Caason Investments Pty Limited v Cao

JAGOT J: 1 On 28 June 2019 I made orders approving the settlement of proceedings NSD 2028 of 2013 and NSD 2025 of 2013 and declared that the first plaintiffs were justified and acted reasonably in causing the second plaintiff to enter into the settlement deed and would be justified and acting reasonably in causing the second plaintiff to give effect to the terms of the settlement deed pursuant to s 477(2B) of the Corporations Act 2001 (Cth) and s 90-15 of Sch 2 of that Act respectively. These are my brief reasons for the making of those, and other related and consequential, orders. 2 The proceedings were the subject of mediation before the Honourable Peter Jacobson QC. All parties to the settled proceedings were legally represented. The application is supported by extensive confidential written submissions and opinions of counsel explaining the terms of the settlement of the proceedings and the analysis which the plaintiffs undertook in order to satisfy themselves that the proceedings should be settled on those terms. Those submissions address directly the prospects of success, the issues confronting the plaintiffs, the reasoning which led to the settlement, and the proportions of the settlement sum to be allocated to each proceeding by reference to the individual circumstances of each proceeding. 3 The Court's function in circumstances such as the present case is protective, to ensure that the settlement is fair and reasonable: see, by analogy, Hodges v Waters (No 7) [2015] FCA 264; (2015) 232 FCR 97 at [69]-[70] per Perram J. In the present case this need is accentuated by the fact that Equititrust is in a position of conflict of interest as it will be receiving a single settlement sum which it intends to apportion between the proceedings. Thus, the issue is the fairness and reasonableness of what is proposed by reference to the interests of the two trusts, which is the subject of the two sets of proceedings. 4 The following matters are relevant: (1) The Federal Court has jurisdiction to give judicial advice if the application arises as part of a controversy of which, as in the present case, a federal matter forms part: Hodges v Waters (No 7) [2015] FCA 264; (2015) 232 FCR 97 at [107]. (2) The application is accompanied by comprehensive advices and submissions from counsel explaining the reasoning behind entry into the settlement deed and the apportionment between the proceedings. (3) In the analogous context of class actions, Murphy J has said in Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323 at [74]: It is established that the Court should not second-guess the applicant's lawyers as to whether the settlement ought to have been accepted, or to proceed as if it knows more about the actual risks of the litigation than those lawyers. The Court takes the applicant's lawyers as it finds them, recognising that different applicants and different lawyers will have different appetites for risk. The question is whether the proposed settlement is within the range of reasonable outcomes, not whether it is the best outcome which the Court considers might have been won by better bargaining: Darwalla [Darwalla Milling Co Pty Ltd & Ors v F Hoffman-La Roche Ltd & Ors (No 2) [2006] FCA 1388; (2006) 236 ALR 322] at [50]; Harrison v Sandhurst Trustees Limited [2011] FCA 541 ("Harrison") at [13] (Gordon J). (4) To similar effect are the observations of Wigney J in Stanford v DePuy International Ltd (No 6) [2016] FCA 1452 in these terms at [116]- [117]: Where settlement is reached prior to judicial determination, the assessment of the proposed settlement must be undertaken mindful of the unpredictability of the applicant's and group members' fate. In those circumstances, the settlement must be viewed as a pragmatic compromise to the relevant claims. In that regard, the Court should be mindful of the fact that the parties and their legal representatives are often in a better position to appreciate the risks, and also mindful of the fact that different parties and their lawyers will have different appetites for risk: Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323 at [74]. …. approval of a settlement should not be approached as if there is a single outcome that may be seen to be fair and reasonable. Reasonableness is a range, and the question is whether the proposed settlement falls within that range having regard to the known facts and circumstances, not whether it is the best outcome which the Court considers might have been achieved: Darwalla at 339 [50]; Kelly v Willmott Forests at [74]. (5) In complex cases, where there are material risks in relation to liability and quantum, the opinion of counsel may be given significant weight: Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527 at [88]. 5 One aspect of the present matter which warrants comment is that it is assumed in counsels' opinions and submissions that the settlement will not yield any return to creditors and unitholders. This is the result of the operation of the litigation funding agreement approved by the Supreme Court of New South Wales at the outset of the litigation and without which the litigation would have been impossible. Given the terms of the litigation funding agreement the assumption appears accurate. The impression this leaves is inescapably unedifying. The entire benefit of the litigation will be subsumed into payments to the litigation funder and on account of legal costs. As submitted, however, this has nothing to do with the reasonableness of the settlement of the litigation and results from the terms of the already approved funding agreement. 6 The settlement sum would have to be many orders of magnitude larger before the creditors and unitholders could expect to see any return. In circumstances where the merits of the proceedings depend on numerous complex issues of fact and law it is not the role of the Court, in effect, to require the litigation to continue in the hope of a larger sum being obtained for distribution merely because the operation of the litigation funding agreement previously approved has a particular practical consequence. The settlement either is within the range of what is reasonable and fair or it is not. If it is within the range, approval should not be withheld. 7 As put in support of the approvals, it cannot be in the best interests of the funds to be effectively forced to continue with risky and difficult litigation when there is a reasonable settlement sum which has been agreed. In particular I accept the submission that: It is no part of a trustee's duty to continue to litigate in circumstances where it is futile. It cannot be a trustee's duty to reject reasonable settlement offers in the pursuance of some modest, if not remote, chance of improving upon them. Such a duty would result in [the] trustee being forced to litigate in circumstances where ordinary litigants would settle, with Courts being forced to decide cases that the plaintiffs believe should be compromised. 8 The confidential written submissions and opinions of counsel provide ample support to the proposition that the settlement as proposed is fair and reasonable. Orders should be made accordingly. I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.