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[2015] FCA 1468
procedural. Settlement agreement, Settlement Distribution Scheme and confidential Loss Assessment Formula approved; applicants' costs fixed at $4,918,426.14; applicants' expense claims approved; Ben Phi...
Investors who bought ACR unsecured notes claimed that the trustee, TCL, should have stopped ACR raising more money in late 2005 once it became clear the business was in trouble. Instead fundraising continued until the 2007 collapse, causing extra losses for later investors and worse recoveries for earlier ones. The Federal Court approved a $25 million all-in settlement reached just before trial because the lawyers' confidential advice showed real risks that the applicants might lose on whether TCL owed and breached the statutory duty of diligence and on exactly what would have happened in a 2005 administration. The distribution scheme splits the money using different formulae for the two types of claim but treats everyone under the same transparent process with rights of review. Only a handful of genuine objections were received, most based on misunderstanding the likely payout. Costs of just under $4.9 million (about 20 per cent) were approved given the complexity and the late stage of settlement.
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Between 2000 and 2007 Australian Capital Reserve Limited (ACR) raised funds from the public by issuing unsecured notes under successive prospectuses. The respondent, The Trust Company (Nominees) Limited (TCL), was the trustee for the noteholders under a deed executed in March 2000. Chapter 2L of the Corporations Act 2001 (Cth), and in particular s 283DA(a), imposed on TCL an obligation to exercise reasonable diligence to ascertain whether ACR's property was or would be sufficient to repay the notes as they fell due.
By late 2005, the applicants alleged, a diligent trustee would have concluded that ACR could not safely continue to issue notes and would have taken steps (directly or by informing ASIC) that would have halted further fundraising. Had that occurred, investors who subscribed after November 2005 would have had "no transaction" at all, while those who had invested earlier and simply rolled over their notes into new issues would have suffered losses in an earlier 2005 administration rather than the deeper losses that eventuated when ACR and the Estate Property Group were placed in voluntary administration in 2007 after ASIC issued stop orders.
The proceeding was commenced as a representative action under Part IVA of the Federal Court of Australia Act 1976 (Cth) on 27 May 2013. By October 2015 all lay and expert evidence had been filed, a joint expert report exchanged, and a ten-day trial fixed for December 2015. On 8 October 2015 the parties attended a Court-ordered mediation. Terms were agreed subject to insurer approval, which was obtained in early November 2015. The settlement provided for TCL to pay $25 million inclusive of costs plus simple interest from 30 October 2015 at 2.85 per cent.
Notices were sent to group members in November 2015 advising of the proposed settlement sum, the existence of a Settlement Distribution Scheme (SDS) and the confidential Loss Assessment Formula (LAF). Sixty-seven objection forms were returned. After analysis, 46 contained no objection, seven were ambiguous, leaving 14 substantive objections, the majority asserting that the sum was too low or expressing generalised grievances about ACR's conduct.
On 18 December 2015 Moshinsky J heard the approval application. Confidential affidavits from the applicants' solicitor and a joint opinion from senior and junior counsel were read. A costs assessment from an independent costs consultant, Ms Dealehr, supported a gross sum of $4,918,426.14 for the applicants' costs. His Honour made orders approving the settlement, the SDS (including the confidential LAF), the costs sum, modest expense claims for the named applicants, and various ancillary orders for notice, administration and confidentiality. The reasons were delivered on 24 December 2015 and comprise 60 paragraphs.
Moshinsky J began by distilling at [5] the principles emerging from the authorities cited in the catchwords. The "central question" is whether the settlement is fair and reasonable in the interests of group members as a whole. Reasonableness is a range, not a single correct figure. The Court does not second-guess counsel's tactical decisions but asks whether they fall within the range reasonably open on the known circumstances and a realistic assessment of litigation risks.
The judgment places "great weight" on the confidential solicitor's affidavit and counsel opinion because the proceeding was at a very advanced stage, virtually on the eve of trial, all evidence was filed, and the lawyers had intimate knowledge of the strengths and weaknesses. Those opinions analysed liability risk (whether TCL owed and breached the s 283DA(a) duty), quantification and causation risk (what a reasonable trustee would have done in late 2005 and whether an earlier administration would have produced materially better recoveries), and the certainty that any trial victory would be followed by appeals and then "mini-trials" on individual group member losses.
The $25 million sum was regarded as substantial once those risks were weighed. The alternative of a ten-day trial, likely appeals, further delay, stress and irrecoverable costs that would be deducted from any award made the settlement attractive. These considerations satisfied the inter partes limb of the test at [36]-[38].
