REASONS FOR JUDGMENT
1 This is a representative proceeding brought under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the Act). The parties to the proceeding have reached a settlement agreement. The agreement is conditional upon the Court approving the settlement in accordance with s 33V of the Act.
2 The applicant in the proceeding, and the representative party for the purposes of Pt IVA of the Act, is Clime Capital Limited (Clime). Between November 2007 and February 2008 Clime acquired shares in the respondent, Credit Group Corp Limited (CGC). CGC is a company listed on the Australian Stock Exchange (ASX), which is engaged in the business of purchasing and collecting debts.
3 Clime is the representative for 311 group members who are described at para 1(d) of the further amended statement of claim as being all persons who:
acquired an interest in CGC shares in the relevant period (ie between 8 November 2007 and 11 February 2008);
suffered loss and damage from the conduct of the respondent alleged in the further amended statement of claim; and
as at the date of the filing of the amended statement of claim had entered into a litigation funding agreement with IMF (Australia) Ltd (IMF) in relation to this proceeding.
4 The case pleaded by Clime against CGC concerns announcements made by Clime to the ASX in November 2007 and February 2008 (the ASX announcements). In essence, Clime alleges that CGC did not have a reasonable basis for various representations said to have been conveyed by the ASX announcements which, according to Clime, presented a misleading picture of CGC's profitability. Clime alleges that CGC thereby engaged in misleading and deceptive conduct and that CGC also failed to comply with its continuous disclosure obligations under the ASX Listing Rules. Clime alleges that it and other persons who acquired shares in CGC during the relevant period suffered significant losses as a result. CGC denies it engaged in misleading or deceptive conduct or that it failed to comply with its continuous disclosure obligations.
5 The proposed settlement is recorded in a Deed of Settlement dated 12 December 2011 (the Deed). A copy of the Deed is in evidence. The proposed settlement, if approved by the Court, will be implemented in accordance with the provisions of the Deed and a document entitled Settlement Distribution Scheme dated 14 December 2011 (the Scheme). A copy of the Scheme is also in evidence.
6 Also in evidence is a copy of a Joint Opinion (the Joint Opinion) provided by Senior and Junior Counsel for Clime who were briefed to appear for Clime at the hearing of the proceeding and who also appeared on the application now before me.
7 The proceeding was commenced on 23 December 2008. In following years, discovery was provided and extensive affidavit evidence filed by both sides. The proceeding was eventually fixed for hearing before me for three weeks commencing on 22 August 2011.
8 There was a mediation held on 23 June 2011. The Honourable Ian Callinan AC QC acted as mediator. Both parties were represented at the mediation by counsel and solicitors. The mediation did not result in any immediate settlement. However, the parties later reached an "in principle" settlement agreement about two weeks before the hearing of the proceeding was scheduled to commence before me and, at the request of the parties, the hearing dates were vacated.
9 It took some considerable time to finalise and document the proposed settlement. The Deed was not executed until late last year. On 19 December 2011 I made orders for the giving of notice to group members informing them of the proposed settlement and allowing them an opportunity to raise any objections to it. Under those orders, any such objection was required to be lodged on or before 14 February 2012.
10 It is proposed by the parties that the proceeding be settled on the terms provided for in the Deed which, without any admission of liability by the respondent, makes provision for payment by the respondent of $6.5 million which is to be distributed in accordance with the provisions of the Deed and the Scheme. It is proposed that the Scheme be administered by William Roberts Pty Ltd trading as William Roberts Lawyers (William Roberts). William Roberts is the solicitor for Clime.
11 As provided for under the Scheme, Clime's and each group member's entitlement to share in the settlement sum is to be calculated using a loss assessment formula. The formula draws upon trade data to be provided by each group member to the Administrator which includes details of their individual purchases and sales of shares in CGC between 8 November 2007 and 11 February 2008. This data will be used to calculate a "weighted loss" for Clime and each group member and a "weighted aggregate loss" for Clime and the group members as a whole. The weighted aggregate loss will then be used for the purpose of calculating an adjustment factor that takes account of various costs and expenses (in relation to which the Court's approval is also being sought) which will then be used to calculate Clime's and each group member's individual entitlement.
12 The Joint Opinion addresses the risks confronting Clime in proceeding to trial in some detail. In particular, it addresses potential difficulties in relation to issues of liability and damages including, in particular, the possibility that the Court might not accept the principal way in which Clime puts the damages claim on behalf of itself and group members.
13 The principal way in which Clime puts its damages claim and that of the group members is based upon what Clime describes as market reliance as opposed to a direct reliance approach to the proof of causation and loss. In short, Clime says that the ASX announcements had the effect of inflating the market price of CGC's shares above their true value with the result that Clime and the group members suffered losses for which Clime is liable simply by reason of them having purchased shares in CGC during the relevant period.
14 The alternative way in which Clime puts its damages claim and that of the group members is based upon direct reliance. On that approach, it would be necessary for Clime to show that there was direct reliance (in the sense of there being something more than mere market reliance) by Clime and other group members on the ASX announcements which materially contributed to their decision to acquire shares in CGC at all or (at least) at the then prevailing market price.
15 It is recognised by Clime, correctly in my view, that any rejection by the Court of the market reliance based-approach to damages would add substantially to the complexity, length and costs of the litigation in that individual group members could be required to prove direct reliance either in this proceeding or in other proceedings before they could recover damages from CGC: see ss 33Q, 33R and 33S of the Act.
16 The Joint Opinion expresses the view that the terms of the proposed settlement are fair and reasonable having regard to the interests of Clime and the group members.
17 There are some 58 group members who have failed to acknowledge receipt of a notice sent to them by Clime's solicitors in accordance with orders previously made by me advising of the proposed settlement.
18 I am satisfied that the applicant's solicitors have taken proper and reasonable steps to notify the group members of the proposed settlement in accordance with orders previously made by me. That some 58 group members have not acknowledged receipt of the email communication sent to them by Clime's solicitors advising them of the proposed settlement does not necessarily mean that they have not received such notice.
19 Before an order is made under s 33V(1) approving the settlement of a representative proceeding it is appropriate that the Court be satisfied that the settlement is in the interests of the group members as a whole and not merely in the interests of the applicant and the respondent: Australian Competition & Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 at 258 per Branson J, Taylor v Telstra Corporation Ltd [2007] FCA 2008 at paras [56]-[66] per Jacobson J.
20 Practice Note CM 17, entitled "Representative proceedings commenced under Part IVA of the Federal Court of Australia Act 1976 (Cth)" (the Practice Note), commenced on 1 August 2011. Paragraph 11 relevantly provides:
11.1 When applying for Court approval of a settlement, the parties will usually need to persuade the Court that:
(a) the proposed settlement is fair and reasonable having regard to the claims made on behalf of the group members who will be bound by the settlement; and
(b) the proposed settlement has been undertaken in the interests of group members, as well as those of the applicant, and not just in the interests of the applicant and the respondent/s.
11.2 When applying for Court approval of a settlement the parties will usually be required to address at least the following factors:
(a) the complexity and likely duration of the litigation;
(b) the reaction of the group to the settlement;
(c) the stage of the proceedings;
(d) the risks of establishing liability;
(e) the risks of establishing loss or damage;
(f) the risks of maintaining a representative proceeding;
(g) the ability of the respondent to withstand a greater judgment;
(h) the range of reasonableness of the settlement in light of the best recovery;
(i) the range of reasonableness of the settlement in light of all the attendant risks of litigation; and
(j) the terms of any advice received from counsel and/or from any independent expert in relation to the issues which arise in the proceeding.
21 Senior Counsel for Clime has made submissions concerning the matters referred to in paras 11.1 and 11.2 of the Practice Note. Many of those matters are also the subject of affidavit evidence filed in support of the application for an order approving the proposed settlement.
22 One matter that is particularly significant in the present case is that all of the group members have entered into a funding agreement with IMF. Hence, all group members have taken a positive step to qualify themselves as group members in order that they might share in the proceeds of any judgment or settlement of the proceeding. By entering into such a funding agreement they have also agreed to the terms upon which IMF would be compensated in return for funding the conduct of the proceeding.
23 Another matter of significance is the absence of any objection to the proposed settlement agreement from any group members. The authorities make it clear that this is a factor which should be given considerable weight. No group member has given any notice objecting to the proposed settlement.
24 Turning to other considerations relevant to the approval of the proposed settlement:
As I have mentioned, the hearing of the proceeding was scheduled to take three weeks. The costs that would have been incurred had the matter proceeded to trial would have been substantial.
The proceeding had the potential to be quite complex, particularly in relation to issues concerning causation and quantification of loss. There was also the significant risk of there being one or more appeals.
The proceeding was settled "in principle" shortly prior to trial, after the completion of discovery and the filing of affidavit evidence directed to both liability and damages. Court books had by that time been prepared and delivered in accordance with pre-trial directions made for the purpose of preparing the matter for trial.
25 I have already referred to difficulties relating to proof of damages and the possible ramifications of any rejection of a market reliance approach to damages. These difficulties also give rise to the risk that such issues might not be capable of resolution in a representative proceeding.
26 It appears to me that there were substantial risks on both sides in relation to liability. Such risks are discussed in detail in the Joint Opinion. Questions of credit would in all probability have had to be resolved by me at least in relation to evidence that CGC was expected to call from certain employees who were involved in the preparation of the ASX announcements.
27 As to the reasonableness of the proposed settlement, I am mindful of what is referred to in the Joint Opinion as the upper and lower ends of the range of possible outcomes that might be achieved by Clime and the group members on a collective basis. Given the risk that the Court might find that CGC had engaged in misleading or deceptive conduct but not accept Clime's preferred approach to the question of damages, the proposed settlement seems to me to be within the range of what I would consider to be a reasonable outcome for group members.
28 That brings me to various specific aspects of the proposed settlement in relation to which approval is also sought pursuant to ss 33V(2) and 33ZF of the Act.
29 There is independent evidence before me concerning the reasonableness of the costs and disbursements incurred by Clime in connection with the proceeding. I am satisfied on the basis of that evidence that the amount of such costs and disbursements, which total $2,484,091.84 (inclusive of GST), is reasonable and should be approved.
30 The proposed settlement also provides for the payment of the comparatively small sum of $4,233.20 to IMF pursuant to cl 7.2 and cl 8.3(b) of the Scheme in respect of what are defined as " Project Costs". I am satisfied that payment of that sum should be approved.
31 I should make it clear that the funding agreements entered into between IMF and each group member provide for the payment to IMF of an additional amount calculated as a percentage of the individual group member's recovery. The Scheme makes provision for the payment to IMF of these entitlements in accordance with the funding agreements entered into with individual group members.
32 The proposed settlement also provides for the payment of up to $137,500 (inclusive of GST) for Administration Costs in accordance with cl 8.1(c) and cl 8.6 of the Scheme. There is evidence before me to indicate that this amount represents a reasonable estimate of the costs likely to be incurred in connection with the administration of the Scheme. I propose to approve a distribution of up to $137,500 (inclusive of GST) in respect of such costs.
33 The last matter that needs to be considered concerns a proposed payment of $37,748.08 (with no GST payable) in respect of the Applicant's Reimbursement Payment in accordance with cl 8.1(b) of the Scheme.
34 I am not prepared to approve such a payment. Instead I will make an order approving the payment of an amount of $20,000. My reasons for declining to approve the amount claimed and for approving the lesser amount are as follows.
35 The claim made by Clime is supported by evidence from Mr John Abernethy, a director of Clime. Mr Abernethy's evidence contains various estimates and calculations put forward in support of Clime's claim for an amount in addition to what it would otherwise be entitled to receive under the Scheme. I recognise that in numerous proceedings brought under Part IVA of the Act, a payment to a representative party has been approved by the Court in recognition of the work done by the representative party on behalf of group members. Even so, there are two difficulties I have with the claim for $37,748.08 made on behalf of Clime.
36 First, the claim is based upon rough estimates of time spent by Clime's officers and employees performing work related to the conduct of the proceeding. The actual time spent performing such work is not adequately documented. Mr Abernethy's estimates are instead based upon what are for the most part imprecise reconstructions, sometimes performed without assistance from former employees of Clime who are said to have performed the relevant work.
37 Secondly, and more importantly, the amount of the claim fails to recognise that a substantial part of the work that was performed was for Clime's benefit as much as the group members' benefit. Clime, and a related entity (which is itself a group member), will together receive substantially more out of the proposed settlement than any other individual group member. I say this not because Clime and its related entity will be treated any more favourably under the loss assessment formula than the other group members, but because their combined losses, when calculated in accordance with that formula, are more substantial than those suffered by the other group members.
38 Nevertheless, I accept that it is appropriate to approve the payment of the lesser amount to Clime because I am satisfied that Clime should receive some compensation for work done by it for the benefit of the group members as a whole. In this regard, I am satisfied that an amount of $20,000 is fair and reasonable.
39 I am satisfied that the proposed settlement is fair and reasonable having regard to the claims made in the proceeding on behalf of the group members who will be bound by it.
40 I am also satisfied that orders should be made pursuant to ss 33V and 33ZF of the Act substantially in the terms sought by Clime subject to some slight variations raised by me in argument and the variation with respect to the amount payable to Clime discussed above.
41 There will be orders accordingly.
I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas.