Batey-Smith v Vasco Trustees Limited

Introduction 1 By interlocutory application dated 17 May 2022, the applicant seeks approval of a proposed settlement of this proceeding, pursuant to ss 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth). 2 This representative proceeding concerns an unregistered managed investment scheme called the IPO Wealth Fund (the Fund). Investors subscribed for units in the Fund, and the trustee of the Fund was the first respondent, Vasco Trustees Limited (the Trustee). 3 During the relevant period in which funds were raised from the investing public, IPO Wealth Pty Ltd acted as the Investment Manager on behalf of the Trustee. About 180 investors invested around $80 million in the Fund. The Trustee advanced monies raised by the Fund to IPO Wealth Holdings Pty Ltd (the Borrower), which in turn used those funds to provide finance to 16 special purpose vehicle entities (or SPVs) in the form of loans or equity. 4 The Trustee and the Investment Manager entered into a written Investment Management Agreement dated 23 March 2017. It provided for the Investment Manager to provide certain portfolio management services to the Trustee, including all necessary and desirable instructions, directions and advice to the Trustee in respect of capital and investment matters, including the ongoing monitoring of the Fund's assets. The agreement also provided that the Investment Manager was responsible for the promotion and marketing of the Fund. The Investment Manager was to prepare an offer document for the Fund and any promotional, marketing or advertising material in accordance with the Corporations Act 2001 (Cth) (the Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). 5 In its capacity as investment manager for the Fund, the Investment Manager was also an authorised representative of the second respondent (DH Flinders). 6 Investors invested in the Fund by subscribing for units in it. Each unit class had its own: (a) term of investment, such that units would not be eligible for redemption until the end of the investment term; (b) frequency of distributions, with distributions sometimes being on a monthly or quarterly basis, or sometimes with distributions only being made at the end of the investment term; and (c) "target rate of return", being a percentage return which resembled an interest rate. The return varied considerably across different unit classes, typically being higher for classes with longer investment terms. The target return was sometimes also higher depending on the amount invested. The rate was not guaranteed. 7 The Fund raised funds from the public in the period from around April 2017 until 26 March 2020. 8 On or around 7 April 2020, the Trustee froze new applications, reinvestments and redemptions in the Fund. 9 On 22 May 2020, receivers and managers were appointed by the Trustee and the Supreme Court of Victoria to the Borrower and the SPVs respectively. On 24 June 2020, Robson J ordered that provisional liquidators be appointed to the Borrower and the SPVs. On 17 September 2020, his Honour ordered that the Borrower and the SPVs be wound up. 10 The applicant relied upon four affidavits affirmed by Ms Emma Pelka-Caven (the solicitor with responsibility for the conduct of this proceeding) dated 21 May 2021, 17 May, 25 August, and 27 September 2022 respectively, and a confidential affidavit of Mr Craig Dunstan affirmed on 3 May 2022. Mr Dunstan is a director of both of the respondents, whose evidence concerns their financial position.

Procedural history 11 This proceeding was commenced on 10 December 2020. It is brought against the Trustee and DH Flinders on behalf of all persons who, at the date of commencement of the proceeding, held units in the Fund. 12 The Investment Manager is not a party to this proceeding. 13 Pleadings have closed. The respondents have filed a cross-claim, to which a defence to cross-claim has been filed. Discovery has not yet occurred, and evidence has not been filed. 14 On 6 October 2021, the court ordered that an opt-out process take place. Seven investors decided to opt out, and some 178 investors remain as group members. 15 Following the opt-out process, in February 2022, the parties attended a mediation. After further discussions, a deed of settlement was entered into on 8 April 2022 (Settlement Deed). 16 On 17 May 2022, the applicant filed an interlocutory application seeking approval of the proposed settlement. 17 On 2 June 2022, the court made orders approving a notice of proposed settlement to be sent to group members (the Notice of Proposed Settlement), and providing for various other procedural steps. 18 In accordance with those orders, the Notice of Proposed Settlement was sent to group members. Group members also received a notice of their estimated distribution under the proposed settlement, a "Unit Transaction Summary Report" setting out the data upon which the group member's estimated distribution was calculated, and a "Review Request Form", which allowed a group member to request a review of their estimated distribution. 19 In 27 instances, a hard copy letter was sent to the group member's last known address due to concerns that they might not have opened the earlier email notification. The letter contained the Notice of Proposed Settlement and that group member's notice of estimated distribution. 20 The solicitors for the applicant and the group members received approximately 83 email inquiries and 38 telephone enquiries from group members in response to the material distributed to them. (There are 178 group members remaining after the opt-out process.) The enquiries related to a range of different topics, including (broadly) the size of the settlement sum, loss calculations, technical issues with setting up accounts on a settlement distribution portal, alternative avenues for recovery, change in details for settlement distribution purposes, and other practical matters. 21 Two group members requested a review of their loss estimate. The review did not result in a change to the original estimate, and neither of those group members has objected to the proposed settlement. 22 There has been only one objection received. That objection relates to the loss assessment formula used under the proposed Settlement Distribution Scheme (SDS). There has been no objection otherwise raised about the proposed settlement, including in respect of the size of the settlement sum and proposed payments of legal expenses.

