Guglielmin v Trescowthick [2006] FCA 1385 | Case summary

REASONS FOR JUDGMENT 1 This is an application by motion of 10 October 2006 for Court approval of a settlement of a representative proceeding pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act). 2 Section 33V of the Act provides: '(1) A representative proceeding may not be settled or discontinued without the approval of the Court. (2) If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court.' 3 The motion seeks the Court's approval of the terms of a Deed of Settlement of the action. The Deed of Settlement contemplates the payment of a sum of money on behalf of the respondents to be applied first to reimburse certain group members who have paid a 'file administration fee' to the solicitors for the applicant; secondly, a sum of money to those solicitors for costs and disbursement; and thirdly for the balance of the settlement sum to be divided proportionately between Participating Group Members. 4 The orders sought on the motion are not opposed by any of the respondents. The applicant, of course, wishes to accept the proposed settlement. All but a few of the group members, comprising 3893 people, have indicated their concurrence with the proposed settlement. None of the persons described as Participating Group Members have indicated that they wish to oppose the settlement. That is a significant matter. I am satisfied that they have been duly notified of the proposed settlement, the reasons for it, and its detail, including how funds available are to be applied. They are each aware of the amount of the proposed settlement, and the extent to which it is to be applied in payment of costs, and they do not oppose the proposed settlement in any respect. 5 The proceedings themselves were commenced on 7 June 2002 by the applicant under Pt IVA of the Act. Part IVA permits the commencement of a representative proceeding where the claims of the group members arise out of the same, similar, or related circumstances and give rise to a substantial common issue of law or fact. The proceedings relate to public statements made by some or all of the respondents from time to time in relation to the financial position of Harris Scarfe Holdings Limited (Harris Scarfe) during the 5-year period leading up to its collapse on 3 April 2001. 6 The group is, however, a much more complex group than is the case in many similar sorts of proceedings. 7 The group members were originally defined as all persons or bodies corporate who acquired and held shares or convertible notes in Harris Scarfe up to and including 3 April 2001. They would, therefore, include persons who acquired securities outside the five year period and who would have had to prove that they read all or some of the published material by the respondents (the former directors of Harris Scarfe at the time of its collapse, and for varying periods respectively up to that time) and relied upon that material or some of it in retaining their shares or convertible notes. It also includes persons who from time to time during that five year period, acquired shares or convertible notes in Harris Scarfe and presumably, in the case of all or many of them, relied upon some or all of the information relating to the financial position of Harris Scarfe published apparently under the aegis of the respondents, or some of them, from time to time, and then in many cases no doubt maintained those shares or convertible notes, relying upon some or all of the published financial material. It is obvious that the circumstances of the group members in significant respects may have been quite different, and the onus of proof in respect of their individual circumstances difficult and complex. 8 I note that a number of original group members opted out of the proceedings some time ago, pursuant to orders made in 2002. The 3893 group members the subject of these reasons and orders do not include those persons. 9 The overall picture is that the applicant claims that, due to the conduct of the respondents, the group members lost the opportunity to dispose of their securities at true market value prior to the securities becoming worthless, or acquired those securities at greater than their true market value and held onto them prior to the securities becoming worthless in reliance upon financial information concerning Harris Scarfe over a five year period. The respondents are alleged, in various ways, to have breached certain provisions of the Australian Securities and Investments Commission Act 1989 (Cth), the Corporations Law, the Trade Practices Act 1974 (Cth), and the Fair Trading Act 1987 (SA), and to have breached their common law duty of care. 10 It is important to note that the claim has been vigorously defended by each of the respondents. 11 The progress of the claim has been slow, largely by reason of other proceedings to which I need not refer in detail. Ultimately, the parties to this action participated in a mediation of the proceeding in March 2006. As a result of that mediation, an offer of settlement was made by the respondent's insurer, Chubb Insurance Company of Australia Pty Limited, in terms of the proposed Deed of Settlement. It has been accepted by the applicant and, as I have noted, by the vast majority of group members who support the acceptance of that proposal. Consequently, the motion seeks an order that the Court approve the Deed of Settlement. It is Exhibit PJH15 to the affidavit of Peter John Humphries, sworn on 10 October 2006 and comprising 43 paragraphs. 12 I note that in the course of submissions a possible ambiguity in the interaction of certain clauses of the Deed of Settlement was identified. That ambiguity has been resolved by the parties agreeing that cl 10.3 of the Deed of Settlement should be amended by deleting the words 'upon approval of the settlement' and substituting for them, the words 'upon transfer of the Settlement Payment as provided for in clause 4.4 of this Deed'. I propose to make the orders which are sought, but I will approve the Deed of Settlement incorporating that amendment. 13 The Deed of Settlement in essence provides for a payment of $3 million. 14 The distribution of the settlement sum is proposed firstly by payment of $437,028 in reimbursement of a file administration fee to those group members who have paid that fee. That reimbursement takes account of additional sums which were paid by way of GST by those group members in respect of the file administration fee. It was made as a payment to the solicitors for the applicant and those group members for funding certain legal professional work including taking initial instructions; opening individual files, recording personal details; searching registers of shareholders, and the like; and in establishing and maintaining a database for processing of the respective claims. It is in addition to the solicitors' costs which are also to be paid. 15 There is presently no direct evidence establishing the reasonableness of that fee, although I have no reason to doubt it. Given that I am told that the administration fee was paid by 3192 of the individual group members, and that the work described was done in respect of a significant number of individual files, the fee does not appear to me to be inappropriate. However, I propose to approve the settlement, and to make the orders sought on the motion, subject to an undertaking which I will seek from senior counsel for the applicant, on behalf of the applicant, that the information which has been provided to me and referred to above will be verified by affidavit. I assume such an undertaking can be given. 16 The second payment from the settlement sum proposed is $1,298,000 to the applicant's solicitors for costs, exclusive of disbursements. It is necessary that I be satisfied as to the fairness and reasonableness of the costs to be paid: see Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925. Those costs have been assessed by an independent cost consultant, at $1,569,941. That does not include the work to which the file administration fee was applied. The amount of solicitors' costs sought is some $272,000 less than the assessed costs. Given the independent cost consultant's calculations and the amount of the claimed costs proposed, in my view it is appropriate to approve that payment as being fair and reasonable. 17 The third payment from the settlement sum proposed is for $255,361 by way of disbursements. The independent cost consultant has confirmed that those disbursements were incurred and I see no reason to do other than approve that payment. 18 The balance of the settlement sum proposed is to be divided equally between Participating Group Members; that is those who have not opted out from the settlement. It is to be equal in the sense of reflecting an equal amount for each share or convertible note held by a Participating Group Member. It will represent a return of about 5.5 cents for each share or convertible note held by each Participating Group Member. 19 I observed earlier the different circumstances, or the potentially different circumstances of the Participating Group Members. Given the amount of the settlement and the number of Participating Group Members, in my view the approach of those moneys being applied pro rata, according to the respective shares or convertible note holdings, is a reasonable one in the circumstances. The work of endeavouring to identify the individual circumstances of each Participating Group Member would be uneconomic in the extreme. I am fortified by the fact that the vast majority of the Participating Group Members has positively supported the proposed order. 20 Following payment of the settlement sum on behalf of the respondents, it is proposed that judgment will be entered in favour of the respondents with no orders as to costs, and all costs orders made to this date in the proceeding be vacated. The settlement sum is to be paid by the insurer, and not by the respondents or any of them. As I have noted, each of the respondents has not only resisted the claim to date, but continues to deny all allegations and wrongdoing, and to deny liability to the group members. 21 The terms of settlement as comprised in the Deed of Settlement (as amended by the order which I have indicated above concerning cl 10.3) can be inspected in the exhibit to Mr Humphries' affidavit to which I have referred. 22 I am satisfied that notice to the group members has been duly given pursuant to s 33X(4) of the Act. Orders to give such notice were made on 10 August 2006 and they have been complied with. The evidence indicates that the applicants' solicitors have sought to notify all group members in accordance with those orders, and indeed have taken significant other action with the view to securing the identification and location of those group members whose notification letters were returned undelivered. 23 The result of that process is as follows. Of the 3893 group members as at 10 August 2006, 107 group members initially indicated that they wished to opt out of the settlement. Further communications with those 107 persons indicated that many of them did not actually intend to opt out. Those who have positively opted out since 10 August 2006, subject to two persons who I mention below, are 35 in number. There are also 26 persons to whom the notice has been given but the notice was returned as undelivered, and attempts to secure identification of the whereabouts of those persons has been unsuccessful. It is common ground that those persons should also be treated as having opted out and so not be bound by the terms of the Deed of Settlement. 24 The total persons from the claim group who are therefore to be treated has having opted out of the settlement are 61 in number, subject to two persons who I will shortly mention. The Participating Group Members, subject to those two persons, are therefore 3832. As I have indicated the vast majority of those persons have not only not opted out, they have positively indicated support for the acceptance of the settlement proposal. 25 There are two persons who have provided notice of opting out belatedly. Because their notices of opting out were received out of time, those persons presently are to be treated as Participating Group Members. I propose to protect their position by seeking from the applicants an undertaking to write to them indicating that, notwithstanding the filing or service of their opt-out notices, they are presently treated as Participating Group Members. I propose to make an order giving them a further 28 days within which to write to the Court seeking that the matter be further listed for the purpose of addressing their status, and granting them leave to file such affidavit as they may wish in support of their notice of opting out. In the event that such an application is made, I will have it listed for hearing. Their status, therefore, remains unclear. 26 The principal task of the Court when considering a proposed settlement pursuant to s 33V of the Act is to assess whether the compromise is a fair and reasonable compromise of the claims made on behalf of the group members: see per Finkelstein J in Lopez v Star World Enterprises Pty Ltd [1999] FCA 104 at [15]. A number of factors have been identified as relevant to that consideration. Goldberg J in Williams, referred to above, listed those factors adopted from the decision of the United States Court of Appeals for the Third Circuit in In Re General Motors Corporation Pick-Up Fuel Tank Products Liability Litigation 55 F.3d 768 (3rd Cir. 1995) at 785. 27 I have considered each of those matters. They are addressed in the evidence, and in the written submissions. Those factors listed by Goldberg J have been adopted by a number of judges when asked to make similar orders in this Court: See Wong v Silkfield Pty Ltd [2000] FCA 1421; Neil v P&O Cruises Australia Ltd [2003] FCA 1325; Lukey v Corporate Investment Australia Funds Management Pty Ltd [2003] FCA 1602; Tongue v Council of the City of Tamworth [2004] FCA 972; Verschuur v Vynotas Pty Ltd [2004] VSC 130; Jarrama Pty Ltd v Caltex Australia Petroleum Pty Ltd [2004] FCA 1114; and Courtney v Medtel Pty Ltd (No 5) (2004) 212 ALR 311. 28 I have referred to the amount offered to each group member. 29 I have the benefit of the confidential affidavit of material including counsel's advice as to the prospect of success on the proceeding. I have mentioned above the complexity arising from the individual circumstances of each of the claim members. In addition, without going into the detail of it, there are obviously issues, which the pleadings themselves disclose, which would present difficult matters of proof for the applicants at the hearing. I do not need to say more about it other than to indicate that I have taken all of that material into account. 30 It is also appropriate to have regard to the likelihood of group members obtaining judgment for an amount significantly in excess of the settlement offered. That has both a legal element and a practical element. The legal element is a matter I have referred to above. The practical element is the recoverability of any judgment if the matter were to proceed and to be successful. 31 On the evidence the respondents' insurance cover is limited in amount. Were the matter to proceed to trial, the evidence indicates that there will be little or no balance of the insurance fund available to the respondents available for the payment of any judgments. That is because it would be likely to be absorbed, or substantially absorbed, by the insurer in the defence of the proceedings. I have no information as to the individual circumstances of the respondents, but it is realistic to acknowledge, especially given the elapse of time, that there would be a very real risk that any of the respondents' assets would be difficult to access. In any event, there is no information to suggest that any of the respondents personally has such significant assets as would be likely to meet any substantial judgments. 32 More importantly, it is necessary to have regard to the likelihood of the proceeding continuing if the proposed settlement is not approved, and to its likely cost and duration. The evidence indicates that it would be a prolonged proceeding; that is self-evident from the nature of the allegations. It follows that it would be expensive. On the material before me, I do not see how the applicant or the group members would have the capacity to continue to conduct the proceedings to a full hearing. Again, I do not need to go into the detail of those matters. But it seems to me on the material available that acceptance of the offer is, for practical reasons, the best, if not the only, realistic option now available to them. That is not to say that if no offer had been made, they would have been unable to find the resources to continue to conduct the proceeding, but it would have caused them very great difficulty. 33 As I have noted, the proposed settlement reflects the advice of senior counsel. I do not intend to recite it in any detail, but I have read it. Counsel's advice is that the settlement is an appropriate one and that the group members should proceed to accept it in all the circumstances. 34 I am also mindful that each of the group members has had proper notice of the proposed settlement and that the vast majority of them (over 99 per cent) positively support the proposed settlement. None of the Participating Group Members has given notice of an intention to oppose the approval of the proposed settlement. 35 In those circumstances and for those reasons, I propose to approve the Deed of Settlement. The orders which I make are subject to certain undertakings which I will ask senior counsel for the applicant to give on behalf of the applicant, and which will be recorded with those orders. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield .

Guglielmin v Trescowthick

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