Hall v Slater & Gordon Limited

THE SCHEMES OF ARRANGEMENT 7 Slater & Gordon (the 'plaintiff' for the purposes of this section of these reasons) sought orders pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (the 'Corporations Act') approving two creditors' schemes of arrangement, namely: (1) the 'Senior Lender Scheme' between the plaintiff and its lenders under the Syndicated Facility Agreement dated 29 May 2015 (the 'SFA') between (among others) the plaintiff and Westpac Banking Corporation in its capacity as Agent and Security Trustee for the lenders, as amended and restated from time to time (the 'Senior Lenders'); and (2) the 'Shareholder Claimant Scheme' as between the plaintiff and certain former or present shareholders of the plaintiff who meet the definition of 'Shareholder Claimant', as that term was defined in the draft Shareholder Claimant Scheme (the 'Shareholder Claimants'), (together, the 'Schemes'). 8 As background, the plaintiff was a company limited by shares listed on the Australian Stock Exchange. In May 2015, the plaintiff and various other subsidiaries (described as 'Obligors') entered into the SFA with the Senior Lenders. The plaintiff took out five loan facilities of varying term lengths under the SFA (the 'Facilities'). As at 30 June 2017, drawings under the Facilities totalled around $761.6 million. Three of the Facilities were due to expire on 29 May 2018 with the other two due to expire on 31 March 2019. The debts owed under the Facilities were secured. The Obligors were jointly and severally liable in respect of the debt owing under the Facilities. The evidence was that the plaintiff would be unable to repay these debts. 9 The plaintiff was also the subject of various claims by current and former shareholders ('Shareholder Claims'). In that regard, the combined limit of plaintiff's indemnity in respect of applicable insurance policies (the 'Insurance Policies') was $40 million.

Scheme meetings 10 On 30 October 2017, the Court made orders pursuant to s 411(1) of the Corporations Act that the plaintiff convene meetings in respect of both of the Schemes. 11 The Senior Lender Scheme meeting was held on 28 November 2017. Of the Senior Lenders present and voting on the resolution to agree to the Senior Lender Scheme, a majority in number voted in favour. This included Senior Lenders holding more than 75 per cent of the total amount of debts or claims against the plaintiff of those present and voting on the resolution. There were no votes against the resolution. 12 The Shareholder Claimant Scheme meeting was adjourned on 28 November 2017 to 6 December 2017, whereupon a majority in number of the Shareholder Claimants present and voting on the resolution to agree to the Shareholder Claimant Scheme voted in its favour. This included Shareholder Claimants holding more than 75 per cent of the total amount of debts or claims against the plaintiff of those present and voting on the resolution. Of the 4,402 Shareholder Claimants that voted, only five voted against the resolution.

Applicable legal principles 13 Under s 411 of the Corporations Act, a scheme is binding on creditors, or a class of creditors, if and only if the scheme is agreed to by a majority in number of creditors present and voting on the scheme and 75 per cent of the votes cast by value, and is approved by order of the Court. The results of the respective scheme meetings to which I have referred above satisfied the first of those requirements. It was thus for the Court to determine whether it approved of the Schemes. 14 The Court's role in that regard involves being satisfied that the procedural requirements have been complied with, and then having regard to diverse considerations which may inform whether or not the given scheme should be approved. 15 As Barrett J noted in Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [8], "[t]here is no exhaustive statement of the matters as to which the court must be satisfied before granting approval" and "courts have been reluctant to attempt any comprehensive or compendious statement of relevant criteria". Nonetheless, the Court will exercise its discretion over whether to approve a scheme in accordance with well-established principles, including those described in a number of cases (see Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited (No 4) (2015) 107 ACSR 341; [2015] FCA 720, [7]; David Jones Limited, in the matter of David Jones Limited (No 3) (2014) ACLC 14-037; [2014] FCA 753, [3]; Seven Network Limited, in the matter of Seven Network Limited (No 3) (2010) 267 ACSR 701; [2010] FCA 400, [35]-[40]), namely whether: (1) the orders of the Court convening the scheme meeting were complied with; (2) the resolution to approve the scheme was passed by the requisite majority and whether other statutory requirements have been satisfied; (3) all conditions to which the scheme is subject (other than Court approval and lodgement of the Court's orders with ASIC) have been met or waived; (4) the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it; (5) there was full and fair disclosure to shareholders of all information material to the decision whether to vote for or against the scheme; (6) the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; and (7) the Court is satisfied under s 411(17) of the Corporations Act that the scheme has not been proposed to avoid Ch 6, or that the plaintiff has a statement from ASIC that it has no objection to the scheme.

Were the procedural requirements satisfied? 16 Turning to the Schemes before me, most of these considerations can be addressed briefly. I was satisfied that the orders of the Court convening the scheme meeting for each of the Schemes were complied with. This included orders to ensure full and fair disclosure to shareholders. To the extent that questions arose regarding the forwarding of materials by certain solicitors to their clients or group members and the adjournment of the Shareholder Claimant Scheme meeting, I was not satisfied that any non-compliance with the orders has been demonstrated, and in any event, I was not satisfied that 'substantial injustice' would have thereby been caused: see s 1322 of the Corporations Act. 17 I was further satisfied that the conditions precedent had been met in respect of both Schemes. 18 I was also satisfied that a statement by ASIC to the effect that it had no objections to the Schemes had been produced to the Court, thereby complying with subs 411(17) of the Corporations Act. 19 In summary, I was satisfied that the procedural requirements of s 411 and other formal matters had been demonstrated adequately. This was based on the affidavits and documents submitted to the Court, which I do not need to detail in these reasons.

Were the Schemes fair and reasonable? 20 This brings me to whether the respective Schemes were fair and reasonable so that an intelligent and honest shareholder or creditor, properly informed and acting alone, might approve it (see Peak Coal Limited, in the matter of Peak Coal Limited (No 2) [2010] FCA 45, [3]; Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213, 247). In that regard, I was satisfied that the Court should exercise its discretion to approve both schemes of arrangement for the following reasons: (1) according to the evidence of the independent expert, the plaintiff would be solvent immediately following implementation of the proposed recapitalisation (which flows from the Schemes); (2) without implementation, the board of directors were of the view that the plaintiff would become insolvent and that it would be necessary to enter into voluntary administration. The evidence of the independent expert was that the plaintiff was at risk of becoming insolvent by May 2018; (3) the evidence also suggested that the plaintiff explored various options to repay the debts owed under the Facilities, none of which have come to fruition; and (4) there were no objections in respect of the Senior Lender Scheme and very few objections in respect of the Shareholder Claimant Scheme. 21 Nevertheless, I must consider the regime in the Shareholder Claimant Scheme governing so-called 'Permitted Claims'. I was satisfied that the limitation of exposure established by this regime was part of the balance of rights and obligations reflected in the overall package of the Shareholder Claimant Scheme. Relevant participants were afforded the opportunity to seek to opt-out of the Scheme if they considered their interests were not best served by this balance of rights and obligations. However, the reality was that, if the plaintiff became insolvent, the Shareholder Claims would be limited to just the Insurance Policies, the value of which would likely be diluted by legal costs. 22 At this state of the litigation, when I was asked to approve the Shareholder Claimant Scheme, Babscay Pty Ltd ('Babscay') contended that its particular interests were adversely impacted and that it was, in effect, in a minority class. This was because, as part of the Shareholder Claimant Scheme, Babscay would be required to release the plaintiff of its extramural claim. Babscay thus objected to the structural interconditionality of the Schemes and the proposed Hall proceeding settlement. For Babscay, the proposed settlement ignored the fact that group members of the Hall proceeding may have additional Shareholder Claims against the plaintiff or other interests which were not served by the Schemes under consideration. Babscay noted that it had brought a separate and broader claim in a Part IVA group proceeding against Slater & Gordon (which as discussed below at [38] of these reasons made misdisclosure allegations different to those raised in the Hall proceeding) and submitted that it was inappropriate and unfair for the settlement of a group proceeding under Part IVA to be used as a lever to facilitate the safe passage of the Schemes in this way. Babscay raised these matters principally in relation to the settlement discussed later in these reasons, and I address them primarily in that context. However, Babscay later stated at the hearing on 14 December 2017 that but for the proposed amendment (to which I will return), it did not oppose the Schemes. As I will explain, I do not consider that the proposed amendment altered Babscay's legal position in any event, and I allowed the amendments as is apparent from the orders of the Court rehearsed at [3] of these reasons. 23 I should interpolate that I did not consider that Babscay needed to be treated as, and separated into, its own class. The test for whether members are required to be divided into different classes is whether their rights are so dissimilar as to make it impossible for them to consult together with a view to their common interest: see eg Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583. 24 As Barrett J emphasised in Re Hills Motorway Limited (2002) 43 ACSR 101; [2002] NSWSC 897 at [12], the test is not one of differentiation or identical treatment, but "of community of interest". It is only if the differentiation "destroys the ability" or makes it "impossible" for the creditors or members to consult together that the creditors or members are to be divided into classes. 25 I was also mindful of the observation of Santow J in Re NRMA Limited (2000) 33 ACSR 595; [2000] NSWSC 82 at [80] that: The "splitting" or "fracturing" of classes into smaller groups can undermine the object of obtaining decision by a large majority, by giving one group an effective veto over the wishes of the majority. That itself can be oppressive.

Proposed amendment to the Shareholder Claimant Scheme 26 This brings me to an amendment to the Shareholder Claimant Scheme that was proposed at the hearing and which was the subject of the orders made on 14 December 2017 in the Slater & Gordon proceeding. The proposal was to change the word "pursue" to the word "commence" in cl 14.2(a) of the Shareholder Claimant Scheme. Section 411(6) of the Corporations Act permits "such alternations as [the Court] thinks just". Babscay was the only participant affected by this change. It opposed the amendment on the basis that it would be required to give a substantive undertaking in respect of proceedings which it had already commenced. 27 The plaintiff contended that the proposed amendment corrected an error (or ambiguity) and was necessary to give effect to the original purpose of the relevant clause. In support of its position, the plaintiff submitted an affidavit of the solicitor who had carriage of negotiating the Shareholder Claimant Scheme on its behalf with a view to demonstrating the purported intention of the relevant clause. 28 It seemed clear to me that cl 14.2(a) was not limited to proceedings commenced after the Shareholder Claimant Scheme took effect. Its language was not limited in that way. Nor did the context of cl 14.2(a) imply such a limitation. Rather, the function of cl 14.2 was to condition the ability to "pursue" a 'Permitted Claim' under cl 14.1. I therefore did not consider that the proposed amendment altered the proper legal function and meaning of cl 14.2(a). 29 I arrived at this conclusion through a common sense application of the ordinary principles relating to the interpretation of written documents, namely based on their words, their context, and the purpose of the document in question. Thus, regardless of its probative value, the affidavit submitted by the plaintiff in support of its application to amend cl 14.2 did not aid my reaching the conclusion I did, but nor did it contradict my conclusion. 30 Accordingly, the proposed amendment did not, in my view, materially change the legal position of any participant in the Shareholder Claimant Scheme, including Babscay. With that in mind, I was satisfied that that the amended Scheme would have been agreed to by the requisite statutory majorities (see Independent Practitioner Network Ltd, in the matter of Independent Practitioner Network Ltd (No 2) (2008) 26 ACLC 1,249; [2008] FCA 1593 at [17]; Re Opes Prime Stockbroking Ltd (No 2) (2009) 73 ACSR 411; [2009] FCA 864) and I was content to permit the amendment. 31 Finally, the plaintiff also requested that it be exempt from the requirement in s 411(11) regarding the annexation of orders of the Court to the plaintiff's company constitution. As the applicable orders of the Court did not have a bearing on the plaintiff's company constitution, the Court granted the requested exemption pursuant to s 411(12). 32 The Court also granted the plaintiff's request to note that the plaintiff would rely on the Court's approval of the Senior Lender Scheme for the purpose of qualifying for exemption from the registration requirements of the Securities Act of 1933 (US), as provided for by s 3(a)(10) of that Act, in connection with shares and notes issued as part of the implementation of the Senior Lender Scheme.

APPROVAL OF THE SETTLEMENT 33 I turn now to the approval of the class action proposed settlement of the Hall proceeding (the 'settlement'). In short, this involved an assessment by the Court under s 33V of the Federal Court of Australia Act 1976 (Cth) (the 'FCA Act') as to whether the settlement was fair and reasonable. I begin with an overview of the background and particulars of the settlement, before setting out the applicable legal principles and the objections to the settlement by some interested parties, followed by the Court's consideration. 34 This approval was sought after the Court had just approved the Schemes. Without the Schemes being approved, the settlement would not proceed to Court approval under s 33V because it was contingent on the Schemes being approved by the Court. The considerations relevant to approving the Schemes were quite different from the considerations relevant to approval of the settlement, as will become apparent from my subsequent consideration of the settlement in these reasons.

Content and context of settlement 35 The basic parameters of the settlement were outlined in the affidavit of Mr Andrew Watson sworn 22 September 2017, and may be summarised as follows: (1) The quantum of the settlement was a total of $36.5 million comprising $32.5 million from the Insurance Policies and $4 million provided through Slater & Gordon by the Senior Lenders. (2) The $4 million portion was for the exclusive benefit of the group members of the Hall proceeding (the 'Hall Group Members'). The $32.5 million portion was to be applied as follows: (a) first, subject to approval of the Court, payment of costs payable to Maurice Blackburn as solicitors for the Hall Group Members. Maurice Blackburn claimed $5.3 million in that regard; (b) second, subject to approval of the Court, payment on a common fund basis of the sum of $8 million to ILP; (c) third, the balance deposited into a fund for the purposes of the Shareholder Claimant Scheme (as referred to above in these reasons). The Shareholder Claimant Scheme would comprise all claims by shareholders in Slater & Gordon (including those claims of the Hall Group Members), pursuant to which all such shareholders with claims against Slater & Gordon would be invited to lodge claims. Maurice Blackburn would lodge proofs in the Shareholder Claimant Scheme on behalf of Hall Group Members, and would then distribute between the Hall Group Members whatever came out of that process according to a Settlement Distribution Scheme ('SDS') which would be submitted to the Court for approval as part of the settlement approval application under s 33V of the FCA Act; and (d) fourth, the Hall Group Members would be permitted to prosecute "Permitted Claims" against third parties for further recovery for their proportionate share of the losses alleged to have been suffered by them, but otherwise claims against Slater & Gordon were barred, thereby insulating it from further proceedings. 36 This was a very unusual situation confronting the Court for the approval of the settlement after having just approving the Schemes. It was apparent from the parameters of the settlement that it involved features beyond that of a straightforward payment of a sum of money representing the compromised value of the claims, and the giving of mutual releases. Rather, the settlement involved the Hall Group Members: (1) accepting a proportionately very small monetary sum (the claim in the Hall proceeding was for approximately $1 billion); (2) giving releases and indemnities which prevented them from bringing non-apportionable claims against third parties which might threaten the solvent trading of a recapitalised Slater & Gordon; and (3) making part of that sum available via the Shareholder Claimant Scheme to persons who were not Hall Group Members (the 'Other Shareholder Claimants'). 37 These unusual features flowed from the financial circumstances of Slater & Gordon. It is to be recalled, in that regard, that the evidence demonstrated Slater & Gordon would likely be insolvent by May 2018 without recapitalisation, and that its half-year accounts in February 2017 indicated publicly that there were no unencumbered assets available to meet any Shareholder Claims. These circumstances imbue the settlement. In essence, the monetary sum being made available as part of the settlement was contingent upon a degree of certainty that Slater & Gordon would emerge as a viable going concern. This appeared to be the basis upon which the Senior Lenders were willing to recapitalise Slater & Gordon. The settlement was thus conditional on, and effectively bound up in, the recapitalisation of Slater & Gordon through the twin Schemes that I had just approved. Indeed, it was a condition precedent under the SDS, among others, that the Shareholder Claimant Scheme became effective in accordance with s 411 of the Corporations Act. 38 I also observe that the claim pursued in Babscay Pty Ltd v Slater & Gordon Limited (VID 659 of 2017) (the 'Babscay proceeding') differed from the claim pursued in the Hall proceeding in terms of the respective time periods of share acquisitions and the alleged deficiencies or misrepresentations by Slater & Gordon. The value of the claim in the Babscay proceeding was said to be approximately one third of the value of the claim pursued in the Hall proceeding. However, there did appear to be a degree of overlap between the two claims, leading to a circumstance whereby, for instance, Babscay was a group member of both proceedings.

Applicable legal principles 39 I now set out briefly the legal principles applicable to my consideration of whether to approve the settlement. They are well known. The settlement of a representative proceeding requires the approval of the Court, and in that regard, s 33V of the FCA Act provides: 33V Settlement and discontinuance - representative proceeding (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. 40 It is settled law that the fundamental question in respect of s 33V is whether the settlement is "a fair and reasonable compromise of the claims made on behalf of the group members". This formulation derives from the seminal judgments of Finkelstein J in Lopez v Star World Enterprises Pty Ltd [1999] FCA 104 at [15] and Goldberg J in Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459; [2000] FCA 1925. The body of case law that has subsequently followed, applied and developed this approach was conveniently synthesised by Beach J in Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (in Liq) (No 3) (2017) 118 ACSR 614; [2017] FCA 330 ('Allco') as comprising the following principles at [82]-[85]: [82] First, there is no single way in which a settlement should be framed, either as between the applicant/group members and the respondents (inter partes) or in relation to sharing the compensation as between group members (intra-group). Reasonableness is a range. The question is whether the proposed settlement and scheme fall within that range. [83] Second, the Court's role is not to second-guess the strategic decisions made by the applicant's legal representatives, but rather to satisfy itself that the decisions are within the reasonable range of potential decisions, having regard to the circumstances which are known by and reasonably knowable to the applicant and its legal representatives, and that there has been a reasonable assessment of the relevant risks based on such circumstances. [84] Third, there is no definitive set of factors that must or may be taken into account in approving a settlement. But factors relevant to an assessment of the reasonableness of a proposed settlement include: (a) the complexity and duration of the litigation; (b) the stage of the proceedings; (c) the risks of establishing liability, establishing damages, and maintaining the class action; (d) the ability of the respondent to withstand a greater judgment than the prospective settlement sum; (e) relatedly, the range of reasonableness of the settlement in light of the best recovery; (f) the range of reasonableness of the settlement in light of all the risks of litigation; and (g) the reaction of the class to the settlement. [85] Fourth, in relation to the fairness of the settlement as between group members, it must be ensured that the interests of the representative party, the signed-up clients of the solicitors, and any litigation funder are not being preferred over the interests of other group members, absent strong and compelling reason(s) for any such preferential treatment. Any distribution scheme should achieve a fair and equitable division of the proceeds. 41 I note also that the task of the Court on the present application is an "onerous" one, and centres on protection of the interests of represented group members. As Murphy J stated in Kelly v Willmott Forests Ltd (in liquidation) (No 4) (2016) 112 ACSR 584; [2016] FCA 323 at [3]: Settlement is one of the most important stages in a class action and it can raise difficult issues in relation to the interests of the group members, whom I will call "class members". The Court has an onerous task in a settlement approval hearing, assuming a protective role in relation to the interests of class members, akin to a guardian or the role the Court assumes when approving an infant's compromise. The Court will not approve a settlement unless it is satisfied that the settlement is fair and reasonable having regard to the interests of the class members who will be bound to it, including by not preferring one group of class members over another.

Objections to the settlement 42 I now provide a brief overview of the main objections to the settlement. To the extent other objectors to the settlement raised concerns, those concerns were similar to the matters I now address. 43 As I have indicated above at [22] of these reasons, Babscay initially objected to the settlement on the basis that it was inappropriate and unfair for the settlement of a group proceeding under Pt IVA of the FCA Act to be used as a lever to facilitate the safe passage of the Schemes, particularly through the mechanism of limiting the liability to shareholders. Conversely, Babscay submitted it is inappropriate and unfair for the settlement of one group proceeding to have the necessary and unwanted effect of forcing a settlement of claims in another group proceeding, in circumstances where the power of the Court under Pt IVA, and in particular ss 33V and 33W, was not being invoked by the claimants in that other proceeding. 44 Babscay also submitted that the Court was not in a position to determine whether the settlement was fair and reasonable based on the information before it. This was because it was unknown what proportion of the $32.5 million portion mentioned above would accrue to the Hall Group Members in view of the fact that this portion was open to the claims of the Other Shareholder Claimants, the volume and value of which was yet to be determined. Babscay made related contentions in respect of the quantum to be paid out to Maurice Blackburn and ILP, and also contended that there was no evidence that the settlement represented the best outcome possible for the Hall Group Members. 45 Mr Delaney also made certain objections as an interested party. But it is convenient to deal with Mr Delaney's objections later in these reasons.

Consideration of settlement 46 In light of the nature and background of the settlement, and the objections to it, I considered it convenient to assess whether it was "fair and reasonable" by reference to five (albeit interrelated) aspects. These were: (1) the quantum of the settlement sum, particularly in view of the quantum of the claim in the Hall proceeding; (2) the efficacy of releasing Slater & Gordon from the claims of the Other Shareholder Claimants and the associated Shareholder Claimant Scheme; (3) the inclusion of the Other Shareholder Claimants in the fund being created by the settlement; (4) the quantum of the payment to Maurice Blackburn; and (5) the quantum of the payment to ILP. 47 I address each of these aspects in turn. The Court had before it affidavit material indicating the basis of the settlement, and a justification for the global settlement sum. I need not in the unusual circumstances of the Hall proceeding rehearse this material in relation to the global settlement sum, as that sum was effectively pre-determined once the Schemes were approved. 48 A number of affidavits and submissions had been submitted to the Court in order to establish that the settlement was fair and reasonable and in the interests of the Hall Group Members. Although directed toward the approval of the settlement, these documents also necessarily addressed the reasonableness of the proposed funder's fee of $8 million for ILP and legal costs in respect of the Hall proceeding. In particular, reference was made to the following: (1) the Sixth Affidavit of Andrew John Watson sworn 13 November 2017 (Non­Confidential in support of settlement approval), in particular paragraphs [7]­[44], [51]-[73], and [98]-[120]; (2) the Seventh Affidavit of Andrew John Watson sworn 13 November 2017 (Confidential in support of settlement approval), in particular Confidential Annexure 'AJW-66', being the opinion of counsel dated 13 November 2016 at paragraphs [2.25]-[2.33]; (3) the Applicant's Submissions in support of Settlement Approval hearing dated 15 November 2017, in particular paragraphs [15]-[16]; (4) the Confidential Affidavit of Paul Lindholm sworn 11 December 2017; (5) the Applicant's Submissions in support for further Settlement Approval hearing dated 14 December 2017, in particular paragraphs [13]-[22]; (6) the Affidavit of Andrew John Watson sworn 21 June 2018; and (7) the Affidavit of Paul Lindholm sworn 21 June 2018. 49 In respect of the quantum of the settlement sum, the reasonableness of the settlement contributions had to be informed by recoverability issues alone. This was due to Slater & Gordon's dire financial situation, whereby Slater & Gordon would become insolvent if the recapitalisation did not proceed via the Senior Lender Scheme. As the settlement was a precondition to the recapitalisation, if it did not proceed, Slater & Gordon would enter involuntary administration, whereupon the claims of shareholders would be subordinated to all other claims. Against this backdrop, the fact that the sum of $36.5 million was a small portion of the aggregate value of the Hall Group Members' claims should not be understood to mean the settlement was unfair or unreasonable. 50 The sum was comprised largely of the contribution of the insurers (pursuant to the Insurance Policies) who had no interest in whether the Schemes succeeded or not, so the only question that could arise whether the $4 million contribution of Slater & Gordon through the Senior Lenders could be improved upon. There was evidence that this outcome was the consequence of substantial and prolonged negotiations between sophisticated parties. There was no evidence to justify any belief that a better deal could have been obtained. I accepted this position. 51 I turn now to the efficacy of releasing Slater & Gordon and others from Shareholder Claims and the associated Shareholder Claimant Scheme. As already mentioned, one of the salient aspects of the settlement was that the Hall Group Members were required give certain releases and indemnities. There were two categories of such releases. The first category concerned the releases against Slater & Gordon (including its related bodies corporate, related entities, and past and present officers and employees). The second category concerned the releases against third party respondents. In respect of the first category, the right and entitlement of each Hall Group Member to bring or enforce Shareholder Claims was fully released (this mirrored the position discussed above in relation to the Schemes). In respect of the second category, the Hall Group Members fully released all third parties from all claims the Hall Group Members had against them arising from or in connection with Shareholder Claims, and this release from such third party claims included a carve out for "Permitted Claims", allowing the Hall Group Members to commence claims which were apportionable by operation of statutory proportionate liability provisions. In effect, only apportionable claims could be brought and only if there was no contractual right to indemnity. 52 The function of these releases was to provide sufficient certainty to Slater & Gordon's Senior Lenders that the enterprise would not be exposed to future liability by way of cross-claim arising from historical (pre-Schemes) events. The releases represented, in effect, part of the price of the Senior Lenders' agreement to the recapitalisation of Slater & Gordon and their making of a monetary contribution to the settlement. 53 I was mindful of the role of the applicant representing the Hall Group Members, and the difficulty that can sometimes surround the giving of releases on behalf of other group members: see the recent discussion of the issues involved in Dillon v RBS Group (Australia) Pty Ltd (No 2) [2018] FCA 395 at [27]-[62]. However, the settlement before me for approval, with ample notice being given of the scope of releases, arises in very unusual circumstances. As I have indicated, the price of finality required the settlement to be reached as a package, including the form of releases as agreed to in the settlement deed. 54 In respect of any extramural claims against Slater & Gordon, the settlement provided the benefit of access to the Insurance Policies portion of the sum (which would not otherwise be available for that claim), while likewise providing in this instance Babscay with some monetary relief in respect of its claim as a Hall Group Member. In the alternative, there would be no settlement, and Babscay would persist with its class action and effectively compete with Mr Hall and his class action, while Slater & Gordon enters administration and as the amount available under the Insurance Policies diminishes. Any detriment resulting from the releases in the settlement would not be an unreasonable burden on Babscay despite its extramural claims. 55 I recognised that the settlement may result in an adverse impact on a subset of Hall Group Members who have claims outside of what the Hall proceeding covers, for instance Babscay's extramural claims, vis-à-vis Hall Group Members with no such claims. The particular interests of that subset are a legitimate concern of this Court and form part of the weighing and balancing exercise the Court is to undertake in ascertaining the fairness and reasonableness of the settlement. 56 The Court needs, of course, to assess the fairness and reasonableness of the settlement in a global sense having considered all of the relevant aspects. Nonetheless, I make the following observations in relation to the fairness and reasonableness of the releases in particular. 57 In relation to the releases against Slater & Gordon (and its associated entities), these must be viewed against the somewhat anomalous circumstances of this particular case. These circumstances are compelling. The significant disparity between the size of the known claims against Slater & Gordon vis-à-vis its resources and capacity to defend itself against those claims and, in the event of an adverse finding, pay those claims, constitutes important context to these releases. In particular, the risk of extant claims of such a magnitude would clearly be a relevant factor to any prospective financier's evaluation of recapitalising Slater & Gordon. It was undisputed that without recapitalisation, Slater & Gordon would become insolvent, whereupon the shareholders' claims will be subordinated to all other claims. Thus, in a context where the intervention of financiers would seem to be necessary in order for shareholders to obtain the most meaningful relief in these circumstances, it is clearly within the range of reasonableness for the risk of extant claims to be addressed in the settlement, and in particular, for such claims to be addressed in the manner that the settlement envisaged. 58 In relation to the third party releases, it is to be recalled that the claims that would be permitted to persist under the settlement are apportionable claims and claims that do not involve a contractual indemnity on the part of the person to be sued. There was no reason to consider that any claims of the kind that are in contemplation would be caught by any contractual right of indemnity, and that non-apportionable claims would not have any "surplus value" beyond the terms of the settlement. 59 Turning now to the aspect of the settlement that the Insurance Policies portion was open to the Other Shareholder Claimants, Babscay objected on the basis that this would lead to uncertainty in the quantum that Hall Group Members would ultimately receive, thus making it impossible to ascertain at the relevant time whether the settlement was fair and reasonable. Babscay emphasised, in particular, that it would be impossible to ascertain the proportionality between the amounts paid to Maurice Blackburn and ILP vis-à-vis the amounts received by Hall Group Members without first knowing what amounts will be deducted by virtue of the claims outside the scope of the Hall proceeding. However, this aspect of the settlement was a corollary of mitigating the aforementioned risk of extant claims. The sum (or, a portion thereof) secured by the settlement of the Hall proceeding was, in effect, shared with the Other Shareholder Claimants, who in turn released Slater & Gordon from further action (via the Schemes). It was thus a necessary part of the bargain struck. Further, the question of funder's fees and legal costs is to be assessed not by reference to the net amount actually received in hand by Hall Group Members, but by reference to the total amount secured by the efforts and disbursements of the lawyers and by the risk and the expenditure incurred by the funder. That gross amount was known, namely, $36.5 million. 60 As to the quantum of payment to Maurice Blackburn and to ILP and the question of the proportionality of the funder's fees and legal costs, I did not consider that this went to the approval of the settlement per se. Rather, in the circumstances of the present case, this went to the amounts that Maurice Blackburn and ILP were to ultimately receive out of the settlement sum. It was open to the Court to approve the settlement presently before it, and to determine the amounts that Maurice Blackburn and ILP were to receive at a later date. This was the approach I took. I will return to this issue, which was the subject of a later hearing on 22 June 2018, later in these reasons. 61 I should say that at this stage of the proceeding, namely on 14 December 2017, Babscay raised further objections relating to the quantum of the amounts to be received by Maurice Blackburn and ILP. Babscay considered those sums to be excessive and disproportionate. The response to this was that the funder's fees, when taken as a percentage of the gross amount, were well within the range considered acceptable under existing case law. In respect of Maurice Blackburn's costs, reliance was placed on the expert evidence of costs consultant Ms Cate Dealehr that legal costs of $6 million would be reasonable, and that Maurice Blackburn had reduced the sum of legal costs for which it sought approval by $700,000 and down to $5.3 million. 62 Whilst indicating I would determine the final amounts that Maurice Blackburn and ILP were to receive at a later date, I ordered that the amount of costs payable to Maurice Blackburn as solicitors for the applicant and the Hall Group Members (including for disbursements) be approved in the amount of $4.0 million, and that the amount of the "Funding Costs" be approved as $4.5 million, with the question of further amounts to be determined at a date to be fixed. 63 I turn now briefly to the position of Mr Delaney. Mr Delaney relied upon objections raised in submissions dated 26 October 2017, 14 November 2017 and 13 December 2017 in respect of distribution of funder's fees and legal costs. He relied on these submissions and the affidavit of Craig Allsopp sworn on 13 December 2017. Mr Delaney did not appear on 22 June 2018, but was content for his objection to be determined on the papers. 64 Mr Delaney's objections included that the settlement was a global compromise of all claims rather than just those in the Hall proceeding, that the terms of the settlement provided preferential treatment to the claims of the Hall Group Members, that the means of deducting legal costs prejudiced those members liable for separate legal costs incurred in connection with separate representation, and that the structure of the common fund order was equally prejudicial. Mr Delaney offered to withdraw his objection if the Hall Group Members made a payment of approximately $200,000 towards his own legal and funder's costs. I should say that whether or not Mr Delaney pressed any objection, I was duty bound to consider his objection a part of the overall process of approving a settlement. I have already addressed above the position of Hall Group Members who wish to pursue extramural claims against Slater & Gordon. I will soon address the issue of the legal and funding costs, and the common fund order. 65 I see no reason that the costs requested by Mr Delaney should be paid out of the settlement. It would be unfair to reduce the return to the Hall Group Members on account of the legal and funding costs of Mr Delaney. The other Hall Group Members (ie the Hall Group Members excluding Mr Delaney) did not consent to or require the intervention of Mr Delaney, and he made no individual contribution to the settlement that was eventually reached between the relevant parties. Mr Delaney had not demonstrated sufficiently that his position is such that special consideration was warranted.

Consideration of legal and funding costs 66 I now turn to the legal and funding costs. I did not find it necessary to appoint an independent cost assessor. I had the advantage of a contradictor (Babscay), and was able to consider and assess the expert evidence put before the Court to determine what was reasonable. Each case must be considered on its merits, and the Court (with its own experience, expertise and accumulated knowledge) will often be in the best position to test and consider the reasonableness of legal and funding costs. However, in each case, as Lee J observed in 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 [60], whether to appoint a referee is "quintessentially a case management decision". 67 In some cases it may be appropriate to make use of referees, however, I sound this caution. Expert evidence of all types is regularly relied upon by the Courts, even if that expert is engaged by a party. The expect evidence is not discounted purely on this basis. Nevertheless, at all times expert evidence needs to be properly considered and tested by the Court as appropriate. In some cases the Court will be aided in this consideration and testing by the use of registrars, other court officers or using a referee to report to the Court. 68 This notwithstanding, the appointment of a registrar, other court officer or referee will not always be appropriate. It should be kept in mind that the costs of such appointments ultimately comes out of the settlement fund, and the Court should be astute to ensure that the cost of such appointments is proportionate to the costs claimed and the amount that might potentially be saved. 69 It is convenient to again briefly refer to the background to the hearing on 22 June 2018, which related to the issue of legal and funder costs. 70 On 14 December 2017, pursuant to ss 33V and 33ZF of the FCA Act, this Court issued orders approving settlement of the Hall proceeding. 71 Orders 5 and 6 of those orders provided for payment of a portion of the legal costs, in an amount of $4 million, and a portion of the proposed funding costs, in an amount of $4.5 million, with the question of further amounts of legal costs and funding costs to be determined by the Court on a date to be fixed. 72 The only remaining issue, related to the ultimate amount to be deducted from the "Settlement Sum" (being the sum of the Insurance Policies contribution of $32.5 million and the Slater & Gordon contribution of $4 million) for the purposes of paying the legal and funding costs of the Hall proceeding. 73 Prior to 22 June 2018, Babscay had raised some concerns as to the legal and funding costs. The primary concern raised by Babscay related to the uncertainty around the net amount available to Hall Group Members resulting from the then uncertain number and value of claims that would be made by the Other Shareholder Claimants. Additionally, Babscay objected to the quantum of the funder's fee as disproportionate to the risk that ILP assumed and the amount recovered. 74 Babscay contended that the funding costs payable to ILP ought not to be approved until the total amount to be distributed to all the Hall Group Members was known so that proportionality could be determined, or alternatively, that the funder's fee agreed as part of the bargain struck for settlement be reduced from $8 million to $4.5 million. 75 Babscay's concern, that the claims of Other Claimants would dramatically alter the Insurance Policies contributions available to Hall Group Members, did not come to pass by 22 June 2018. The value of claims by Other Claimants represented less than 1% of total value of Shareholder Claims made in the Shareholder Claimant Scheme. 76 Consequently, the $8 million funder's fee for ILP proposed in the SDS constituted 21.92% of the gross settlement sum, and 28.07% of the net proceeds after costs (excluding funding costs). 77 Consideration of the statutory test in s 33V(2) of the FCA Act requires the Court to take into account the fact that litigation funders assume the substantial costs and risks of a representative proceeding and should be allowed a commercially realistic return: see Mitic v OZ Minerals Limited (No 2) [2017] FCA 409 at [29] per Middleton J. Courts should recognise the role of litigation funding in providing access to justice, and approve funding commission rates that are commercially realistic and that properly reflect the costs and risks taken by the funder, while avoiding hindsight bias: see Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Limited (2016) 245 FCR 191 ('Money Max') at [82]. 78 I had regard to the fact that ILP's agreement to provide funding was what allowed the Hall proceeding to be commenced, and was a precondition to the Hall Group Members receiving any benefit under the proposed settlement. Prior to ILP agreeing to fund the Hall proceeding, Maurice Blackburn was not able to identify any potential applicant who was willing to take on the role of the representative party without an indemnity for adverse costs. 79 In Money Max, the Full Court set out a number of likely relevant considerations for the approval of a reasonable funding commission rate. These criteria were referred to when assessing funding commissions by Beach J in Allco at [143]-[160] and by Murphy J in Earglow Pty Ltd v Newcrest Mining [2016] FCA 1433 ('Earglow') at [162]. The important considerations are listed below. 80 By early November 2017, over 4,000 Hall Group Members had registered with Maurice Blackburn ('Registered Hall Group Members'), approximately 115 of which were institutional investors. As at 13 November 2017, some 3,177 Registered Hall Group Members (3,090 retail, 87 institutional) had executed a funding agreement with ILP. 81 The funding agreements entered into provided for a funding commission for ILP which was determined by reference to a variable percentage of the funded Hall Group Members' recovery, which depended upon the number of Slater & Gordon shares acquired during the relevant period and the date on which the matter was resolved. The relevant percentages are set out in the following table: Number of SGH shares acquired Resolution after 30 June 2017 Tier 1 or = 1,000,000 and or = 2,000,000 and 10,000,000 28.5%

82 The available figures established that there was a large degree of acceptance of the funding rates in the table above by astute members of the Hall Group Members (including some 87 institutional investors). 83 All 3,177 Registered Hall Group Members who executed funding agreements with ILP were informed of the proposed funding commission rates at the time they were provided with and executed their funding agreements. The funding commission rate to be paid to ILP under the funding agreements (ranging from 28.5% to 35% of the gross settlement sum, with a weighted average of 31.3%) was substantially greater than the funding commission rate now sought under the common fund order, being 21.92% of the gross settlement sum. 84 The 'Notice of Settlement' and 'Opt-Out Notice' distributed to Hall Group Members in accordance with orders made by the Court on 25 September 2017 adverted to both the commission rates in the funding agreements and to the fact that a common fund order in an amount of $8.25 million would be sought. ILP, subsequent to that notice, decided to reduce the common fund order sought to $8 million. 85 Although the objective reasonableness of a commission rate is not necessarily determined just by reference to market rates, I took into account rates that are within the commonly offered range: see Earglow at [178]. The authorities suggest there is a range of funding commission rates available in the market: (1) In Money Max, the Full Court found that it had "no real difficulty in accepting that a 30% funding commission rate is within the range of rates commonly offered by litigation funders" (at [148]). (2) In Earglow, Murphy J provided a detailed comparison of funding commissions in other Part IVA proceedings and what was common in the market (at [168]-[177]). Percentages cited ranged from 15% up to 50%. Justice Murphy ultimately found that a weighted average funding commission of 26.8% (net of expenses) was fair and reasonable where the settlement sum was in the range of $36 million, finding that rate "to be at the low end of the range of what is offered in shareholder class actions and/or what is available or common in the market" (at [166]). (3) In Allco, Beach J also conducted an extensive comparative analysis of funding rates both in Australia and internationally, finding that "[f]unding commission and contingency fee percentages are generally expressed as a percentage of the gross settlement sum" (at [124]). 86 Irrespective of whether the proposed funder's fee of $8 million was to be expressed as a percentage of the gross settlement sum (21.92%) or net proceeds after costs (28.07%), the commission rate was well within the normal range charged in the market. 87 The Full Court in Money Max identified the risk of providing funding as one of the critical factors, noting that the assessment of risk must avoid the risk of hindsight bias and recognise that the funder adopts the risk at the commencement of proceedings. 88 The risks to ILP at the commencement of proceedings were varied and substantial. At the time the Hall proceeding was commenced, there was no way for ILP to know whether: (1) the proceeding would run to hearing or not; (2) a sufficiently significant number of group members would sign a funding agreement or not, particularly in light of the fact that the proceedings were commenced as an open class; (3) competing class actions would be initiated, resulting in active claimants, with an interest in registering to participate in a class action being split between two class actions; (4) Slater & Gordon's continued financial troubles created an appreciable risk that Slater & Gordon would be placed into administration and affect recoverability; and (5) in the event of administration, whether available insurance coverage was sufficient. 89 ILP assumed the risks associated with the Hall proceeding prior to the commencement of the proceeding, at a time when it could not be known that Slater & Gordon's financial circumstances would result in settlement of the kind set out in the settlement deed, nor that the dispute would be settled relatively early in the proceeding. 90 Under the terms of its funding agreements with Hall Group Members, ILP assumed exposure in relation to adverse cost orders, if the costs were incurred during the term of the funding agreement. The indemnity provided by ILP for adverse costs in the Hall proceeding was not capped. 91 In total, during the relatively short life of the proceedings, ILP outlaid a total of $2 million in May 2017 comprising: (1) a portion of Maurice Blackburn's professional fees, in the amount of $930,421.03; (2) a portion of disbursements payable by funded Hall Group Members in the amount of $106,687.22; and (3) $962,891.75 held in trust for security against adverse costs. 92 I did not consider that the fact that an $8 million funder's fee on an outlay of $2 million represented an excessive return in a short period of time. The legal and commercial risk assumed by ILP was incurred at a time prior to ILP being aware that the matter would settle relatively quickly. Of course, as alluded to already, the assessment of risk must avoid hindsight bias and recognise that the funder adopts the risk at the commencement of proceedings. 93 I took the view that where the proposed funder's fee of $8 million amounted to 21.92% of the gross settlement sum and 28.07% of the net proceeds after costs, the proposed funder's fee was not disproportionate to the risks assumed by ILP. 94 The total settlement sum was for $36.5 million, which represented a limited recovery compared to the anticipated size of the total claim. The acceptance of the settlement sum was dictated by recoverability issues alone, in circumstances where no more was available because Slater & Gordon was close to insolvency. The Applicant and its advisers settled for the settlement sum rather than depleting any remaining available funds through ongoing litigation. The aggregate commission rate that would result from a funder's fee of $8 million is proportionate to the amount recovered in the unusual context of these proceedings. 95 It also may be mentioned, without detailing the calculation, that the proposed common fund order for a funder's fee of $8 million results in a return to ILP that is less than the return it would receive as a result of either enforcing its contractual rights, or obtaining an equalisation order. Further, as I have mentioned, ILP has already reduced the proposed common fund order from $8.25 million to $8 million during the course of negotiations of the settlement deed and SDS. 96 It was with these considerations in mind I made the orders approving settlement and the quantum of the funding costs. 97 I should mention one other matter. Before a common fund order may be made, the Court must be satisfied that such an order is appropriate to ensure that justice is done in the proceeding. Clearly, whether a common fund order is appropriate to ensure justice in the proceeding is a matter for the Court. There are likely to be various relevant considerations for the Court in deciding whether to make a common fund order and if so the terms of such an order: see Money Max at [66]-[149]. Amongst other things, whether a common fund order should be made will depend upon the funding rate. In view of my approach, a common fund order was appropriate. There was no good reason why funded group members should carry the burden of litigation funding charges and unfunded group members be permitted to have a 'free ride': see Earglow at [83]. 98 I now turn to the legal costs, which can deal with the legal costs more briefly. Before the 22 June 2018 hearing, a number of matters were raised by Babscay as to the legal costs incurred and their reasonableness and verification. At that time there was an expert cost report before the Court, and the Court had considered that report at the time it approved the settlement. Discussion and reflection by the relevant parties obviously took place after that hearing, and in an affidavit of Andrew John Watson sworn 21 June 2018 (annexing a further expert cost report) various adjustments and explanations were provided to answer Babscay's earlier raised concerns. 99 As I have indicated, the nature of the dispute on costs was able to be managed by the Court without any independently appointed referee, and I came to the view on 22 June 2018 that the legal costs sought then were reasonable. I observe that Maurice Blackburn agreed to waive any uplift fees and certain costs associated with the pursuit of certain third party claims were omitted from the costs incurred as referable to the Hall proceeding. Otherwise the amounts claimed were verified and accepted by the expert cost consultant giving evidence before the Court. 100 On the basis of the material before the Court, I made the orders approving the settlement and the quantum of legal costs. I certify that the preceding one hundred (100) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.