Trilogy Funds Management Limited v KPMG (A Firm)
[2017] FCA 432
•21 April 2017
FEDERAL COURT OF AUSTRALIA
Trilogy Funds Management Limited v KPMG (A Firm) [2017] FCA 432
File number(s): NSD 973 of 2014 Judge(s): JAGOT J Date of judgment: 21 April 2017 Catchwords: PRACTICE AND PROCEDURE – judicial advice – Court approval of proposed settlement – orders under s 63 of the the Trustee Act 1925 (NSW) Legislation: Australian Securities and Investments Commission Act 2001 (Cth)
Corporations Act 2001 (Cth)
Judiciary Act 1903 (Cth)
Trustee Act 1925 (NSW) s 63
Cases cited: Hodges and Another v Waters & Others (No 7) [2015] FCA 264, (2015) 232 FCR 97 Date of hearing: 21 April 2017 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 17 Counsel for the Applicant: Mr C Withers and Mr R Clark Solicitor for the Applicant: Squire Patton Boggs ORDERS
NSD 973 of 2014 BETWEEN: TRILOGY FUNDS MANAGEMENT LIMITED AS THE RESPONSIBLE ENTITY OF THE PACIFIC FIRST MORTGAGE FUND
Applicant
AND: KPMG (A FIRM)
First Respondent
JILLIAN RICHARDS
Second Respondent
JUDGE:
JAGOT J
DATE OF ORDER:
21 APRIL 2017
THE COURT ORDERS THAT:
1.Pursuant to s 63 of the Trustee Act 1925 (NSW), the Court grants the opinion, advice and direction of the Court that the applicant is justified in compromising the proceedings on the terms of the Settlement Deed dated 17 March 2017 entered into between the applicant and respondents.
2.Pursuant to s 7AF(1) of the Federal Court of Australia Act 1976 (Cth) (the Act) the following documents be treated as confidential and be sealed on the Court file in envelopes marked “Not to be opened except by leave of the Court or a Judge” and are not to be published or made available to any person other than the applicant:
(a)Confidential affidavit of Amanda Kim Banton dated 19 April 2017;
(b)Confidential Exhibit AKB-2; and
(c)Confidential written submissions of the applicant dated 19 April 2017.
For the avoidance of doubt, this order does not extend to suppression of the disclosure of the contents of those documents by the parties themselves.
3.Order 2 applies until further order of the Court.
4.Pursuant to s 37AG(1)(a) of the Act:
(a)Orders 2 and 3 are made on the grounds that the orders are necessary in order to:
(i)Prevent prejudice to the proper administration of justice given the documents contain without prejudice material that is subject to confidentiality negotiated and agreed between the parties; and/or
(ii)To prevent prejudice to the proper administration of justice because the documents are subject to legal professional privilege or contain material subject to legal professional privilege, which privilege has not been waived.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
JAGOT J:
This is an application in a proceeding to obtain the opinion, advice and direction pursuant to s 63(1) of the Trustee Act 1925 (NSW) (Trustee Act) that the applicant, a trustee, is justified in compromising the proceedings on the terms of a settlement deed dated 17 March 2017, which has been entered into between the applicant and the respondents.
In circumstances where there are extensive confidentiality obligations imposed on the parties by the settlement deed, it is appropriate that I provide these reasons to explain why I am satisfied that I should grant the opinion, advice and direction which is sought, the effect of which under s 63(2) will be that if “the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee’s own responsibility, to have discharged the trustee’s duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction.”.
I have been assisted in reaching my conclusions by consideration of a number of documents, including:
(1)an extensive outline of confidential submissions prepared by the applicant’s counsel,
(2)an affidavit of the solicitor for the applicant, which is dated 19 April 2017 and which is also confidential,
(3)the terms of the settlement deed, which is a confidential document, and
(4)counsels’ opinion (also extensive) in relation to the settlement of the proceedings on the terms set out in the settlement deed, that opinion being dated 13 April 2017 and itself a confidential document.
In the written submissions, counsel for the applicant has identified the three salient issues, namely, the power of this Court to give the judicial advice pursuant to s 63 of the Trustee Act, the question whether that advice is appropriate to be given in all of the circumstances, and whether the orders in respect of confidentiality should be made by the court.
The proceedings are brought by the applicant in its capacity as responsible entity of the Pacific First Mortgage Fund. Damages are claimed against the respondents based on allegations of contraventions of provisions of the Corporations Act 2001 (Cth) which apply to managed investment schemes, in particular the obligations in respect of the auditing of the schemes. Otherwise, that the respondents owed a common law duty of care to the applicant which was breached, thereby giving rise to an entitlement to damages. Subsidiary claims are made, arising from the same facts, for damages for misleading and deceptive conduct, as well as contraventions of the Australian Securities and Investments Commission Act 2001 (Cth).
The primary issue in assessing whether the judicial advice should be given is consideration, insofar as is possible based on the available information, of the appropriateness of the compromise which has been agreed between the applicant and the respondents – a compromise which I note is subject to and conditional upon the obtaining of the judicial advice.
Having reviewed the available material, it is plain that the applicant’s legal representatives have given detailed consideration of the likely factual and legal issues which will confront the applicant in the prosecution of its claim against the respondents.
The settlement sum, which is confidential, has been negotiated having regard to the possible bases upon which the applicant might succeed in its claims against the respondents, but also having regard to a range of factual and legal issues which will undoubtedly arise if the matter proceeds to a contested hearing. I am satisfied that the applicant has reached the settlement as a result of careful consideration of the issues which will be likely to arise and its overall prospects in the proceedings, and also with due regard for the well-known fact that all litigation is hazardous, let alone litigation of the complexity, both factual and legal, which attends the current proceedings.
The issue of the power of this Court under s 63 of the Trustee Act was considered by Perram J in the matter Hodges and Another v Waters & Others(No 7) [2015] FCA 264, (2015) 232 FCR 97 at [32] to [54]. I adopt his Honour’s reasoning. As his Honour said, there is no doubt that the proceeding itself is within federal jurisdiction, and the claim for judicial advice arises from the same substratum of facts. In those circumstances, in common with the conclusions of Perram J at [48], I accept that the claim for judicial advice is within the jurisdiction of this Court.
I also note his Honour’s observation that despite the application being styled as one for “advice” in accordance with the terms of s 63(1), the remedy is substantive given the terms of s 63(2) which, if engaged, curtails the right of beneficiaries to sue the trustee for breach of trust if the advice is followed. Justice Perram otherwise explained why it is that the reference to “the court” in s 63(1) of the Trustee Act, as applied pursuant to s 79(1) of the Judiciary Act 1903 (Cth), does not confine the meaning to the Supreme Court of the State of New South Wales. His Honour also was satisfied, as I am in this case, that there is a clear question arising respecting the management or administration of the trust property, thereby enlivening the power in s 63.
On the evidence, it is apparent that the terms of the settlement deed have been closely negotiated. The parties attended mediation on 31 August 2016. Thereafter, a lengthy period of negotiation followed, up to seven months in length, to determine the terms of the deed upon which the proceedings would be settled. If the judicial advice is given, as I do propose to do, then the settlement sum will be paid, the parties will seek to dismiss the proceeding with no order as to costs as between them, and various releases, covenants and corresponding indemnities will be given.
The release given by the applicant is on its own behalf, as responsible entity for the scheme, but also “on behalf of the scheme and the members, to the extent permitted by law”. I accept the submission which has been put that it is reasonable for the release to be given by the applicant on behalf of the members of the fund to the extent permissible by law. There is evidence that this term of the settlement was an important one, and that it was the subject of close consideration in the negotiations. Without it, I infer the matter would not have settled at all. As the submissions for the applicant pointed out, it is the proper party to bring proceedings relating to the administration of the trust, given its status as the trustee. As such, if the matter had proceeded to a litigated outcome, any judgment in the proceedings would have been binding on the members of the fund. Further, the relevant claims relate to trust property and are subject, therefore, to the control of the applicant as trustee. The release by the applicant on behalf of the members of the fund, only operates to the extent permissible by law, and cannot and does not extend to any personal claims by fund members. As a result, I accept the submission that it is reasonable for the applicant to have given all of the releases, including the release on behalf of the members of the fund, to the extent permissible by law.
I otherwise accept, as I have said, that the settlement sum is reasonable in light of any potential quantum of damages which the applicant might have obtained if it succeeded in its claims against the respondents, particularly when that assessment is carried out in the full legal and factual context of the circumstances in which the audits were carried.
The other issue is confidentiality. As I have said, the confidentiality provisions are onerous, and apply to preclude the applicant not only from disclosing the terms of the settlement deed, but also the settlement sum. The scope of the exclusion from the applicant’s confidentiality obligations is limited. It is confined to disclosure of the existence of, or terms of the deed to a member, only to the extent required to inform the member of the fact of settlement, to inform the member of the fact that the applicant has agreed to seek judicial advice under s 63 of the Trustee Act, on the basis of an express obligation under the scheme constitution, and/or to inform the member of the member’s individual entitlements in the scheme including the member’s individual relevant entitlement arising from the settlement. There is express provision in the settlement deed that the permitted disclosure does not permit the applicant to disclose to any member the actual settlement sum.
In Hodges, there were also confidentiality provisions including in respect of the settlement sum. Justice Perram considered the issues arising from these confidentiality provisions, having regard to the fundamental principle that justice should be open, unless there is a good reason for the making of a confidentiality order. His Honour, nevertheless, concluded that it was appropriate to approve the settlement notwithstanding that its terms remained confidential. In particular, his Honour gave weight to the fact that the settlement itself was fair and reasonable having regard to the claims that were made and, accordingly, it was in the best interest of the trust estate for the settlement to proceed, rather than for the settlement, as would otherwise have been case, to have collapsed, thereby necessitating either the discontinuance of the proceedings, or the continuation of the proceedings with all of the concomitant risks which are inherent with litigation, and the associated costs.
The same circumstances apply in the present case. In Hodges it is true that the terms of the settlement permitted class members, as his Honour put it, “who were sufficiently enthusiastic to see the details of the settlement” to be provided with the settlement terms, but only on the execution of appropriate confidentiality agreements by that member. On the facts before his Honour, only one member of the class took advantage of this option. The option is not available in the present case but, nevertheless, I have determined that it is appropriate to approve the settlement, in circumstances where it is clear that the confidentiality provisions were the subject of detailed consideration and extensive negotiation, without which it is highly likely that no settlement agreement could have been reached at all, and having regard to the fact that it is apparent from the provisions of the settlement deed that in the event that the judicial advice which is sought is not obtained, in effect, the settlement will not proceed and the matter will either need to proceed or be discontinued.
For these reasons, I am willing to make orders as sought.
I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate:
Dated: 2 May 2017
1
1
4