On the inter se question the Court examined the SDS at [39]-[51]. The scheme differentiated between "No Transaction Notes" and "Rollover Notes" solely to reflect the two distinct causation cases that would have been run at trial. Once estimated losses were calculated using the confidential LAF (which took account of actual recoveries already received by investors), the fund was distributed pro rata. All group members were subjected to the identical assessment and review process; the named applicants enjoyed no preferential treatment beyond modest, separately approved expense claims. The administrator is an experienced practitioner supported by Slater and Gordon but acting independently. Group members receive claim data, an estimate, and rights of review first by the administrator and, if necessary, by independent counsel. These features satisfied the Court that the scheme achieved a "broadly fair, 'rule of thumb' distribution" within the bounds of reasonableness.
Only 14 substantive objections were received despite wide notice. Most reflected misunderstandings of likely returns or legal misconceptions. No objector offered to assume the burdens of lead plaintiff. That paucity of opposition, combined with the procedural safeguards, reinforced approval.
Costs of $4,918,426.14 represented approximately 20 per cent of the inclusive settlement. The Court accepted Ms Dealehr's independent assessment, noted the complexity of the corporate trustee duty issues, the late-stage settlement, and the 25 per cent uplift under the no-win-no-fee retainer. In the circumstances no further Registrar review was required. Administration costs were left for later approval, which the judgment described as appropriate.
Confidentiality orders under s 37AF were made over the opinions and the percentages used in the LAF because disclosure would give TCL an unfair forensic advantage if the approval were set aside and the trial proceeded.
Prior to this judgment the applicable principles were found in a well-established line of Federal Court and Victorian Supreme Court authority. Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 supplied the canonical list of factors at [19], but Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322 emphasised that the list is neither mandatory nor exhaustive and that reasonableness is a range. Cases such as Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626, Wheelahan v City of Casey [2011] VSC 215 and Mercieca v SPI Electricity Pty Ltd [2012] VSC 204 had elaborated the distinct inter se inquiry, stressing the need to avoid preference for funded clients or lead plaintiffs and the utility of transparent review mechanisms.
This judgment synthesises those authorities at [5] into a concise eight-point statement that has become a frequently cited checklist. It applies the inter se principles to a settlement containing two distinct claimant cohorts ("no transaction" and "rollover") and approves a confidential LAF that operates as a proxy for trial damages principles without requiring individualised mini-trials. It also illustrates the level of judicial scrutiny appropriate when an independent costs assessor of Ms Dealehr's standing has been retained and the proceeding has reached an advanced stage.
The judgment reinforces that notice to group members and the absence (or limited nature) of objections carries significant weight once reasonable steps have been taken to communicate the proposal. It confirms that confidentiality under s 37AF may extend to the precise percentage a settlement bears to counsel's best-case estimate where that figure could be reverse-engineered to reveal litigation strategy.
Paragraph 5: "the central question for the Court is whether the proposed settlement is fair and reasonable in the interests of the group members considered as a whole."
Plain English: The judge's job is not to decide whether this is the best possible deal imaginable, but whether it is acceptable when judged from the collective standpoint of every investor in the class, not just the two named applicants.
Paragraph 5: "there will rarely be one single or obvious way in which a settlement should be framed … reasonableness is a range, and the question is whether the proposed settlement falls within that range."
Plain English: There is no single "correct" settlement figure or distribution method. Different reasonable people could reach different but still acceptable outcomes. The Court asks only whether the one put forward is inside the band of acceptable compromises.
Paragraph [35]: "the proceeding is at a very advanced stage, with all the lay and expert evidence already filed. The settlement has occurred virtually on the eve of the trial. This places the parties and their lawyers in a good position to assess the strengths and weaknesses of the case."
Plain English: Because the lawyers had prepared the entire case for imminent trial, their confidential advice about the settlement's fairness carries extra credibility; they are not guessing about unknown evidence.
Paragraph [42]: "The question on this application is whether the SDS, as presented now, is within the bounds of reasonableness in achieving a broadly fair, 'rule of thumb' distribution between the claimants."
Plain English: The Court will not redesign the distribution scheme from scratch. It asks only whether the chosen method is a reasonable, practical way to divide the fixed pot of money without obvious unfairness between different types of investor.
Paragraph [59]: the discussion of why the percentage of best-case outcome and the rollover loss multiplier must remain confidential.
Plain English: If the judge's approval were overturned on appeal and the case went back to trial, TCL would gain an unfair tactical advantage if it knew exactly how the applicants' lawyers had valued the claims.
This judgment is routinely consulted in representative proceedings that settle on the eve of trial after all evidence has been served, where the defendant is solvent but liability and quantum are both contestable, and where the class contains distinct cohorts requiring differentiated but not overly granular loss assessment. It is especially relevant where the underlying claim involves statutory trustee duties under Ch 2L or analogous obligations that turn on what a reasonable trustee "would have" done at an earlier point in time, giving rise to difficult counterfactual causation questions.
The decision is triggered whenever a settlement distribution scheme uses a confidential formula that distinguishes claim types by reference to the pleaded causation case (here "no transaction" versus "rollover"), applies a pro-rata distribution after notional loss calculation, and includes layered review rights. It applies to no-win-no-fee retainers with a 25 per cent uplift where independent costs assessment has been obtained and the costs burden is in the order of 20 per cent of an inclusive settlement. The confidentiality reasoning is engaged whenever disclosure of counsel's percentage recovery or loss multipliers could be reverse-engineered to reveal litigation strategy.
The paucity-of-objections analysis is engaged when notice has been given by post, email and newspaper advertisement and the number of substantive objections is low relative to class size (here 14 out of approximately 4,621).
The judgment itself treats the principles in Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 as a "useful guide but … neither mandatory nor necessarily exhaustive" (5), citing Haslam, Taylor, Wingecarribee and Mercieca to that effect. It follows Darwalla's "range" concept and applies the inter se fairness concerns articulated in Rod Investments (Vic) Pty Ltd v Abeyratne and Mercieca. The distillation at [5] has been treated as an authoritative checklist for the fair-and-reasonable test in subsequent Federal Court settlement approval applications. The emphasis on the advanced stage of the proceeding and the weight to be given to confidential counsel opinion has been followed in cases where settlement occurs after evidence is complete but before trial. The approval of a confidential LAF that operates as a damages proxy without individualised hearings has been cited as illustrating the permissible degree of "rule of thumb" pragmatism that does not offend inter se fairness. The costs reasoning, particularly the acceptance of Ms Dealehr's methodology and the refusal to impose an additional Registrar review where the proportion is reasonable and the matter complex, has been treated as persuasive in later gross-sum costs applications. The s 37AF confidentiality analysis concerning counsel opinions and loss multipliers has been followed where there is a realistic prospect that an appeal could lead back to a contested trial.
The judgment leaves for later determination the precise quantum of administration costs, which will require a further application once distribution is complete. It does not prescribe the exact content of the independent counsel review mechanism, leaving that to the administrator subject to liberty to apply. While the SDS was approved on the basis that it reflected the applicants' case theory, the confidential LAF itself remains sealed; the precise percentages applied to rollover losses and the relationship between the settlement sum and best-case outcome are therefore unknowable to group members who have not signed undertakings. The reasons note at 5 that an objector who is prepared to assume the burdens of lead plaintiff raises a different question, but no such offer was made here; the weight to be given to such an offer therefore remains untested on these facts. The judgment does not decide whether a materially higher objection rate, or objections coming from a coherent sub-group with distinct legal characteristics, would have altered the inter se fairness assessment. Finally, because the settlement was reached before any defence was filed to the Further Amended Statement of Claim, the precise boundaries of the s 283DA(a) duty in a Ponzi-like fundraising scenario were not adjudicated and remain open for future cases.
Confidentiality
IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 410 of 2013
JUDGE: MOSHINSKY J DATE: 18 DECEMBER 2015 PLACE: MELBOURNE
Introduction 1 This is an application for approval of a settlement of a representative proceeding brought by the applicants against the Trust Company (Nominees) Limited (TCL). 2 The parties have agreed upon terms of settlement of the proceeding, but their agreement is not effective unless and until it is approved by the Court pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act) and related sections. 3 By an interlocutory application dated 16 November 2015, the applicants seek a series of orders for and in connection with that approval. 4 For the reasons that follow, I consider it appropriate to approve the settlement and make the orders sought by the applicants. Having considered the evidence that has been filed, in my view the settlement is fair and reasonable as between the applicants and group members, on the one hand, and TCL, on the other hand. Further, I consider the settlement to be fair and reasonable on an inter se basis, that is, as between the members of the group. Accordingly, I consider the settlement to be fair and reasonable in the interests of group members considered as a whole. Further, I consider that the amount proposed to be applied towards costs should be approved.
Applicable principles 5 The following principles can be distilled from the case law and applicable practice notes regarding applications brought under s 33V of the Act, or cognate provisions in other jurisdictions: (a) the central question for the Court is whether the proposed settlement is fair and reasonable in the interests of the group members considered as a whole: Australian Competition and Consumer Commission v Chats House Investments Pty Limited (1996) 71 FCR 250 at 258; Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 (Williams) at [19]; Wheelahan v City of Casey [2011] VSC 215 (Wheelahan) at [57]-[59]; and Matthews v Ausnet Electricity Services Pty Ltd [2014] VSC 663 (Matthews) at [34]; (b) there will rarely be one single or obvious way in which a settlement should be framed, either between the claimants and the defendants (inter partes aspects) or in relation to sharing the compensation among claimants (the inter se aspects) - reasonableness is a range, and the question is whether the proposed settlement falls within that range: Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322 (Darwalla) at [50]; (c) it is not the task of the Court to 'second-guess' or go behind the tactical or other decisions made by the plaintiff's legal representatives, but rather to satisfy itself that the decisions are within the reasonable range of decisions, having regard to: the circumstances which are 'knowable' to the plaintiffs and their representatives; and a reasonable assessment of risks, based on those circumstances: Darwalla at [50]; Pharm-a-Care Laboratories Pty Ltd v Commonwealth (No 6) [2011] FCA 277 at [22]; Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626 (Modtech) at [12]; (d) the list of factors typically relevant to an assessment of the reasonableness of a proposed settlement, set out in Williams at [19], is a useful guide but is neither mandatory nor necessarily exhaustive - it is just a guide (see Haslam v Money for Living (Aust) Pty Ltd (Administrators Appointed) [2007] FCA 897 at [19]-[20]; Taylor v Telstra Corporation Ltd [2007] FCA 2008 at [65]; Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (No 9) [2013] FCA 1350 at [47]; Mercieca v SPI Electricity Pty Ltd [2012] VSC 204 (Mercieca) at [32]), and additional consideration needs to be given to factors relevant to the fairness of the settlement inter se; (e) in relation to the inter se fairness, a particular concern of the Court is to confirm that the interests of the lead plaintiff, or signed-up clients of a given firm of solicitors, are not being preferred over the interests of other group members: see, eg, Rod Investments (Vic) Pty Ltd v Abeyratne [2010] VSC 457 (Abeyratne) at [19]. The arrangement should be framed to achieve a broadly fair division of the proceeds, treating like group members alike, as cost-effectively as possible: see, eg, Mercieca at [37]-[39]; (f) an important consideration will be whether group members were given timely notice of the critical elements, so that they had an opportunity to take steps to protect their own position if they wished. Once appropriate notice is given, the absence of objections or other response action from group members is a highly relevant consideration in support of a settlement, and all its elements: see, eg, Abeyratne at [22]; and Mercieca at [38]; (g) where a group member does object to the settlement, an important further question is whether the objector is prepared to assume the role − and risks - of being lead plaintiff: cf Wong v Silkfield Pty Ltd [2000] FCA 1421 at [24]-[30]; (h) in relation to provisions for costs-sharing among the successful group members, again an important consideration is where the group members were alerted at an early stage to the potential costs-sharing consequences of subsequent participation in the action: cf Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [46]. It is not, thereafter, the role of the Court to go behind the costs agreements (see Wheelahan at [103]), but rather to satisfy itself that the agreements have been applied reasonably according to their terms; (i) further, the level of detail which the Court will require in order to be satisfied that costs have been calculated in accordance with the applicable agreements will vary, depending on factors such as whether the group members are all clients, or include non-client claimants, and the proportion of the settlement funds to be applied to costs.
Overview of the proceeding 6 Over a period from 2000 until 2007, Australian Capital Reserve Limited (ACR) issued certain "unsecured notes" to the applicants and group members (claimants). The notes were issued pursuant to a series of prospectuses, the most relevant of which were prospectuses 7 to 9. The notes were debentures within the meaning of the Corporations Act 2001 (Cth). TCL was the trustee for the noteholders, pursuant to a deed entitled "Unsecured Note Trust Deed" dated 10 March 2000 executed by ACR and TCL (then called Permanent Nominees (Aust) Limited) (the Trust Deed). 7 As trustee, TCL had various rights and responsibilities under Chapter 2L of the Corporations Act 2001 (Cth). Most importantly, it was obliged under s 283DA(a) to exercise reasonable diligence to ascertain whether the property of ACR that is or should be available (whether by way of security or otherwise) would be sufficient to repay the amount deposited or lent by ACR when it became due. 8 The applicants claim that by late 2005, proper diligence from TCL would have led it to reach certain conclusions, to the effect that it could not be confident that ACR would be able to meet its obligations to noteholders as those obligations fell due through 2006 and later. The applicants contend that ACR's proposals for increased note issues involved a real risk that the operation would become, or resemble, a 'Ponzi scheme' during 2006. The applicants contend that TCL ought to have taken steps, either directly or by informing ASIC of its concerns, and that those steps would have had two consequences: (a) first, it would have meant that the notes actually issued after November 2005 would not have been issued. There would have been 'no transaction' for new investors who invested after that date; (b) second, although the halt in ACR fundraising might perhaps have led to the Estate Property Group Limited (EPG) and its subsidiaries (together, the EPG Group) selling off some of its projects in order to release cash to enable it to complete that subset of its properties that had the best potential, the more likely outcome would have been that ACR and the EPG Group entered administration in 2005 rather than in 2007, as eventually occurred. The applicants contend that the existing investors (rollover investors) would still have suffered losses, but they would have suffered less loss in 2005. 9 The applicants contend that TCL took no such steps; that ACR did not halt fundraising in late 2005; and that it proceeded to increase the value of notes on issue until 2007. In 2007, ASIC issued a series of stop orders, as a result of certain disclosure problems in the later ACR prospectuses. The halt in fundraising at that time led quickly to ACR and the EPG Group entities being placed into voluntary administration. 10 The applicants contend that, while the noteholders have been repaid part of their investments, the post-2005 investors suffered losses that otherwise would have been avoided altogether, and the rollover investors suffered a loss comprised of lower returns from the 2007 administration, relative to the returns that they would have obtained in a 2005 administration. 11 As indicated above, the claimants' claims can be broadly divided into two categories, being: (a) losses from investments first made after November 2005 - the applicants allege that if TCL had acted diligently then ACR would have halted fundraising by late November 2005, so for these investments there would have been 'no transaction'; (b) losses from investments first made before November 2005, but which were 'rolled over' rather than paid out, so that they continued until the administration in 2007 - the applicants contend that these existing investments would have suffered some loss in a 2005 administration, but at a lower rate than actually was suffered in the 2007 administration. Some claimants have claims in both categories. 12 The applicants' material indicates that, based on records maintained by ACR regarding investor details, there are currently: (a) 1,545 'no transaction' group members; (b) 2,632 'rollover' group members; and (c) 287 group members who are both 'rollover' and 'no transaction' investors. 13 The proceedings commenced on 27 May 2013, brought under Part IVA of the Act. 14 The statement of claim has been amended on two occasions. On 8 October 2015, the Court made orders allowing certain amendments to the existing pleading. A further amended statement of claim dated 20 November 2015 (FASOC) accordingly has been filed. TCL is yet to file a defence to the FASOC. It should be noted, however, that the recent amendments set out in the FASOC are relatively confined. 15 The applicants have filed affidavits from Mr Camilleri, essentially attesting to the fact of the applicants having made various investments in notes issued by ACR. 16 TCL has not filed any lay evidence. 17 Putting aside expert evidence, the applicants' case is largely documentary. 18 The parties each filed expert accounting evidence, the applicants calling Mr David Ferrier and TCL calling Mr Greg Meredith. Mr Ferrier opined on a relatively broad range of matters, while the questions asked of Mr Meredith were considerably narrower in scope. Mr Ferrier delivered a reply report, which responded to the questions asked of Mr Meredith. The experts recently prepared a joint report dated 8 October 2015. 19 The trial of this matter had been set down for December 2015 on an estimate of ten days. 20 On 8 October 2015 the parties attended a Court-ordered mediation. Both parties were represented by senior and junior counsel and solicitors. In the result, terms of settlement were agreed subject to a condition requiring confirmation of TCL's overseas insurers' approval, to be obtained by 30 October 2015. That deadline was later extended by agreement and the insurer approval was eventually confirmed in early November. 21 The applicants then informed the Court, and the parties jointly requested that the trial date be vacated to enable the present application to be made pursuant to s 33V of the Act.
Overview of the settlement 22 The settlement is contained in a settlement agreement made on or about 10 December 2015, which is in evidence before me. It provides for TCL to pay the sum of $25 million, together with simple interest on that sum accrued from 5.00 pm on 30 October 2015 to the date of payment at the rate of 2.85 percent. The settlement agreement includes clauses relating to release of claims; indemnity to certain persons; distribution of the settlement sum; final orders; and no admission of liability by TCL. 23 The evidence also includes a document entitled "Settlement Distribution Scheme" (SDS) which sets out how the settlement sum is to be distributed among group members. The scheme for distribution involves a process for calculation of the estimated loss of each group member, but with a different methodology applicable in the case of "No Transaction Notes" and "Rollover Notes". These reflect the two categories of investments referred to earlier. The details of the methodology are set out in a confidential schedule to the SDS, entitled the "Loss Assessment Formula". Once the loss applicable to the notes has been calculated, the settlement proceeds are applied on a pro rata basis as between group members. The mechanism for distribution of the settlement sum as between group members is a largely mathematical exercise.
Notification of group members and objections raised 24 The evidence demonstrates that, in accordance with orders which I made on 18 November 2015, group members have been given notice of the proposed settlement by mail and email. An advertisement regarding the proposed settlement was also published in The Australian newspaper. The settlement has also been reported in the media. 25 The evidence indicates that Slater and Gordon (the solicitors for the applicants) have also taken steps to notify group members by alternative means, where a "return to sender" notification was received for notifications by post. However, there remain around 85 group members (out of approximately 4,621 potential group members) for which updated address details have not been able to be found. 26 In light of the steps that have been taken for notifying group members, I am satisfied that all reasonable steps have been taken to notify group members of the proposed settlement. 27 The evidence filed by the applicants includes copies and details of objections against the proposed settlement, which have been received from group members. 67 objection forms have been received. Of these: (a) 46 do not actually contain an objection (and may well have been sent in error); and (b) seven contain ambiguous comments which do not appear to be objections. 28 Thus, there are 14 group members who have raised substantive objections. 29 The principal complaint amongst those objectors is that the settlement sum is insufficient. Some objectors express grievances about the culpability of ACR and others. These are matters which I deal with below in the context of the fairness and reasonableness of the settlement. 30 It appears from the evidence that some objectors have apparently misunderstood (and underestimated) their likely returns under the proposed settlement. Those individuals have since been informed of that misunderstanding. 31 In general, the other complaints appear to be based on incorrect factual assumptions or legal misconceptions.
Fairness and reasonableness inter partes 32 First principles, and the cases, indicate the kinds of considerations which will be relevant in assessing whether the inter partes aspects of a proposed settlement are fair and reasonable. They include: (a) the risks faced by the claim group in establishing (relevantly to the present case) that any defendant owed and breached a duty of care - liability risk; (b) the risks faced by the claim group in proving that any and if so what compensable damage resulted from a defendant's breach of duty - quantification risk; (c) the risks faced by the claim group in executing any damages award against a given defendant - recovery risk; (d) the proportion which the settlement payment bears to the estimated 'best case' outcome for the claimants; (e) the extent to which the 'best case' outcome would, even if it occurred, be devalued by reason of: (i) the delays of trials and appeals; and (ii) the unrecoverable 'solicitor-client' costs that would be incurred in those further proceedings. 33 These factors are addressed in detail in a confidential affidavit of the applicants' solicitor and a confidential opinion of the applicants' trial counsel, comprising a senior counsel and two junior counsel. 34 In considering the fairness and reasonableness of the settlement, I have placed great weight on these documents. In these documents, the applicants' legal team set out in careful detail the issues that arise in the proceeding, what they consider to be the strengths and weaknesses of the applicants' case in respect of each of those issues, and their assessment of the likelihood of success in respect of each issue, and overall. Against that discussion, they then opine on the fairness and reasonableness of the settlement. 35 There are several factors, in particular, which give me comfort in relying on the opinions expressed in these documents. First, the proceeding is at a very advanced stage, with all the lay and expert evidence already filed. The settlement has occurred virtually on the eve of the trial. This places the parties and their lawyers in a good position to assess the strengths and weaknesses of the case. Secondly, the lawyers who have expressed the opinions have been involved in the proceeding for a long time and therefore are very familiar with the detail of the case. Thirdly, the opinions are well constructed and reasoned, giving me confidence in the opinions they express. 36 Having considered the opinions set out in the affidavit of the solicitor and the opinion of counsel, I consider the settlement to be fair and reasonable as between the applicants and group members, on the one hand, and TCL on the other hand. 37 Without going into the detail of the confidential opinions, I note the following: (a) the settlement is for a substantial sum; (b) the alternative to the settlement involves: (i) a trial for an estimated ten days; (ii) substantial liability risk and some quantification risk; (iii) given those risks - a high likelihood of appeals by the unsuccessful party at trial, resulting in a fresh round of risks; (iv) to the extent that the applicants have succeeded after all the appeals - the potential for further litigation in relation to rollover investor claims as a subclass, and by way of 'mini-trials' for individual group member claims; (v) additional delays and stress for the applicants and group members associated with further litigation; and (vi) considerable additional legal costs, only a portion of which would be recoverable from TCL with the shortfall to be paid from any compensation payable to the claimants. 38 Having regard to those considerations and the opinions expressed in the confidential affidavit and counsel opinion, I am satisfied that the proposed settlement is appropriate for approval pursuant to s 33V of the Act, so far as its inter partes aspects are concerned.
Fairness and reasonableness inter se 39 The next question is whether the proposed arrangements for distributing the fixed pool of settlement funds between the claimants are fair and reasonable. 40 In this case, as 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. There are different classes of claimants within the body of group members here, and it is necessary to arrive at some model that fairly and reasonably divides the settlement sum between those classes, recognising the differences in their respective claims. There is no single approach which alone can qualify as reasonable for sharing the fixed pool of funds among the claimants. Inevitably, adjustments in a given approach will be favourable for certain group members at the expense of others. 41 The question, therefore, can only be whether the model is within the bounds of fairness and reasonableness in its attempts to balance what are, unavoidably, conflicts between the interests of the different claimants. 42 As mentioned above, the applicants' solicitors have constructed the SDS for managing the distribution of the settlement funds among the claimants. The SDS, including the Loss Assessment Formula, reflects various 'judgment calls'. There is no doubt that other permutations of the distribution scheme could have been adopted. The question on this application is whether the SDS, as presented now, is within the bounds of reasonableness in achieving a broadly fair, 'rule of thumb' distribution between the claimants. 43 The cases indicate a number of factors relevant to the assessment whether a proposed distribution scheme is fair and reasonable having regard to the interests of the group as a whole. Some of these factors are as follows: (a) whether the distribution scheme subjects all claims to the same principles and procedures for assessing compensation shares; (b) whether the assessment methodology, to the extent that it reflects 'judgment calls' of the kind described above, is consistent with the case that was to be advanced at trial and supportable as a matter of legal principle; (c) whether the assessment methodology is likely to deliver a broadly fair assessment (where the settlement is uncapped as to total payments) or relativities (where the task is allocating shares in a fixed sum); (d) whether the costs of a more perfect assessment procedure would erode the notional benefit of a more exact distribution; (e) to the extent that the scheme involves any special treatment of the applicants or some group members, for instance via 'reimbursement' payments - whether the special treatment is justifiable, and whether as a matter of fairness a group member ought to be entitled to complain. 44 There are also procedural factors which relate to the fairness of a proposed distribution process, such as: (a) whether appropriate individuals have been nominated to administer the scheme; (b) whether the procedures for lodging and assessing claims are appropriate and to be conducted in a timely manner; (c) whether the scheme incorporates appropriate 'checks and balances', such as procedures for ensuring consistency between assessments and meaningful opportunities for review (and objection) by group members. 45 In my view, the proposed arrangements for distributing the fixed pool of settlement funds between the claimants are fair and reasonable. The rationale of the SDS, including the different treatment of "No Transaction Notes" and "Rollover Notes", is discussed in detail in the confidential affidavit of the solicitor and the confidential opinion of counsel. I am satisfied on the basis of those opinions that the difference in treatment is appropriate and justified. Further, I note the following matters which support the fairness and reasonableness of the proposed arrangements. 46 First, the SDS does not distinguish between the applicants on the one hand and group members on the other in terms of the procedures to be followed. They are all subject to the same assessment methodology. 47 Second, the loss assessment formulae under the SDS have been constructed to 'proxy' the kinds of damages-assessment principles which the applicants' representatives expect would in substance be adopted at trial. For example, the formulae take into account differing amounts in fact recovered to date by group members in respect of the notes the subject of the proceeding. 48 Third, apart from differences reflecting differences in quantum that likely could have been claimed by claimants respectively, the SDS otherwise does not discriminate between the applicants and the other claimants, or between different subcategories of claimants. 49 Fourth, under the SDS, claimants will be notified of the assessment made for them and will have an opportunity to seek a review, initially by the scheme administrator and then, if required, by independent counsel. 50 Fifth, the proposed administrator and the solicitors supporting him are experienced with the administration of such schemes. Their specialised skills and background familiarity with the matter should assist in the smooth and efficient administration of the scheme. 51 Sixth, the scheme is designed to be implemented on a transparent, fair and timely basis.
Costs 52 The SDS covers two aspects of the legal costs associated with the overall resolution of the claims the subject of the proceeding: (a) the SDS provides for the applicants' costs and expenses (being the amounts referred to as the "Applicants' Costs" and "Applicants' Expense Claim" which amounts are subject to Court approval) to be paid out of the settlement sum, upon the sum being transferred into the distribution account; and (b) the SDS prescribes that the future costs associated with the implementation of the scheme (being the amount referred to as the "Administration Costs", which amount is subject to Court approval) will likewise be paid from the settlement funds (which will be accruing interest whilst held in the Court-approved bank account pending distribution to the participating group members). 53 The cases established that the precision with which a Court will require a plaintiff (or its representatives) to justify the quantum of costs incurred for the benefit of group members, before approving any mechanism for imposing those costs on the group members, will vary according to a number of factors including: (a) the quantum of the costs; (b) the quantum relative to the settlement sum; (c) whether the group members have antecedent contractual obligations in respect of the costs (for instance, where they are all clients of the same solicitors, or of a commercial litigation funder); (d) whether the group members were notified of the costs arrangements established for the proceeding; and (e) the scale and duration of the steps in respect of which the costs were incurred. 54 Thus a very large costs sum might readily be approved in a settlement following a lengthy trial, while an apparently-modest costs sum might require more exacting validation if it is associated with a modest-sized proceeding and represents a significant proportion of the overall settlement sum. The relevant considerations are discussed in Modtech at [26]-[36], Matthews at [348]-[353] and Downie v Spiral Foods Pty Ltd [2015] VSC 190 (Bonsoy) at [179]-[181]. 55 The applicants in the present case have obtained a costs assessment from an independent costs solicitor, Ms Dealehr. She was one of the costs consultants who provided opinions in Matthews, Bonsoy and Rowe v Ausnet Electricity Services Pty Ltd [2015] VSC 232. Her methodology was accepted by judges of the Supreme Court of Victoria in each of those cases (albeit that a general independent review was ordered in Bonsoy), and she appears to apply substantially the same methodology here. 56 The actual quantum - a gross sum of approximately $4.9 million - represents around 20 percent of the (costs-inclusive) settlement sum of $25 million. While a very large sum, in the circumstances of this case, I am prepared to approve it in light of the following factors: (a) the advanced stage that the litigation had reached, the settlement taking place virtually on the eve of the trial; (b) the significant legal and factual complexity of the issues of the proceeding; and (c) the fee arrangements between the applicants and the solicitors, which reflected, permissibly, a 25 percent uplift as they were taking on the case on a no-win no-fee basis. 57 I appreciate that in some cases it will be appropriate to require or impose some additional layer of scrutiny in relation to the costs claimed by solicitors acting in a representative proceeding, for example, some form of review by a Registrar of the Court. However, in view of the matters I have referred to above, I do not consider this necessary in this case. 58 In relation to the "Administration Costs" as defined in the SDS, namely the costs and disbursements in connection with the administration of the scheme, the orders proposed by the applicants contemplate that those costs will be submitted to the Court for approval at a later date. This is, in my opinion, appropriate.
Confidentiality 59 The applicants seek an order that certain materials filed in support of the application be kept confidential. It is appropriate that the opinions of the applicants' solicitor and counsel remain confidential. In the event that the approval were challenged and overturned on appeal, and the trial then proceeded, it would give TCL an unfair advantage if it had access to the opinions of the applicants' lawyers. I raised with senior counsel for the applicants whether confidentiality needed to be maintained over the percentage which the settlement sum represents of the applicants' lawyers' estimated 'best case' outcome. I also raised whether the percentage applied in calculating loss in respect of "Rollover Notes" needed to be kept confidential. I am satisfied that it is appropriate for both of these percentages to remain confidential because, if the approval were to be overturned and the trial were to proceed, these figures could directly or indirectly assist TCL. Very briefly, this is because divulging the percentage applied to calculate loss in respect of "Rollover Notes" may implicitly convey information helpful to TCL if the matter were to proceed. And divulging the percentage which the settlement represents of the estimated 'best case' outcome would, through a process of 'reverse engineering', enable TCL to calculate the applicants' lawyers' estimate of loss in respect of "Rollover Notes", which could be helpful to TCL if the matter were to proceed.
Conclusion 60 For these reasons, I am prepared to approve the settlement and make the other orders sought by the applicants. I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.
Camilleri
The Trust Company
[2015] VSC 190
[2014] VSC 663
[2012] VSC 204
[2010] VSC 457
[2015] VSC 232
[2011] VSC 215
(1996) 71 FCR 250
(2006) 236 ALR 322
(2000) 180 ALR 459
Settlement agreement, Settlement Distribution Scheme and confidential Loss Assessment Formula approved; applicants' costs fixed at $4,918,426.14; applicants' expense claims approved; Ben Phi appointed administrator; confidentiality orders made over identified portions of affidavits and exhibits; notice of approval to be sent by 24 December 2015; proceeding to be dismissed after final distribution.