Kelly v Willmott Forests Ltd (in liquidation) (No 4)

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FEDERAL COURT OF AUSTRALIA

Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323

File numbers: VID 1485 of 2011
VID 1483 of 2011
VID 1484 of 2011
VID 187 of 2013
Judge: MURPHY J
Date of judgment: 5 April 2016
Catchwords: REPRESENTATIVE PROCEEDING – settlement agreement – application for court approval of settlement under s 33V of the Federal Court of Australia Act 1976 (Cth) – principles relevant to settlement approval – relevance of low level of objections to settlement approval – settlement term which operates to preclude class members from denying the enforceability of their loan agreements on any basis – whether opt out notice unambiguously informed class members that if they did not opt out they would in subsequent loan enforcement proceedings be precluded from advancing claims or defences on any basis – opt out notice failed to unambiguously inform class members of the asserted preclusion – whether upon judgment in the class action, in subsequent proceedings class members would be precluded by the principles of Anshun estoppel or abuse of process – whether class members could have or were required to raise their individual or unique claims within the class action – whether it was unreasonable for class members not to have raised their individual or unique claims within the class action – class members unlikely to be precluded in subsequent proceedings by Anshun estoppel or abuse of process – effect of difficulties in funding the litigation and the resultant significant gaps in case preparation – whether the applicants’ lawyers were obliged to inform class members of the difficulties in funding the litigation and the resultant significant gaps in case preparation - whether the applicants’ lawyers were in a position to properly inform the Court as to the prospects of success – whether several conflicts of interest were recognised and properly dealt with by the applicants’ lawyers – whether in the circumstances the applicants’ lawyers were required to satisfy the Court as to the reasonableness of costs charged to class members – settlement approval refused
Legislation:

Australian Securities and Investments Commission Act 2001 (Cth)

Corporations Act 2001 (Cth)

Supreme Court Act 1986 (Vic)

Cases cited:

Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250; [1996] FCA 1119

Australian Securities and Investments Commission v Richards [2013] FCAFC 89

Bray v F Hoffman-La Roche Ltd [2003] FCA 1505

Bright v Femcare Ltd (2002) 195 ALR 574; [2002] FCAFC 243

Clarke v Great Southern Finance Pty Ltd (in liquidation) (No 2) [2012] VSC 338

Clarke v Great Southern Finance Pty Ltd (in liquidation) [2014] VSC 569

Clarke v Great Southern Finance Pty Ltd (in liquidation) [2014] VSC 516

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14

Courtney v Medtel Pty Ltd (2002) 122 FCR 168; [2002] FCA 957

Courtney v Medtel Pty Ltd (No 4) [2004] FCA 1233

Darling Island Stevedoring and Lighterage Co Ltd v Long (1957) 97 CLR…

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Details
Case
[2016] FCA 323
Decision Date

CaseChat Overview and Summary

The case Kelly v Willmott Forests Ltd (in liquidation) (No 4) involves a representative proceeding brought by the applicants on behalf of class members against the respondents. The dispute pertains to the approval of settlement agreements reached in multiple proceedings. The matter was heard in the Federal Court of Australia. The central legal issues before the court were whether the settlement agreements should be approved and whether the applicants' lawyers had adequately informed the class members of the potential implications of the settlements. The court had to consider various objections to the settlements, including the clarity of opt-out notices, the enforceability of the settlements, and the reasonableness of the costs charged to the class members.

The court examined the principles relevant to the approval of settlements, including the low level of objections and the enforceability of the settlements. It found that the opt-out notice failed to unambiguously inform class members that they would be precluded from making any claims or defences in subsequent proceedings. Additionally, the court considered whether class members would be estopped from raising individual claims by the doctrines of Anshun estoppel or abuse of process. The court concluded that class members were unlikely to be precluded in subsequent proceedings. However, the court found that the applicants' lawyers were not adequately transparent with class members about the difficulties in funding the litigation and the resultant gaps in case preparation. The court also found that there were conflicts of interest that were not properly managed. Consequently, the court held that the applicants' lawyers were required to satisfy the court as to the reasonableness of the costs charged to class members, which they had failed to do.

