El-Zein v Barton Nine Pty Limited as trustee of the Barton Nine Settlement

A INTRODUCTION 1 This is a settlement approval application in respect of a class action that was the subject of a liability hearing, being Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177; (2019) 377 ALR 234 (Principal Judgment). These reasons assume a familiarity with that judgment, in which the relevant proceeding was referred to as the "Governor Place proceeding": see Principal Judgment (at [9]-[12] and [21]). For simplicity, all defined terms are as set out in the Principal Judgment. As to the factual background, it suffices to note that the Governor Place proceeding was commenced in August 2018 by the applicants on behalf of themselves and group members who purchased flats in the Governor Place development from the Barton Developers in 2015 and 2016. 2 There is no utility in me detailing, in yet another judgment, the principles that inform the determination of a settlement approval application pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (Act). This has been done repeatedly in a number of judgments: see, for example, Camilleri v The Trust Company (Nominees) Limited [2015] FCA 1468 (at [40]-[44] per Moshinsky J); Lifeplan Australia Friendly Society Limited v S&P Global Inc (Formerly McGraw-Hill Financial, Inc) (A Company Incorporated in New York) [2018] FCA 379 (at [12]-[15] per Lee J). It is trite that the fundamental question to be addressed is: whether the settlement is a fair and reasonable compromise of the claims made on behalf of the group members.

B CONSIDERATION OF THE SETTLEMENT 3 Following delivery of the Principal Judgment and a court ordered mediation conducted by a highly experienced mediator, the parties entered into a settlement deed that provides that the Barton Developers will pay $2,571,492 (Settlement Sum) by way of settlement of the claims of both the applicants and group members. Pursuant to the terms of a settlement distribution scheme, it is proposed that prior to any distribution to the applicants or group members, the following amounts will be paid out of the Settlement Sum: (a) $1,200,000 to the funder for reimbursement of legal fees and disbursements in the proceeding, including all costs up to the conclusion of the proceeding; (b) $655,161.16 to the funder for funding fees; (c) modest payments to the representative applicants ($9,000 to Mr and Mrs El-Zein and $4,500 to Mr and Mrs Eppelstun); and (d) a sum to the scheme administrator for other miscellaneous administration costs. 4 Unlike most class actions, the parties have reached an agreement to resolve the case after delivery of judgment. Accordingly, the delivery of the Principal Judgment has meant I have far more familiarity with the underlying merits of the claims than is usually the case on settlement approval applications. 5 It is useful to commence by turning to the claims and summarising the position the applicants and group members find themselves in after delivery of the Principal Judgment. 6 First, Mr and Mrs El-Zein and those group members who were in a similar position to them sought a variety of relief, but only succeeded in their claim for money had and received, and then only to the extent of the difference between the GST component of their purchase price and the input tax credits repaid by the Barton Developers. For reasons explained in a comprehensive and with respect, useful opinion prepared by counsel for the applicants, it appears that the maximum that the group members in this position could recover given the reasoning in the Principal Judgment was approximately $2,000,000 (and it may well have been less than this sum). 7 Secondly, in relation to Mr and Mrs Eppelstun and those group members who were in a similar position to them, their claims for an account or statutory compensation failed and they did not succeed in their claim for restitutionary relief. Although it was possible that other group members may have had an individualised claim for misleading and deceptive conduct, there is little reason for any particular confidence in relation to the successful agitation of such a claim, for the reasons set out extensively in the Principal Judgment. Moreover, even if these individual claims could be made, it is difficult to see how they could be economically advanced. 8 Moreover, because of this mixed success, the applicants would have only been entitled a proportion of their costs. In a related class action where there was similar partial success, only 50 per cent of the costs could be recovered against the respondents: see Lloyd v Belconnen Lakeview Pty Ltd (No 2) [2020] FCA 698. Added to this, of course, is the possibility of an appeal against the Principal Judgment. There is an artificiality in me speculating as to the prospects of a successful appeal, but apart from any appeal involving a costs risk, there was, of course, the prospect that the appeal could have succeeded and in the event of such success, the orders made being reversed or a new trial being ordered. 9 In the light of these relatively unusual circumstances, I think there is little doubt that the Settlement Sum is within the range of likely amounts that could be regarded as an adequate compromise of the claims of the applicants and group members as they are now understood. 10 As to the amounts to be deducted from the Settlement Sum, the payment to the funder of a funding fee is around 25 per cent of the Settlement Sum, which is significantly less than the contractual entitlement of the funder under the litigation funding agreement. Although the legal fees and disbursements of $1,200,000 are significant, on my impressionistic assessment of the complexity and scale of the case, they do not seem to be in any way disproportionate. Further, the payments to Mr and Mrs El-Zein and Mr and Mrs Eppelstun seem to be fair and reasonable in circumstances where they clearly expended time and effort in advancing the claims made by group members in addition to advancing their own claims.

C THE FUNCTION OF SECTION 33ZB ORDERS 11 I am informed that out of the 133 potential group members, approximately 88 per cent of those persons will participate in the settlement as either funded or unfunded registered group members. Although there will be 16 group members who will not participate in the settlement, and have their claims extinguished by reason of the settlement, I am satisfied on the evidence that every available effort has been made to contact them and advise them of their opportunity to participate in the class action, and it is necessary that orders be made binding them to the settlement in order for the respondents to obtain certainty. 12 The way in which such certainty is achieved is by virtue of orders made pursuant to s 33ZB of the Act. Indeed, as I recently noted in Dyczynski v Gibson [2020] FCAFC 120 (at [391] with Murphy and Colvin JJ agreeing at [249]): [p]roperly analysed, the way that the statutory scheme works to bind non-parties to an order made by the Court, is by operation of s 33ZB. Orders made settling a class action under s 33V should, in order to bind group members in relation to the individual claims, be accompanied by s 33ZB orders: see Courtney v Medtel Pty Limited (No 5) [2004] FCA 1406; (2004) 212 ALR 311 (at 321 [54] per Sackville J); Dillon v RBS Group (Australia) Pty Limited (No 2) [2018] FCA 395 (at [48]-[49] per Lee J). 13 In my reasons for judgment on that appeal, I also went on to address any residual concern that currently subsists regarding the operation of s 33ZB orders in binding group members to a settlement: see Dyczynski (at [392]-[399]). Hence, an order will be made pursuant to s 33ZB of the Act, meaning the settlement will bind all of the group members, including those group members who have not registered, with the consequence that their claims the subject of the class action will be quelled.

D CONCLUSION AND ORDERS 14 It follows from the above that I am persuaded that I should give settlement approval, and I will make orders accordingly. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee.