Smith v Australian Executor Trustees Limited; Creighton v Australian Executor Trustees Limited (No. 4)

[2018] NSWSC 1584

Supreme Court

New South Wales

Medium Neutral Citation:	Smith v Australian Executor Trustees Limited; Creighton v Australian Executor Trustees Limited (No. 4) [2018] NSWSC 1584
Hearing dates:	2 October 2018
Decision date:	23 October 2018
Jurisdiction:	Equity
Before:	Ball J
Decision:	Settlement approved. See orders [100] – [101] of this judgment
Catchwords:	CIVIL PROCEDURE – Representative proceedings – Settlement or discontinuance – Court approval – Reasonableness of total amounts – Reasonableness of legal costs – Reasonableness of funding fee – Reasonableness between group members – Group members’ objections to class definition – Confidentiality of material supporting settlement approval application
Legislation Cited:	Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) Court Suppression and Non-Publication Orders Act 2010 (NSW) Legal Profession Act 2004 (Vic)
Cases Cited:	Australian Competition and Consumer Commission (ACCC) v Chats House Investments Pty Ltd (1996) 71 FCR 250 Blairgowrie Trading Ltd v Allco Finance Group Ltd (Recs & Mgrs Apptd (In Liq) (No 3) (2017) 343 ALR 476 Courtney v Medtel Pty Limited (No 5) (2004) 212 ALR 311; [2004] FCA 1406 Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (2006) 236 ALR 322; [2006] FCA 1388 Downie v Spiral Foods Pty Ltd [2015] VSC 190 Hungerfords v Walker (1989) 171 CLR 125 Johnston v Endeavour Energy [2016] NSWSC 1132 King v Liverpool City Council (No. 3) [2018] NSWSC 1047 Matthews v SPI Electricity and SPI Electricity Pty Ltd v Utility Services Corporation Ltd (Ruling No 16) [2013] VSC 74 Mercieca v SPI Electricity Pty Ltd; SPI Electricity Pty Ltd v Eagle Travel Tower Services Pty Ltd [2012] VSC 204 Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 Modtech Engineering Pty Ltd v GPT Management Holdings Limited (No 2) [2013] FCA 1163 Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd (2016) 245 FCR 191; [2016] FCAFC 148 Oztech Pty Ltd v Public Trustee of Queensland (No 15) [2018] FCA 819 Pharm-a-care Laboratories Pty Ltd v Commonwealth of Australia (No 6) [2011] FCA 277 Rowe v AusNet Electricity Services Pty Ltd [2015] VSC 232 Smith v Australian Executor Trustees Limited; Creighton v Australian Executor Trustees Limited [2016] NSWSC 17 Thomas v Powercor Australia Ltd [2011] VSC 614 Wheelahan v City of Casey [2011] VSC 215 Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (No 9) [2013] FCA 1350
Texts Cited:	“Inquiry into Class Action Proceedings and Third-Party Litigation Funders”, DP 85, June 2018, The Australian Law Reform Commission
Category:	Principal judgment
Parties:	John Smith and Rosemary Smith (Plaintiffs 2015/171592) Innes Creighton (Plaintiff 2015/306222) Australian Executor Trustees Limited (Defendant)
Representation:	Counsel: AS Martin SC with GM Drew (Plaintiffs 2015/171592) A Coleman SC with J McDonald and DJ Snyder (Plaintiffs 2015/306222) M Darke SC with S Lawrance (Defendant)   Solicitors: Meridian Lawyers (Plaintiffs 2015/171592) Slater and Gordon (Plaintiffs 2015/306222) Corrs Chambers Westgarth (Defendant)
File Number(s):	2015/171592 and 2015/306222
Publication restriction:	None

Judgment

Introduction

1. Before the Court are two notices of motion seeking orders under s 173 of the Civil Procedure Act 2005 (NSW) (CPA) for the approval of settlements reached in two representative actions commenced against Australian Executor Trustees Limited (AET) in connection with the collapse of Provident Capital Ltd (In Liq) (Provident) in June 2012.

Background

2. Between 1999 and 2012, Provident operated a business of lending money to third parties secured by mortgages over real property. Most loans were for property investment purposes. Provident was owned by Mr Michael O’Sullivan and entities in which he had an interest.

3. Provident financed its activities with debt, including funds obtained by issuing debentures to members of the public. AET, which is the defendant in both proceedings, was appointed trustee for debenture holders under the provisions of Chapter 2L of the Corporations Act 2001 (Cth) and a trust deed dated 11 December 1998. The appointment was made on or around 7 December 2004, when AET replaced the retiring trustee, IOOF Australia Trustees (NSW) Limited, a related company.

4. The representative proceedings are brought by and on behalf of debenture holders who suffered loss as a consequence of Provident’s collapse.

5. One proceeding is brought by Mr Innes Creighton (the Creighton Proceeding). That proceeding was originally commenced by Mr Creighton in the Victorian Registry of the Federal Court of Australia on 23 December 2014. It was transferred to this Court by order of Middleton J on 30 September 2015.

6. The other proceeding was commenced in this court by John and Rosemary Smith on 10 June 2015 (the Smith Proceeding).

7. Originally, the classes of debenture holders on whose behalf the two proceedings were brought were somewhat different. However, following amendments, with one qualification, the classes became the same and consisted of “All persons who were holders of debentures issued by Provident as at 29 June 2012”, which is the date on which Provident went into receivership. The qualification is that from its inception, the Smith Proceeding has been brought on behalf of a closed class consisting of all group members who signed a funding agreement with Litman Holdings Pty Limited (Litman), a litigation funder, by 16 July 2015.

8. The Creighton Proceeding has not been funded by a litigation funder. Instead, on 9 September 2014, Mr Creighton signed a conditional costs agreement with Slater and Gordon under which Slater and Gordon agreed to act for Mr Creighton as a representative in the proceedings on the basis that it would only charge him if he was successful and that in the event of success it would charge an uplift fee of up to 25 per cent of the professional fees incurred, which would be calculated on a time basis in accordance with the provisions set out in the costs agreement. “Success” is defined to include a settlement of the proceeding. At the same time, Slater and Gordon indemnified Mr Creighton against any adverse costs order and obtained adverse costs insurance to cover its liability under that indemnity, for which it paid a premium of $1,925,000 (inclusive of GST).

9. The costs agreement did not contain an estimate of the uplift fee that may have become payable under the costs agreement, raising the question whether the agreement is void under s 3.4.28(3) of the Legal Profession Act 2004 (Vic). That omission was corrected by a revised costs agreement signed by Mr Creighton on 7 October 2017.

10. The Smith Proceeding is funded by Litman pursuant to agreements entered into between Litman and group members. Under those agreements, Litman agrees to fund the legal costs of the proceeding and to indemnify group members against any adverse costs order. In return, the group members agree to pay Litman out of the gross settlement sum, in the event of settlement taking place after the service of the statement of claim, but prior to the commencement of the hearing:

1. A sum equal to 40 per cent of the settlement sum (plus GST, if any);

2. A sum equal to the group members’ share of the total amount advanced by the funder in accordance with the legal costs indemnity and the adverse costs order indemnity;

3. An amount equal to the group members’ share of $70,000 representing the costs incurred prior to entering into the funding agreement; and

4. An amount equal to the group members’ share of the management fee up to the date of resolution of the proceeding, which is estimated to be approximately $225,000.

11. On 5 February 2016, I delivered an interlocutory judgment (Smith v Australian Executor Trustees Limited; Creighton v Australian Executor Trustees Limited [2016] NSWSC 17) permitting both representative actions to proceed. However, consistently with my judgment, members of both classes were required to opt out of at least one of the representative proceedings and those who failed to do so by a specified date were taken to have opted out of the Smith Proceeding. Also consistently with my interlocutory judgment, a mechanism was put in place by which members of both classes were able to obtain independent legal advice relevant to their decision of which proceeding to opt out of.

12. Prior to the opt out process, there were 1,447 Smith Proceeding group members. Following the opt out process, there remained 894 group members holding debentures with a face value of approximately $41,000,000. There are 1,889 group members in the Creighton Proceeding who together hold debentures with an aggregate face value of approximately $75,650,000.

13. Although the plaintiffs in the two proceedings make broadly similar allegations, there are significant differences between the two cases.

14. The primary contention in the Creighton Proceeding is that AET contravened s 283DA(a) and (b) of the Corporations Act. Section 283DA(a) imposed on AET a duty to exercise reasonable diligence to ascertain whether the property of Provident that was or should have been available (whether by way of security or otherwise) would be sufficient to repay the amount deposited or lent by debenture holders when those amounts became due. Section 283DA(b) imposed on Provident a duty to exercise reasonable diligence to ascertain whether Provident committed any breach of the terms of the debentures it had issued, the trust deed or any provisions of Chapter 2L of the Corporations Act.

15. Mr Creighton contends that consistently with those duties, AET was required to take active steps to monitor Provident’s financial position and its compliance with the trust deed. Had AET done so, it would have concluded in around January 2009 that it needed to conduct its own review of whether Provident’s assets would be sufficient to repay the debentures when they became due and whether Provident had committed any breaches of the trust deed or Chapter 2L of the Corporations Act. MrCreighton contends that if AET had conducted that review, it would have discovered that the provisions made in respect of a number of specific loans were inadequate and that Provident had failed to comply with a number of obligations imposed by the trust deed including an obligation to carry on and conduct its business in a proper and efficient manner. Having formed those conclusions, it is alleged that AET would have informed the Australian Securities and Investments Commission (ASIC) of its conclusions and served a notice of default on Provident, with the result that Provident would have ceased borrowing further money and rolling over debentures and would have refunded money raised pursuant to its eleventh prospectus and would have been placed into receivership.

16. Mr Creighton pleads an alternative case that AET ought to have concluded on or about 30 October 2010 that it needed to conduct its own review based on the additional information available to it after February 2009 and that it would have reached similar conclusions following that review as it would have reached had it conducted a review in February 2009, with similar results.

17. The primary contention in the Smith Proceeding is that AET contravened s 283DA(b)(ii) by failing to exercise reasonable diligence to ascertain whether Provident had committed any breach of the terms of the trust deed. Mr and Mrs Smith contend that consistently with the obligation imposed by s 283DA(b)(ii), AET ought to have made at least annual visits to the offices of Provident, conducted a review of certain documents, interviewed staff, sought particulars of certain loans and, as a result of those enquiries, concluded in December 2004 that it should conduct a physical review of the files in relation to six loans, which correspond to six of the loans that feature in the Creighton Proceeding. It is alleged that, had it done those things, it would have been aware in February 2005 that Provident had breached the trust deed in various respects including in relation to the six loans. Aware of those breaches, it is alleged that AET would have appointed an investigator in about July 2005. A competent investigator would have raised a number of matters of concern, following which AET would have sought legal advice leading ultimately to the appointment of a receiver in September or October 2005.

18. Mr and Mrs Smith plead various alternative cases broadly in similar terms leading to the appointment of a receiver in late February or March 2006, July 2006, February 2007 or at the latest February 2008.

19. It is apparent from this brief description that the Smith Proceeding focuses on an earlier period in time and on a case that AET owed a duty to take active steps to review Provident’s business operations, including by reviewing physical files. On the other hand, the Creighton Proceeding focuses on a later period of time and on a case that AET became or ought to have become aware of circumstances that should have caused it to undertake further investigations. There is, however, a substantial overlap in what it is said AET should have discovered – in particular underprovisioning in respect of certain critical loans – and what consequences that would have had – that is, Provident ceasing to issue debentures and the realisation of its assets at some earlier point in time than the time at which they were in fact realised.

20. Both proceedings settled shortly before the hearing, subject to approval from the Court. The settlements followed a formal mediation of both proceedings. Under the settlement of the Creighton Proceeding, it is proposed that AET settle the claim for $28,500,000 (inclusive of costs), that $12,800,000 of that amount be paid to Slater and Gordon in respect of its costs and the balance of $15,700,000 be distributed to Mr Creighton and group members in accordance with the scheme described below. It is apparent from these figures that group members will receive approximately 55 per cent of the settlement amount.

21. Under the proposed settlement of the Smith Proceeding, AET is to pay $15,750,000 (inclusive of interest and costs) which is to be distributed as follows:

1. $4,252,500 to the funder in respect of its funder fee;

2. $5,268,778.87 in respect of Mr and Mrs Smith’s legal costs and disbursements;

3. $220,000 for administration costs; and

4. $6,008,721.13 to Mr and Mrs Smith and the group members to be distributed in accordance with the scheme described below.

It is apparent from these figures that group members will receive approximately 38 per cent of the settlement amount.

Legal principles

22. The central question for the Court is whether the proposed settlement is fair and reasonable in the interests of group members considered as a whole: King v Liverpool City Council (No. 3) [2018] NSWSC 1047 at [25] per Garling J citing Johnston v Endeavour Energy [2016] NSWSC 1132 at [22](i) per Hoeben CJ at CL; Rowe v AusNet Electricity Services Pty Ltd [2015] VSC 232 at [49]-[51] per Emerton J; Matthews v SPI Electricity and SPI Electricity Pty Ltd v Utility Services Corporation Ltd (Ruling No 16) [2013] VSC 74 at [35] per Dixon J; Wheelahan v City of Casey [2011] VSC 215 at [57] per Emerton J citing Australian Competition and Consumer Commission (ACCC) v Chats House Investments Pty Ltd (1996) 71 FCR 250 at 258. In making that assessment, the task of the Court is to consider whether the settlement falls within the range of reasonable settlements having regard to all the risks associated with the litigation: King v Liverpool City Council (No. 3) [2018] NSWSC 1047 at [25] per Garling J citing Johnston v Endeavour Energy [2016] NSWSC 1132 at [22](iii); Matthews v SPI Electricity and SPI Electricity Pty Ltd v Utility Services Corporation Ltd (Ruling No 16) [2013] VSC 74 at [35] per Dixon J; see also Pharm-a-care Laboratories Pty Ltd v Commonwealth of Australia (No 6) [2011] FCA 277 at [22] per Flick J; Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 at [12] per Gordon J; Wheelahan v City of Casey [2011] VSC 215 at [110]-[111] per Emerton J.

23. In considering the question of reasonableness, it is also necessary for the Court to consider whether the settlement is reasonable as between group members and, to the extent that group members are treated differently, whether there is a rational and reasonable basis for doing so: Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (2006) 236 ALR 322; [2006] FCA 1388 at [34], [60]-[64] per Jessup J; Thomas v Powercor Australia Ltd [2011] VSC 614 at [25] per Beach J; Mercieca v SPI Electricity Pty Ltd; SPI Electricity Pty Ltd v Eagle Travel Tower Services Pty Ltd [2012] VSC 204 at [38]-[39] per Emerton J.

24. It is also necessary for the Court to consider whether the costs were reasonable having regard to the terms of any agreement relating to costs and the reasonableness of the costs that are sought to be paid from the settlement amount particularly having regard to the proportion of the settlement funds to be paid in costs: Wheelahan v City of Casey [2011] VSC 215 at [103] per Emerton J; Courtney v Medtel Pty Ltd (No 5) (2004) 212 ALR 311; [2004] FCA 1406 at [61] per Sackville J; Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 at [24]-[54] per Gordon J; Modtech Engineering Pty Ltd v GPT Management Holdings Ltd(No 2) [2013] FCA 1163; Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (No 9) [2013] FCA 1350 at [58] per Jacobson J; Downie v Spiral Foods Pty Ltd [2015] VSC 190 at [177] per J Forrest J; Rowe v AusNet Electricity Services Pty Ltd [2015] VSC 232 at [112]-[113] per Emerton J.

25. In considering the reasonableness of any funding fee, it is necessary to take into account all relevant circumstances including relevantly:

1. The information provided to group members concerning the funding commission;

2. Whether the funding commission reflects market rates;

3. The litigation risks of providing funding in the proceeding;

4. The quantum of adverse costs exposure that the funder assumed;

5. The legal costs expended and to be expended and the security for costs provided by the funder;

6. The amount of any settlement; and

7. Any substantial objections made by group members in relation to any litigation funding charges.

See Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd (2016) 245 FCR 191; [2016] FCAFC 148 at [80] per Murphy, Gleeson and Beach JJ.

Is the total amount of the settlements reasonable?

26. In answering this question, it is helpful to begin by considering the realistic best case outcome for the group members as a whole.

27. In both of the present cases, the determination of that amount is complicated by the fact that the group members fall into two broad classes. First, there are those group members who acquired their debentures after the date on which it is said Provident would have ceased raising funds from members of the public if AET had complied with its contractual duties. Their claims are for the full amount invested less any amount they have actually received or will receive in respect of their debentures plus interest, on the basis that they would not have invested in Provident at all. Second, there are those investors who acquired their debentures before it is said that Provident would have been placed into receivership if AET had complied with its duties. Their claims are for the difference between the amount they have received and will receive from the administration of Provident and the amount they would have received had Provident been placed into administration at an earlier point in time. In the submissions advanced on behalf of Mr Creighton, the first class of claims is referred to as “no-transaction claims” and the second class as “rollover claims”. It will be convenient to adopt that terminology in this judgment.

28. Mr Creighton submits that the maximum realistic potential recovery of the Creighton group members is calculated as follows:

9 March 2009	30 January 2011
No-transaction claims	$26,037,365.28	$13,368,012.04
Rollover claims	$15,029,619.88	$15,341,108.89
Pre-judgment interest	$15,606,579.48	$10,910,252.51
Total amount	$56,673,564.65	$39,619,373.44

29. Based on a hypothetical receivership as at 31 January 2007, Mr and Mrs Smith submit that the realistic maximum recovery of the Smith group members is $43,934,765 calculated as follows:

Rollover claims @ 81.5 cents	$18,211,382
Add No-Transaction claims @ 100 cents	$18,650,444
Total	$36,861,826
Deduct 18.3 cents received from receivership	$7,502,212
Principal “best case” claim	$29,359,611
Add pre judgment interest to 30 Sept (approx.)	$10,675,154
Add legal costs (75% of $5.24M)	$3,900,000
Total “best case” claim	$43,934,765

30. Several points should be made about these calculations.

31. First, the calculations do not include amounts received by group members in respect of debentures held by them between the date of the hypothetical receivership and the date of the actual receivership. More is said about those amounts below, but to the extent that they are taken into account, that would reduce the group members’ total claims. In addition, Mr and Mrs Smith’s calculations only take account of the amount actually received from the receivership to date. They do not take account of an expected final distribution which will take the total dividend paid to all debenture holders to 20.9 cents in the dollar.

32. Second, Mr and Mrs Smith’s calculations include an amount in respect of recoverable legal costs ($3,900,000), whereas Mr Creighton’s do not. In my opinion, it is appropriate to make an allowance for recoverable legal costs. Taking the legal costs claimed by Slater and Gordon of $12,800,000 and using the percentage adopted by Mr and Mrs Smith as the proportion of actual costs that will be recoverable (that is, 75 per cent), the amounts identified by Mr Creighton as the realistic best case outcomes should each be increased by $9,600,000, making the totals $66,273,564.65 assuming a receivership commencing on 9 March 2009 and $49,219,373.44 assuming a receivership commencing on 30 January 2011.

33. Third, neither calculation makes any allowance for future irrecoverable legal costs – that is, the costs the group members would incur but not recover from AET if the case were fought to a successful conclusion. Those costs would be deducted from the total amounts recovered and therefore should be included in the calculation of the realistic maximum recovery. Mr Raftesath, the solicitor for Mr and Mrs Smith, estimates their future legal costs to be $1.5 million. On that basis, their future irrecoverable legal costs would be 25 per cent of that amount – that is, $375,000. There is no evidence concerning Mr Creighton’s future irrecoverable legal costs, but it is reasonable to assume that they would be of the same order. On that basis, the total figure for Mr and Mrs Smith is $43,559,765. The total figures for Mr Creighton are $65,898,564.65 and $48,844,373.44.

34. Fourth, as is apparent, the calculations performed in respect of Mr and Mrs Smith assume a hypothetical receivership as at 31 January 2007. No calculations have been performed on the basis of a hypothetical receivership as at any of the earlier dates on which it is alleged Provident would have been placed into receivership. The chances of succeeding in respect of those earlier dates are likely to be lower. Accordingly, it appears to be reasonable to focus on the case that Provident would have been placed into receivership by 31 January 2007.

35. On those figures, the Creighton settlement represents a recovery of approximately 43 per cent (assuming a receivership on 9 March 2009) or 58 per cent (assuming a receivership on 30 January 2011). The figure for Mr and Mrs Smith is approximately 36 per cent.

36. I accept that there are substantial risks associated with group members’ claims in both proceedings.

37. First, there is a risk that the claims could fail altogether. There is limited authority on the scope of the obligations imposed on trustees under s 283DA of the Corporations Act 2001. The leading case is the decision of Yates J in Oztech Pty Ltd v Public Trustee of Queensland (No 15) [2018] FCA 819. In the present case, auditors provided unqualified audit reports on the accounts of Provident in each relevant year. Each claim depends on the plaintiffs persuading the Court that, notwithstanding those audit reports, AET owed debenture holders a duty to undertake its own investigations of Provident’s financial position and that those investigations would have uncovered the problems with Provident’s financial position that the audits did not. That raises questions concerning the obligations of a trustee in relation to audited accounts and the precise nature of the further investigations AET should have undertaken in the circumstances. Mrs and Mrs Smith and AET have served conflicting expert evidence from trustees on the practice at the time. Mr Creighton has not served any expert evidence from a trustee on those matters. In addition, there is conflicting expert accounting evidence on what conclusions might have been drawn from at least some of the additional material it is said AET should have obtained in relation to the financial affairs of Provident. Further, the issues in both cases raise difficult questions concerning the scope of the duties imposed by s 283DA which are not answered by the decision in Oztech. It cannot be assumed that those questions will be answered by the Court in a way that would be favourable to the plaintiffs.

38. Second, each of the two cases depends on persuading the Court to accept that had AET undertaken further investigations, those investigations would have led to a complicated series of steps that would have resulted in the appointment of a receiver. There is a real risk that the plaintiffs would have been unable to persuade the Court to accept that the complicated chain of events for which they contend would have occurred or would have occurred in the timeframes for which the plaintiffs contend.

39. Third, there are substantial issues concerning the amount the plaintiffs would be entitled to recover. One issue is whether allowance would need to be made for amounts paid by Provident to group members between the date it is said Provident would have been placed into receivership and the date it was placed into receivership. Those amounts include the payment of interest on the debentures, the repayment of any principal and the redemption of other debentures held by the group member. To the extent that interest was paid on the debentures after the notional date of receivership, that interest would not have been paid and it is difficult to see why AET should not be given credit for those amounts. To the extent that a group member received principal that the group member would not otherwise have received if Provident had gone into receivership earlier, it is at least arguable that the group member’s claim should be reduced to that extent. Mr and Mrs Smith have not attempted to calculate the effect of these matters. According to material supplied by Mr Creighton, if all the payments were taken into account, that would reduce the claim on the assumption that Provident went into receivership on 9 March 2009 by $16,385,077.86 and on the assumption that it went into receivership on 30 January 2011 by $8,616,517.06.

40. A second risk in relation to the quantification of the group members’ claims is the date of the hypothetical receivership. That is likely to have a substantial effect on the calculation of damages, as the figures produced by Mr Creighton demonstrate.

41. A third risk in relation to the quantification of damages recoverable by rollover investors is the calculation of the hypothetical recoveries at particular dates, which depends on extensive expert evidence filed by the plaintiffs, not all of which may be accepted.

42. A fourth risk in relation to the quantification of damages is that AET might succeed in its defence in relation to some group members who claim damages on a no-transaction basis that they would have invested in similarly loss-making investments.

43. Fourth, AET has raised a limitations defence, which raises the question when the group members first suffered loss.

44. Fifth, there is a risk of recovery. There is some evidence before the Court to suggest that AET could not pay the total amount of damages claimed by group members from its own resources. Consequently, its ability to pay the total amount of damages claimed depends on how much it has or is entitled to recover from its cross-claims and on the likelihood of support from its parent. It is apparent that Mr and Mrs Smith’s legal advisors have taken that possibility into account in recommending the settlement. I accept that they were entitled to do so.

45. Sixth, in my opinion, there is a risk that if the matter proceeded to judgment, the Court would not permit both sets of plaintiffs to recover all of their party/party costs from AET. In this case, the Court permitted both class actions to proceed. However, it does not necessarily follow that each would be entitled to a normal costs order in their favour. The problem of multiple class actions in respect of the same conduct is an increasingly serious one. In its discussion paper “Inquiry into Class Action Proceedings and Third-Party Litigation Funders”, DP 85, June 2018, The Australian Law Reform Commission puts forward a proposal (Proposal 6-1) in the federal context of requiring all class actions to be initiated as open class actions and where there are two or more competing class actions, of requiring the Court to determine which one of those proceedings will progress and to stay the competing proceedings, unless the Court is satisfied that it would be inefficient or otherwise antithetical to the interest of justice to do so. However, unless and until that proposal is adopted, one way of containing competing class actions or of ameliorating their effect on defendants is through appropriate costs orders.

46. Seventh, there are the advantages in timing and certainty that a settlement brings. If the proceedings are not settled, it will take some time to obtain a final judgment. Even if the plaintiffs are successful, it may be necessary to have separate hearings in relation to the claims of at least some group members. Having regard to the amounts involved, an appeal is likely. Many of the group members are elderly. Some have died since the proceedings were commenced. There are obvious disadvantages to group members if the trial proceeds that cannot be compensated for entirely by an award of interest.

47. One other point should be mentioned in this context. It might be thought that there is a significant difference between the settlement amount achieved in the Smith Proceeding (36 per cent of the realistic best case) compared with the amount achieved in the Creighton Proceeding (43 per cent or 58 per cent of the realistic best case). However, the two are not directly comparable. In particular, they are based on a hypothetical receivership at different times. That has consequences for the calculation of damages. But it is also relevant to the prospects of success of the different cases since the case that AET ought to have discovered problems with Provident’s financial position and taken steps that would have led to its receivership strengthens as its financial position deteriorated. Consequently, the discrepancies in the percentages alone say nothing about whether the settlements fall within the range of what is reasonable.

48. In accordance with the normal practice, both Mr and Mrs Smith and Mr Creighton have provided the Court on a confidential basis with detailed written advices from senior counsel retained by them for the hearing setting out a candid assessment of each claim. Both express the opinion that the settlement is a reasonable one. In my opinion, the Court is entitled to and should place considerable weight on those opinions.

49. There were fourteen objections to the proposed settlement of the Creighton Proceeding. Eleven did so on the basis that the quantum of the settlement amount is inadequate. There are two main points to be made about those objections.

50. First, eleven is a small number and must be weighed against the fact that, absent objections from other group members, the likelihood is that the large majority of group members would prefer to take the settlement rather than run the risk of recovering nothing in the proceedings. There is no reason to think that the case could have been settled for any greater sum. It was hard fought. AET had substantial arguments available to it to defend the proceedings. The proceedings did not settle until shortly before the hearing. There is no reason to think that AET would have been prepared to pay more to settle the case.

51. Second, while it is understandable that group members may be disappointed by the settlement, none has sought to explain in any detail why the settlement does not fall within the range of what might be regarded as reasonable having regard to the risks of the case. For the reasons I have explained, in my opinion, it does.

52. Two members of the Smith class, Mr and Mrs Clark, who hold their debentures jointly, have objected to the settlement of that proceeding on the basis that it is manifestly inadequate. One of their objections is that the legal advisors appeared at the last minute unreasonably to have succumbed to a threat that AET would go into liquidation if a substantial judgment were obtained against it. As I have sought to explain, there were substantial risks associated with the proceedings. One of those risks was the risk of recovery and that was a matter that might have been taken into account. But there were a number of other risks which to my mind were more significant and which would justify a settlement for the amount that has been agreed. No other members of the Smith group have lodged objections; and again it is to be inferred that a large majority would prefer to take the current settlement than run the risks of a trial.

53. The present cases raise a number of complicated issues. No doubt, different persons will form different opinions on the quantification of the risk arising from those matters and the value to be attached to an earlier and certain resolution of the claims. In this case, I am satisfied that those advising the plaintiffs have properly taken those risks into account and that the proposed settlements fall within the range of what might be regarded as reasonable having regard to those risks. For those reasons, I have concluded that approval should be given to the quantum of the settlements.

Are the legal costs reasonable?

The Creighton Proceeding

54. Mr Creighton is represented by Slater and Gordon. The total legal costs claimed by them in respect of the Creighton Proceeding are $12,800,000. Extensive evidence has been filed in support of that claim, including a detailed report from Ms Catherine Dealehr, an expert costs consultant.

55. Ms Dealehr gives evidence that the amount of Mr Creighton’s reasonable costs is $14,704,662.03, including uplift fees. After deducting the amount of uplift fees claimed under the first costs agreement, the amount is $12,746,551.06. That amount includes $2,926,802.20 incurred in respect of disbursements. Of that amount, $1,576,040.32 relates to counsel fees and $967,603.67 relates to expert fees. Other disbursements include court and transcript fees, electronic trial fees and subpoena costs. Counsel fees include cancellation fees totalling $181,456.00 of which $155,056 relates to cancellation fees charged by senior counsel.

56. Solicitor fees were charged on a time basis initially at the following rates (including GST):

Principal                 $715.00

Senior Associate    $605.00

Associate               $495.00

Lawyer                   $429.00

Graduate                $330.00

Legal Assistant       $220.00

Those fees were increased from January 2017 by 5 per cent.

57. In addition to the disbursements, the solicitors have borne the cost of adverse costs insurance, which (including GST) was $1,925,000.

58. In my opinion, Slater and Gordon are entitled to recover the costs of the adverse costs insurance. In the absence of a litigation funder, that insurance was essential to enable the Creighton Proceeding to go ahead. Having regard to the potential exposure, the premium does not appear to be unreasonable.

59. Ms Dealehr adopts a detailed and methodical approach to examining the costs claimed by Slater and Gordon. She expresses the opinion, which I accept, that the rates charged by Slater and Gordon are reasonable. She undertakes a detailed analysis of the work done by Slater and Gordon by reference both to the nature of the work (planning and drafting, review, communications with counsel, internal communications, communications with group members, communications with witnesses etc) and to the stages of the litigation to which it relates (pre-action work, commencement of proceedings, discovery, witness statements etc) and expresses opinions on whether the work was reasonable and undertaken by practitioners of appropriate seniority. She discounts the total amount claimed by Slater and Gordon by $513,401.41 to take account of the views that she formed. The principal discount was a discount of $250,000 in relation to a claim of $1,709,688.48 in respect of internal communications. As I have indicated, Ms Dealehr also excludes the uplift fee claimed in respect of work done under the first costs agreement. In my opinion, the approach taken by Ms Dealehr is reasonable.

60. Ms Dealehr also analyses the disbursements charged by Slater and Gordon and, with one exception and some minor deductions, concludes that they were reasonable. Again, I accept her conclusions. The exception relates to cancellation fees charged by counsel. Ms Dealehr expresses the view that she has had insufficient experience in New South Wales to express a definitive opinion regarding whether cancellation fees would be an unusual expense in New South Wales. My own experience is that they are not in cases which have been set down for a lengthy period of time, although it is usually a term of the agreement that counsel will give credit for work done during the period covered by the cancellation fee.

61. Accepting Ms Dealehr’s conclusions and adding the costs of the adverse costs insurance, Slater and Gordon’s reasonable costs total $14,671,551.06. However, as I have said, they only claim $12,800,000 in respect of their costs.

62. In my opinion, that figure is reasonable. In Blairgowrie Trading Ltd v Allco Finance Group Ltd (Recs & Mgrs Apptd (In Liq) (No 3) (2017) 343 ALR 476 at [180], Beach J said:

Generally, let me say that my role is not that of a taxing registrar or master. Further, subject to the question of proportionality, if unchallenged expert opinion is put before the Court which sets out a commercial and reasonable methodology consistent with the terms of any retainer and which demonstrates that it has been accurately and thoroughly applied to sufficient and probative source records of the solicitors, then it is no part of my function to:

(a)   reject that evidence as to whole or part without very good reason; or

(b)   apply one’s own subjective view of what the legal work is “really worth”, divorced from the reality of the commercial context within which the work was carried out and the expenses incurred.

63. I agree with those views. In the present case, Ms Dealehr has adopted a careful and thorough analysis of Slater and Gordon’s costs consistently with the costs agreements. There is no reason to doubt the conclusions she has formed. The amount claimed represents a substantial discount on the costs that Ms Dealehr says are reasonable. Consequently, subject to the question of proportionality, I should accept them.

63. As to proportionality, the costs are plainly very substantial. However, I accept that the matter was complicated and hard fought. It is apparent that Slater and Gordon have devoted very substantial resources to it. The costs include the adverse costs insurance and an amount in respect of the uplift fee. The uplift fee was appropriate bearing in mind that Slater and Gordon took the risk that the claim would fail. The total costs of the proceedings are significantly less than the amount to be paid to group members. Taking those matters into account, I have concluded that the costs claimed by Slater and Gordon are reasonable.

64. I do not think that the conclusions of the previous paragraph are undermined by a comparison with the costs charged by Meridian Lawyers, the solicitors acting for Mr and Mrs Smith. To some extent, the differences can be explained by the fact that Slater and Gordon have borne the costs of the adverse costs insurance, the total costs incurred by them include an uplift factor of 25 per cent on some costs, their costs include the costs of administering the settlement and they have had to deal with a claim brought on behalf of an open class. More significantly, though, any comparison is of limited utility without a detailed analysis of the precise work done by each firm. The primary task of the Court is to consider the work that was actually done and the fees charged for that work and form an opinion on whether what was done and what was charged were reasonable. The work done by a different firm in relation to a different case for a different group does not assist in making that assessment. Moreover, it is relevant to bear in mind that the total costs of the Creighton Proceeding is significantly less as a proportion of the amount of the settlement compared to the total costs (including the funding fee) of the Smith Proceeding.

65. Of the fourteen objections to the settlement, six include objections to the costs. One objection is on the basis that the costs should be recovered from AET. That objection appears to misunderstand that the settlement was a costs inclusive one. The other objections are to quantum. My reasons for not accepting those objections are set out above.

The Smith Proceeding

67. The total legal costs claimed in respect of the Smith Proceeding are $5,268,778.87 together with $220,000 in respect of future administrative legal costs, making a total of $5,488,778.87. The amount for legal fees is broken down as follows:

1. Solicitors’ professional costs   $1,622,293.06

2. Counsels’ fees                         $2,715,566.92

3. Experts’ fees                            $669,442.84

4. Disbursements                         $261,476.05

68. Under the terms of the relevant costs agreement, Meridian Lawyers and counsel agreed that 20 per cent of the bills rendered by them would only be payable on a successful resolution of the matter (which included a settlement approved by the Court). The costs agreement also provided for the payment of a premium of 25 per cent of total professional fees and counsel’s fees in the event of a successful resolution of the matter. However, the solicitors and counsel have agreed to waive the uplift fee and it is not included in the figures set out above.

69. The solicitors professional costs are calculated on a time basis at the following rates:

Principal             $550

Senior Solicitor   $350

Solicitor              $280

Paralegal            $150

70. The fees include the costs of conducting public examinations of former directors and officers of Provident and former and current officers of AET following a successful application to ASIC for Mr and Mrs Smith to be granted eligible applicant status under Part 5.9 of the Corporations Act.

71. Limited additional information is provided in relation to Mr and Mrs Smith’s legal costs in the material provided in support of the application for approval. Although I accept that it is not always necessary for evidence to be led from an expert costs consultant on the reasonableness of costs, the information placed before the Court should normally at least include the accounts and fee notes that comprise the claim for costs so that the Court can be satisfied that the costs are reasonable. However, in this case, I accept that the rates Meridian Lawyers charged were less than market rates and that on any view the costs are modest having regard to the complexity of the case. In those circumstances, I am prepared to accept that the amount claimed in respect of Mr and Mrs Smith’s costs is reasonable.

72. I also accept that there will be considerable costs in administrating the scheme for distribution of the settlement amount and that the sum of $220,000 is a reasonable estimate of those costs.

Costs generally

73. Although taken individually the costs of the two proceedings may be reasonable, there is a question whether the total costs are reasonable. There can be little doubt that the overall costs of the proceedings have been increased because there were two representative proceedings brought by two sets of legal advisers; and it would be naïve not to recognise that the driving force behind many representative proceedings are the lawyers and litigation funders who through one mechanism or another fund the proceedings for their own benefit as well as the benefit of group members. In many cases, it will not be in the interests of group members for more than one representative proceeding to be brought in respect of the particular events which are said to have caused the group members’ loss. I have already referred to the problem of competing class actions and the fact that one mechanism that courts currently have available to them for controlling competing representative proceedings is through costs orders. That includes costs orders as between the parties to the proceedings as well as orders in relation to the costs that legal advisers (and funders) should be permitted to recover from group members.

74. In the present case, however, I have concluded that the costs to be recovered from group members should not be reduced because there were two representative proceedings. In my opinion, the two claims that were brought were sufficiently different and provided sufficiently different benefits to group members depending on their particular circumstances to justify them both being brought. In particular, the two proceedings focussed on different periods of time. A claim that a debenture holder would not have acquired his or her debentures at all but for the alleged contraventions, if it succeeded, was likely to produce a greater return than a claim that the debenture holder would have received more if Provident had been placed into receivership earlier. On the other hand, it might reasonably be thought that a claim that focussed on the later period of time had greater prospects of success because it is to be expected that the evidence that Provident faced financial difficulties would mount over time. Consequently, the claims made in the Smith Proceeding may have been more attractive to debenture holders who bought their debentures before the dates on which it is alleged in the Creighton Proceeding that Provident would have been placed into receivership whereas the claims made in the Creighton Proceeding were likely to be more attractive to debenture holders who bought their debentures after those dates. To some extent, there was a conflict between the interests of different debenture holders because some had an interest in a claim that sought to prove that Provident would have been placed into receivership earlier whereas others had an interest in a claim that sought to prove that Provident would be placed into receivership later.

75. In addition, as I have said, a mechanism was put in place by which members of both groups could obtain independent legal advice before choosing which claim to opt out of. As a result of that advice, a substantial number of group members chose to opt out of the Smith Proceeding, but there continued to be a substantial number of group members in both proceedings. It would not be appropriate to deprive the legal representatives of their reasonable costs when those costs were incurred in respect of proceedings both of which continued with a substantial number of group members and which continued after group members were given a choice about which proceeding they should be a part of and that choice was exercised following the receipt of independent legal advice.

Is the funding fee reasonable?

76. The total funding fee claimed by the funder is $4,252,500, which is 27 per cent of the total settlement amount. That represents a substantial discount of the 40 per cent plus management fee of $225,000 that the funder was entitled to recover under the funding agreements.

77. In my opinion, the funding fee is reasonable. I say that for a number of reasons.

78. First, each group member agreed to a funding fee of 40 per cent. Moreover, each group member had the option of opting out of the Smith Proceeding and remaining a group member of the Creighton Proceeding and exercised that option after receiving independent legal advice. In my opinion, those factors weigh heavily in permitting the funder to recover the amount that it claims.

79. Second, I accept that the funder bore a significant risk that it would not recover its costs and would have to bear an adverse costs order that included not only AET’s costs but may have included the costs of at least some of the cross-defendants. It is true that most representative proceedings settle. But there was no certainty that the claim brought by Mr and Mrs Smith would. The funder is liable to pay an adverse costs order insurer an amount of $655,476 on the successful resolution of the proceeding and has agreed to pay that amount out of its funding fee.

80. Third, the funder has funded $3,805,784 of the legal costs to date over a substantial period of time.

81. Lastly, I accept that the funding fee was within the range of what was reasonable at the time the funding agreements were entered into.

Is the settlement reasonable as between group members?

The Creighton Proceeding

82. Slater and Gordon have proposed a detailed scheme for the distribution of the settlement amount to group members. The scheme seeks to calculate a realistic claim for each group member taking account of various matters including when the group member bought their debentures, how much the group member has recovered in respect of their debentures and how much they recovered in respect of other debentures they held that they would not have recovered had Provident been placed into receivership earlier than it actually was.

83. Specifically, the formula proposed by Slater and Gordon calculates each debenture holder’s claim assuming a hypothetical receivership at 9 March 2009 and at 30 January 2011 (the two dates contended for in the Creighton claim) and takes an average of the two. The claim as at each date is calculated by multiplying the face value of the rollover claim debentures held by the group member as at that date by the expected return in respect of those debentures based on the expert evidence filed by Mr Creighton, adding the face value of no-transaction claim debentures held as at that date and then deducting (a) amounts received by the debenture holder after that date in respect of the debentures by way of principal; (b) interest and dividends paid or expected to be paid to the group member by the receiver; and (c) 70 per cent of the difference between the interest they received on the debentures after the hypothetical date of receivership and the interest at the rate of 5 per cent per annum. This last deduction is made on the basis that the group members would have had a claim for interest in respect of the period from the date of the hypothetical receivership to 29 June 2012 at the rate of 5 per cent per annum in accordance with the principles stated in Hungerfords v Walker (1989) 171 CLR 125, so that what should be deducted is not the actual interest received by them but the difference between that interest and the interest group members would have received in accordance with those principles. A deduction of 30 per cent (made by multiplying the difference by 0.7) is made to reflect the risk that the Hungerfords v Walker claim might have failed.

84. In the case of group members who received payments in respect of other debentures that they would not have received had Provident been placed into receivership earlier, it is proposed to deduct 70 per cent of the difference between the amount received in respect of those debentures and the amount that would have been received in respect of them assuming an earlier receivership date. Again, the 70 per cent figure is used to reflect the risk that the Court might hold that those deductions are not appropriate in calculating the group members’ losses.

85. Having calculated the amount of each group member’s claim, it is proposed to make a pro rata distribution of the amount available to be distributed to group members subject to two qualifications. First, it is proposed to pay Mr Creighton $13,000 to compensate him for the time he spent on the claim. There has been no objection to that payment and it appears to be reasonable. Second, under the scheme it is proposed to discount the claims made by two entities associated with Mr O’Sullivan by 60 per cent on the basis that his knowledge is likely to be imputed to those two entities, with the result that they will find it more difficult to prove that they suffered any loss because of a breach of duty on the part of AET. Those entities initially objected to the settlement. However, they later withdrew their objection. Again, it seems to me that what is proposed is reasonable.

86. There is no reason why Slater and Gordon should not administer the scheme. It has substantial experience in administering similar schemes. Each group member has been notified of their proposed distribution. Under the terms of the scheme, each group member can object to the assessment of the group member’s claim – first to the scheme administrator, Mr Hardwick, the head of class actions at Slater and Gordon, and then to the Court. The scheme provides for the pro rata redistribution of unclaimed moneys to group members or, where the amount of unclaimed moneys is less than $20,000, for the payment of the money to the Public Interest Advocacy Centre.

87. In my opinion, the proposed scheme is reasonable. It is apparent that considerable care has gone into formulating a scheme that treats each group member fairly according to the amount that each would likely recover if the proceeding went to a successful conclusion. The procedures for distributing the settlement amount appear to be reasonable and provide for adequate rights of appeal. It is appropriate that Mr Creighton be paid something for the time he spent on the matter.

88. Five group members object to the scheme. Three do so essentially on the basis that the settlement should not distinguish between debenture holders depending on when they acquired their debentures. Two do so on the basis that the mechanism for calculating each group member’s entitlement is confusing.

89. In my opinion, it is appropriate for the scheme to distinguish between group members. The question of fairness must be judged by reference to what group members would recover if their claims are successful, not by reference to the loss they have suffered on their debentures. Accordingly, those who would recover more per dollar they invested in Provident should receive a correspondingly greater proportion of the settlement amount. I accept that the mechanism for achieving that result is complicated. However, that arises because of the complicated nature of the claims and the desirability of reflecting those complications to the extent that it is practical to do so.

The Smith Proceeding

90. The proposal in relation to the Smith Proceeding is that group members who acquired their debentures after 1 February 2007 are to be treated as having no-transaction claims and other group members are to be treated as having rollover claims. The no-transaction group is treated as having claims amounting to 100 cents in the dollar. The rollover group is treated as having claims amounting to 81.5 cents in the dollar. That figure is based on expert accounting evidence relied on by Mr and Mrs Smith concerning the likely recovery that would have been made by rollover debenture holders if Provident had been placed into receivership on 1 February 2007; and, in particular, takes the midpoint of the range identified by the expert. If a group member acquired new debentures both before and after 1 February 2007, their claim is calculated accordingly. It is then proposed to distribute the amount available to pay group members pro rata according to the amount of their respective claims. It is expected that those with no-transaction claims will receive in the order of 16.31 cents in the dollar and those with rollover claims will receive in the order of 13.29 cents in the dollar.

91. This method is far less sophisticated than the one proposed in respect of the Creighton Proceeding. However, I accept that it is appropriate in the circumstances. The claim in the Smith Proceeding is put on the basis of various alternative dates for the receivership of Provident. It would be complicated to perform calculations for all the alternative dates and to take an average. It seems reasonable in those circumstances to choose a date that is close to the midpoint of the range of dates pleaded by Mr and Mrs Smith and perform the calculations on the basis of that date. According to the evidence filed by Mr and Mrs Smith, that date is also the most likely date on which Provident would have been placed into receivership

92. The method proposed in respect of the Smith Proceeding has not attempted to take account of the amounts received by debenture holders or amounts that they have received but would not have if the receivership had occurred at an earlier point in time. However, if the calculations are performed at one date, it is reasonable to assume that the position of the debenture holders is similar in terms of the payments they have and would not have received. Consequently, it is unclear that a methodology that took account of those payments would produce a significantly different outcome. Although the selection of a single date has the effect of drawing a more arbitrary line between no-transaction and rollover debenture holders than a mechanism that takes an average between two dates, because the calculation is performed at an earlier point in time, the difference between the way in which members of the two groups are treated is reduced, which ameliorates the consequences of choosing a single date.

93. Having regard to those matters, I have concluded that the approach taken by Meridian Lawyers is appropriate.

94. The distribution scheme is to be administered by Meridian Lawyers. It provides for a right of review by independent counsel and ultimately the Court. The administration of the scheme should be relatively straightforward. The scheme itself is relatively simple. Moreover, each group member has signed an agreement with Litman so there are unlikely to be any difficulties in communicating with group members or any difficulties with returned payments. Taking account of those matters, in my view, what is proposed in relation to the administration of the scheme is reasonable.

Other matters

Other objections

95. Two objections were received by the Court from persons who were not group members asking for the class to be expanded to include their claims. However, those requests misunderstand the nature of the actions. The definition of the classes was resolved some time ago. Class members were given an opportunity to opt out of the proceedings. The settlements involve the settlement of claims by persons who were class members who chose not to opt out. There is no basis on which others can have an entitlement to participate in the settlement.

Confidentiality

96. Confidentiality orders were sought over much of the material that was presented to the Court in support of the applications for approval.

97. It is appropriate that that material remain confidential until the settlements are absolutely binding on all the parties to them. The material includes, for example, frank assessments by the plaintiffs’ legal advisors of their clients’ cases and other privileged material which may be of assistance to AET if for some reason the settlements were not binding and the proceedings continued.

98. On the other hand, once the settlements are absolutely binding, it is difficult to see why any confidentiality orders should continue. No reason was advanced why the commercial arrangements between the parties or their insurers, to the extent that they form part of the evidence before the Court, should remain confidential once final orders are made and become binding. During the course of submissions, it was suggested that some of the material was commercially confidential. However, no evidence or arguments were advanced explaining how release of the material before the Court could cause anyone harm or prejudice the administration of justice. Consequently, there is no reason for any confidentiality order to continue after the settlements become absolutely binding.

99. On the conclusions I have reached, approval should be given to the settlements. However, there remains at least a theoretical risk of an appeal against the orders I make. In those circumstances, I think it is appropriate that confidentiality orders should continue for three months after orders are made or further order of the Court.

Orders

100. The orders of the Court in the Creighton Proceeding are:

1. Pursuant to ss 173 and 183 of the CPA:

1. settlement of the proceeding on the terms contained in the Deed of Settlement executed by the parties on 30 July 2018 and as amended by an Amending Deed executed by the parties on 18 September 2018, (the Settlement) is approved;

2. the money payable by the Defendant to the Plaintiff pursuant to the Settlement be distributed in accordance with the Settlement Distribution Scheme (the Scheme) exhibited at tab 3 of exhibit MGC-4 to the affidavit of Matthew Glen Chuk affirmed 27 September 2018 and the loss assessment formulae exhibited at tab 3 of exhibit MGC-2 to the confidential affidavit of Matthew Glen Chuk affirmed 20 September 2018;

3. all costs orders as between the plaintiff and the defendant made in the proceeding to date be vacated; and

4. on completion of distribution pursuant to the Scheme, the Proceeding be dismissed with no order as to costs.

2. Pursuant to ss 173 and 183 of the CPA, the Plaintiff is authorised nunc pro tunc on behalf of group members (being individuals who held debentures issued by Provident Capital Limited as at 29 June 2012, and who have not opted out of the Proceeding, as identified in the list of persons in Schedule 3 to the Settlement Deed exhibited at MGC-5 to the affidavit of Mathew Glen Chuk affirmed 2 October 2018) (Group Members) to enter into and give effect to the Deed and the Scheme.

3. Pursuant to ss 173 and 183 of the CPA, Benedict Tobin Hardwick of Slater and Gordon Lawyers be appointed administrator of the Scheme (Scheme Administrator) and be afforded the powers and immunities contemplated by the Scheme from the date of this order.

4. Pursuant to s 179 of the CPA, the persons affected and bound by the Deed are the Plaintiff, the Defendant and Group Members.

5. Pursuant to ss 173 and 183 of the CPA, the costs and disbursements of the Plaintiff in conducting the proceeding, including obtaining settlement approval, the premium payable in respect of adverse costs insurance, and the costs of administering the Scheme are approved in the amount of $12,800,000.

6. Pursuant to ss 173 and 183 of the CPA, the reasonable representative reimbursement costs of the Plaintiff are approved in the amount of $13,000.

7. The amounts paid into Court as security for costs in the proceeding on behalf of the Plaintiff pursuant to order 2 of the orders of Justice Ball made on 22 March 2016, and order 2 of the orders of Justice Ball dated 1 June 2016, be paid out to the Plaintiff.

8. Pursuant to ss 173 and 183 of the CPA, the Scheme Administrator, the Plaintiff and Group Members have liberty to apply to the Court, upon not less than 5 clear business days’ notice to each other party, for orders in respect of any issue arising in relation to the administration of the Scheme.

9. Pursuant to s 7 of the Court Suppression and Non-Publication Orders Act 2010 (NSW), and to prevent prejudice to the proper administration of justice and because it is otherwise necessary in the public interest, and that public interest significantly outweighs the public interest in open justice, the documents listed in Schedule A (4.20 KB, pdf) to this order be:

1. confidential and not be disclosed to any person or party;

2. sealed in an envelope marked “Not to be opened without leave of the Court or a Judge” and placed on the Court file; and

3. held on the Court file in accordance with (a) and (b) hereof for a period of three months or until further order of the Court.

10. The matter be listed for further hearing at a time to be fixed on a date not before Friday, 18 January 2019.

11. Any affidavit material to be relied upon by the Scheme Administrator at that hearing be filed by no later than 3 clear business days before that hearing.

101. The orders of the Court in the Smith Proceeding are:

1. Pursuant to s 173 of the CPA, the settlement of the representative proceeding and the claims of the Plaintiffs and each Group Member be approved on the terms set out in the Settlement Deed executed by the parties on 7 August 2018 and the Settlement Distribution Scheme exhibited at Tab 1 of Exhibit DER-2 to the affidavit of Douglas Edmund Raftesath sworn on 14 September 2018 (the Scheme) including payment in accordance with the Scheme of:

1. the Funder Payment in the amount of $4,252,500;

2. the Plaintiffs’ Costs in the amount of $5,268,778.87;

3. the Administration Costs in the amount of $220,000 (subject to further order).

2. Meridian Lawyers be appointed the Administrator of the Scheme.

3. The Second Further Amended Statement of Claim be dismissed.

4. The Administrator and any Group Member have leave to approach the Court to seek directions in relation to the administration of the Scheme.

5. Forthwith upon the conclusion of the administration of the Scheme, the Administrator is to file a report which includes confirmation of the amount that has been charged in relation to the administration of the Scheme, which will be considered by the Court on the determination of any variation to Order 1(c).

6. All previous unsatisfied costs orders in the proceeding be vacated.

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

8. Pursuant to s.7 and s.8(1)(a) of the Court Suppression and Non-Publication Orders Act 2010 (NSW), for a period of three months or until further order of the Court, in order to prevent prejudice to the proper administration of justice, “Confidential Exhibit DER–3” to the affidavit of Douglas Edmund Raftesath sworn 14 September 2018 is not to be published or made available and not to be disclosed to any persons or entity.

9. Other than order 8 (which applies generally), pursuant to s179 of the CPA, the persons and entities affected and bound by the balance of these orders, including the s 173 order, are the Plaintiffs, the Defendant and each Group Member who has not opted-out of the proceeding.

10. The monies paid into Court on behalf of the Plaintiffs pursuant to order 2 made on 22 March 2016 be released to the solicitors for the Plaintiffs.

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Decision last updated: 23 October 2018