Whittenbury v Vocation Limited (in liquidation)

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FEDERAL COURT OF AUSTRALIA

Whittenbury v Vocation Limited (in liquidation) [2021] FCA 829  

File number: VID 434 of 2015
Judgment of: ANASTASSIOU J
Date of judgment: 23 July 2021
Catchwords: REPRESENTATIVE PROCEEDINGS – application for approval of settlement of representative proceeding commenced under Pt IVA of the Federal Court of Australia Act 1976 (Cth) – where there are two law firms and two litigation funders involved in consolidated proceeding –whether proposed settlement is fair and reasonable and in interests of group members – whether proposed deductions were fair and reasonable – whether proposed treatment of unregistered group members is fair and reasonable – approval granted
Legislation:

Australian Securities and Investments Commission Act 2001 (Cth), s 12DA

Australian Consumer Law being Schedule 2 to the Competition and Consumer Act 2010 (Cth), s 18

Corporations Act 2001 (Cth), ss 1041E, 1041H

Federal Court of Australia Act 1976 (Cth), ss 33V, 33X, 33Y
Cases cited:

All Options Pty Ltd v Flightdeck Geelong Pty Ltd [2019] FCA 588

Andrews v Australia and New Zealand Banking Group Ltd [2019] FCA 2216

Australian Securities and Investments Commission v Vocation Ltd (in liquidation) [2019] FCA 807; 371 ALR 155

Blairgowrie Trading Ltd v Allco Finance Group Ltd (No 3) [2017] FCA 330; 343 ALR 476

Bradgate (Trustee) v Ashley Services Group Limited (No 2) [2019] FCA 1210

Camilleri v The Trust Company (Nominees) Ltd [2015] FCA 1468

Haeslhurst v Toyota Motor Corporation Australia Ltd t/as Toyota Australia [2020] NSWCA 66; 101 NSWLR 890; 379 ALR 556

Houghton v Arms [2006] HCA 59; 225 CLR 553

Smith v Commonwealth of Australia (No 2) [2020] FCA 837

Wetdal Pty Ltd as Trustee for the BlueCo Two Superannuation Fund v Estia Health Limited [2021] FCA 475

Wigmans v AMP Ltd [2020] NSWCA 104; 102 NSWLR 199; 381 ALR 100
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 58
Date of hearing: 19 March 2021
Counsel for the Applicant: Mr Attiwill QC and Mr W. A D Edwards
Solicitors for the Applicant: Maurice Blackburn and Slater and Gordon
Counsel for the First Respondent/Seventh Cross-Respondent for the Third and Fifth Cross- Claims: Ms S. Gory
Solicitor for the First Respondent/Seventh Cross-Respondent for the Third and Fifth Cross- Claims: Gilbert & Tobin
Counsel for the Second Respondent: Mr M. Garner
Solicitor for the Second Respondent: Herbert Smith Freehills
Counsel for the Third Respondent/First Cross-Respondent to the Third and Fifth Cross Claims/Cross-Claimant to the Sixth Cross-Claim: Mr S. Lawrence
Solicitor for the Third Respondent/First Cross-Respondent to the Third and Fifth Cross Claims/Cross-Claimant to the Sixth Cross-Claim: Gilbert & Tobin
Solicitor for the Fourth Respondent/First Cross-Respondent to the Third and Fifth Cross Claims/Cross-Claimant to the Seventh Cross-Claim: Ms J. McLennan of Clyde & Co
Solicitor for the Fifth Respondent/ Third Cross-Respondent to Third and Fifth Cross Claims/Cross-Claimant to the Fourth Cross-Claim: Mr A. Salgo of Baker & McKenzie
Solicitor for the Cross-Respondent to the First, Second, Fourth,…
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Details
Case
[2021] FCA 829
Decision Date

CaseChat Overview and Summary

Whittenbury v Vocation Limited (in liquidation) involves the approval of a settlement in a consolidated representative proceeding commenced under Part IVA of the Federal Court of Australia Act 1976 (Cth). The Applicant, on behalf of a class of shareholders, commenced proceedings against Vocation Limited and PricewaterhouseCoopers alleging breaches of various statutory provisions. The case was consolidated with another proceeding, resulting in two law firms and two litigation funders jointly funding the case. The court was required to decide whether the proposed settlement was fair, reasonable, and in the interests of the group members. This included examining the proposed deductions from the settlement sum, which included costs for the law firms and funders, and the treatment of unregistered group members.

