Taylor v Telstra Corporation Ltd

Case [2007] FCA 2008

FEDERAL COURT OF AUSTRALIA

Taylor v Telstra Corporation Ltd [2007] FCA 2008

PRACTICE AND PROCEDURE – representative proceeding – Court approval of settlement – fairness and reasonableness of terms of settlement – objections to settlement – alternative outcomes – independent assessment of reasonableness of legal fees – exclusion of certain group members from settlement

Federal Court of Australia Act 1976 (Cth), ss 33V, 33X
Corporations Act, s 674

Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 142 ALR 177 referred to
Courtney v Medtel Pty Ltd (No. 5) 212 ALR 311 referred to
Darwalla Milling Co Pty Ltd v F Hoffmann-La Roche Ltd (No. 2) (2007) 236 ALR 322 applied
Haslam v Money for Living (Aust) Pty Ltd(Administrators Appointed) [2007] FCA 897 referred to
Lopez v Starworld Enterprises Pty Ltd [1999] FCA104 referred to
Williams v FAIHome Security Pty Ltd (No. 4) (2001) 180 ALR 459 applied

ANDREW TAYLOR v TELSTRA CORPORATION LTD (ACN 051 775 556)
NSD 89 OF 2006

JACOBSON J
13 DECEMBER 2007
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 89 OF 2006

BETWEEN:

ANDREW TAYLOR
Applicant

AND:

TELSTRA CORPORATION LTD (ACN 051 775 556)
Respondent

JUDGE:

JACOBSON J

DATE OF ORDER:

13 DECEMBER 2007

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.Order 3 of the four paragraph set of orders made on 12 November 2007 be varied to exclude [26], [28] and [29] of the Confidential Affidavit of Kenneth John Fowlie sworn 9 November 2007.

2.Pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act), the Court hereby approves the settlement of this Proceeding in accordance with the terms of the Deed of Settlement, a copy of which is Annexure ‘A’ to these Orders (the Deed of Settlement)*.

3.The Applicant’s solicitors will cause a notice in the form of Annexure ‘B’ to these Orders (the Notice)* to be sent by email or by pre-paid post to the last known address of each person who has retained the Applicant’s solicitors in the Proceeding by no later than 24 December 2007.

4.The Applicant’s solicitors will cause the Notice to be published in the legal notices section or the equivalent of:

(a)       The Australian Financial Review;
(b)       The Australian;
(c)       The Sydney Morning Herald;
(d)       The Age;
(e)       The Courier Mail;
(f)        The Advertiser;
(g)       The Hobart Mercury;
(h)       The West Australian;

(i)        The Northern Territory News; and
(j)        The Canberra Times
by no later than 24 December 2007.

5.The cost of complying with Orders 3 and 4 be paid by the Applicant and then be part of his costs in the cause.

6.All costs orders made to date in the Proceeding are hereby vacated.

7.There will be no order as to the costs of the Proceeding.

8.Pursuant to s 33ZF of the Act or otherwise, the Court authorises the Applicant nunc pro tunc on behalf of the group members described in Order 9 to enter…

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AGLC
Taylor v Telstra Corporation Ltd [2007] FCA 2008
Case
[2007] FCA 2008
Decision Date

CaseChat Overview and Summary

In the matter of Taylor v Telstra Corporation Ltd, the plaintiff, Mr Taylor, sought to represent a class of shareholders who had purchased shares in Telstra Corporation Ltd (Telstra) between 11 August and 6 September 2005, alleging that Telstra had failed to disclose material information to the market, which inflated the share price. This led to the shareholders suffering losses when the share price subsequently declined. The case was before the Federal Court of Australia, with the primary legal issue being whether Telstra had an obligation to disclose certain information to the market and if the failure to do so constituted a breach of the continuous disclosure provisions under the Corporations Act 2001 (Cth).

The court was required to assess the materiality of the undisclosed information and its impact on the share price. This involved evaluating expert evidence from both parties, which included financial analyses and empirical studies on market disclosures. The plaintiff's experts argued that the undisclosed information was material and would have affected the share price if it had been disclosed earlier. Conversely, Telstra's experts contended that the information was not material and that there was no obligation to disclose it. The court had to determine whether the plaintiff's claims were substantiated by the evidence presented.

The court approved the settlement scheme proposed by the parties, which involved Telstra paying a total of $5,000,000 into an interest-bearing account. This amount was intended to cover legal costs and disbursements for the plaintiff, as well as any potential compensation for the affected shareholders. The court's approval was contingent on the terms of the settlement being communicated to the relevant shareholders and published in specified newspapers. Additionally, the court ordered that certain documents be sealed and not disclosed without further order, reflecting the sensitive nature of the information involved in the case.

Orders

Orders of the court

1. Order 3 of the four paragraph set of orders made on 12 November 2007 be varied to exclude [26], [28] and [29] of the Confidential Affidavit of Kenneth John Fowlie sworn 9 November 2007.

2. Pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act), the Court hereby approves the settlement of this Proceeding in accordance with the terms of the Deed of Settlement, a copy of which is Annexure ‘A’ to these Orders (the Deed of Settlement)*.

3. The Applicant’s solicitors will cause a notice in the form of Annexure ‘B’ to these Orders (the Notice)* to be sent by email or by pre-paid post to the last known address of each person who has retained the Applicant’s solicitors in the Proceeding by no later than 24 December 2007.

4. The Applicant’s solicitors will cause the Notice to be published in the legal notices section or the equivalent of:

(a) The Australian Financial Review;

(b) The Australian;

(c) The Sydney Morning Herald;

(d) The Age;

(e) The Courier Mail;

(f) The Advertiser;

(g) The Hobart Mercury;

(h) The West Australian;

(i) The Northern Territory News; and

(j) The Canberra Times

by no later than 24 December 2007.

5. The cost of complying with Orders 3 and 4 be paid by the Applicant and then be part of his costs in the cause.

6. All costs orders made to date in the Proceeding are hereby vacated.

7. There will be no order as to the costs of the Proceeding.

8. Pursuant to s 33ZF of the Act or otherwise, the Court authorises the Applicant nunc pro tunc on behalf of the group members described in Order 9 to enter into and to give effect to the Deed of Settlement and the transactions thereby contemplated for and on behalf of those group members.

9. Pursuant to s 33ZB(a) of the Act, the Court declares that the persons affected and bound by these orders are the Applicant, the Respondent, and the group members who are defined in the Second Further Amended Statement of Claim filed on 3 November 2006 as follows:

persons who purchased shares in the Respondent between 11 August and 6 September 2005 (inclusive), and who:

(a) did so in the belief that the price at which they were purchasing the shares was not falsely inflated by reason of any non-disclosure by the Respondent to the market of material information;

(b) did not, on or before 6 September 2005, resell those shares at a price equal to or greater than that for which they had purchased them; and

(c) thereby suffered loss,

save for those group members who have opted out of the representative proceeding pursuant to notices filed with the Court pursuant to s 33J of the Act.

10. The Second Further Amended Application filed on 3 November 2006 be dismissed and judgment entered for the Respondent.

11. Pursuant to s 50 of the Act that the Applicant’s Confidential Submissions dated 11 December 2007 (Confidential Submissions) not be published to any person without further order of the Court.

12. That the Confidential Submissions be sealed on the Court file and not be disclosed to any person without further order of the Court.

13. Pursuant to s50 of the Act that [4] of the affidavit of Jason Lawrence Betts sworn 12 December 2007 and exhibit “JLB-1” to that affidavit, and [5] and [6] of the affidavit of Jason Lawrence Betts sworn 13 December 2007 and exhibit “JLB-1” to that affidavit (the Affidavits) not be published to any person without further order of the Court.

14. That the Affidavits be sealed on the Court file and not be disclosed to any person without further order of the Court.

15. Slater & Gordon may approach the Court, after giving at least 7 days’ notice to the Respondent, to seek an extension of time from the Court to complete any of the steps provided for in the Settlement Scheme, being Schedule 1 to the Deed of Settlement.

* Annexures A and B referred to in these orders have not been set out in full; copies have been kept with the papers.

Background

Background to the litigation

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Evidence

Evidence Before The Court

Both Ms Preston and Mr Mangan conclude that the information was material information within the meaning of the Act and that if earlier disclosure had been made, the price of Telstra shares would have been lower. Telstra’s Expert Evidence Telstra served four expert reports. They were of Mr Frederick Dunbar, Mr Vincent O’Brien, Mr Terry Walter and Mr Nicholas Hullah. Those reports comprise four lever-arch folders of printed material. In addition, Mr Walters’ report includes 11 CD-ROMs containing more than 257,000 pages of documents. Mr Dunbar and Mr O’Brien are experts from the United States who apply the events study analysis. Their reports are therefore responsive to the expert evidence of Ms Preston. Mr Walter is an equity researcher who has undertaken an empirical study of the types, frequencies and the nature of disclosures made by ASX-listed companies since 2000. Mr Hullah, who is an accountant, has provided an opinion on whether the information was material from the perspective of the application of the accounting standards and whether it was required to be disclosed in Telstra’s financial accounts concerning the financial year 2004-2005. Telstra’s annual report was released to the market on 11 August 2005. Telstra served a fifth report on 24 October 2007. That was an expert report by Mr Warwick Evans. He is an analyst who adopts a similar approach to that of Mr Mangan. Mr Evans’ report is contained in two lever-arch folders. Although I have set out briefly the nature of the evidence contained in Telstra’s expert evidence reports, I make no comment about the admissibility of that material had the proceeding gone to trial. Each of Telstra’s experts concludes that there was no obligation on Telstra to release the information. Apart from Mr Walter, whose analysis does not concern questions of materiality, each of the other experts concludes that the information was not material information at any time from 11 August 2007. Following from this, Messrs Dunbar, O’Brien and Evans conclude that there was no price inflation present in the period with which the proceedings are concerned.The Hearing The proceeding was due to commence for trial on or about 26 November 2007. Each of the parties had filed evidence which should have enabled the matter to commence on or about the date provisionally fixed by Gyles J. There were a number of minor interlocutory matters still to be dealt with. The Proposed Settlement Scheme The proposed settlement scheme is set out in Mr Fowlie’s open affidavit of 9 November 2007 and I will record the terms as set out in Mr Fowlie’s affidavit. Mr Taylor on behalf of group members seeks approval for a settlement of the proceeding resulting in Telstra paying a total sum of $5,000,000 into an interest-bearing account to be maintained by Messrs Slater & Gordon who are the solicitors for the applicant. The settlement sum is essentially divided into three parts. The first part will be directed to meeting the legal costs and disbursements of the applicant. The total amount sought is $1.25 million. The reasonableness of this allowance and the reasonableness of the costs and disbursements are dealt with in Mr Thompson’s affidavit.

Decision

Reasons for decision

JACOBSON J

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Ratio Decidendi

Legal Principle Established

Established by: JACOBSON J

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