Bywater v Appco Group Australia Pty Ltd

LEE J: 1 In Bywater v Appco Group Australia Pty Ltd [2020] FCA 1537, I provided reasons for the adjournment of the settlement approval application in this proceeding. 2 The purpose of that adjournment was to allow an investigation to take place to obtain further information about the financial position of the respondent, including whether there existed grounds for taking steps to ascertain if various transactions could be characterised as an attempt to defeat a possible judgment and be potentially voidable or uncommercial transactions. As I outlined at [19] of those reasons, the solicitors for the applicant indicated that they were prepared to carry out those further investigations. Those investigations have now occurred, and save for one matter that I will mention below, they did not yield additional useful information concerning further assets of the respondent. I am satisfied this position is not going to change without further and perhaps significant sums being expended, currently unsupported by any source of additional funding. 3 Given this position, I was concerned to ensure that group members be provided with a straightforward notice as to those investigations and their result. To that end, on 9 December 2020, I approved and ordered a notice (Notice) to be sent to group members in the following terms: IMPORTANT NOTICE ABOUT SETTLEMENT FEDERAL COURT OF AUSTRALIA Jacob Cornelius Bywater v Appco Group Australia Pty Ltd NSD 1857/2016 1. This notice has been sent by order of the Federal Court of Australia in relation to the matter of Bywater v Appco Group Australia (Appco Class Action). 2. You recently received a 'Notice of Settlement and Opt Out Process' which informed you that Mr Bywater and Appco Group Australia Pty Ltd (Appco Group) have agreed to resolve the class action out of Court but that before the settlement can go ahead, it needs to be approved by the Court. Since that notice, following further discussion between the parties, the proposed payment from Appco Group in accordance with that agreement has increased from $1.9 million to $2.05 million. 3. Mr Bywater estimates the potential claim for Group Members is worth approximately $65 million (excluding interest). The lawyers for Mr Bywater say that the prospects of success of these claims are good. This is all disputed by the Appco Group. 4. The proposed settlement amount is $2.05 million. 5. If the settlement is approved Group Members such as yourself would not be able to further pursue their claims in the Appco Class Action but the settlement does not include any releases against Marketing Companies. This means that Group Members are able to pursue claims against Marketing Companies, should they wish to do so, regardless of whether the settlement is approved. 6. If the settlement is approved, the following payments will be made out of the Settlement Sum: a. 25% ($512,500) will be paid to the funder, Harbour Fund III L.P; b. $40,000 will be paid to Adero Law for the costs of administering the settlement; c. $35,000 will be paid to Adero Law for professional fees they have incurred for investigations into the assets of Appco Group as part of the settlement approval; d. $5,000 will be paid to Mr Bywater for the time and costs he incurred as lead claimant; e. The remaining $1,457,500 will be split among Group Members. 7. This means that if the settlement is approved, Group Members will receive very little compared to the value of their claim as estimated by Adero Law. 8. Even though Adero Law and counsel consider Group Members' claims have good prospects of success (which is disputed by Appco Group), they believe that the proposed settlement is in the interests of Group Members. This is because, following investigations, it appears that Appco Group at present has only approximately $2.15 million worth of assets and would not be able to pay more than the $2.05 million currently offered. As explained below, Appco Group would use up most, if not all, of that amount in defending the claim. 9. Adero Law is concerned that there is a real risk, if the litigation is to continue, that there would be no return to Group Members. 10. During the course of the hearing on settlement approval an issue has been raised as to whether the proposed settlement is fair and reasonable, and in the interests of all Group Members, or whether further steps should be taken to investigate if the matter should proceed. 11. This issue has arisen because there may be the potential for recovery against third parties who are not parties to the current proceeding. Adero Law has conducted some investigations into possible recovery options (Adero Law's Investigations), including consideration of: a. the financial position of Appco Group and its Australian holding company Appco Group Pty Ltd (Holding Company) in the period from 2016 to date; b. possible voidable transactions between Appco Group and the Holding Company including the forgiveness of loans and transfer of debts; c. potential claims against The Fin Agency Pty Ltd and Indigo8 Corporate Services Pty Ltd in relation to transfers of key personnel, intellectual property, plant and equipment through sale deeds entered into during the course of the Appco Class Action; d. potential claims against current and former directors of Appco Group, including Mr Christos Niarchos, Mr Jeremy Deacon and Ms Kristy Campbell, including their known assets in Australia; and e. the insurance policies held by Appco Group and the Holding Company. 