(12)], [12 (of the Act s 33ZF)], [14] and [15].
The Administrator submits that it seeks to recover its own costs, the costs of the expert referred to in the Administrator’s submissions summarised at [141] above, and the costs of obtaining independent legal in respect of the judicial advice sought.
I note however that the Administrator’s Question (e) for judicial advice specifically seeks judicial advice on whether the Administrator may be indemnified from the Fund in respect of its reasonable costs of obtaining advice from counsel including as concerns the administration of the Fund and settling applications for judicial advice.
In my view, on this application, the Administrator’s costs other than its costs and disbursements for directly related advice of Counsel in relation to obtaining the judicial advise it seeks in this application, should not be ordered.
It may be an issue for future determination, including under Clause 10 of the Settlement Distribution Scheme, whether the Administrator is entitled, in particular circumstances, to certain cost and disbursements in the nature of its legal costs in the course of administering the Fund.
Further, the Administrator contends that the costs presently claimed in principle are costs which fall within the term ‘expenses’ in s 36(2) of the Trustee Act 1958 (Vic). In my view it is has not been established by the Administrator on this application, other than in respect of the specific and defined reasonable costs claimed in relation to the below mentioned aspects of this application for judicial advice, that the costs the subject of Question (e) are expenses incurred in and about the execution of the trust or relevant powers, as informed by the Terms of Settlement and the Settlement Distribution Scheme.
Finally, for the purposes of this Question, because the Administrator has been successful on only limited aspects of this application for judicial advise and it has been unsuccessful as to the other Questions upon which it sought judicial advise, and because I also consider that the Administrator’s application and the CBP responses are readily divisible on a question by question basis, I consider that the Administrator should only be awarded its costs in relation to the successful Questions (a) and (b), on a standard basis.
Decision – Question (e)
For the reasons outlined above I consider that the Administrator is entitled to recover its costs, including reasonable disbursements to Counsel, of this application seeking judicial advise in respect of Questions (a) and (b) only, on a standard basis from the residue of the Fund which would otherwise be returned to the defendant pursuant to clause 10 of the Settlement Distribution Scheme on or before 31 December 2017
Summary of above advices
Questions
(a) whether the Trustees of the Fund may be indemnified from the Fund in respect of any liability to tax arising by operation of s 99 of the Income Tax Assessment Act 1936 (Cth) and cognate provisions under Australian taxation laws on the Fund’s income;
Answer: yes
(b) whether the Administrator of the Fund may be indemnified from the Fund in respect of the reasonable professional fees paid for accounting and taxation services connected with the preparation of income tax returns in respect of the Fund;
Answer: yes
(c) whether after 1 March 2017:
(iii) the Administrator continues to be entitled to the variable monthly payment agreed in Part A(5)(b) of the Schedule to the ‘Terms of Settlement’; or
Answer: no
(iv)the variable monthly payment should instead be calculated on the basis of the number of registered shareholders whose claims have not been fully paid;
Answer: yes
(d) whether the Administrator may be indemnified from the Fund in respect of the reasonable costs of the Expert Review performed pursuant to clause 7 of the Settlement Distribution Scheme; and
Answer: no
(e) whether the Administrator may be indemnified from the Fund in respect of its own reasonable costs the reasonable costs of obtaining advice from counsel including as concerns the administration of the Fund and settling applications for judicial advice.
Answer: The Administrator is entitled to recover its costs, including reasonable disbursements to Counsel, of this application in respect of Questions a and b only, on a standard basis from the residue of the Fund which would otherwise be returned to the defendant pursuant to clause 10 of the Settlement Distribution Scheme on or before 31 December 2017.
Declarations and Orders
I shall provide an opportunity to the parties to propose consent orders, and if necessary make any submissions as to the form of any declarations and final orders.
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