The court found that the proposed settlement was fair, reasonable, and in the interests of the group members. The court approved the Settlement Distribution Scheme (SDS) and the distributions from the settlement sum, including the funding commissions for the funders, the law firms' costs, the Applicant’s reimbursement, and the administration costs. The court also approved the dismissal of the proceeding with no order as to costs and the repayment of security amounts previously paid by the Applicant. Confidentiality orders were made to protect certain documents from public disclosure.

The court granted approval for the settlement and made orders to give effect to the settlement, including the dismissal of the proceeding, the appointment of administrators, and the treatment of late registrants. The orders also included provisions for costs, security repayments, and confidentiality.

Orders

Orders of the court

1. Pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act), settlement of the proceeding is approved upon the terms set out in:

(a) the Settlement Agreement dated 30 November 2020 executed by the Applicant, the Respondents and, the Cross Respondents (together, Respondents), Slater and Gordon, Maurice Blackburn, Omni Bridgeway Limited and International Litigation Funding Partners Pte Ltd; and

(b) the Settlement Distribution Scheme (and any annexures therein) as annexed to the affidavit of Andrew Paull dated 11 March 2021.

(together, Settlement Documents).

2. Pursuant to s 33ZF of the Act or otherwise, the Court authorises the Applicant nunc pro tunc for and on behalf of the Group Members (being those persons who meet the definition of “Group Member” in the Second Further Amended Consolidated Statement of Claim and who did not file an opt out notice) (Bound Group Members) to enter into and give effect to the Settlement Documents and the transactions contemplated for and on behalf of Group Members.

3. Pursuant to s 33ZB of the Act, the persons affected and bound by the settlement of the proceedings be the Applicant, the Respondents, the Bound Group Members, Omni Bridgeway Limited and International Litigation Funding Partners Pte Ltd.

Applicant’s Costs and Expenses

4. Pursuant to s 54A(3) of the Act and r 28.67(1) of the Federal Court Rules 2011 (Cth), the report of Catherine Dealehr (appointed as referee pursuant to Order 11 made by the Court on 17 December 2020) (Costs Referee) be adopted.

5. Pursuant to s 33V of the Act for the purposes of the Settlement Distribution Scheme approved pursuant to Order 1 the following distributions from monies paid under the settlement be approved:

(a) $6,505,760.10 for the funding commission payable under group members’ funding agreements with Omni Bridgeway Limited (which amount, aggregated with the amount in sub-paragraph (b) below, is the “Aggregate Funding Commission” referred to in clause 4.1(b) of the Settlement Distribution Scheme);

(b) $4,413,588.04 for the funding commission payable under group members’ funding agreements with International Litigation Funding Partners Pte Ltd (which amount, aggregated with the amount in sub-paragraph (a) above, is the “Aggregate Funding Commission” referred to in clause 4.1(b) of the Settlement Distribution Scheme);

(c) $5,191,294.07 (being the amount approved as fair and reasonable by the Costs Referee) for the legal costs and disbursements referred to as the “Slater and Gordon Costs” in clause 4.1(g) of the Settlement Distribution Scheme;

(d) 7,567,385.66 (being the amount approved as fair and reasonable by the Costs Referee) for the legal costs and disbursements referred to as the “Maurice Blackburn Costs” in clause 4.1(g) of the Settlement Distribution Scheme;

(e) $20,000.00 for the Applicant’s reasonable claim for compensation for time spent and/or expenses incurred in the interests of prosecuting the proceeding on behalf of Group Members as a whole (referred to as the “Applicant’s Reimbursement Payment” in clause 4.1(g) of the Settlement Distribution Scheme);

(f) $158,144.50 for the costs and disbursements of the administration of the Settlement Distribution Scheme from the date of the approval of the Settlement to the date of completion of distribution of the Settlement Sum (referred to as the “Administration Costs” in clause 4.1(g) of the Settlement Distribution Scheme).

Appointment of Administrators

6. Pursuant to s 33ZF of the Act, Slater & Gordon Ltd and Maurice Blackburn Pty Ltd be appointed jointly as Administrators of the Settlement Distribution Scheme to act in accordance with the Settlement Distribution Scheme subject to any direction of the Court, and to have the powers and immunities conferred by the Settlement Distribution Scheme on the Administrators.

Late Registrants

7. Pursuant to s 33V and/or s 33ZF of the Act, for the purposes of the Settlement Distribution Scheme approved pursuant to Order 1, any group member who registered a claim following the Court’s orders made on 17 December 2020 up to and including 4 March 2021 is a “Registered Group Member” within the meaning of sub-paragraph (c) of the definition of that term in cl 11 of the Settlement Distribution Scheme.

