CHARLES HODGES & MARK HODGES AS TRUSTEES OF THE CHARLES HODGES SUPERANNUATION FUND v ANDREA JANE WATERS, KPMG, WELLINGTON INVESTMENT MANAGEMENT LIMITED, OCTAVIAR LIMITED (ADMINISTRATOR APPOINTED), GUY HUTCHINGS, JOHN ARTHUR WHATELEY, JACK SIMON DIAMOND, CRAIG ROBERT WHITE, DEBORAH BEALE, STEVEN KRIS KYLING, STUART ROBERTSON PRICE, MICHAEL GORDON HISCOCK, MICHAEL CHRISTODOULOU KING, PAUL JOSEPH MANKA, FERNANDO ESTEBAN, RAYMOND KELLERMAN, DAVID MARK ANDERSON, OCTAVIAR LTD (IN LIQUIDATION) ACN 107 863 390 and OCTAVIAR ADMINISTRATION PTY LTD (IN LIQUIDATION) ACN 101 069 390
WELLINGTON CAPITAL LIMITED ACN 114 248 458 AS RESPONSIBLE ENTITY OF THE PREMIUM INCOME FUND (ARSN 090 687 577) v ANDREA JANE WATERS, KPMG, DAVID MARK ANDERSON, OCTAVIAR ADMINISTRATION PTY LTD (IN LIQUIDATION) ACN 101 069 390, OCTAVIAR LTD (IN LIQUIDATION) CAN 107 863 390, FERNANDO ESTEBAN, RAYMOND KELLERMAN, MANAGED INVESTMENTS PTY LTD (IN LIQUIDATION) ACN 101 634 146, MICHAEL CHRISTODOULOU KING, CRAIG ROBERT WHITE, GUY HUTCHINGS, STEVEN KRIS KYLING, STUART ROBERTSON PRICE, PAUL JOSEPH MANKA, MICHAEL GORDON HISCOCK, JOHN ARTHUR WHATELEY, JACK SIMON DIAMOND and DEBORAH BEALE
File numbers:
NSD 324 of 2009 NSD 557 of 2013
Judge:
PERRAM J
Date of judgment:
27 March 2015
Catchwords:
TRUSTS AND TRUSTEES – applicability of reflective loss principle to unit trusts – jurisdiction of Court to give judicial advice under Trustee Act 1925 (NSW) – whether power to give such advice enlivened – whether settlement of proceedings by trustee would be breach of trust
PRACTICE AND PROCEDURE – representative proceedings – Court approval of proposed settlement – orders under ss 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth) – whether settlement terms fair and reasonable
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Hodges v Waters (No 7) [2015] FCA 264
Case
[2015] FCA 264
Decision Date
CaseChat Overview and Summary
The case of Hodges v Waters (No 7) involved a dispute concerning the applicability of the reflective loss principle to unit trusts and the jurisdiction of the Court to provide judicial advice under the Trustee Act 1925 (NSW). Additionally, the court had to decide whether the power to give such advice had been activated and whether settling the proceedings by the trustee would constitute a breach of trust. The court was also required to determine the fairness and reasonableness of the proposed settlement terms in the context of representative proceedings, as well as the Court's approval of the settlement under sections 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth).
The court found that the confidential nature of the IMF Bentham’s fees was a result of the agreements entered into by the applicants. These fees, which were substantial, reflected the commercial risk the funder was taking with its own money. The court held that the funder was entitled to a fair reward for that risk, and without the funder, the unitholders would have received nothing at all. The court concluded that the settlement was reasonable, and the trustee would be justified in settling its proceedings on the terms of the settlement deed. The differential treatment of the unitholders was justified, taking into account the written advice of senior and junior counsel for the various applicants that, in their view, the settlement was reasonable.
The court approved the settlement as it found it to be fair and reasonable. The court granted leave for the settlement under section 33V of the Federal Court of Australia Act 1976 (Cth) because the settlement was a fair and reasonable one. Although Ms Livneh and Mr Grundel opposed the settlement, the court found that the settlement was as good as it was going to get, and the distribution mechanism was reasonable.
As a result, the court approved the settlement, and the trustee was authorised to settle its proceedings on the terms of the settlement deed. The differential treatment of the unitholders was justified, and the funder was entitled to a fair reward for the commercial risk it had taken with its own money.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
I turn then to IMF Bentham’s fees. These are commercially sensitive and are confidential. Their confidential nature is a consequence of the agreements which were entered into by the applicants in the proceedings. Whilst I will not set them out I will indicate that they consume just over one third of the settlement monies. This is the flipside of the Faustian bargain constituted by the funding agreements. Whilst they are, in my view, very substantial they reflect the commercial risk that the funder was taking with its own money. I would reserve for another day whether this information should properly remain out of public view. There was always the risk that the case might run and be lost with the concomitant loss by the funder of all of the legal fees it had paid. It was the funder which ran that risk and not the unitholders and it is entitled to a fair reward for that. Whilst that fee has consumed a substantial part of the settlement, it remains the case that without the funder the unitholders would have received nothing at all.XII. Conclusion In those circumstances, I concluded that the settlement was reasonable, that the trustee would be justified in settling its proceedings on the terms of the settlement deed and that the differential treatment of the unitholders is justified. In reaching that conclusion I also took into account written advice proffered by senior and junior counsel for the various applicants that, in their view, the settlement was reasonable. The representative proceedings cannot be settled without the leave of the Court under s 33V of the Federal Court of Australia Act 1976 (Cth).On 8 December 2014 I granted that leave. I did so because the settlement was a fair and reasonable one. At the s 33V hearing on 8 December 2014 Ms Livneh and Mr Grundel appeared to oppose the settlement. In substance their point was that the settlement was insufficient and unfair; also that the distribution mechanism was opaque. As to the former, I do not accept the argument. The proceedings were most likely to end in a heavy defeat. Far from being not enough, the settlement was as good as it was going to get. As to the latter, class members who wanted to access the distribution arrangements were permitted to do so. In any event, I have perused those arrangements and they are reasonable. It was for these reasons I approved the settlement.