Foley v Gay

13. It is agreed between the parties that none of the respondents or any past or present director of Gunns Limited (ACN009478148) will bear any of the costs and disbursements associated with implementing the Settlement Distribution Scheme.
14. Following the distribution of funds to group members pursuant to the Settlement Distribution Scheme, the applicant will in accordance with the Deed of Settlement apply for orders dismissing the Proceeding with no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BEACH J: 1 Under s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act), the applicant seeks approval of the settlement of this proceeding in accordance with the settlement deed executed by the parties in its various counterparts on 16 and 17 December 2015. 2 The application is supported by an affidavit of Miranda Nagy affirmed 7 March 2016 and an affidavit of Lydia Fogl sworn 7 March 2016, the latter annexing an expert report dealing with the assessment of costs. 3 Pursuant to orders 3 to 6 of the orders that I made on 18 December 2015, group members were sent the prescribed notices of proposed settlement, opt-out and assessment by email on 22 December 2015. Where no email address was held, notices were sent to group members by post. There were no notifications of delivery failure as to the notices sent by email or otherwise. In my view those steps satisfied s 33X(1) and (4) of the Act. 4 One opt-out notice has been filed. But that does not affect the validity of the settlement deed or the efficacy of the settlement or my decision whether to approve the settlement. Moreover, by application of the proposed loss assessment formula, the entity which filed the opt-out notice was found not to have suffered any loss in any event. 5 Further, seven requests for amendments to trade data have apparently been made and dealt with. Two requests for recalculation of compensation have also been made and dealt with; there is no evidence of any applications for judicial review of the assessments made. 6 More generally, no group member has objected to the proposed settlement. 7 A confidential and comprehensive opinion of senior counsel and junior counsel, who have appeared on the present application, has been made available to me which sets out the principles and authorities relevant to my decision whether to approve the proposed settlement. The principles are well known. It is sufficient to refer to the reasons of Moshinsky J in Camilleri v The Trust Company (Nominees) Ltd [2015] FCA 1468 at [5], which set out the principles including appropriate references to Goldberg J's foundational analysis in Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 at [19]; I have put to one side coiffed attempts in other authority to question the force of Williams. Moshinsky J applied those principles (at [32] to [51]) predominantly by reference to, first, the fairness and reasonableness of the settlement inter partes, and second, its fairness to group members inter se. Those perspectives are apposite. 8 This representative proceeding concerns alleged breaches by Gunns Limited (in liquidation) (Gunns) between 31 August 2009 and 19 February 2010 (the Relevant Period) of its obligations under the continuous disclosure regime set out in s 674 of the Corporations Act 2001 (Cth) and Listing Rule 3.1 of the Listing Rules of the Australian Stock Exchange. 9 Such breaches have also given rise to claims for misleading or deceptive conduct under the former s 52 of the Trade Practices Act 1974 (Cth), as it applied during the Relevant Period, and analogous provisions of the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth). 10 The respondents, who were officers of Gunns at the relevant times, are alleged to have been persons "involved" in those breaches. 11 The continuous disclosure breaches allegedly occurred "during all of the Relevant Period", although that left open the possibility of a finding that a particular breach only occurred on and from a particular later date within the Relevant Period. Accordingly, any judgment might have impacted differentially upon subgroups or individual group members, depending upon when during the Relevant Period they acquired their shares. 12 Before proceeding further I should also note that another representative proceeding previously instituted by the applicant against Gunns was stayed upon Gunns entering voluntary administration and then liquidation. 13 Counsels' opinion has described the terms of the proposed settlement, the draft distribution scheme, and salient features of the loss assessment formula. I do not need to expand thereon in these reasons, particularly given the confidentiality regime that I intend to impose. The most significant features are, of course, the settlement sum, the process for objection, correction and reassessment (which has already taken place), the distribution process and the contents of the loss assessment formula. It has also been explained to me how the formula reflects the likely "best case" judgment sum. 14 The matters that are relevant to the fairness and reasonableness of the settlement inter partes may be described generally as including liability risk, quantification risk, recovery risk, appeal risk and, finally, the proportion that the settlement sum bears to the estimated "best case" judgment sum. 15 The risks of this litigation have been carefully addressed in the confidential opinion of counsel. There is no reason to gainsay the force of their analysis or question their calculus. The settlement sum, once costs are deducted, represents a proportion of the theoretical estimate of best recovery which in my opinion is a fair and reasonable proportion, having regard to the spread and depth of the risks identified. On an inter partes basis, the settlement is fair and reasonable. 