Harrison v Sandhurst Trustees Ltd

Case [2011] FCA 541

FEDERAL COURT OF AUSTRALIA

Harrison v Sandhurst Trustees Ltd [2011] FCA 541

Citation: Harrison v Sandhurst Trustees Ltd [2011] FCA 541
Parties: MARK HARRISON and RHONDA HARRISON v SANDHURST TRUSTEES LTD (ACN 004 030 737)
File number: VID 616 of 2009
Judge: GORDON J
Date of judgment: 20 May 2011
Date of hearing: 20 May 2011
Date of last submissions: 20 May 2011
Place: Melbourne
Division: GENERAL DIVISION
Category: No Catchwords
Number of paragraphs: 33
Counsel for the Applicants: Dr CL Pannam QC and Mr C Young
Solicitor for the Applicants: Slater & Gordon
Counsel for the Respondent: Mr M Connock SC with Mr G Ahern
Solicitor for the Respondent: Baker and McKenzie

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 616 of 2009
BETWEEN:

MARK HARRISON
First Applicant

RHONDA HARRISON
Second Applicant
AND:

SANDHURST TRUSTEES LTD (ACN 004 030 737)
Respondent

JUDGE:

GORDON J

DATE OF ORDER:

20 MAY 2011

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.Paragraph 2 of the Application filed 24 August 2009 be amended to provide that group members to whom the proceeding relates within the meaning of s 33H of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) are those persons who:

(a)(except where d(ii) or d(iii) applies) on 23 March 2007 held Debentures and/or Unsecured Notes issued by Fincorp Investments Limited (ACN 098 838 549) pursuant to the Debenture Trust Deed dated 5 August 2002 and the Unsecured Note Trust Deed dated 5 August 2002;

(b)acquired such Debentures and/or Unsecured Notes on or after 7 December 2004 (where “acquired” means the person first made the investment and was issued with the Debentures and/or Unsecured Notes on or after 7 December 2004 or the person first made the investment and was issued with the Debentures and/or Unsecured Notes before 7 December 2004 but rolled over the Debentures and/or Unsecured Notes on or after 7 December 2004);

(c)suffered loss and damage as a result of the Respondent’s alleged contraventions of s 283DA of the Corporations Act2001 (Cth) during the period 7 December 2004 to 1 July 2006;

(d)either:

(i)continue to hold the Debentures and/or Unsecured Notes; or

(ii)are the legal personal representative of a person who held the Debentures and/or Unsecured Notes as at 23 March 2007; or

(iii)are the holder of the Debentures and/or Unsecured Notes by reason of the assignment of the Debentures and/or Unsecured Notes from a person who held the Debentures and/or Unsecured Notes as at 23 March 2007, other than pursuant to an arm’s length transaction for value from an unrelated person; and

(e)either:

(i)appear in the Schedule of Group Members that is Schedule B to the Deed of Settlement; or

(ii)do not appear in the Schedule of Group Members but lodge a claim which is accepted by the administrator in accordance with the Scheme (as defined in the Deed of Settlement).

2.Pursuant to ss 33V and 33ZF of the Federal Court Act, the Court approves the settlement of…

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Harrison v Sandhurst Trustees Ltd [2011] FCA 541
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[2011] FCA 541
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CaseChat Overview and Summary

In the case of Harrison v Sandhurst Trustees Ltd, the applicants, the Harrisons, brought a proceeding against Sandhurst Trustees Ltd on behalf of investors who had purchased debentures or unsecured notes issued by Fincorp Investments Ltd after December 7, 2004, and who suffered losses as a result of Sandhurst's alleged breaches of its obligations under the Corporations Act 2001 (Cth). The key issue before the court was whether the settlement proposed by the parties was fair, reasonable, and adequate. This involved considering the prospects of success on the various issues in the dispute, the risks if the matter proceeded to judgment, and the reasonableness of the settlement sum.

The court considered the arguments presented by both parties, the advice given to the applicants, and the affidavits provided. The court determined that the proposed settlement was fair and reasonable, taking into account the potential outcomes of the proceeding and the benefits to the applicants. The court found that the settlement sum was reasonable given the risks and potential costs involved in pursuing the matter to judgment. The court also considered the benefits of the settlement for the group members, who would otherwise have to individually pursue their claims.

Based on the evidence presented and the court's analysis, it was concluded that the settlement should be approved. The court made several orders to give effect to the settlement, including approving the settlement, depositing the settlement sum into a controlled money account, and authorising the applicants to act on behalf of the group members in relation to the settlement. The court also ordered that the confidential affidavits and annexures not be disclosed without further orders of the court. The proceeding was dismissed without prejudice to any other claims that may arise from the settlement or its enforcement.

Orders

Orders of the court

1. Paragraph 2 of the Application filed 24 August 2009 be amended to provide that group members to whom the proceeding relates within the meaning of s 33H of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) are those persons who:

(a) (except where d(ii) or d(iii) applies) on 23 March 2007 held Debentures and/or Unsecured Notes issued by Fincorp Investments Limited (ACN 098 838 549) pursuant to the Debenture Trust Deed dated 5 August 2002 and the Unsecured Note Trust Deed dated 5 August 2002;

(b) acquired such Debentures and/or Unsecured Notes on or after 7 December 2004 (where “acquired” means the person first made the investment and was issued with the Debentures and/or Unsecured Notes on or after 7 December 2004 or the person first made the investment and was issued with the Debentures and/or Unsecured Notes before 7 December 2004 but rolled over the Debentures and/or Unsecured Notes on or after 7 December 2004);

(c) suffered loss and damage as a result of the Respondent’s alleged contraventions of s 283DA of the Corporations Act 2001 (Cth) during the period 7 December 2004 to 1 July 2006;

(d) either:

(i) continue to hold the Debentures and/or Unsecured Notes; or

(ii) are the legal personal representative of a person who held the Debentures and/or Unsecured Notes as at 23 March 2007; or

(iii) are the holder of the Debentures and/or Unsecured Notes by reason of the assignment of the Debentures and/or Unsecured Notes from a person who held the Debentures and/or Unsecured Notes as at 23 March 2007, other than pursuant to an arm’s length transaction for value from an unrelated person; and

(e) either:

(i) appear in the Schedule of Group Members that is Schedule B to the Deed of Settlement; or

(ii) do not appear in the Schedule of Group Members but lodge a claim which is accepted by the administrator in accordance with the Scheme (as defined in the Deed of Settlement).

2. Pursuant to ss 33V and 33ZF of the Federal Court Act, the Court approves the settlement of this proceeding on the terms set out in the Deed of Settlement, a copy of which is a confidential exhibit to the affidavit of Kenneth John Fowlie sworn and filed on 18 May 2011 (the Deed of Settlement).

3. The Settlement Sum (or part thereof, as the case may be) be deposited into a Controlled Money Account within the meaning of ss 3.3.2 and 3.3.15 of the Legal Profession Act 2004 (Vic).

4. Interest earned on the Settlement Sum while invested in accordance with order 3, shall be applied to the Applicants’ Legal Costs, to the extent of any shortfall, as defined in the Deed of Settlement and to the extent of any surplus, shall be returned to the Respondent.

5. The Applicants will, on or before 24 May 2011:

(a) cause a notice in the form of Annexure 1 to these Orders (the Notice) to be sent by pre-paid ordinary post to the last known address of each person listed in Schedule B to the Deed of Settlement;

(b) cause the Notice to be published in the legal notices section or the equivalent of The Australian; and

(c) cause the Notice, the Scheme in the form of Annexure 2 to these Orders and the Deed Poll in the form of Annexure 3 to these Orders to be published on Slater & Gordon’s website (www.slatergordon.com.au).

6. The cost of complying with Order 5 be paid by the Applicants and then be part of the Applicants’ costs in the cause.

7. All costs orders made to date in the proceeding be hereby vacated.

8. There be no order as to the costs of the proceeding.

9. Pursuant to s 33ZF of the Federal Court Act or otherwise, the Applicants be authorised nunc pro tunc on behalf of the group members who are defined in the Application filed 24 August 2009 as amended by Order 1 to enter into and to give effect to the Deed of Settlement and the transactions thereby contemplated for and on behalf of those group members.

10. Pursuant to s 33ZB(a) or s 33ZF of the Federal Court Act, the persons affected and bound by these orders be the Applicants, the Respondent and the group members, who are defined in the Application filed 24 August 2009 as amended by Order 1, save for those group members who have opted out of the representative proceeding pursuant to notices filed with the court pursuant to s 33J of the Federal Court Act where such opt out notice was received by the Court before 4.00 pm on 21 April 2011.

11. The Application filed 24 August 2009 as amended by Order 1 be otherwise dismissed without prejudice to the right of the Respondent to bring a claim against any person (save as against the Applicants or any group member defined in the Application filed 24 August 2009 as amended by Order 1 except for any claim against the Applicants and/or any group members arising out of the terms of the Deed of Settlement or the need to enforce any provision of the Deed of Settlement) for any relief which is related to or connected with the subject of the Proceeding.

12. Pursuant to s 50 of the Federal Court Act, the Confidential Affidavit of Kenneth John Fowlie sworn and filed on 19 May 2011 and annexures not be published to any person without further orders of the Court and be sealed on the Court file and not disclosed to any person without further order of the Court.

13. The Parties shall have liberty to apply on 3 business days’ notice.

Note:

Background

Background to the litigation

These reasons for decision will summarise the circumstances giving rise to the current proceeding, analyse the relevant legal principles and then consider the current application for approval under s 33V of the FCA and related orders.BACKGROUND In general terms, the proceeding arises out of the collapse of the Fincorp Group of Companies in March 2007. Fincorp Investments Ltd (previously known as Fincorp Finance Ltd) (Fincorp) raised funds from investors by issuing debentures pursuant to Ch 2L of the Act. The debentures were in two forms – secured (called Debentures) and unsecured (called Unsecured Notes). Fincorp was a member of the Fincorp Group of Companies. Other companies in that group (defined as Related Development Companies in the amended statement of claim) were engaged in land, banking and property development. Fincorp loaned most of the moneys it raised through issuing Debentures and Unsecured Notes to those Related Development Companies. When the group collapsed, thousands of noteholders were owed about $201 million. Sandhurst was the trustee for the noteholders and in that capacity had powers conferred by and obligations under Ch 2L of the Act. It was appointed trustee on 4 March 2004. One obligation, if not the most important obligation, imposed on Sandhurst was “to exercise reasonable diligence to ascertain whether the property of [Fincorp] … that is or should be available … will be sufficient to repay the amount deposited or lent when it becomes due”: s 283DA(a) of the Act. The applicants, the Harrisons, invested $330,000 in Debentures issued by Fincorp in two tranches. In July 2006, they invested $285,000, the proceeds of selling their house. In February 2007, they invested $45,000, the proceeds of a personal injury claim made by Rhonda Harrison. The Harrisons brought the claim on behalf of all of those persons who:1.on 23 March 2007, the date Fincorp entered voluntary administration, were investors in Debentures or Unsecured Notes issued by Fincorp;2.acquired such Debentures and Unsecured Notes on or after 7 December 2004; and3.suffered loss and damage as a result of Sandhurst’s contraventions of s 283DA(a) of the Act during the period 7 December 2004 and 31 July 2006. In general terms, the Harrisons’ claim that because Fincorp raised funds from investors and then on-loaned those funds to property development companies, the valuations of the properties held by those companies were the primary means of determining whether Fincorp’s loans were recoverable and therefore whether Fincorp would be able to repay the notes. The Harrisons further alleged:1.that there were significant fluctuations in the carrying values of the land in the financial statements of the development companies and that the financial position and performance of both Fincorp and the Related Development Companies was poor;2.all of this was known to Sandhurst and that at various points between 6 December 2004 and 31 July 2006, Sandhurst ought to have taken steps to satisfy itself of the true value of the land (by obtaining current valuations of the land based on short term sale and not on a projected, long-term and conditional development process); and3.that had Sandhurst obtained those valuations, it would not have been satisfied that Fincorp’s property would be sufficient to repay the outstanding Debentures and Unsecured Notes when they were to be redeemed and it should have taken steps to cause Fincorp to cease fundraising and the Court and / or the Australian Securities and Investments Commission would have taken action at a point in time between 7 December 2004 and 31 July 2006.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

As I have already noted, having read Counsels’ advice it is clear that considerable thought has been given to advising the applicants in relation to the fairness, reasonableness and adequacy of the settlement, including issues such as the prospects of success on various issues in the dispute, risks if the matter proceeded to judgment and the reasonableness of the Settlement Sum. Having read the confidential affidavit of Kenneth John Fowlie sworn 19 May 2011 as well the earlier affidavit of Kenneth John Fowlie sworn 18 May 2011 in support of the application for approval under s 33V of the FCA, the Proposed Settlement is fair and reasonable and should be approved.CONCLUSION AND ORDERS For those reasons, I will make orders in the form of the minute provided by the applicants’ solicitors.

Ratio Decidendi

Legal Principle Established

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