Other

8. The proceeding be dismissed (including for the avoidance of doubt all Cross Claims) on the basis that the dismissal is a defence and absolute bar to any claim (either directly or indirectly) or proceeding by the Applicant or any Group Member or any Respondent in relation to the subject matter of the proceeding, without prejudice to and without derogating from:

(a) the right of any party to the Settlement Agreement to make an application to enforce the Settlement Agreement in a new proceeding; or

(b) the right of any Registered Group Member to make application to the Court in accordance with the terms of the Settlement Distribution Scheme; or

(c) the right of the Administrator of the Settlement Distribution Scheme to refer any issues relating to the Settlement Distribution Scheme to the Court for direction or determination in accordance with the terms of the Settlement Distribution Scheme; or

(d) the right of any Respondent to bring any cross-claim in respect of their liability in relation to a proceeding brought or a demand made by any person who is not a Bound Group Member against any of the Respondents or their Related Parties in respect of the Proceeding (whether arising at common law, in equity or under statute). “Related Parties” as used herein has the meaning set out in the Settlement Agreement. In relation to the Second Respondent, “Related Parties” has the interpretation set out at cl 2.1(m) of the Settlement Agreement.

9. There be no order as to costs as between the Applicant and the Respondents.

10. All costs orders previously made in the proceeding are vacated.

11. All amounts paid into Court by or on behalf of the Applicant as security for the Respondent’s costs of the proceeding, and any interest accrued on those amounts, be repaid.

Confidentiality

12. Pursuant to ss 37AF and 37AG(1) of the Act in order to prevent prejudice to the proper administration of justice, the following documents be treated as confidential, not be published or made available and not be disclosed to any person or entity except to Anastassiou J, his or her personal staff, any officer of the Court authorised by Anastassiou J, the Applicant, her legal representatives, Omni-Bridgeway Ltd and International Litigation Funding Partners, and such permitted disclosures to be upon terms that none of those parties or persons disclose that material or any part thereof to any person or entity:

(a) the unredacted form of the First Affidavit of Andrew Paull dated 11 March 2021;

(b) the Second Confidential Affidavit of Andrew Paull dated 11 March 2021;

(c) the unredacted form of the Affidavit of Andrew Watson dated 11 March 2021;

(d) Confidential Opinion of Richard Attiwill QC and William Edwards dated 11 March 2021; and

(e) report of Cate Mary Dealehr dated 5 March 2021.

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

Background

Background to the litigation

Accordingly, I give approval to the proposed settlement, including the SDS, and shall make the orders sought by the Applicant which give effect to the settlement and ancillary matters. BACKGROUND The Applicant commenced proceedings in this Court on 20 August 2015 pursuant to Part IV of the Act on behalf of persons (Group Members) who acquired interests in fully paid ordinary shares in Vocation Limited in the period between 27 November 2013 and 4 December 2014 (inclusive) (the Relevant Period), and who allege they suffered loss or damage by reason of the conduct of the Respondents, the subject of the claims in this proceeding. The Applicant was represented by Maurice Blackburn and funded by International Limited Funding Partner Pte Ltd (ILFP). This proceeding is a consolidated proceeding. On 26 February 2015, Mr Karageorgiou (the Karageorgiou Applicant) commenced a separate representative proceeding against Vocation in the Supreme Court of Victoria (Karageorgiou Proceeding). The Karageorgiou Applicant was represented by Slater and Gordon and funded by IMF Bentham Ltd (now known as Omni Bridgeway Ltd (OBL)). On 17 March 2017, Middleton J made orders pursuant to r 30.11 of the Federal Court Rules2011 (Cth) (the 17 March 2017 Orders) consolidating the Karageorgiou Proceeding with this proceeding (thereby forming the Consolidated Proceeding). The Consolidated Proceeding is jointly funded by ILFP and OBL, collectively the Funders. Following Mr Karageorgiou’s death on or around 24 January 2018, and by orders made at a hearing on 20 April 2018, the Applicant became the sole representative Applicant in the Consolidated Proceeding, jointly represented by Maurice Blackburn and Slater and Gordon.Joinder of PricewaterhouseCoopers and D&O parties as respondents On 21 March 2017, in accordance with the 17 March 2017 Orders, the Applicant filed a consolidated statement of claim, which amongst other things, introduced allegations in respect of the Second Respondent, PricewaterhouseCoopers (PwC). On 11 November 2019, the Applicant amended her statement of claim, bringing claims directly against certain of Vocation’s directors and officers, being Mark Hutchinson (Chief Executive Officer and executive Managing Director), John Dawkins AO (Non-Executive Chairman) and Manvinder Grewal (Chief Financial Officer and company secretary) (together, the D&O Respondents).Mediation and Settlement Agreement Following a protracted mediation that commenced in mid-2019, the parties entered into a Settlement Agreement on 30 November 2020. Pursuant to the Settlement Agreement, the sum of $50 million (Settlement Sum) was paid into an interest bearing account on 1 December 2020 and is held on trust pending approval by this Court of the settlement. The SDS, which governs the proposed distribution of the settlement fund, has also been agreed subject to approval. Pursuant to the terms of the Settlement Agreement and the SDS, the following amounts are to be deducted from the Settlement Sum: $5,191,294.07 for Slater and Gordon legal costs; $7,567,385.66 for Maurice Blackburn legal costs; $20,000 for the reimbursement of the Applicant’s time and effort in the litigation; and $158,144.50 for the administration costs of the SDS. The funding commission payable to ILFP is $4,413,588.04, and $6,505,760.10 is payable to OBL. After deducting these amounts from the Settlement Sum, approximately $26,165,745.44, being approximately 52.31% of the Settlement Sum, is the net amount available to Group Members. Class Closure Orders and Late Registrants

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

The claims made against the First Respondent, Vocation, concern alleged misleading statements in, and material omissions from, the prospectus which preceded Vocation’s Initial Public Offering (IPO). These claims are made pursuant to ss 728 and 729 of the Corporations Act 2001 (Cth); s 1041H of the Corporations Act; s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and s 18 of the Australian Consumer Law (Schedule 2 to the Australian Competition and Consumer Act 2010 (Cth)) (ACL). The claims made against the Second Respondent, PwC, are brought in respect of Vocation shares acquired on or after 21 August 2014. The Applicant alleges that the Second Respondent made misstatements to Vocation and the market, involving alleged failures to disclose: (1) revenue recognition policy changes; (2) funding and enrolment suspensions; and (3) that there was material uncertainty about Vocation’s ability to continue as a going concern. Further, the Applicant claims that the Second Respondent engaged in misleading and deceptive conduct in connection with its audit of Vocation’s accounts for the financial year ended 30 June 2014. These claims are made pursuant to ss 1041E and 1041H of the Corporations Act, s 12DA of the ASIC Act and s 18 of the ACL. The claims in relation to the D&O Respondents are founded upon alleged misleading representations made by the D&O Respondents. These claims are made pursuant to s 1041H of the Act, s 12DA of the ASIC Act and s 18 of the ACL. Cross-claims In total, seven cross-claims were issued by the Respondents and Cross-Respondents. The cross-claims are as follows:(1)Vocation filed the first cross-claim against Johnson Winter and Slattery (JWS), which was Vocation’s legal adviser both: (1) at the time the Prospectus for the IPO was issued and which Vocation alleges that JWS advised it that the Prospectus contained all necessary information; and (2) in mid-2014, from which it sought advice as to whether to disclose funding and enrolment suspensions to the Australian Stock Exchange (ASX); (2)PWC filed the second cross-claim in the Consolidated Proceeding against JWS, repeating Vocation’s allegations against JWS; (3)PWC filed the third cross-claim against Vocation, the D&O Respondents and three other directors of Vocation (together the D&O Cross Respondents) repeating against them all of the allegations in the Applicant’s claim against Vocation;(4)Mr John Dawkins filed the fourth cross-claim against JWS, repeating Vocation’s allegations against that firm;(5)JWS filed the fifth cross-claim against Vocation and the D&O Cross Respondents, repeating PwC’s cross-claim against those parties; and(6)Mr Hutchinson and Mr Grewal filed the sixth and seventh cross-claims against JWS, repeating Vocation’s claim against that firm. Evidence and materials relied upon by the Applicant The Applicant relies upon the following evidence and materials:(1)the affidavit of Andrew Paull affirmed 11 March 2021, which, among other things, exhibits:(a)the Settlement Agreement dated 30 November 2020; and (b)the proposed amended SDS;(2)the affidavit of Andrew Paull affirmed 11 March 2021, which exhibits the confidential Counsel Opinion of Mr Richard Attiwill QC and Mr William Edwards;(3)the affidavit of Andrew Paull affirmed 16 March 2021, which makes corrections to Mr Paull’s earlier affidavit;(4)the affidavit of Andrew John Watson sworn 11 March 2021; (5)the second affidavit of Andrew John Watson sworn 23 March 2021; and (6)a costs report of Cate Dealehr, independent costs referee, dated 5 March 2021 (the Independent Costs Report).