16 Further, the settlement is fair as between the group members inter se. There are no subclasses of group members as such. But the structure of the proceedings could have resulted in a judgment (and later individual assessments) impacting differentially upon group members depending upon the point within the Relevant Period at which the respondents' liability was established, that is, the time when disclosure ought to have been made and the interaction of that time with the date(s) of relevant share acquisitions. This is a matter that is addressed by the confidential loss assessment formula. For the reasons set out in counsels' opinion, the loss assessment formula in my opinion incorporates appropriate assumptions and makes appropriate judgment calls to ensure fairness as between group members inter se. 17 Further, I should also note the following: (a) First, the settlement scheme provides all group members with equal access to standard "checks and balances", including procedures for ensuring consistency between assessments and meaningful opportunities for review and objection. (b) Second, the only different treatment of the applicant relative to other group members lies in the proposed reimbursement payment which I will discuss in a moment. (c) Third, Maurice Blackburn have been nominated to administer the distribution scheme. That is appropriate in this case. Given their knowledge of the underlying facts, their continuing contact with and duties to group members, and their significant experience in conducting such proceedings and administering such schemes, they are best placed to perform that role. (d) Fourth, the procedures for lodging and assessing claims, as prescribed by my orders of 18 December 2015, are quite unremarkable. Indeed, they have already been implemented in accordance with the prescribed timetable. 18 More generally, the absence of any objection by group members to the proposed settlement supports its approval. The dispatched notices of proposed settlement, opt-out and assessment were detailed and clear. Further, the amounts that group members are to receive are likely to be higher than the amounts set out in those notices. True it is that several group members have responded to these notices in different ways, but nobody has objected to the settlement. These matters support my view that the proposed settlement involves no unfairness between group members inter se. 19 In relation to costs and funding commissions I should observe the following. 20 First, proposed order 5 provides for approval of a sum to be specified as the applicant's legal costs, which are proposed to be paid from the settlement sum. The applicant's legal costs totalling $2,328,992.40, and the basis for that amount, are described in Ms Nagy's affidavit. They are also the subject of the expert evidence of an independent costs consultant, Ms Fogl. In my view that amount should be approved. 21 The applicant and all group members each have antecedent contractual obligations in respect of legal costs. Each group member has a fee and retainer agreement with Maurice Blackburn. Further, each group member has signed an IMF Funding Agreement. The amount of $2,328,992.40 comprises the costs of both the present proceeding and the now stayed proceeding against Gunns. But the IMF Funding Agreements to which each group member is a party, permit recovery of those costs together. But in any event, as a result of the conduct of the two proceedings, the applicant and group members benefited in the present proceeding from the work done in the previous proceeding. The structure of having the two proceedings was the most cost effective way of responding to the consequences of Gunns' liquidation. Moreover, there is no prospect of any relevant recovery against Gunns for costs or otherwise in its winding up. Further, Gunns itself was not relevantly insured. In these circumstances, it is appropriate and not contrary to the interests of group members that costs and disbursements of the two proceedings be recovered from the settlement sum in this proceeding. 22 As to the reasonableness of the quantum, Ms Fogl's expert opinion is framed in terms of Sackville J's observations in Courtney v Medtel Pty Ltd (No 5) (2004) 212 ALR 311 at [61]. She expresses the view that the total amount of $2,328,992.40 (inclusive of GST) is a reasonable amount, in all the circumstances, for professional fees and disbursements for the legal work done pursuant to the fee and retainer agreements and for the costs of the settlement administration. In reaching that conclusion, Ms Fogl has expressed views that: (a) the fee and retainer agreements and the rates charged thereunder were reasonable; (b) the fees and disbursements charged between 28 September 2010 and 15 February 2016 were properly calculated pursuant to those agreements, as are the estimated fees and disbursements for settlement approval and settlement administration; (c) those fees and disbursements are reasonable having regard to the work done, the time taken, the seniority of those doing the work, and the appropriateness of their charge-out rates (her assessment was based partly on a detailed review of some tax invoices, and partly on a lighter review of 65 other tax invoices). 