12. In the light of Adero Law's Investigations, Mr Bywater and Adero Law formed the view that Mr Bywater and Group Members may have claims against Appco Group's directors and other third parties. 13. However, these actions are likely to be difficult and complicated. Before undertaking them, further investigation would be required into whether: a. Mr Bywater and Group Members would be able to establish any of these claims; and b. If successful, these steps would lead to a recovery for Group Members of more than the current offer of $2.05 million. 14. Any investigations in respect of the potential for recovery against other assets would cost money. Up until 9 October 2020 Harbour has funded the costs of the Appco Class Action. However, it has stated that it will not fund any further investigations or any more steps in the proceeding if the settlement is not approved. Also, although Adero Law has conducted Adero Law's Investigations on a no-win/no-fee basis, it is not prepared to bear the cost of any further investigations. 15. Therefore, the money needed to fund further investigations would need to be obtained from some other source, such as another funder, or contributions from Group Members. There are currently no funders who have expressed interest in funding these investigations and Adero Law considers it unlikely that further commercial funding could be obtained. 16. If the current settlement is not approved, and instead the Court decides that further investigations should be made into whether or not the Appco Class Action should proceed, it will therefore also be necessary for alternative solicitors to be engaged in place of Adero Law. 17. In all these circumstances, the Court has asked for an indication from Group Members as to whether they would like the settlement to be approved. 18. Group Members can provide their position by return email by 5pm on Monday 14 December 2020, indicating that they either: a. wish for the proposed settlement to be approved; b. object to the settlement and wish to be granted leave to opt out of the proceeding; or c. wish for further investigations to occur. In that case it would assist if you could provide details of: i. the nature of the investigations you consider should occur; and ii. your proposal for how the costs of those investigations will be paid and/or an alternative law firm which is prepared to conduct the work. 19. The Court will be assisted by any responses provided; however you are not required to respond in order to participate in the settlement (if approved). 20. If you have any queries about anything in this notice, you are free to contact Adero Law, who you have retained to act for you in this matter. In doing so, however, you should be conscious that Adero Law also acts for the Applicant, Mr Bywater, and has already expressed the view that it considers the settlement should be approved. 21. You are also free to seek independent legal advice should you wish to do so. 22. You can contact Adero Law: by phone, on (02) 6189 1022; or by email, at appcoclassaction@aderolaw.com.au 4 Mr Markham, the solicitor for the applicant, indicated in his affidavit affirmed 14 December 2020 (at [8]), as supplemented by further material given by counsel for the applicant this morning, that the responses of group members to the Notice fell within the following categories: (1) 119 group members responded confirming that they wish the current settlement to be approved; (2) eight group members responded confirming that they wish the current settlement to be approved, but made adverse comments regarding the settlement in their response; (3) two group members responded requesting they be allowed to opt out of the proceedings; and (4) one group member responded in a way which was initially unclear, but on close examination, seems to me to indicate a willingness to move ahead with the current settlement. 5 The parties have no objection to the two group members wishing to opt out to be allowed to do so and take that course notwithstanding the time for opt out has passed. An order will be made allowing this to occur. 6 In respect of the balance of group members, apart from earlier objections that I had received to the initial settlement proposal (which in part informed the view that I took as to further investigations being necessary), the overwhelming response to the Notice is that the group members wish to proceed. This seems to me to be a very powerful factor militating in favour of approving the settlement. 7 Further, there has been an additional development. Ms Campbell, who was previously the Director of Finance for the respondent, has given evidence about circumstances in which an additional cash management account has been identified. I accept the explanation given that there is nothing to be criticised about the failure to disclose that account earlier, but the consequence is that the proposed settlement sum has increased from $1.9 million to $2.05 million. Moreover, various improvements have been made to the proposed settlement including fixing administration costs at a figure of $35,000 plus GST, which has eliminated the need for two stages of distribution and a residual sum being left. 8 In circumstances where group members overwhelmingly take the attitude that they have, together with the fact that I am satisfied that further attempts to augment any sum for settlement will likely be a case of throwing good money after bad, I have reached the conclusion that I ought now approve the settlement; it being fair and reasonable and in the interests of all group members, notwithstanding these rather unusual circumstances. I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee.