Blairgowrie Trading Ltd v Allco Finance Group Ltd

WIGNEY J: 1 Blairgowrie Trading Limited and Alan and Chrystine Flitcroft (as Trustees of the Te Coco Trust) have commenced representative proceedings against Allco Finance Group Limited (Receivers & Managers Appointed) (In Liquidation), Gary John James Jones (as Administrator of the Estate of the Late David Raymond Coe) and KPMG. 2 Blairgowrie and Mr and Mrs Flitcroft purchased shares in Allco between August 2007 and February 2008. They incurred losses arising from that investment. They claim that Allco and the late Mr Coe, who was the director and chairman of Allco, as well as KPMG, Allco's auditor at the time, are liable to compensate them for that loss. They also contend that Allco, Mr Coe, and KPMG are liable to compensate other persons, the group members in the representative proceeding, who, like them, purchased Allco shares during the same period. 3 It is unnecessary for present purposes to delve into the intricacies of the claims; suffice it to say that it is contended that Allco and KPMG contravened various provisions of the Corporations Act 2001 (Cth), and that Mr Coe aided and abetted, or was knowingly concerned in, Allco's contraventions. The loss that was suffered by Blairgowrie and Mr and Mrs Flitcroft, and the group members, is said to have resulted from those contraventions. The trial is now listed to commence on 14 November 2016. 4 In this application, Blairgowrie and Mr and Mrs Flitcroft seek the Court's approval, pursuant to section 33V of the Federal Court of Australia Act 1976 (Cth), of a settlement that has been reached with the administrator of Mr Coe's estate. In simple terms, the effect of that settlement is that the proceeding as against Mr Coe's estate will be discontinued, Mr Coe's estate will discontinue its cross-claim against KPMG, and KPMG will discontinue its cross-claim against Mr Coe's estate. 5 The logic behind this settlement is clear. Mr Coe is deceased and his estate is insolvent. Both Allco and Mr Coe are insured in respect of the claims made against them in this proceeding under a series of insurance policies with a combined value of $150 million. Mr Coe does not have any separate insurance. Any recovery against Allco and Mr Coe's estate will come from the same pool of insurance funds. 6 The claims against Mr Coe are accessorial in nature. The solicitor for Blairgowrie and Mr and Mrs Flitcroft has deposed that the accessorial claims against Mr Coe do not offer any greater prospects of success than the claims against Allco as principal wrongdoer. That is self-evidently correct. If the claims against Allco fail, so too will the claims against Mr Coe. There is, in those circumstances, ultimately no utility in continuing to pursue the claims against Mr Coe. Indeed, the continued pursuit of the claims against Mr Coe may well be detrimental to Blairgowrie, Mr and Mrs Flitcroft, and the group members as a whole. That is because the legal costs of the administrator of Mr Coe's estate have and will continue to be paid out of the insurance policies. The continued pursuit of the claims against Mr Coe will therefore deplete the pool of insurance funds available to meet the claims. 7 In broad terms, the question for the Court in approving the settlement of a representative proceeding is whether the proposed settlement is fair and reasonable, having regard to the claims made by group members bound by the settlement. Is the settlement undertaken in the interests of the group members as a whole, and not just in the interests of the applicants and respondents? In the case of the settlement of the proceedings as against Mr Coe, the answer to that question is in the affirmative for the reasons already given.

Notice to group members 8 Notice has not been given to the group members in respect of the approval of the settlement with the administrator of Mr Coe's estate. Section 33X(4) of the FCA Act provides that: Unless the Court is satisfied that it is just to do so, an application for approval of a settlement under section 33V must not be determined unless notice has been given to group members. 9 In the somewhat unique circumstances of this case, I am satisfied that it is just to dispense with the requirement to notify group members of the application for approval of the settlement. The time consuming and expensive process of giving notice to the large number of group members in these proceedings is not warranted. That is essentially because it is difficult, if not impossible, to identify any reasonable or legitimate argument that could be advanced by any group member in opposition to the settlement. The settlement arrived at with Mr Coe's estate is plainly to the advantage of the group members as a whole, and does not prejudice any group member or class of group members. 10 Blairgowrie and Mr and Mrs Flitcroft also seek a number of ancillary orders. Those orders are essentially in accordance with, or put into effect, the settlement. They include leave to discontinue the claims involving Mr Coe, the vacation of various costs orders relating to Mr Coe, and the application of funds paid into court as security for Mr Coe's costs. Those orders are by consent. It is unnecessary to provide further reasons for making those orders. Likewise, leave is sought by consent to file a further amended application and statement of claim. Leave to do so should be granted. The amendments reflect the discontinuance of the proceedings against Mr Coe and otherwise add some additional particulars in respect of certain aspects of the case. 11 For these reasons, it is appropriate to make the orders in accordance with the short minutes of order that have been prepared and provided to the Court. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wigney.