The court refused to approve the settlement agreements due to the aforementioned issues. The court's decision was influenced by the failure of the applicants' lawyers to adequately inform both class members and the court about the litigation's funding difficulties and the significant gaps in case preparation. Additionally, the court found that the applicants' lawyers were not transparent about the conflicts of interest and failed to demonstrate the reasonableness of the costs charged to class members. As a result, the court granted the parties and objectors liberty to apply for further orders if necessary.

Orders

Orders of the court

1. The applications for approval of settlements in proceedings VID 1483 of 2011, VID 1484 of 2011, VID 1485 of 2011 and VID 187 of 2013 are refused.

2. The parties and the objectors to settlement approval are granted liberty to apply.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

It is first necessary to explain the class member registration and opt out process and the different rights enjoyed by registered class members and unregistered (or non-participating) class members. By orders made on 14 March 2014, 25 March 2014 and 3 April 2014 in the 2007/08/09 Schemes proceedings and 3 April 2014 in the 2010 Scheme proceeding, class members were required to decide whether to register and whether to opt out of the proceedings. Class members who wished to register were required to complete a registration form, which, in the 2007/08/09 Schemes proceedings included a requirement to contribute to security for costs or to provide information to show that they were financially unable to do so. The registration and opt out notices sent to class members are central to my decision.The background to the requirement to register On 17 December 2012 I refused the respondents’ application for security for costs in the 2007/08/09 Schemes proceedings, holding that such an order was likely to stifle the applicants’ and class members’ pursuit of their claims: Kelly v Willmott Forests Ltd(in liquidation) (2012) 300 ALR 675; [2012] FCA 1446 (“Kelly No 1”). The respondents appealed that decision. On 14 June 2013 the Full Court allowed the appeal, holding that an order for some security for costs was appropriate given the nature of the underlying claims and the proven ability of at least a not insignificant number of class members to contribute to a fund for such a purpose: Madgwick v Kelly (2013) 212 FCR 1; [2013] FCAFC 61 (Allsop CJ, Jessup and Middleton JJ). Accordingly, on 5 August 2013 I ordered a regime requiring class members to make a rateable contribution to a $6.58 million fund for security for costs (which was the unchallenged evidence as to the respondents’ party-party costs up to trial). M+K were required to send a notice to class members that the Court intended to fix the amount of security for costs at $6.58 million and that it was likely that the Court would stay the proceedings if the security was not paid. Class members were requested to inform M+K whether they were prepared to make a rateable contribution to security and, if not prepared to do so, to advise the reason for the refusal. If a class member’s refusal to contribute was based on an asserted financial incapacity to make the requested contribution he or she was requested to provide information as to the basis of the asserted inability: Kelly v Willmott Forests Ltd (in liquidation)(No 2) [2013] FCA 732 (“Kelly No 2”). Upon completion of that process Mr Willemsen gave evidence that the applicants and class members were unable to provide security for costs of $6.58 million but could provide security of $1.73 million. At that point, on Mr Willemsen’s calculation, there were 446 client class members and approximately 3,319 non-client class members. Mr Willemsen deposed: (a)in relation to the 446 client class members, that 83 class members did not respond to the letter seeking a contribution to security, 62 class members agreed to make the requested rateable contribution, 86 class members agreed to make a lesser contribution, and 217 class members advised they were not prepared to make any contribution; and (b)in relation to the 3,319 non-client class members that 193 of the letters seeking a contribution were returned to M+K marked “return to sender”, 2,970 class members did not respond to the letter, 33 class members agreed to make the requested rateable contribution, 23 class members agreed to make a lesser contribution, and 112 class members advised that they were not prepared to make a contribution.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Given that approval of the settlements is to be refused on the grounds set out above it is unnecessary to deal in detail with the other factors relevant in a settlement approval application or the other objections to approval. It suffices to briefly note my views on the main remaining objections as follows:(a)in the 2007/08/09 Schemes proceedings some objectors opposed settlement approval on the basis that is less advantageous for class members than the settlement in the 2010 Scheme proceeding, arguing that the two settlements are “inconsistent”. There is no force in this objection. Amongst other things, there are significant differences in the factual allegations underpinning the 2010 Scheme proceeding (as set out at [255]), investors were invited to acquire interests in the 2010 Scheme at a later date than in the earlier Schemes and at a time when any “significant risks” would have been more apparent (on the applicant’s argument), and the investors in the 2010 Scheme suffered greater individual losses than those in the earlier Schemes because they did not obtain the benefit of a tax deduction. It is unsurprising that there are significant differences between the settlements;(b)in the 2007/08/09 Schemes proceedings some objectors opposed settlement approval because they wish to preserve their rights to sue third parties, including financial planners. There is little force in this objection. Under the settlements class members retain any right to sue third parties, although they will be bound by the indemnity term. The indemnity term provides finality for the respondents so that they are not forced to contribute to judgements or settlements in related litigation and, were the settlements otherwise fair and reasonable, the indemnity term would not in my view justify a refusal to approve the settlements;(c)some objectors opposed settlement approval because they wish to preserve their rights to sue M+K or other advisors who they allege advised them to cease making loan repayments to CBA and MIS, leading them to accrue a significant amount of interest, only to now have the validity of the loans confirmed. There is little merit this objection. The settlements do not preclude class members from commencing proceedings against M+K or other advisors in relation to such advice, and it seems unlikely that any such litigation will be affected by the indemnity term;(d)Mr Anderson opposed approval on the basis that the settlement is less advantageous for class members than the settlement of the Great Southern class action. There is no force to this objection. It is unsurprising that the settlements are different when the facts of the cases are different and the settlements were reached in different circumstances; and(e)in the 2010 Scheme proceeding some objectors opposed settlement approval on the basis that the settlement overstated the risks for the applicant and that the discount on loan repayments is insufficient. I cannot deal with this objection without receiving further material regarding the risks on liability to which I have referred. Having said this, the Court’s task is only to decide whether the settlement falls within the range of reasonable outcomes, not to substitute its assessment of the risks of litigation for that of the applicants or the applicants’ lawyers.R. CONCLUSION

Ratio Decidendi

Legal Principle Established

Mr Braham, relied upon his affidavit affirmed on 15 June 2015, and the affidavit of his solicitor, Mr Demian Walton, sworn 17 June 2015. Dr Jackson relied on her affidavit sworn 16 June 2015. Mr Braham and Dr Jackson also retained counsel to appear on their behalf. Eight other objectors also filed affidavits in support of their objections but they did not appear or make submissions at the hearing.D. THE CLASS MEMBER REGISTRATION AND OPT OUT PROCESS It is first necessary to explain the class member registration and opt out process and the different rights enjoyed by registered class members and unregistered (or non-participating) class members. By orders made on 14 March 2014, 25 March 2014 and 3 April 2014 in the 2007/08/09 Schemes proceedings and 3 April 2014 in the 2010 Scheme proceeding, class members were required to decide whether to register and whether to opt out of the proceedings. Class members who wished to register were required to complete a registration form, which, in the 2007/08/09 Schemes proceedings included a requirement to contribute to security for costs or to provide information to show that they were financially unable to do so. The registration and opt out notices sent to class members are central to my decision.The background to the requirement to register On 17 December 2012 I refused the respondents’ application for security for costs in the 2007/08/09 Schemes proceedings, holding that such an order was likely to stifle the applicants’ and class members’ pursuit of their claims: Kelly v Willmott Forests Ltd(in liquidation) (2012) 300 ALR 675; [2012] FCA 1446 (“Kelly No 1”). The respondents appealed that decision. On 14 June 2013 the Full Court allowed the appeal, holding that an order for some security for costs was appropriate given the nature of the underlying claims and the proven ability of at least a not insignificant number of class members to contribute to a fund for such a purpose: Madgwick v Kelly (2013) 212 FCR 1; [2013] FCAFC 61 (Allsop CJ, Jessup and Middleton JJ). Accordingly, on 5 August 2013 I ordered a regime requiring class members to make a rateable contribution to a $6.58 million fund for security for costs (which was the unchallenged evidence as to the respondents’ party-party costs up to trial). M+K were required to send a notice to class members that the Court intended to fix the amount of security for costs at $6.58 million and that it was likely that the Court would stay the proceedings if the security was not paid. Class members were requested to inform M+K whether they were prepared to make a rateable contribution to security and, if not prepared to do so, to advise the reason for the refusal. If a class member’s refusal to contribute was based on an asserted financial incapacity to make the requested contribution he or she was requested to provide information as to the basis of the asserted inability: Kelly v Willmott Forests Ltd (in liquidation)(No 2) [2013] FCA 732 (“Kelly No 2”).