Adams v Navra Group Pty Ltd

MURPHY J: 1 The present proceeding is a class action brought by the applicant, Ms Carolyn Adams, against the respondent, Navra Group Pty Ltd (in liquidation) (Navra). The statement of claim states that Ms Adams brings the proceeding for herself and on behalf of persons who: (a) on, or around or after March 2006 received financial advice from Navra in relation to the entry into margin loans for the purposes of purchasing units in managed funds for which NavraInvest Limited was the responsible entity, using real property held in his or her name as security; and (b) as at the date of the commencement of the proceeding had entered into a retainer with the law firm of Minter Ellison to act on their behalf in these proceedings. 14 persons are listed as class members in a schedule to the statement of claim. 2 The statement of claim alleges that Navra: (a) failed to exercise the skill and care of an experienced provider of financial services, with regards to the identification of factors such as risk and investment suitability; (b) engaged in misleading and deceptive conduct in contravention of ss 1041E and 1041H of the Corporations Act 2001 (Cth) (Corporations Act) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act); (c) contravened ss 945A and 945B of the Corporations Act, as those provisions then existed, by making recommendations which were inappropriate and made without determining individual investors' circumstances; and (d) breached the fiduciary duties it owed to class members insofar as it gave certain advice when there existed a conflict between the interests of Navra and the class members. 3 By an interlocutory application Ms Adams now seeks Court approval to discontinue the proceeding pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act). 4 Section 33V requires Court approval before discontinuance of a representative proceeding is permitted, because such proceedings involve the rights of class members who are not directly before the Court. Unfortunately, in the present case it is unclear whether the 14 persons listed as class members in the schedule to the statement of claim are indeed class members, or whether they are applicants in the proceeding along with Ms Adams. I say that because the originating application lists the same 14 class members as named applicants. A similar ambiguity appears in the affidavit of Andrew Keith Gill, a solicitor with Minter Ellison, affirmed on 5 March 2019 filed in support of the application. Mr Gill deposes that the proceeding was commenced by Ms Adams as the "lead applicant" but he also states that he is the solicitor on the record for "the applicants". 5 If each of the 14 persons listed as class members in the statement of claim are actually applicants in the proceeding, then they are parties and directly before the Court. In that circumstance there would be no class members and no requirement for the Court to exercise a protective role in relation to their interests. Indeed, if there are no class members then the matter is not properly constituted as a representative proceeding and discontinuance does not require Court approval. 6 I will proceed on the assumption that the persons listed in schedule to the statement of claim are class members. That is how the statement of claim is pleaded and that is the basis underpinning the application for Court approval to discontinue the proceeding. 7 In the finish, little turns on the regrettable ambiguity. Whether they are properly described as class members or applicants Minter Ellison has been retained by each of the named persons, and it is appropriate to infer that they have been advised of the application. 8 More fundamentally, Navra is in liquidation and the only assets it has are rights under three insurance policies it held and those policies are insufficient to meet all the claims made against Navra. In a related proceeding the Court approved a scheme for the fair distribution of the insurance monies available to claimants against Navra and each of Ms Adams and the class members elected to participate in that scheme, signed settlement deeds which released Navra and related persons and entities from all liability, and have been paid their respective settlement monies. In circumstances where Ms Adams and each of the named persons have resolved their rights to claim damages from Navra there is no utility to the class action remaining on foot and it is appropriate to approve its discontinuance.

The Background facts 9 The evidence shows that at all material times Navra held an Australian Financial Services Licence and provided financial advice to various clients, including the class members in the proceeding. That advice included, amongst other things, recommendations that its clients use margin loans taken out using their real property as security to purchase units in managed funds for which a related company NavraInvest Limited was the responsible entity. On 30 September 2011 Navra was placed into liquidation. 10 On 12 September 2014 the applicants commenced the proceeding herein seeking damages in respect of investment advice provided by Navra to Ms Adams and 14 named class members. 11 The applicant required leave to commence the proceeding pursuant to s 500(2) of the Corporations Act, and by orders made on 5 February 2015, Foster J granted leave nunc pro tunc to do so. 12 On 7 September 2015 the liquidator of Navra filed proceeding NSD 1061 of 2015, now named Christopher John Palmer as liquidator of Navra Group Pty Ltd (in liquidation) (the Liquidator's proceeding). In that proceeding the liquidator applied for directions under s 479 of the Corporations Act, seeking approval of a proposed scheme for the fair and equitable distribution of available insurance monies to claimants, including the applicants in this proceeding. 13 The background to the Liquidator's proceeding, confirmed by the evidence in the present application, is that Navra is in liquidation and that it has no assets other than its rights under three insurance policies underwritten by AIG Australia (the insurer) covering the financial years 2008-09, 2009-10 and 2010-11 respectively. Each policy was a "claims made" policy which responded only to claims made against Navra during that policy year, regardless of when the event causing loss or event of loss occurred, was for a limited policy amount both in respect of any individual claim and of all claims made during the policy year, and was for a policy amount inclusive of the legal and other costs of defending any claim against Navra. 14 The claims made against the policies exceed the available insurance cover, at least in relation to the final year of cover. The proposed scheme provided that it was proposed by the insurer out of a concern that: (a) the costs of disputes regarding claims would erode the funds available under each insurance policy; (b) there would be insufficient funds under each insurance policy to pay the claims in full; (c) after resolution of the currently known claims and exhaustion of the insurance funds, new claims might be made; and (d) if a "first-come, first-served" approach to the payment of claims was taken the earlier-resolved claims might be resolved at a higher rate than later-resolved claims (indeed the later-resolved claims might not be paid at all by reason of exhaustion of the monies available under the applicable insurance policy). 15 I am the docket judge in the Liquidator's proceeding. I took the view that the proposed scheme had some deficiencies and that some amendments were appropriate. The proceeding subsequently followed a somewhat tortuous path, which included: the substitution of another liquidator to bring the proceeding; an application by the Australian Securities and Investment Commission in opposition to aspects of the proposed scheme; numerous case management hearings; and various amendments to the proposed scheme. 16 After those amendments I concluded that the proposed scheme would facilitate a sufficiently fair and equitable distribution of the available insurance monies. On 21 August 2018 I made orders pursuant to s 479 of the Corporations Act and/or s 90-15 of Schedule 2, Insolvency Practice Schedule (Corporations) to the Corporations Act that it would be a proper course for the liquidator to consent to the implementation by the insurer of a settlement scheme named the Amended Insurance Monies Distribution Scheme (the Scheme). 17 The Scheme is not compulsory and claimants can decline to participate in it, although the reality for many claimants is that the amounts provided under the Scheme are all that they are likely to receive, including because of the insufficiency of insurance funds and that many claimants are likely to be statute barred from issuing proceedings. Mr Gill's affidavit shows that the applicant and each of the class members: elected to participate in the Scheme; executed a settlement deed in which they accepted an agreed settlement amount; provided broad releases to Navra and other relevant persons and entities in respect to the subject matter of the proceeding; and subsequently received payment of the settlement monies. 18 The annexures to Mr Gill's affidavit include copies of the Value Assessments and Notices of Assessment made by the insurer, as well as copies of the relevant insurance policies that were provided to Minter Ellison on a confidential basis. Pursuant to the settlement deeds, the details of the settlement, assessments and offers are required to be kept confidential. The Notices of Assessment include the reasons for the insurer's assessment in each case, in circumstances where further assessments may require to be made by the insurer in respect to Other Claimants (being claimants who for some other reason did not participate in the Scheme). The applicant seeks a confidentiality order over the material. I am satisfied that it is appropriate to make such an order on the basis that maintenance of the confidentiality of that material is necessary to prevent prejudice to the proper administration of justice but only for 12 months. It is likely that by that time confidentiality will no longer be necessary. If the applicant, class members or insurer wish to be heard in relation to continuation of that order beyond 12 months they have liberty to apply.

Relevant Principles 19 Section 33V provides that a representative proceeding may not be settled or discontinued without the approval of the Court. The principles which guide consideration of a settlement approval application are well established. Before a settlement may be approved, the Court must be satisfied that the proposed settlement is fair and reasonable having regard to the interests of class members who will be bound by it, including as between class members: Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [7]; Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925; (2000) 180 ALR 459 at [19]; Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323; (2016) 335 ALR 439 at [62]-[77]. The relevant considerations in dealing with an application for discontinuance may be different but the principles are the same. Before discontinuance of the proceeding may be approved, the Court must be satisfied that doing so is fair and reasonable having regard to the interests of affected class members: see Mercedes Holdings Pty Limited v Waters (No 1) [2010] FCA 124; (2010) 77 ACSR 265 at [9]-[10].

Consideration 20 I am satisfied that it is appropriate to order that the proceeding be discontinued. 21 Each of the class members has executed a settlement deed under the Scheme in which they have agreed to a settlement amount and released Navra and other relevant persons and entities from all liability, and received payment of the agreed settlement amount. There are no remaining class members who have claims that are able to be maintained against Navra. In such circumstances, discontinuance of the proceeding is the only sensible outcome. 22 Mr Gill states that in his opinion implementation of the Scheme has exhausted all of the funds available to satisfy any judgment against Navra and there would be no residual funds available to meet any further judgment or settlement made in this proceeding. He says therefore the continuation of the proceeding is futile. Mr Gill does not however state the basis for that opinion and, having regard to evidence in the Liquidator's proceeding of which I am aware, I am not sure that is so in relation to the insurance policies for the 2008-2009 and 2009-2010 policy years. It is however the case in relation to the policy for the 2010-2011 period. For claimants with claims covered by the last policy, the unavailability of assets to meet a judgment or settlement debt is a persuasive factor in weighing up the appropriateness of a discontinuance of a representative proceeding: Lopez v Star World Enterprises Pty Ltd [1999] FCA 104; (1999) ATPR 41-678 at [16]-[19]. Insofar as there may be some remaining insurance funds for the two earlier insurance policies, little turns on that. Ms Adams and the class members have individually agreed to settlements under the Scheme, have released Navra and other relevant persons and entities from all liability, and have received payment of the agreed amount. 23 In my view there is no utility for class members in the proceeding remaining on foot, and so it is appropriate to approve discontinuance.

Costs incurred by class members 24 Ms Adams seeks an order that each party bear their own costs, and I am satisfied that it is appropriate to make that order. 25 However, Mr Gill said nothing about the costs charged by Minter Ellison to class members and the Court has a protective role in relation to such costs: Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd (No 3) [2018] FCA 1842; (2018) 132 ACSR 258 at [87]-[88]. The Scheme only provides for some limited reimbursement of such legal costs and it is appropriate that class members have liberty to apply if they wish to submit that the costs they were charged are not reasonable and proportionate. I direct Minter Ellison to provide a copy of these reasons to the class members within 14 days, in order that they are informed that they may apply to the Court in this regard.

Notice to class members 26 It will usually be appropriate to require that class members be given notice of an application for discontinuance. It may, for example, be in the interests of some class members that the proceeding remain on foot, and one or more of them may be prepared to take on the burden of being the representative applicant rather than see the proceeding discontinued. But in the circumstances of this case there is no requirement to give class members notice of the application. 27 As I have said, each of the 14 class members retained Minter Ellison, executed a settlement deed which operates to release Navra and other relevant persons and entities from liability, accepted a settlement amount, and received payment of the agreed amount. I infer that class members understood that their acceptance of such amounts under the Scheme also meant that the class action would not continue on foot. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy.

SCHEDULE OF PARTIES ACD 91 of 2014 Applicants Second Applicant: GREG BROEKHUYSE Third Applicant: MARGARET BROEKHUYSE Fourth Applicant: NICOLETTA CELLA Fifth Applicant: MARIA-LUJZA EDWARDS Sixth Applicant: CLAUDINE JAMIESON Seventh Applicant: JUTKA MAVROMATIS Eighth Applicant: DEBBIE PURCELL Ninth Applicant: GRAEME PURCELL Tenth Applicant: JOHN SHEARER Eleventh Applicant: RHONDA SHEARER Twelfth Applicant: FLORENCE TOMS Thirteenth Applicant: WILFRED TOMS Fourteenth Applicant: CHERYL WARD Fifteenth Applicant: PETER WARD