The claims made 23 The applicant alleges that the Investment Manager issued flyers or brochures promoting the Fund. By way of example, it is alleged that the Investment Manager issued a "Term Deposit Alternative Flyer" in 2017, a "Terms Investment Brochure" by no later than September 2017, and an "Investment Options Brochure" in 2019. Each of those brochures is alleged to have conveyed certain representations, including one or more of the following: (a) although returns were not guaranteed, there were reasonably good prospects of investors being paid the applicable "Target Income Return" for their investments and having their capital invested repaid in full upon redemption of their units in the Fund; (b) investing in the Fund was not highly risky; (c) the Fund's cash flow to make payments to investors as required from time to time would be derived from returns on investments (Related Party Investments) made by related parties of the Investment Manager, using funds borrowed from the Fund; and (d) Related Party Investments had been made, and/or in future would be made, with a strategy designed to achieve returns to enable the Trustee to make "Investor Payments" (as defined in the statement of claim) in full and as required from time to time. 24 The applicant also alleges that the above promotional documents did not disclose various matters, which broadly relate to the manner in which the Borrower would use funds borrowed from the Fund to make unsecured, risky or otherwise improvident investments. 25 The applicant alleges that each of the alleged representations was misleading. The applicant further or alternatively alleges that the Investment Manager engaged in misleading or deceptive conduct by failing to disclose the non-disclosed matters. The applicant alleges that by the various conduct, the Investment Manager contravened various provisions of the Corporations Act and the ASIC Act. 26 The applicant alleges that the alleged misleading conduct of the Investment Manager is to be imputed to the Trustee, under common law principles of agency or under statutory attribution provisions such as s 12GH of the ASIC Act. 27 The applicant also alleges that DH Flinders is liable, pursuant to ss 917B and 917E of the Corporations Act, for misleading conduct of its authorised representative, the Investment Manager. 28 It is common ground that the Trustee issued information memoranda from time to time. The applicant alleges that it was standard practice for an information memorandum to be provided to potential investors, or existing investors looking to roll over an existing investment. The content of the information memoranda varied over time. 29 The applicant alleges that each of the information memoranda conveyed one or more of the following representations: (a) representations similar to those alleged to have been made by the Investment Manager; (b) that investments, made utilising funds raised from investors in the Fund, had been made, and/or in future would be made, with a strategy designed to achieve returns to enable the Trustee to make "Investor Payments" in full and as required from time to time; and (c) that investments made using borrowed funds (that is, funds advanced by the Trustee to the Borrower raised from unit holders in the Fund) had been made, and/or in future would be made, with a strategy designed to achieve returns to enable investors in the Fund to be paid the applicable target returns and having their capital invested repaid in full. 30 The applicant alleges that the Trustee was aware of various matters concerning the risks of investments made by the Borrower from December 2017 onwards, and that by no later than August 2019, the Trustee held concerns about the illiquidity of such investments. The applicant alleges that such matters were not disclosed in information memoranda issued at those times. 31 The applicant alleges that the Trustee engaged in various forms of misleading or deceptive conduct by making the various alleged representations, and by not disclosing matters of which it was aware about the riskiness of investments made by the Borrower. 32 The case on causation is pleaded along these lines, viz that if each of the alleged contraventions had not occurred (either individually or in any combination), then the Fund would have ceased fundraising, either for commercial reasons, or at the Trustee's behest, or due to the Australian Securities and Investments Commission intervening, with the effect that: (a) investors who had not invested in the Fund prior to the date of the relevant contravention would, in the counterfactual, not have invested in the Fund at all; and (b) where investors had already invested in the Fund prior to the date of the relevant contravention, but then increased the amount of their investment after that date (as opposed to merely rolling over their investment in the same amount), they would not have increased the amount of their investments and invested the additional amounts.

The defences to the claims 33 The respondents deny liability. 34 The respondents do not admit that there were problems with the underlying investments made by the Borrower, as alleged (although they admit that the liquidators of the Borrower have opined that there were such problems). 35 The respondents deny that representations were made by the Investment Manager and the Trustee, as alleged. The respondents point to various disclaimers and other aspects of the documents in this regard. The respondents also allege that certain representations, if made, were matters of opinion or as to future matters, for which there were reasonable grounds. 36 The respondents deny that the alleged conduct of the Investment Manager can be imputed to the Trustee, for various reasons. One reason is that the Investment Manager allegedly did not obtain the necessary consents of the Trustee before issuing some (but notably not all) of the documents about which the applicant complains. 37 The respondents provide a bare denial of the allegation that DH Flinders is liable under ss 917B and 917E of the Corporations Act for the conduct of the Investment Manager. 38 The respondents deny liability for any loss, including by reason of various clauses of the constitution of the Fund. The respondents also deny that group members have suffered any loss at this stage, given that the liquidation of the Borrower and SPVs is not yet complete. 39 The respondents raise a proportionate liability defence in respect of certain causes of action under general misleading conduct provisions.

The cross-claim 40 The Trustee has made a cross-claim, under which it seeks a declaration to the effect that it is entitled to be indemnified fully out of the assets of the Fund in respect of any liability to the applicant or group members in this proceeding. 41 The applicant denies the alleged entitlement to indemnity. The applicant alleges variously that: (a) the indemnity clause relied upon does not bind the applicant or group members in respect of conduct engaged in before the applicant and each group member became unit holders; (b) the indemnity clause is unenforceable insofar as it purports to limit or exclude the Trustee's liability for contraventions of the relevant statutory misleading conduct provisions; and (c) any right of indemnity is limited to liabilities properly incurred by the Trustee, and its liability in respect of the alleged contraventions would not be a liability properly incurred.

The proposed settlement 42 The parties have agreed to settle the proceeding, including the cross-claim, subject to obtaining court approval on a final basis after any appeals. The settlement, the terms of which are recorded in the Settlement Deed, is made without admission as to liability. 43 The key features of the settlement are as follows. 44 The respondents have agreed to pay a settlement sum of $5.6 million inclusive of legal costs, expenses and disbursements. That amount has, in fact, since been paid. After deducting the applicant's legal fees and disbursements, the balance of this amount will become available for distribution in accordance with the SDS. 45 If final settlement approval is obtained, the Settlement Deed provides that the settlement fund shall be administered by a settlement administrator approved by the court. As part of this application, the applicant has sought an order appointing Slater and Gordon Limited, the solicitors for the applicant, as administrator of the SDS. 46 Upon final settlement approval being obtained, all claims against the respondents and their directors will be resolved and any other claims against them relating to or arising from the subject matter of the proceeding will be released.