23 In my view, the costs sought of $2,328,992.40 are reasonable. Let me make some other general observations at this point on the question of costs. First, the judge's role is not that of a taxing registrar or master. Second, subject to the question of proportionality that I will address in a moment, if unchallenged expert opinion is put before the Court which sets out a commercial and reasonable methodology consistent with the terms of any retainer and which demonstrates that it has been accurately and thoroughly applied to sufficient and probative source records of the solicitors, then it is no part of a judge's function to: (a) reject that evidence as to whole or part without very good reason; or (b) apply one's own subjective view of what the legal work is "really worth", divorced from the reality of the current marketplace and the commercial context within which the work was carried out and the expenses incurred. 24 I do accept, however, that what is claimed for legal costs should not be disproportionate to the nature of the context, the litigation involved and the expected benefit. The Court should not approve an amount that is disproportionate. But such an assessment cannot be made on the simplistic basis that the costs claimed are high in absolute dollar terms or high as a percentage of the total recovery. In the latter case, spending $0.50 to recover an expected $1.00 may be proportionate if it is necessary to spend the $0.50. In the former case, the absolute dollar amount as a free-standing figure is an irrelevant metric. The question is to compare it with the benefit sought to be gained from the litigation. Moreover, one should be careful not to use hindsight bias. The question is the benefit reasonably expected to be achieved, not the benefit actually achieved. Proportionality looks to the expected realistic return at the time the work being charged for was performed, not the known return at a time remote from when the work was performed; at the later time, circumstances may have changed to alter the calculus, but that would not deny that the work performed and its cost was proportionate at the time it was performed. Perhaps the costs claimed can be compared with the known return, but such a comparison ought not to be confused with a true proportionality analysis. Nevertheless, any disparity with the known return may invite the question whether the costs were disproportionate, but would not itself answer that question. 25 In the present case I am satisfied that the amount claimed is proportionate. 26 Second, the IMF Funding Agreements provided for group members to pay fees to IMF for project management and commission, as set out in Ms Nagy's affidavit. For the reasons she explains, the payment of those sums is not inappropriate and nor does it detract from the fairness and reasonableness of the proposed settlement. 27 Third, proposed order 4 is that an amount of $18,200 be approved as a reimbursement payment to the applicant. That amount is calculated at a rate of $200 per hour in respect of 91 hours of work. The rate is calculated based upon previous rates charged by the applicant for his professional services. The work done has been recorded on an itemised basis, and excludes time spent doing work which was not truly done in the applicant's representative capacity. In my view, such an amount and the claim for its reimbursement is not unreasonable. Both the rate and hours spent given the complexity of both proceedings are modest. 28 Finally, let me deal with the non-publication orders. In my view the non-publication orders are appropriate. 29 The terms of the settlement deed have been negotiated on a confidential basis. The group represented in these proceedings is a closed class and there may be other aggrieved persons who might consider claims against the respondents. Delicately expressed, disclosure of the terms of settlement could interfere with the proper processes for any such persons to legitimately consider and pursue their rights against the respondents. 30 Further, the loss assessment formula is the product of legal advice provided to the applicant concerning the relative strengths and weaknesses of the claims in these proceedings. Publication of the formula could facilitate the reverse-engineering of that advice and thus the disclosure of the substance of privileged communications. 31 Further, the copies of fee and retainer agreements and correspondence with group members are privileged, as is counsels' opinion. Further, the applicant's financial arrangements with third parties are confidential as between them. 32 In my view, the non-publication orders are appropriate. 33 For the above reasons, the settlement of the proceeding in terms of the settlement deed, draft settlement distribution scheme and the loss assessment formula, are fair and reasonable. They are approved under s 33V of the Act. 34 I will make orders in the terms sought pursuant to s 33V and, where necessary, s 33ZF of the Act. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach.