Kelly v Willmott Forests Ltd (in liquidation) (No 5)

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FEDERAL COURT OF AUSTRALIA

Kelly v Willmott Forests Ltd (in liquidation) (No 5) [2017] FCA 689

File numbers: VID 1483 of 2011
VID 1484 of 2011
VID 1485 of 2011
VID 187 of 2013
Judge: MURPHY J
Date of judgment: 20 June 2017
Catchwords: PRACTICE AND PROCEDURE – settlement agreement – application for court approval of settlement of representative proceeding under s 33V of the Federal Court of Australia Act 1976 (Cth) – first proposed settlement refused – parties reached revised settlement – class members advised of the deficiencies in the first proposed settlement – revised settlement improves the result for class members – class members provided with a further right to opt out of the revised settlement – further counsels’ opinion as to prospects of success provided – whether legal costs charged to class members are fair and reasonable – revised settlement approved – legal costs approved
Legislation: Federal Court of Australia Act 1976 (Cth) s 33V
Cases cited:

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

Darwalla Milling Co Pty Ltd v F Hoffman-La Roche (No 2) (2006) 236 ALR 322; [2006] FCA 1388

Kelly v Willmott Forests Ltd (in liq) (No 4) (2016) 335 ALR 439; [2016] FCA 323

Woodcroft-Brown v Timbercorp Securities Ltd (in liq) & Ors (2011) 253 FLR 240; [2011] VSC 427

Date of hearing: 19 December 2016
Registry: Victoria
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 114
Counsel for the Applicant: Mr M Galvin QC and Mr S Rubenstein
Solicitor for the Applicant: Macpherson & Kelley
Counsel for the First and Seventh Respondents in VID 1485 of 2011 and the First Respondent in VID 187 of 2013: Mr R Craig
Solicitor for the First and Seventh Respondents in VID 1485 of 2011 and the First Respondent in VID 187 of 2013: Arnold Bloch Leibler
Counsel for the Second, Third, Fourth, Fifth and Sixth Respondents in VID 1485 of 2011 and VID 187 of 2013: Mr J Delany QC and Mr A McClelland QC
Solicitor for the Second, Third, Fourth, Fifth and Sixth Respondents in VID 1485 of 2011: Brian Ward & Partners
Counsel for the Respondents in VID 1483 of 2011 and VID 1484 of 2011: Mr CM Caleo QC
Solicitor for the Respondents in VID 1483 of 2011 and VID 1484 of 2011: Herbert Smith Freehills
Counsel for the Seventh Respondent in VID 187 of 2013: Mr MC Garner
Solicitor for the Seventh Respondent in VID 187 of 2013: Herbert Smith Freehills
Counsel for the Objector, Dr Nihad Jackson, in VID 1483 of 2011, VID 1484 of 2011 and VID 1485 of 2011: Ms R Burton
Solicitor for the Objector, Dr Nihad Jackson, in VID 1483 of 2011, VID 1484 of 2011 and VID 1485 of 2011: Green & Associates
Table of Corrections
16 August 2017 In Counsel for the Applicant on the cover page, the words “and Mr S Rubenstein” have…
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Details
Case
[2017] FCA 689
Decision Date

CaseChat Overview and Summary

The matter under consideration was Kelly v Willmott Forests Ltd (in liquidation) (No 5). This case involved a dispute over a proposed settlement agreement in a representative proceeding, with the primary focus on whether the settlement should be approved under section 33V of the Federal Court of Australia Act 1976. The court was tasked with deciding whether the legal costs charged to the class members were fair and reasonable, as well as the overall merits of the settlement. The case required careful analysis of the balance between the benefits of settling the proceeding against the potential risks and uncertainties of a trial.

The legal issues centred on the fairness and reasonableness of the proposed settlement, particularly the allocation of costs. The court had to consider the prospects of success for the class members if the case proceeded to trial, the complexity and duration of the proceedings, and the attitude of the class members towards the settlement. The court also had to assess the merits of the revised settlement in light of the first proposed settlement, which had been refused. The court considered the revised settlement's improvements, such as providing class members with a further right to opt out, and obtaining further counsels’ opinions regarding the prospects of success.

The court approved the revised settlement, finding that while the reimbursement of costs was at the low end, it was within the range of reasonable settlements. The court noted that the revised settlement offered class members a better result than pursuing the matter to trial, particularly given the low prospects of success in the 2007/08/09 Scheme proceedings and the complex nature of the 2010 Scheme proceeding. The court also considered the few objectors who had not offered to contribute further financially to the proceedings, and their limited willingness to assume the role of applicant or risk adverse costs liability. This reduced the weight of their objections. The court further noted that the class members had the option to opt out and preserve their rights to bring their own proceeding, which further reduced the objections' weight.

The final orders included the approval of the revised settlement and the legal costs associated with it. The court found that the proposed settlement, while not perfect, was fair and reasonable, and in the best interests of the class members given the circumstances. The court also approved the payment of $1.408 million to reimburse the insurer for the after-the-event insurance policy and $1 million for the pro rata reimbursement of legal costs paid by current and former clients. The court concluded that the settlement was a reasonable compromise that balanced the interests of the class members against the risks and uncertainties of a trial.

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

The other benefit of the proposed revised settlement is the payment of $1.408 million to be expended on reimbursing the insurer for the after the event insurance policy and $1 million to be expended on pro rata reimbursement of legal costs paid by current and former M+K clients. That will reimburse approximately 57% of the costs class members paid to M+K but it provides no benefit for those class members who did not pay costs (but they did not contribute to the costs of the proceeding and get the benefits of the revised settlement free of charge). In my view the reimbursement of costs is also at the low end, but within the range of reasonable settlements.The likelihood of class members obtaining judgment for an amount significantly in excess of the settlement offer In the 2007/08/09 Schemes proceedings, the likelihood of class members recovering a greater amount against the respondents is low, essentially because the prospects of success are poor. In the 2010 Scheme proceeding, the applicant has reasonable prospects of success on the common issues. However, for registered class members who did not take out loans, or who have paid them off, the prospects of doing better than the proposed revised settlement are low because of the difficulties in obtaining substantial compensation from the respondents or their insurers. Registered class members with outstanding loan balances have reasonable prospects of being able to obtain declarations that the loan agreements are void and unenforceable, and they may wish to proceed to trial. If the applicant is successful at trial on the common issues (and in any appeal) such class members will get a better result than under the proposed revised settlement because the loans will be cancelled. Even so, while it is at the low end, in my view the proposed settlement is within the range of reasonable settlements of the 2010 Scheme proceeding.The complexity and likely duration of the proceedings Both the 2007/08/09 Scheme proceedings and the 2010 Scheme proceeding involve complex factual and legal issues and the trial was set down for an estimated duration of six weeks. I accept Mr Willemsen’s evidence that the prospects of an appeal against any favourable first instance decision are high. Given that the prospects of success of the 2007/08/09 Schemes proceedings are poor, avoiding a lengthy trial is in the class members’ interests. In relation to the 2010 Scheme proceeding, when regard is had to the uncertainties of a trial and appeal, the benefit of a “bird in the hand” for class members, of an up to 50% reduction in outstanding loans, is in class members’ interests.The attitude of class members to the settlement There are few objectors. Insofar as the objectors contend that the proposed revised settlement is unreasonable it is necessary to keep in mind that none of them have shown a willingness to assume the role of applicant, or to take on the risk of the significant adverse costs liability. They are now all aware of the substantial funding difficulties adverted to in the notice of proposed settlement, but they have not offered to make further financial contributions to enable the proceedings to continue. Their argument for the continuation of the proceedings without further personal cost or exposure to them carries less weight as a result.

Ratio Decidendi

Legal Principle Established

In the 2010 Scheme proceeding, the applicant has reasonable prospects of success on the common issues. However, for registered class members who did not take out loans, or who have paid them off, the prospects of doing better than the proposed revised settlement are low because of the difficulties in obtaining substantial compensation from the respondents or their insurers. Registered class members with outstanding loan balances have reasonable prospects of being able to obtain declarations that the loan agreements are void and unenforceable, and they may wish to proceed to trial. If the applicant is successful at trial on the common issues (and in any appeal) such class members will get a better result than under the proposed revised settlement because the loans will be cancelled. Even so, while it is at the low end, in my view the proposed settlement is within the range of reasonable settlements of the 2010 Scheme proceeding.The complexity and likely duration of the proceedings Both the 2007/08/09 Scheme proceedings and the 2010 Scheme proceeding involve complex factual and legal issues and the trial was set down for an estimated duration of six weeks. I accept Mr Willemsen’s evidence that the prospects of an appeal against any favourable first instance decision are high. Given that the prospects of success of the 2007/08/09 Schemes proceedings are poor, avoiding a lengthy trial is in the class members’ interests. In relation to the 2010 Scheme proceeding, when regard is had to the uncertainties of a trial and appeal, the benefit of a “bird in the hand” for class members, of an up to 50% reduction in outstanding loans, is in class members’ interests.The attitude of class members to the settlement There are few objectors. Insofar as the objectors contend that the proposed revised settlement is unreasonable it is necessary to keep in mind that none of them have shown a willingness to assume the role of applicant, or to take on the risk of the significant adverse costs liability. They are now all aware of the substantial funding difficulties adverted to in the notice of proposed settlement, but they have not offered to make further financial contributions to enable the proceedings to continue. Their argument for the continuation of the proceedings without further personal cost or exposure to them carries less weight as a result. Further, if they were dissatisfied with the proposed revised settlement they could have opted out (or sought leave to do so) to preserve their rights to bring their own proceeding (or indeed another class action). Although they are entitled to the benefit of sitting back and taking no active step in the proceedings, that right is not without limits. That further reduces the weight of their objections. I note also that since the settlement approval hearing, four of the objectors to the settlement of the 2007/08/09 Schemes proceedings (Mr Pavich, Mr Rennick, Mr Jayalal and Mr McInally) have taken up the final opportunity to opt out that was allowed. As they are not bound by the proposed revised settlement I give their objections even less weight.The 2007/08/09 Scheme proceedings