The evidence about the reasonableness of the settlement 47 Ms Pelka-Caven is the head of Slater and Gordon's Class Actions department. She deposed that she has been employed by it since 2018, and that between 2018 and June 2022, she was a Practice Group Leader. She assumed her current role in July this year. During her employment, she has exclusively worked on large scale representative or group proceedings in this court and the Supreme Court of Victoria. 48 Ms Pelka-Caven deposed that her firm obtained a confidential opinion of counsel as to the reasonableness of the proposed settlement, and that she agreed with counsel's analysis and conclusions. Ms Pelka-Caven exhibited a copy of this opinion on a confidential basis. 49 Ms Pelka-Caven deposed as to the insurance and financial position of the respondents, as follows: A significant factor influencing my opinion that the Proposed Settlement is reasonable and in the interests of Group Members is the limited asset and insurance position of the Respondents. In the course of the Proceeding, I have undertaken extensive investigations on behalf of the Applicant to ascertain the Respondents' capacity to honour a greater settlement or award of damages in the Applicant and Group Members' favour. In particular I have: (a) closely examined relevant documentation (including as exhibited to the confidential affidavit of Craig Matthew Dunstan affirmed 3 May 2022 (Dunstan Affidavit) including: i. financial reports between financial year end 2018, 2019 and 2020 for each Respondent; ii. profit and loss and balance statements for the financial year end 2021 for each Respondent; iii. a copy of an initial insurance policy issued for the period 12 December 2019 and 12 December 2020 to the First Respondent and certificates of currency; iv. as a result of further inquiries by me including without prejudice correspondence dated 23 February 2022, the responding insurance policy for both the First and Second Respondents. (b) engaged in extensive confidential, without prejudice, negotiations with the Respondents' solicitors including the full-day mediation. Based on their most recent financial reports for the financial year ending 30 June 2021, it appears that the Respondents hold the following assets: (a) Vasco: (i) $749,119 of current assets, of which $620,167 were in cash and cash equivalents; and (ii) $25,252 of non-current assets. (b) DH Flinders: (i) $330,455.65 of current assets, of which $173,804 were in cash and cash equivalents; and $11,771.92 of non-current assets. The applicant has undertaken property searches for the respondents in each of Victoria, New South Wales, Queensland and Western Australia, noting that the First Respondent has offices in Victoria, New South Wales and Queensland and the Second Respondent is located in Victoria. Those searches do not record the Respondents as holding any real property. I also caused enquiries to be made with the Respondents' solicitors in relation to the availability of updated financial reports, or alternatively, further evidence from Mr Dunstan confirming whether or not the financial position of the Respondents has materially changed since 30 June 2021. I am informed by Johnson, Winter & Slattery [the solicitors for the respondents] that their instructions are that the FY2022 financial reports for their clients are yet to be prepared. Johnson, Winter & Slattery advised me, on a confidential basis, of the current draft net asset position of each of the Respondents. I have been informed that there has not been a material improvement in the net asset position of either Respondent since FY2021 as set out in the Dunstan Affidavit. … Pursuant to clause 10(b)(iii) of the Deed of Settlement, the Respondents provided the Applicant with [the] Dunstan Affidavit, which attests to matters including: (a) That there is one insurance policy that is responsive to this proceeding. (b) That insurance policy provides coverage to both the first and second respondents, as well as the directors of the respondents. (c) That there are other claims that have been made on the same insurance policy by ASIC and [the Australian Financial Complaints Authority] and the insurer has agreed to pay legal fees and disbursements associated with these other claims, which have diminished the amount of available insurance to meet the proceeding. (d) The amount of insurance cover currently available to meet any settlement or judgment in favour of the Applicant in the Proceeding; (e) The Respondents' legal fees and disbursements which have and are estimated to be paid from this insurance policy incurred in the course of defending the Proceeding; and (f) The assets of the Respondents, which are limited. After deduction of their legal costs incurred to date, the total amount of insurance held by the Respondents is approximately AUD$8.07 million. Based on my years as a solicitor acting on behalf of insurers, I also independently considered the insurance policy wording and schedule and formed the view that: the respondents' directors are covered by the same policy; the relevant cover is the one that the insurer has confirmed cover in respect of the proceeding (i.e. there is no error in that determination in my opinion) and the policy is a "defence costs inclusive" policy. This means that the amount of the cover available under the policy diminishes as the insured incurs reasonable legal fees and disbursements responding to the Claim (as defined in the policy). 50 Ms Pelka-Caven deposed as to the question of legal costs, as follows: I am also of the view that, if the Proceeding continued to trial, there is a very real risk that the Respondents' legal costs would significantly diminish the Respondents' available assets and insurance - leaving less funds available to satisfy an award of damages in favour of the Applicant and Group Members. Based on my experience, I would expect the Respondents might well incur a further $3 million to $4 million defending the Proceeding to final judgment. If there were an appeal, the Respondents would incur further costs. Even if successful at trial, I consider there to be a real risk that, regardless of the value of damages awarded, the ultimate returns to Group Members could be less than under the Proposed Settlement due to the diminution of the Respondents' available assets and insurance. Based both on my own investigations and the documentation provided by the Respondents, I have formed the view that the Settlement Sum represents the majority of insurance and assets available to the Respondents. 51 Ms Pelka-Caven gave the following evidence about settlement negotiations: I also obtained the Respondents' agreement in paragraph 11(b) of the Deed of Settlement to confidentially exhibit the without prejudice offers made in the course of the Proceeding and those occurring at mediation. [Ms Pelka-Caven exhibited these documents.] It is my belief based on the offers exchanged by the parties that the Settlement Sum represents the highest amount that the Applicant can obtain from the Respondents through negotiation in this proceeding. The Proposed Settlement only releases the Respondents and their Directors from all claims made in the Proceeding, and to the extent permitted by [law], claims relating to or arising from the subject matter of the Proceeding. (The issue of whether the broader release is permitted by law is addressed in the Counsel's Opinion). The Proposed Settlement therefore does not affect the rights of Group Members to take legal action against persons other than the Respondents and their Directors. The [Notice of Proposed Settlement] sought to canvass the issues of recoverability, insurance and the Respondents' financial position with Group Members in paragraphs 12-45 of the Notice. I have undertaken further investigations into other prospective respondents or causes of action that may have enlarged the potential pool of money that may be available to the Applicant and Group Members were those claims to be successful. 52 The gist of the position in relation to settlement negotiations is that, put bluntly, the respondents will not budge from their offer of $5.6 million and their concomitant insistence that they retain $2.47 million in their so-called "Reserved Available Insurance", for the purpose of dealing with any regulatory action that might be taken against them. 53 Ms Pelka-Caven also gave evidence which summarised her reasons why, in her opinion, the proposed settlement represents a reasonable compromise of the proceeding, as follows: In addition to the issues explained above, in my opinion the Proposed Settlement represents a reasonable compromise of the Proceeding due to, but not limited to, the following reasons: (a) the alleged full claim value would only be achieved if the Applicant were to have complete success at the trial of common issues; (b) the costs of achieving the results in sub-paragraph (a) above would require expenditure of at least $3 million to $4 million in further legal costs for the Applicant; (c) there is a material possibility that a judgment at the close of the trial of common issues would not 100% prevail in favour of the Applicant; (d) there is a possibility that a judgment at the close of the trial of common issues would not prevail in favour of the Applicant at all; (e) there is a material possibility that even if [the] Proceeding were successful at trial, the Respondent may appeal - and even if the Applicant were successful in defending the Appeal, the Respondent may appeal to the High Court and thereby delay the resolution of the Proceeding for a significant amount of time. Therefore, considering the matters outlined above, it is my opinion that it is in the best interests of all Group Members to settle their claims in the manner proposed and presently before the Court for approval.

Submissions 54 The applicant relied on a very helpful written submission prepared by Mr J Stoljar SC and Mr D Snyder of counsel. 55 They were supplemented by equally helpful oral submissions at the hearing of the application, during which Mr Stoljar distilled the applicant's case down to the following critical propositions: [T]here are really two points which mean that this settlement should, in our respectful submission, be approved. The first proposition is that this represents the best result that can reasonably be achieved, even if the case runs. We advance that proposition because the respondents' only asset of substance is an insurance policy and the rights thereunder. Both Mr Dunstan's affidavit and my instructing solicitors' investigations support the proposition that there is no other asset of substance. I described the proposition as the best result that can be achieved even if the case runs. That's an important aspect of the matter, in our respectful submission. This is not a situation in which - well, the typical situation in this sort of situation where one is … balancing a smaller sum of money now with the prospect of receiving a greater sum of money in due course if the claim is ultimately successful, and then, there's a balancing exercise of the risks involved in running the case and the likely costs as compared to the bird in hand of the smaller settlement now, but there is no big payday in this matter, regrettably. If the matter were to proceed to a final hearing and all of the applicant's claims were ultimately vindicated and found to be correct and she were ultimately successful in obtaining a very significant judgment together with interest, the amount of money available to satisfy that judgment will regrettably be limited by the amount available under the insurance policy. Even if that counterfactual were to play out and the case proceeded to a contested hearing at which the applicant argued her case and was successful, what would happen in a practical sense is that her costs would likely be very substantial, and indeed, the respondents' costs would likely be very substantial, and that would erode entirely, if not - perhaps not entirely, but very significantly, the limited funds which are available. So it is an unusual situation in which this is, in our respectful submission, the best result that can reasonably be achieved, even if the case were to run. Indeed, it's a better outcome than can be achieved if the case runs. It puts - there have been quite extensive settlement negotiations over a number of months. As is noted in the sum of the materials, the applicant has already rejected a number of offers before arriving at this one. The applicant is satisfied that attempts to increase the amount on offer have been - will no longer be fruitful in the sense that there will no longer be any material increase on the amount that is being offered. HIS HONOUR: And that's because the respondent is determined to keep available to it the [R]eserved [A]vailable [I]nsurance sum to deal with other exigencies. MR STOLJAR: Yes, precisely, your Honour… … Our second proposition that we attach considerable weight to is the fact that no group members have objected to the settlement sum or to the amount of legal fees … [T]he point that we wish to emphasise about the fact that no group members have objected is that this is a case in which there's some 178 group members. It's not a very large and amorphous open class. It's also a case in which the 178 group members have invested, for the most part, considerable sums of their own money in this venture, if I can call it that, and might reasonably expected to have taken a pretty close interest in what became of this proceeding, which may well reflect their only ability to get any of that money back. In those - in a circumstance of that kind, our proposition is that your Honour would attach considerable weight to the fact that no objection to this proposed settlement or, for that matter, to the costs has been received. 56 As to the second proposition, Mr Stoljar relied on Ms Pelka-Caven's sworn evidence that she had obtained information from the people who registered their interest about the circumstances and amount of their investment, and that based on that information, it was her view that a significant portion of those people invested in their individual capacity. The information offered by investors included that they had, variously, invested their life savings, their retirement funds, the proceeds of the sale of a house or a divorce settlement, inheritances, and life insurance payouts. 57 The respondents filed a written submission prepared by Mr MP O'Haire of counsel in these terms: The Respondents agree that the principles governing the application are as set out at [4] to [6] of the Applicant's submissions, and that the Court's fundamental task is to decide whether the settlement is fair and reasonable having regard to the interests of class members who will be bound by it, including as between class members. The Respondents support the proposed settlement and the making of the orders sought by the Applicant.

Relevant principles 58 The central question is whether the settlement is a fair and reasonable compromise of the claims of the group members. That entails consideration of whether the proposed settlement is fair and reasonable, first, as between the applicant and group members on the one hand and the respondent on the other hand, and, second, as between the group members inter se. 59 As Goldberg J explained in Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925; (2000) 180 ALR 459 at 465-466 [19]: Ordinarily the task of a court upon an application such as this, is to determine whether the proposed settlement or compromise is fair and reasonable, having regard to the claims made on behalf of the group members who will be bound by the settlement. Ordinarily in such circumstances the court will take into account the amount offered to each group member, the prospects of success in the proceeding, the likelihood of the group members obtaining judgment for an amount significantly in excess of the settlement offer, the terms of any advice received from counsel and from any independent expert in relation to the issues which arise in the proceeding, the likely duration and cost of the proceeding if continued to judgment, and the attitude of the group members to the settlement. In Re General Motors Corp Pick-Up Truck Fuel Tank Products Liability Litigation 55 F 3d 768 at 785 (1995) the United States Court of Appeals for the Third Circuit referred to the nine-factor test it had adopted: … to help district courts structure their final decisions to approve settlements as fair, reasonable and adequate as required by Rule 23(e) [which requires court approval for settlement of class actions]. See Girsh v Jepson 521 F 2d 153 at 157 (1975) (3rd Cir). Those factors are: (1) the complexity and duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining a class action; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement in light of the best recovery; and (9) the range of reasonableness of the settlement in light of all the attendant risks of litigation. 60 And as Beach J elaborated in Blairgowrie Trading Ltd v Allco Finance Group Ltd (receivers and managers appointed) (in liq) [2017] FCA 330; (2017) 343 ALR 476 at 500 [82]-[84]: First, there is no single way in which a settlement should be framed, either as between the applicant/group members and the respondents (inter partes) or in relation to sharing the compensation as between group members (intra-group). Reasonableness is a range. The question is whether the proposed settlement and scheme fall within that range. Second, the Court's role is not to second-guess the strategic decisions made by the applicant's legal representatives, but rather to satisfy itself that the decisions are within the reasonable range of potential decisions, having regard to the circumstances which are known by and reasonably knowable to the applicant and its legal representatives, and that there has been a reasonable assessment of the relevant risks based on such circumstances. Third, there is no definitive set of factors that must or may be taken into account in approving a settlement. But factors relevant to an assessment of the reasonableness of a proposed settlement include: (a) the complexity and duration of the litigation; (b) the stage of the proceedings; (c) the risks of establishing liability, establishing damages, and maintaining the class action; (d) the ability of the respondent to withstand a greater judgment than the prospective settlement sum; (e) relatedly, the range of reasonableness of the settlement in light of the best recovery; (f) the range of reasonableness of the settlement in light of all the risks of litigation; and (g) the reaction of the class to the settlement.

The fairness and reasonableness of the proposed settlement on an inter partes basis 61 The applicant made the following submissions, each of which I accept. 62 The proposed settlement sum of $5.6 million is significantly less than the approximately $67 million of losses alleged to have been suffered by group members. Nonetheless, the proposed settlement is in the best interests of group members for various key reasons, which may conveniently be summarised as follows. 63 Firstly, even if the applicant were completely successful at trial (or on appeal), the likelihood is that group members would recover substantially less than what they would have received under the proposed settlement. 64 That is so because the respondents have limited assets. Their principal asset is an insurance policy and their rights thereunder. There is currently around $8.07 million available under that policy. 65 It is obvious that the proceeds of the insurance policy will be substantially eroded by further defence costs if the proceeding does not settle and proceeds to final judgment or judgments (after any appeals). Moreover, the applicant's costs of further prosecuting the claims would substantially erode whatever insurance would be left after payment of further defence costs. 66 The Notice of Proposed Settlement, for example, includes estimates that the respondents would incur a further $3-4 million in defending the proceeding to final judgment, and that the applicant would incur further legal costs of at least $3 million. If there were an appeal, the costs would be even higher. On that basis, at least $6-7 million in legal costs (and potentially significantly more) would likely be incurred to prosecute the matter to final determination, leaving at most around $1-2 million for group members to recover. 67 Second, the evidence shows, and I accept, that the applicant has investigated recoveries that might potentially be made in a liquidation of the respondents. This has also been addressed in the Notice of Proposed Settlement. Ultimately, the prospects of such claims are speculative at best, and involve considerable delay and risk. 68 Third, the applicant, Ms Pelka-Caven and senior counsel have reasonably concluded that there is little prospect of achieving a more favourable settlement prior to trial than that currently proposed. 69 Fourth, the proposed settlement offers a significant "bird in the hand" attraction (to adopt counsel's expression). It avoids the substantial delay in prosecuting the claims to final judgment and achieving some measure of closure for group members. The proposed settlement provides certainty, when the risk of failure at trial is material. Such risks are discussed in greater detail in the confidential opinion. But in any event, where the prospects of recovering more than the settlement sum are almost non-existent, the strength or otherwise of the claims is hardly to the point. 70 Fifth, the proposed settlement contains releases and other provisions on an inter partes basis which are in an unexceptional form. The proposed settlement also preserves the ability of group members to sue third parties. 71 Sixth, there has been extensive disclosure made to group members, in both the notice of opt-out distributed to group members prior to mediation (which flagged concerns about the respondents' limited assets and the prospects of an early settlement at mediation) and the Notice of Proposed Settlement. There has been no objection to the settlement, save for one objection relating to the loss assessment formula. 72 In summary, in my view it is fair and reasonable and in the interests of group members to settle the proceeding for the sum of $5.6 million.

The fairness and reasonableness of the proposed settlement on an inter se basis 73 The next question is whether the proposed arrangements for distributing the fixed pool of settlement funds between the group members are fair and reasonable, having regard to group members' interests considered as a group rather than individually. 74 The applicant made the following submissions.

The assessment of loss 75 The SDS does not distinguish between the applicant, on the one hand, and group members, on the other, in terms of the procedures to be followed in respect of the proposed loss assessment formula - they are all subject to the same assessment methodology. 76 An objection has been raised in this regard. The objection relates to the manner in which the loss assessment formula takes into account interest received by investors. 77 In this case, the applicant submitted that: [A]s in many representative proceedings, the manner in which the settlement sum is to be distributed requires assumptions to be adopted and judgment calls to be made. Group members invested in a range of different unit classes with differing features, and it is necessary to arrive at some model that fairly and reasonably divides the settlement sum having regard to those differences. (Footnote omitted.) 78 The question that arises, therefore, as the applicant submitted, is "whether the model is within the bounds of fairness and reasonableness in its attempt to balance what are, unavoidably, conflicts between the interests of the different claimants". 79 It was submitted that: [T]here is a cogent and reasonable rationale for taking into account interest payments received, as per the loss assessment formula. It is well within the range of reasonable approaches that might be taken. Moreover, in most group members' cases, the impact of changing the loss assessment formula (as per the objection) would be quite immaterial. (Footnote omitted.) 80 I accept each of those submissions.

Procedural considerations 81 The applicant submitted as follows: It is submitted that the proposed SDS is fair and reasonable from a procedural perspective. The scheme is designed to be implemented on a transparent, fair and timely basis. The SDS provides for review of determinations. Under the SDS, group members have been notified of the assessment made for them and had an opportunity to seek a review (which, as noted above, has occurred in two instances). The SDS provides for timely distributions. In particular, the SDS provides for distributions to be made to group members as expeditiously as possible following final approval of the proposed settlement (including any appeals). The SDS provides for dealing with unclaimed distributions. In the event that a distribution payment is unable to be made to any group member, the Trustee will then attempt, during the following 21 day period, to make payments to the relevant group member. If the payment remains unclaimed, then the monies will be held by the Trustee on trust for general distribution to all unit holders, as part of the winding up process. This would benefit all current unitholders (including those that have opted out). It is more targeted and beneficial to group members than the usual course of paying unclaimed settlement distributions to charities. Finally, the SDS provides for Slater and Gordon Limited to act as administrator. This is appropriate, given that: (a) Slater and Gordon has already undertaken extensive steps in providing estimates to group members and dealing with group members generally; (b) Slater and Gordon has extensive experience in administering settlement distribution schemes; (c) there is no suggestion that Slater and Gordon is conflicted in acting as administrator. (Footnotes omitted.) 82 I also accept those submissions.

Legal costs and disbursements proposed to be paid out of the settlement fund 83 The applicant seeks approval of the following costs: (a) $1,144,000 (including GST) for professional fees and disbursements, incurred since Slater and Gordon commenced investigations in May 2020 up to and including the date of the Settlement Deed (Proceeding Costs); and (b) $235,720 (including GST) for professional fees and disbursements associated with settlement approval and settlement administration costs (Approval and Administration Costs). 84 The Proceeding Costs include $1,028,921 in professional fees and $115,080 in disbursements (including GST). 85 The costs are sought on a GST-inclusive basis because, as Ms Pelka-Caven deposed in her 27 September 2022 affidavit, the applicant invested in the Fund in her personal capacity, and not for the purposes of any business. Thus, she is not entitled to claim an input tax credit for GST charged in respect of the costs she paid. 86 The professional fees were incurred over various phases, such as pre-filing steps, drafting pleadings, considering and applying for discovery, resisting a security for costs application, drawing up an opt-out notice and conducting an opt-out process, engaging in protracted settlement negotiations, dealing with a significant number of group member communications, and general case management. 87 The Approval and Administration Costs include the following items, capped at a total of $235,720: (a) $138,901.30 (including GST) in professional fees and $21,346 (including GST) of disbursements for the period to 2 August 2022; (b) approximately $26,400 (including GST) in professional fees incurred from 3 August 2022 until 25 August 2022; (c) an estimated $45,000 (including GST) in disbursements associated with counsel fees related to the settlement approval; and (d) a further $38,500 (including GST) in professional fees in administering the individual distributions to group members. 88 The above items total around $270,147 (including GST). Slater and Gordon proposes to absorb costs in excess of $235,720 (including GST). 89 I am satisfied that these costs are, in all the circumstances, reasonable and proportionate. 90 It is also proposed, and I accept, that the applicant be reimbursed $20,000 for her role as representative applicant, because: (a) she has expended considerable time and effort in discharging her role as lead applicant; (b) she has assumed considerable personal financial risk in undertaking the litigation, for any adverse costs order in excess of $250,000; (c) she has, in the opinion of her legal representatives, conscientiously and diligently discharged her duties to group members; (d) the amount of the reimbursement payment is within the range of payments ordered in various settlements; and (e) there has been no objection to the reimbursement payment.

One final matter 91 I should raise one further matter, namely, the possibility that either or both the respondents could use some or all of the Reserved Available Insurance to settle any claims pursued by investors who have opted out of this proceeding, and the further possibility that such claims could be settled for a higher amount (as a percentage of the investor's loss) than what is being paid to group members under the proposed settlement. 92 In my view, that is not a relevant consideration. As a practical matter, the evidence shows that every reasonable effort has been made to settle the representative proceeding for a larger amount, to no avail. Second, whether any investor will pursue any such claims, and how much they might recover if they did, is unknowable. And third, the question for the court is not whether group members who have opted out might theoretically recover more than group members under the proposed settlement, but is rather whether the sum of $5.6 million is in the best interests of group members.

Conclusion 93 I therefore accept that the distribution of the settlement sum between the group members inter se, including the reimbursement to the lead applicant, is fair and reasonable. I am also satisfied that the Proceeding Costs and the Approval and Administration Costs are reasonable and proportionate in all the circumstances.

Claims for confidentiality 94 The applicant sought confidentiality orders under ss 37AF(1)(b) and 37AG(1)(a) of the Federal Court Act in respect of Confidential Bundle Exhibit EPC-7 to Ms Pelka-Caven's August 25 affidavit. The orders were sought on the ground that they were necessary to prevent prejudice to the proper administration of justice. 95 The material in the confidential bundle included the following. 96 Firstly, there is the confidential opinion of counsel. A confidentiality order is warranted, it was submitted, to enable counsel to be candid in disclosing their opinions to the court, citing Cantor v Audi Australia Pty Ltd (No 5) [2020] FCA 637 at [275]-[278]. It was also put on the basis that such an order protects the privileged character of such advice, citing Clime Capital Ltd v UGL Pty Ltd (No 2) [2020] FCA 257 at [22]-[23]. 97 Second, there is the SDS and loss assessment formula. It was submitted that a loss assessment formula is often treated as confidential, because the disclosure of a loss assessment formula may implicitly convey information to a respondent, and thereby confer an unfair advantage, if the settlement were not to be approved. (The SDS has been made available to group members on a confidential basis.) 98 Third, there are draft tax invoices documenting detailed time records. It was submitted that confidentiality orders are sought to protect privileged information contained within those detailed time records, and that it is common for confidentiality orders to be made in respect of material provided to substantiate costs claimed by the applicant in settlement approval hearings. 99 Fourth, there are copies of without prejudice offers made in the course of the proceeding, which it was submitted should obviously enough be kept confidential. 100 Fifth, there are copies of review determinations and other communications with group members concerning the proposed settlement and group members' estimated distributions. The communications warrant protection, it was submitted, in part because they are privileged and also because they would disclose sensitive and personal information about the claims of individual group members. 101 Sixth, there is a file note of discussions between Ms Pelka-Caven and Mr Dougal Ross, solicitor for the respondents, concerning his clients' financial position for the 2022 financial year. That information was disclosed to Ms Pelka-Caven on a confidential basis. The information relates to draft, unaudited financial figures. It was submitted that the administration of justice is facilitated by protecting the voluntary disclosure of confidential information by the respondents for the purposes of enabling full disclosure to the court. 102 At the hearing on 4 October 2022, the applicant also sought confidentiality orders in respect of Confidential Annexure EPC-1 and Confidential Annexure EPC-3 to Ms Pelka-Caven's affidavit of 17 May 2022, which are copies of the Settlement Deed, and the costs agreement between the applicant and Slater and Gordon. These are self-evidently confidential. 103 The applicant also sought confidentiality orders in relation to Mr Dunstan's confidential affidavit. Mr Stoljar submitted that such an order was appropriate because this affidavit was provided in accordance with a clause of the Settlement Deed requiring the respondents to provide an affidavit sworn by a senior officer of each of them, confirming particular matters on a confidential basis. 104 At the hearing on 4 October 2022, I accepted Mr Stoljar's submissions in support of the orders set out above, and made the confidentiality orders set out above accordingly.

Miscellaneous matters 105 Order 2 provides for authorisation for entering into and giving effect to the proposed settlement. Such orders are not unusual. See Dyczynski v Gibson (2020) 280 FCR 583 at 675-677 [393]-[400] (Lee J). The orders clarify, for the avoidance of doubt, the authority of the representative to bind group members in the manner proposed. 106 Order 3 specifies the persons affected and bound by the settlement. Such orders are common. 107 Orders 6 and 7 provide for liberty to apply: in the former case to address any matters arising in the administration of the settlement, and in the latter case to make orders finally disposing of the proceeding as anticipated under the proposed settlement.

Disposition 108 I will accordingly make the orders sought. I certify that the preceding one hundred and eight (108) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Callaghan.