Harrison v Sandhurst Trustees Ltd

Federal Court of Australia|2011-05-20|Before: Gordon J

THE COURT ORDERS THAT:

Paragraph 2 of the Application filed 24 August 2009 be amended to provide that group members to whom the proceeding relates within the meaning of s 33H of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) are those persons who: (a) (except where d(ii) or d(iii) applies) on 23 March 2007 held Debentures and/or Unsecured Notes issued by Fincorp Investments Limited (ACN 098 838 549) pursuant to the Debenture Trust Deed dated 5 August 2002 and the Unsecured Note Trust Deed dated 5 August 2002; (b) acquired such Debentures and/or Unsecured Notes on or after 7 December 2004 (where "acquired" means the person first made the investment and was issued with the Debentures and/or Unsecured Notes on or after 7 December 2004 or the person first made the investment and was issued with the Debentures and/or Unsecured Notes before 7 December 2004 but rolled over the Debentures and/or Unsecured Notes on or after 7 December 2004); (c) suffered loss and damage as a result of the Respondent's alleged contraventions of s 283DA of the Corporations Act 2001 (Cth) during the period 7 December 2004 to 1 July 2006; (d) either: (i) continue to hold the Debentures and/or Unsecured Notes; or (ii) are the legal personal representative of a person who held the Debentures and/or Unsecured Notes as at 23 March 2007; or (iii) are the holder of the Debentures and/or Unsecured Notes by reason of the assignment of the Debentures and/or Unsecured Notes from a person who held the Debentures and/or Unsecured Notes as at 23 March 2007, other than pursuant to an arm's length transaction for value from an unrelated person; and (e) either: (i) appear in the Schedule of Group Members that is Schedule B to the Deed of Settlement; or (ii) do not appear in the Schedule of Group Members but lodge a claim which is accepted by the administrator in accordance with the Scheme (as defined in the Deed of Settlement).

In this Notice, the debentures and first ranking notes issued by Fincorp Investments are collectively referred to as "Debentures" while the unsecured notes are referred to as "Unsecured Notes". The notes acquired during the particular time periods are referred to in this Notice as "Eligible Notes".
Also in this Notice, "roll over" or "rolled over" refers to the circumstance when a Debenture or Unsecured Note reached its maturity date and the amount loaned in respect of that Debenture or Unsecured Note was not repaid to the investor by Fincorp Investments but was retained by Fincorp Investments for a further period of time on behalf of the investor. Court approval of settlement of the Class Action
On 20 May 2011 the Federal Court approved the settlement of the Class Action. Under the settlement: (a) Sandhurst shall pay up to $29 million (inclusive of costs and interest) to Slater & Gordon to be distributed among group members who have not opted out of the proceeding; (b) the amount available for distribution to the Applicants and to group members in respect of Eligible Notes under the settlement after payment of approved legal costs to Slater & Gordon will be referred to as the "Settlement Fund"; (c) the settlement is binding on the Applicants and the group members and neither the Applicants nor any group member may take any further action against Sandhurst in connection with any Eligible Note held by them or in connection with any other Debenture or Unsecured Note issued by Fincorp Investments which they acquired or otherwise held; (d) the Settlement Fund is being administered by Slater & Gordon in accordance with a Settlement Distribution Scheme (the "Scheme"); (e) the approved legal costs of up to $1.9 million include the amount proposed to be paid to Slater & Gordon for administering the Scheme; and (f) the Proceeding was dismissed.
You are a group member in the Proceeding and eligible to receive part of the Settlement Fund if all of the following apply to you: (a) (except where d(ii) or d(iii) applies) on 23 March 2007, you held a Debenture and/or an Unsecured Note issued by Fincorp Investments; (b) acquired such Debenture and/or Unsecured Note on or after 7 December 2004 (where "acquired" means you first made the investment and were issued with the note on or after 7 December 2004 or you first made the investment and were issued with the note before 7 December 2004 but rolled over the note on or after 7 December 2004); (c) you suffered loss and damage as a result of Sandhurst's alleged contraventions of s 283DA of the Corporations Act 2001 (Cth) during the period 7 December 2004 to 1 July 2006; (d) either: (i) continue to hold the Debenture and/or Unsecured Note; or (ii) are the legal personal representative of a person who held the Debenture and/or Unsecured Note as at 23 March 2007; or (iii) are the holder of the Debenture and/or Unsecured Note by reason of the assignment of the note from a person who held the note as at 23 March 2007, other than pursuant to an arm's length transaction for value from an unrelated person; and (e) either: (i) appear in the Schedule of Group Members that is schedule B to the Deed of Settlement; or (ii) you do not appear in the Schedule of Group Members but lodge a claim which is accepted by the administrator in accordance with the Scheme (as defined in the Deed of Settlement).
The amount payable from the Settlement Fund for each Eligible Note is as follows: Payment Group Cent/Dollar Return Date Note Acquired Pre-07.12.04 (Rollover Payment) $0.06 07.12.04 - 30.07.05 (No-Transaction Payment) $0.10 31.07.05 - 30.10.05 (No-Transaction Payment) $0.15 31.10.05 - 07.01.06 (No-Transaction Payment) $0.20 08.01.06 - 29.04.06 (No-Transaction Payment) $0.50 30.04.06 - 30.05.06 (No-Transaction Payment) $0.60 31.05.06 - 30.07.06 (No-Transaction Payment) $0.70 31.07.06 - 23.03.07 (No-Transaction Payment) $0.75

Full details of the Scheme can be accessed at www.slatergordon.com.au. WHAT YOU NEED TO DO 9. As part of the opt out process in the Proceeding, Slater & Gordon sent notices to each person whom it considered was a group member. If you did not receive an opt out notice from Slater & Gordon and you believe that you are a group member as defined above, you should contact Slater & Gordon no later than 4 July 2011 and provide your current contact details together with information about why you consider yourself to be a group member. 10. By 18 July 2011, Slater & Gordon will determine the amount that group members are entitled to receive and will write to group members outlining this amount. 11. You will have until 15 August 2011 to object to the amount notified if you think that there has been an error in the calculation of your settlement sum. If you do not receive any correspondence from Slater & Gordon within that time, and believe that you are entitled to a payment, you must contact Slater & Gordon and lodge an objection within this time. Please note that Slater & Gordon will not consider objections to the amount of settlement advised, where the objection is directed to the principles on which the amount was calculated. 12. By 12 September 2011, Slater & Gordon will determine all objections and advise all group members of the final payment amount from the Settlement Fund that they will receive. At this time, group members will also receive a Deed Poll that they will need to sign and have witnessed and return to Slater & Gordon within 28 days in order to receive payment. 13. By 10 October 2011, Slater & Gordon will forward group members who have signed and returned the Deed Poll the settlement amount as notified to them in paragraph 12 above. All payments will be made by cheque. 14. Group members who do not bank their settlement cheque by 5 April 2012 will not receive a payment from the Settlement Fund. 15. If you have any questions, please contact Slater & Gordon on 1800 555 777 or seek your own legal advice. ANNEXURE 2 Settlement Distribution Scheme Background A. The total amount outstanding to individuals who held Debentures and/or Unsecured Notes (collectively referred to as Notes) in Fincorp Investments Limited (Fincorp) as at the date of Fincorp's administration (23 March 2007), exclusive of interest that had accrued on the Notes from the last interest payment date, and less distributions of $0.56 cents-in-the-dollar that have been or are proposed to be made to holders of Debentures through the administration/liquidation and receivership/management process is approximately $101,423,656.59 (Total Outstanding Capital Amount). B. The Total Outstanding Capital Amount can be broken down as representing the following Note types:

Notes initially purchased on or after 7 December 2004, and held to the date of administration;
Notes initially purchased before 7 December 2004, rolled over after 7 December 2004, and held to the date of administration;
Notes initially purchased before 7 December 2004 and held to the date of administration. C. The Applicants and Respondent acknowledge and agree, for the purposes of settlement, that the definition of Group Member in the Amended Statement of Claim (ASOC) includes category B1 and category B2 Notes. As part of the settlement approval process, the Applicant and the Respondent will ask the Court to approve an amendment to the definition of Group Member to make this clear. The total capital loss of Group Members is approximately $82,902,797.31 (Total Group Member Loss). D. The Applicants and the Respondent have agreed to settle the proceeding on a number of terms, including a term (subject to conditions) that the Respondent will pay Slater & Gordon up to the sum of $29,000,000.00 (inclusive of interest and costs) (Settlement Sum) for distribution to Group Members. E. This Scheme describes the principles and process by which the Settlement Sum will be distributed amongst Group Members by Slater & Gordon. Scheme Administration Process F. Slater & Gordon is the administrator of this Scheme and is in possession of a copy of the database of noteholders that was used by Fincorp. As far as possible, Slater & Gordon will use the information already in its possession to administer the Scheme, without requiring Group Members to prove their claim. The Scheme will commence after the expiry of 28 days from 20 May 2011, being the date of the orders to approval the settlement of the proceeding. G. As part of the opt out process, Slater & Gordon will have sent notices to each person who it considers to be a Group Member as listed in the database in its possession. If you received such a notice, you do not need to do anything at this time. H. Persons who did not receive a notice from Slater & Gordon and who believe they are Group Members are requested to contact Slater & Gordon no later than 14 days after 20 June 2011 and to provide their current contact details together with information about why they consider themselves to be a Group Member. I. Within 28 days after the date of the advertisement of the settlement approval, Slater & Gordon will determine the amount each Group Member is entitled to receive under the Scheme and determine whether or not other persons who make claims are Group Members, and if so, the amount each such person is entitled to receive under the Scheme. In each instance, every person who is accepted to be a Group Member will be sent a letter by Slater & Gordon confirming the amount they are entitled to receive under the Scheme. J. Group Members will have 28 days from the date of Slater & Gordon sending the above notification to advise Slater & Gordon of any objections that they might have to the amount so notified. Slater & Gordon will consider any such objections and determine whether there will be any adjustment to Group Member payment amounts. Slater & Gordon will make such determinations and advise of any and all adjusted Group Member payment amounts within a further 28 days. This correspondence will enclose the Group Member Deed Poll, which must be signed and witnessed and returned to Slater & Gordon in order for the Group Member to receive payment. K. Group Members who do not opt out of the Proceeding will only be entitled to receive a distribution of the Settlement Sum by completing the Group Member Deed Poll in a manner acceptable to Slater & Gordon by which the person agrees to be bound by the terms and rules of the Scheme and releases the Respondent from claims. Group Members will have 28 days from the date of Slater & Gordon sending notification of the final settlement payment amount and the Deed Poll (as contemplated by paragraph J) in which to sign, witness and return the Deed Poll to Slater & Gordon. L. Within 28 days of the deadline contained in paragraph K, Slater & Gordon will make payment to Group Members of the amount notified at paragraph J if the Group Member has complied with paragraph K. M. Within 150 days of paragraph L, the Settlement Distribution Scheme will be regarded as having been completed. N. At any time prior to the completion of the Settlement Distribution Scheme in accordance with paragraph M, the administrator may having first given the Respondent 2 clear business days' notice, in its discretion, amend the requirements for a Group Member outlined at paragraphs H-L to ensure the fair operation of the Settlement Distribution Scheme. Following the proper administration of the Scheme, the distribution of the Settlement Sum by the administrator is final and cannot be challenged, reviewed, quashed or called into question before any court of law or administrative body in any proceedings. Settlement Distribution Rules O. The Settlement Sum will be distributed in accordance with the following rules:

If the Total Opt Out Amount exceeds $1 million, then the Settlement Sum will be reduced, but not in a manner that reduces the Cents/Note amount payable to each Payment Group. This means that the amount to be distributed to Group Members is not reduced by decisions made by other persons to opt out of the proceeding. Table 2. Procedure for adjusting SETTLEMENT SUM after opt out WHEN $1 MILLION IS EXCEEDED Description 1 Each Payment Group Loss reduced by the value of the Outstanding Capital Amount of notes opted out of the Proceeding (Opt Out Amount) within that group (Adjusted Loss) 2 Payment Group Adjusted Loss X Payment Group Cents / Note = Payment Group Adjusted Return 3 Total Return - (Sum of all Payment Group Returns and Payment Group Adjusted Returns) = Total Unallocated Return (TUR) 4 Settlement Sum reduced by TUR.

The draft distribution set out in Table 3 below allows for approved total legal costs. If for any reason, including that approved total legal costs are less than the allowed amount then the surplus will be distributed in accordance with the procedure described in paragraph O4. (collectively, the Settlement Distribution Rules) Overview of Distribution P. Table 3 describes the distribution of the Settlement Sum, in accordance with the Settlement Distribution Rules (excluding Group Members who opted out): table 3. distribution of settlement sum Payment Group Loss ($) Cents / Note Return ($) Return % I Pre-7 December 2004 Rollover 16,090,547.02 $0.060 965,432.82 3.5 II 7 December 04 - 30 July 2005 No-Transaction 20,549,097.10 $0.100 2,054,909.71 7.5 III 31 July 2005 - 30 October 2005 No-Transaction 7,480,398.06 $0.150 1,122,059.71 4.1 IV 31 October 2005 - 7 January 2006 No-Transaction 7,118,186.96 $0.200 1,423,637.39 5.2 V 8 January 2006 - 29 April 2006 No-Transaction 5,060,179.16 $0.500 2,530,089.58 9.2 VI 30 April 2006 - 30 May 2006 No-Transaction 1,767,246.47 $0.600 1,060,347.88 3.9 VII 31 May 2006 - 30 July 2006 No-Transaction 6,896,962.08 $0.700 4,827,873.45 17.6 VIII 31 July 2006 - 23 March 2007 No-Transaction 17,940,180.46 $0.750 13,455,135.35 49.0 TOTAL 82,902,797.31 27,439,485.89 100

Q. The figures in Table 3 are subject to change in the event that it is necessary to apply Settlement Distribution Rules O4-O6 after opt out is complete, or at any stage prior to completion of the Settlement Scheme. Annexure 3 Harrisons v Sandhurst Trustees Limited Federal Court of Australia Proceeding No. VID 616 of 2009 (the Proceeding) Date 2011

To: Sandhurst Trustees Limited (ACN 040 030 737) of The Bendigo Centre, Bendigo VIC 3550 (Sandhurst) c/o Slater & Gordon Limited (ACN 097 297 400) of 485 La Trobe Street, Melbourne VIC 3000

From: Name: Address: Phone: Email: (Group Member)

1.1 This deed is executed as a deed poll and is binding on the Group Member.

2.1 In consideration of and subject to receiving the Settlement Amount, the Group Member hereby covenants:

(a) to release and discharge the Sandhurst Parties from the Claims made in the Proceeding and from any claim, action, demand, suit or proceeding for any remedy that the Group Member may have against Sandhurst in respect of the subject matter of or related to the Proceeding;

(b) to release Sandhurst with respect to any and all Debentures and/or Unsecured Notes acquired or otherwise held by the Group Member whether the subject of claims made in the Proceeding or not; and

3.1 In consideration of receiving the Settlement Amount, the Group Member:

(a) represents and warrants that the Group Member holds and continues to hold the legal and equitable interest in any Debenture and/or Unsecured Note in respect of which the Settlement Amount is to be paid to the Group Member;

(b) represents and warrants that the Group Member has not assigned, sold or otherwise disposed of at any time after 23 March 2007 any interest (whether legal or equitable) in any Debenture and/or Unsecured Note acquired or otherwise held by the Group Member whether or not such Debenture and/or Unsecured Note is the subject of claims made in the Proceeding [clause may removed/altered with prior agreement from Sandhurst];

(c) covenants to indemnify and keep indemnified the Sandhurst Parties from and against all claims, actions, proceedings, liabilities, obligations, damages, loss, harm, charges, costs, expenses, duties and other outgoings of whatever nature and however arising which the Sandhurst Parties may suffer or incur by reason of:

(i) any breach by the Group Member of any of the representations and warranties in clauses 3.1(a) and 3.1(b); and/or

(ii) the joinder of Sandhurst to any proceeding commenced for or on behalf of the Group Member in relation to or in connection with the subject matter of the Proceeding, including in relation to or in connection with the Debentures and Unsecured Notes.

4.1 This deed poll is governed by the laws of Victoria. The Group Member irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of Victoria, and waives, without limitation, any claim or objection based on absence of jurisdiction or inconvenient forum.

5.1 Capitalised terms that are not defined in this deed poll and that are defined in the Settlement Deed have the same meaning as in the Settlement Deed.

5.2 In this deed poll: Settlement Amount means a distribution from the payment made by Sandhurst to settle the Proceeding and calculated in accordance with the Settlement Distribution Scheme. Settlement Deed means the Deed of Settlement dated 22 March 2011 between Sandhurst, Slater & Gordon and Mark and Rhonda Harrison in relation to the Proceeding, approved by the Federal Court of Australia on 20 May 2011. Executed as a deed poll in favour of Sandhurst Trustees Limited (ACN 040 030 737) Signed sealed and delivered1 by2: [in accordance with section 127 of the Corporations Act 2001 (Cth)] [by a director and secretary/director]3:

Signature of director Signature of [secretary/director]3

Name of director (please print) Name of [secretary/director] 3 (please print)

Signed sealed and delivered4 by5: in the presence of:

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 616 of 2009

JUDGE: GORDON J DATE: 20 MAY 2011 PLACE: MELBOURNE

INTRODUCTION 1 This is a representative proceeding brought under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the FCA). It was commenced on 24 August 2009. By an amended statement of claim filed on 5 March 2010, Mark and Rhonda Harrison, the applicants, alleged that, among other things, the respondent, Sandhurst Trustees Ltd (ACN 004 030 737) (Sandhurst), had contravened s 283DA(a) of the Corporations Act 2001 (Cth) (the Act) in the manner in which it had acted as trustee for debenture holders in the period from 7 December 2004 to 31 July 2006. After completing some of the interlocutory steps, a mediation was conducted by the Honourable GE Fitzgerald AC QC on 1 September 2010 and 11 October 2010. A deed of settlement was executed on 22 March 2011. This is an application by Notice of Motion dated 18 May 2011 for the Court to approve the proposed settlement of this proceeding in accordance with s 33V of the FCA and for related orders. 2 These reasons for decision will summarise the circumstances giving rise to the current proceeding, analyse the relevant legal principles and then consider the current application for approval under s 33V of the FCA and related orders.

BACKGROUND 3 In general terms, the proceeding arises out of the collapse of the Fincorp Group of Companies in March 2007. Fincorp Investments Ltd (previously known as Fincorp Finance Ltd) (Fincorp) raised funds from investors by issuing debentures pursuant to Ch 2L of the Act. The debentures were in two forms - secured (called Debentures) and unsecured (called Unsecured Notes). 4 Fincorp was a member of the Fincorp Group of Companies. Other companies in that group (defined as Related Development Companies in the amended statement of claim) were engaged in land, banking and property development. Fincorp loaned most of the moneys it raised through issuing Debentures and Unsecured Notes to those Related Development Companies. When the group collapsed, thousands of noteholders were owed about $201 million. 5 Sandhurst was the trustee for the noteholders and in that capacity had powers conferred by and obligations under Ch 2L of the Act. It was appointed trustee on 4 March 2004. One obligation, if not the most important obligation, imposed on Sandhurst was "to exercise reasonable diligence to ascertain whether the property of [Fincorp] … that is or should be available … will be sufficient to repay the amount deposited or lent when it becomes due": s 283DA(a) of the Act. 6 The applicants, the Harrisons, invested $330,000 in Debentures issued by Fincorp in two tranches. In July 2006, they invested $285,000, the proceeds of selling their house. In February 2007, they invested $45,000, the proceeds of a personal injury claim made by Rhonda Harrison. 7 The Harrisons brought the claim on behalf of all of those persons who: 1. on 23 March 2007, the date Fincorp entered voluntary administration, were investors in Debentures or Unsecured Notes issued by Fincorp; 2. acquired such Debentures and Unsecured Notes on or after 7 December 2004; and 3. suffered loss and damage as a result of Sandhurst's contraventions of s 283DA(a) of the Act during the period 7 December 2004 and 31 July 2006. 8 In general terms, the Harrisons' claim that because Fincorp raised funds from investors and then on-loaned those funds to property development companies, the valuations of the properties held by those companies were the primary means of determining whether Fincorp's loans were recoverable and therefore whether Fincorp would be able to repay the notes. The Harrisons further alleged: 1. that there were significant fluctuations in the carrying values of the land in the financial statements of the development companies and that the financial position and performance of both Fincorp and the Related Development Companies was poor; 2. all of this was known to Sandhurst and that at various points between 6 December 2004 and 31 July 2006, Sandhurst ought to have taken steps to satisfy itself of the true value of the land (by obtaining current valuations of the land based on short term sale and not on a projected, long-term and conditional development process); and 3. that had Sandhurst obtained those valuations, it would not have been satisfied that Fincorp's property would be sufficient to repay the outstanding Debentures and Unsecured Notes when they were to be redeemed and it should have taken steps to cause Fincorp to cease fundraising and the Court and / or the Australian Securities and Investments Commission would have taken action at a point in time between 7 December 2004 and 31 July 2006. 9 By its defence, Sandhurst raised a number of issues including the scope and nature of a trustee's duties under s 283DA(a) of the Act and also the uncertainty about the steps that would have been open to Sandhurst to take to redress any concerns it had about Fincorp's ability to repay the Unsecured Notes and Debentures and to obtain orders that Fincorp cease fundraising. 10 As noted earlier, after completing some of the interlocutory steps, a mediation was conducted by the Honourable GE Fitzgerald AC QC and a deed of settlement was executed on 22 March 2011. 11 Pursuant to orders made on 23 March 2011, notices were sent to group members and advertisements were published regarding the right of group members to opt out of the proceeding and for those who did not opt out, to object to the settlement proposed by the parties (the Proposed Settlement). Twenty 'opt out' notices and seventeen objections to the Proposed Settlement were filed. Two of these objections were filed late, but I have taken them into consideration nonetheless. 12 The Court is now required to decide whether or not to approve the Proposed Settlement under s 33V of the FCA, in accordance with the relevant principles.

RELEVANT PRINCIPLES 13 The relevant principles may be summarised as follows: 1. The Court must be satisfied that any settlement has been undertaken in the interests of group members as a whole, and not just in the interests of the applicant and the respondent: ACCC v Chats House Investments (1996) 71 FCR 250 at 258; 2. The task of the Court is an onerous one especially where the application is not opposed: Lopez v Star World Enterprises [1999] FCA 104 at [16]; 3. The practical judicial approach is to identify any features of a settlement that are obviously unreasonable or unfair. Where some group members object to a settlement and state their reasons, those reasons will provide a convenient focus by reference to which the Court will decide matters of reasonableness and fairness: Darwalla Milling Co Pty Ltd (ACN 009 698 631) v F Hoffman-La Roche (No 2) (2006) 236 ALR 322 at [39]; 4. It is not the Court's function to second-guess the applicants' advisers as to the answer to the question whether the applicants ought to have accepted the respondent's offer; the Court's function is, relevantly, confined to the question whether the settlement was fair and reasonable. There will rarely, if ever, be a case in which there is a unique outcome which should be regarded as the only fair and reasonable one: Darwalla at [50].

ANALYSIS 14 Against that background, I turn to consider the Proposed Settlement. The question whether this Proposed Settlement is fair, reasonable and adequate in the circumstances of all group members requires a number of aspects of the Proposed Settlement to be considered.

(a) The amount of the settlement 15 The first issue is the fairness, reasonableness and adequacy of the amount proposed to be paid by the respondent as compensation to the participating group members. 16 As part of the Proposed Settlement, Sandhurst has agreed to pay up to $29 million (inclusive of legal costs and interest) to Slater & Gordon, the applicants' solicitors, to distribute to the applicants and the group members to settle the proceeding (the Settlement Sum). The Proposed Settlement was expressed to be conditional on the sum of outstanding capital amounts for eligible notes held by group members who opt out of the proceeding not exceeding $5 million. If during the opt out process, the holders of notes representing $5 million of outstanding capital opted out of the proceeding then the Deed of Settlement could be terminated and in that circumstance the proceeding would continue. The opt out result meant that the outstanding capital amounts for eligible notes held by group members who opted out of the proceeding did not exceed $5 million and the Deed of Settlement was not terminated. 17 Counsels' advice makes it clear that considerable thought has been given to advising the applicants in relation to the fairness, reasonableness and adequacy of the settlement, including issues such as the prospects of success on various issues in the dispute, risks if the matter proceeded to judgment and the reasonableness of the Settlement Sum. Having read the confidential affidavit of Kenneth John Fowlie sworn 19 May 2011 as well the earlier affidavit of Kenneth John Fowlie sworn 18 May 2011 in support of the application for settlement approval, I am satisfied that the Settlement Sum is fair, reasonable and adequate.

(b) The mechanics of the settlement 18 The second issue is the fairness, reasonableness and adequacy of the mechanics of the settlement. The mechanics were summarised in a document entitled "Settlement Distribution Scheme" which was annexed to the Orders made on 23 March 2011, and displayed on the applicants' solicitors' website during the opt out procedure. It outlined the rules, procedure and means by which the Settlement Sum will be distributed to group members. A copy is attached as Annexure A to these reasons for decision. In all of the circumstances, I am satisfied that the provisions in the deed and scheme in relation to costs and administration costs are fair, reasonable and adequate.

(c) Amendment to the definition of 'group members' 19 Paragraph 1 of the Notice of Motion seeks orders to amend the 'group members' definition in accordance with the deed of settlement. This amendment: 1. clarifies that "rollover" investors are group members; 2. clarifies that group members are those who either continue to hold the notes, are the legal personal representative of a deceased noteholder, or took an assignment of a note (but not on commercial terms, so as to exclude a predatory investor from buying up notes before settlement); and 3. limits the group to named persons in a list scheduled to the deed of settlement and to those persons who make a claim that is expressly accepted by the administrator. In my view, the definition of 'group members' should be amended in the terms sought.

(d) Unusual features of the proposed settlement 20 Counsel for the applicants identified a number of unusual features of the Proposed Settlement. I will deal with each in turn.

(i) Differential treatment of group members 21 The Settlement Distribution Scheme provides for the disproportionate distribution of the Settlement Sum amongst sub-groups based on the date of their investment. Such discrimination as exists in the settlement proposal between group members is based on an assessment of the prospects of success of each group. In Rikys v Bongiorno Financial Advisers (Aust) Pty Ltd [2009] FCA 1603 at [13], Finkelstein J approved a settlement where the four categories of investors comprising the group received disproportionate amounts of the settlement sum based on prospects of success. 22 In the present case, while there is significant variation as between the payment groups ($0.06 - $0.75), not only does this variation have a rational basis but it is also the case that no group member receives nothing from the settlement: cf Taylor v Telstra Corporation [2007] FCA 2008. 23 Unsurprisingly, some of the objections lodged raised the differential treatment of group members based on the date when investments were made. Some objectors argued that each note should receive the same settlement, or that there should be a fairer distribution to earlier investors. As just noted, such differences as exist are based on an assessment of prospects of success (includes an assessment of all aspects of a cause of action including causation and loss and damage). Other than prospects of success, there is no other relevant distinguishing factor (such as knowledge on the part of investors) that could appropriately be used to further adjust the payment sums. In my view, having read Counsels' confidential advice, those objections should be dismissed. 24 In addition to the date of investment, some objectors argued that those holding Debentures, for which some security was provided by Fincorp, should receive priority over those with Unsecured Notes. As the applicants' Counsel submitted, there is nothing about the cause of action pleaded that relies on a difference between Debentures and Unsecured Notes. Moreover, group members cannot double recover. They must bring to account any amounts of loss they have recovered from other processes. The proposed settlement is not unreasonable or unfair in that respect. 25 The third group of objections were that those who held notes that were rolled over during the claim period should be treated as having made a fresh investment as at the date of the rollover and thus treated in the same manner as those in the payment group to which the note corresponds. There are particular features of the "rollover" notes, in addition to the date of the initial investment, that should be noted. First, rollovers were effected not by return of cash to the investor and subsequent reinvestment, but by book entry, so that the money always remained within Fincorp. Secondly, it is trite to note that all group members would need to prove loss and damage if the matter was to continue, and the manner in which "rollover" investors would prove loss is significantly different to the way in which other investors would do so, as it is based on proving the financial position of Fincorp at a given point in time, and how a putative administration process may have been conducted to determine the level of any return to investors. For those reasons, this group of objections should be dismissed.

(ii) Releases 26 The release contained within the Settlement Deed is worded in a way that a full release is given by the person for all claims against Sandhurst arising from notes held by that person. There are group members who have notes in respect of which some distribution will be made under the scheme, and other notes for which no payment will be made. For those members, the release will operate in a way that extinguishes all of their rights, even in relation to those notes for which no distribution is made. In my view, this is not a fact which would result in the Court not approving the proposed settlement. First, it is not uncommon in settlements for full releases to be made of all outstanding claims, whether directly at issue in the proceedings or not. The releases are given, as Counsel for the applicant submitted, as the price of finality. Secondly, group members were given notice of this fact in paragraph 15 of the Notice of Opt Out and Notice of Settlement Approval Hearing.

(iii) Interest on the Settlement Sum 27 Paragraphs 3 and 4 of the Notice of Motion propose orders the effect of which is to permit interest earned on the Settlement Sum (whilst in a 'Controlled Money Account') to be applied to the payment of legal costs. 28 Section 3.3.13(1) of the Legal Profession Act 2004 (Vic) (the LPA) obliges solicitors to deposit certain monies into the general trust account unless, relevantly, it is controlled money. 'Controlled money' is defined in s 3.3.2(1) of the LPA. Section 3.3.15 of the LPA deals with the deposit of controlled money. As a result of ss 3.3.15(3) and (5) of the LPA, the controlled money may be disbursed in accordance with an order of the court. 29 Having read the affidavit of Paul Grant Linsdell sworn 18 May 2011, I consider that this proposal should be approved: see Dorajay Pty Ltd v Aristocrat Leisure Ltd [2009] FCA 19 at [32] - [34] and Darwalla at [17] and [42].

(e) Other relevant factors 30 Practice Note CM 17, Representative Proceedings Commenced under Part IVA of the Federal Court of Australia Act 1976, identifies a number of other factors relevant to the decision whether to approve the proposed settlement. A number of the factors I have already addressed. 31 It is sufficient for present purposes to note that this is complex litigation. It is a representative proceeding concerning allegations made over an 18 month period about the conduct of a trustee for about 5,410 noteholder accounts. Any trial of the proceeding would be long and complex necessarily involving extensive expert evidence concerning value and the role of corporate trustees over the whole period of the claim. As noted above, the reaction of the group to the settlement has been overwhelmingly positive. The proportion of eligible group members (represented by account) who have objected to the proposed settlement is approximately 0.37%. On any view, that is very low. I have already addressed the stage the proceeding has reached and considered the risks of establishing liability and loss or damage. 32 As I have already noted, having read Counsels' advice it is clear that considerable thought has been given to advising the applicants in relation to the fairness, reasonableness and adequacy of the settlement, including issues such as the prospects of success on various issues in the dispute, risks if the matter proceeded to judgment and the reasonableness of the Settlement Sum. Having read the confidential affidavit of Kenneth John Fowlie sworn 19 May 2011 as well the earlier affidavit of Kenneth John Fowlie sworn 18 May 2011 in support of the application for approval under s 33V of the FCA, the Proposed Settlement is fair and reasonable and should be approved.

CONCLUSION AND ORDERS 33 For those reasons, I will make orders in the form of the minute provided by the applicants' solicitors. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Associate: Dated: 20 May 2011 ANNEXURE ASettlement Distribution Scheme Background A. The total amount outstanding to individuals who held Debentures and/or Unsecured Notes (collectively referred to as Notes) in Fincorp Investments Limited (Fincorp) as at the date of Fincorp's administration (23 March 2007), exclusive of interest that had accrued on the Notes from the last interest payment date, and less distributions of $0.56 cents-in-the-dollar that have been or are proposed to be made to holders of Debentures through the administration/liquidation and receivership/management process is approximately $100,438,057.93 (Total Outstanding Capital Amount). F. The Total Outstanding Capital Amount can be broken down as representing the following Note types:

Notes initially purchased on or after 7 December 2004, and held to the date of administration;
Notes initially purchased before 7 December 2004, rolled over after 7 December 2004, and held to the date of administration;
Notes initially purchased before 7 December 2004 and held to the date of administration. G. The Applicants and Respondent acknowledge and agree, for the purposes of settlement, that the definition of Group Member in the Amended Statement of Claim (ASOC) includes category B1 and category B2 Notes. As part of the settlement approval process, the Applicant and the Respondent will ask the Court to approve an amendment to the definition of Group Member to make this clear. The total capital loss of Group Members is approximately $83,272,753.07 (Total Group Member Loss). H. The Applicants and the Respondent have agreed to settle the proceeding on a number of terms, including a term (subject to conditions) that the Respondent will pay Slater & Gordon up to the sum of $29,000,000.00 (inclusive of interest and costs) (Settlement Sum) for distribution to Group Members. I. This Scheme describes the principles and process by which the Settlement Sum will be distributed amongst Group Members by Slater & Gordon. Scheme Administration Process F. Slater & Gordon is the administrator of this Scheme and is in possession of a copy of the database of noteholders that was used by Fincorp. As far as possible, Slater & Gordon will use the information already in its possession to administer the Scheme, without requiring Group Members to prove their claim. G. As part of the opt out process, Slater & Gordon will have sent notices to each person who it considers to be a Group Member as listed in the database in its possession. If you received such a notice, you do not need to do anything at this time. H. Persons who did not receive a notice from Slater & Gordon and who believe they are Group Members are requested to contact Slater & Gordon no later than 14 days after the date of the advertisement of the settlement approval notice and to provide their current contact details together with information about why they consider themselves to be a Group Member. I. Within 28 days after the date of the advertisement of the settlement approval, Slater & Gordon will determine the amount each Group Member is entitled to receive under the Scheme and determine whether or not other persons who make claims are Group Members, and if so, the amount each such person is entitled to receive under the Scheme. In each instance, every person who is accepted to be a Group Member will be sent a letter by Slater & Gordon confirming the amount they are entitled to receive under the Scheme. J. Group Members will have 28 days from the date of Slater & Gordon sending the above notification to advise Slater & Gordon of any objections that they might have to the amount so notified. Slater & Gordon will consider any such objections and determine whether there will be any adjustment to Group Member payment amounts. Slater & Gordon will make such determinations and advise of any and all adjusted Group Member payment amounts within a further 28 days. This correspondence will enclose the Group Member Deed Poll, which must be signed and witnessed and returned to Slater & Gordon in order for the Group Member to receive payment. K. Group Members who do not opt out of the Proceeding will only be entitled to receive a distribution of the Settlement Sum by completing the Group Member Deed Poll in a manner acceptable to Slater & Gordon by which the person agrees to be bound by the terms and rules of the Scheme and releases the Respondent from claims. Group Members will have 28 days from the date of Slater & Gordon sending notification of the final settlement payment amount and the Deed Poll (as contemplated by paragraph J) in which to sign, witness and return the Deed Poll to Slater & Gordon. L. Within 14 days of the deadline contained in paragraph K, Slater & Gordon will make payment to Group Members of the amount notified at paragraph J if the Group Member has complied with paragraph K. M. Within 150 days of paragraph L, the Settlement Distribution Scheme will be regarded as having been completed. N. At any time prior to the completion of the Settlement Distribution Scheme in accordance with paragraph M, the administrator may having first given the Respondent 2 clear business days' notice, in its discretion, amend the requirements for a Group Member outlined at paragraphs H-L to ensure the fair operation of the Settlement Distribution Scheme. Following the proper administration of the Scheme, the distribution of the Settlement Sum by the administrator is final and cannot be challenged, reviewed, quashed or called into question before any court of law or administrative body in any proceedings. Settlement Distribution Rules O. The Settlement Sum will be distributed in accordance with the following rules:
Individuals who first acquired their note on or after 7 December 2004 (B1) will be divided into the following sub-groups, according to the time periods pleaded in the ASOC: i 7 December 2004 to 30 July 2005; i 31 July 2005 to 30 October 2005; i 31 October 2005 to 7 January 2006; i 8 January 2006 to 29 April 2006; i 30 April 2006 to 30 May 2006; i 31 May 2006 to 30 July 2006; and i 31 July 2006 to 23 March 2007. Notes in each sub-group of B1 will receive a distribution of the Settlement Sum reflecting the cent-in-the-dollar amount assigned to that sub-group. This will be referred to as a No-Transaction Payment. The cent-in-the-dollar amount assigned to each sub-group will increase with reference to the sub-group's proximity to the date of Fincorp's administration, reflecting the Applicants' view that the strength of the claim against the Respondent increased accordingly.
Notes initially acquired before 7 December 2004, but rolled over on or after 7 December 2004 and held to the date of administration (B2), will receive a distribution that will be referred to as a Rollover Payment. The amount of the Rollover Payment will be less than the lowest of the No-Transaction Payments, to reflect the Applicants' view that holders of B2 Notes have weaker claims than holders of B1 Notes.
Investors that held multiple notes will receive a No-Transaction or a Rollover Payment for each eligible note. Investors will receive only one payment per note. For example, where an individual invested on or after 7 December 2004 and rolled over that Note, they will only receive one No-Transaction Payment for that note, being the payment attributed to the period in which that note was first acquired. The exception to this rule is where an investor invested additional capital into an existing note when rolling over the note - the additional capital will be treated as a new capital investment and the investor will receive a cent-in-the-dollar payment reflecting the date on which the new capital was invested.
Where the Total Opt Out Amount does not exceed $1 million, prior to distribution of the Settlement Sum, the Total Group Member Loss will be adjusted to reflect the value of Notes held by Group Members who elect to opt out of the proceeding. The cent-in-the-dollar return figure to be applied to each Note within a Payment Group will be adjusted (Adjusted Cents / Note) in accordance with the following procedure, where, unless stated, terms represent the column headings in Table 3. Table 1. Procedure for adjusting distribution after opt out WHEN $1 MILLION IS NOT EXCEEDED Description 1 Payment Group Loss adjusted for value of notes opted out. (Adjusted Loss) 2 Payment Group Cents / Note X Adjusted Loss = Payment Group Adjusted Return 3 Total Return - (Sum of Payment Group Adjusted Returns) = Total Unallocated Return (TUR) 4 TUR X Payment Group Return % = Payment Group Additional Return 5 Payment Group Adjusted Return + Payment Group Additional Return = Payment Group Final Return 6 Payment Group Final Return / Payment Group Adjusted Loss = Payment Group Adjusted Cents / Note

If the Total Opt Out Amount exceeds $1 million, then the Settlement Sum will be reduced, but not in a manner that reduces the Cents/Note amount payable to each Payment Group. This means that the amount to be distributed to Group Members is not reduced by decisions made by other persons to opt out of the proceeding. Table 2. Procedure for adjusting SETTLEMENT SUM after opt out WHEN $1 MILLION IS EXCEEDED Description 1 Each Payment Group Loss reduced by the value of the Outstanding Capital Amount of notes opted out of the Proceeding (Opt Out Amount) within that group (Adjusted Loss) 2 Payment Group Adjusted Loss X Payment Group Cents / Note = Payment Group Adjusted Return 3 Total Return - (Sum of all Payment Group Returns and Payment Group Adjusted Returns) = Total Unallocated Return (TUR) 4 Settlement Sum reduced by TUR.

The draft distribution set out in Table 3 below allows for approved total legal costs. If for any reason, including that approved total legal costs are less than the allowed amount then the surplus will be distributed in accordance with the procedure described in paragraph O4. (collectively, the Settlement Distribution Rules) Overview of Distribution Q. Table 3 describes the distribution of the Settlement Sum, in accordance with the Settlement Distribution Rules assuming no Group Members opt out: table 3. distribution of settlement sum Payment Group Loss ($) Cents / Note Return ($) Return % I Pre-7 December 2004 Rollover 17,296,784.9 $0.060 1,037,807.09 3.9 II 7 December 04 - 30 July 2005 No-Transaction 20,829,101.32 $0.100 2,082,901.03 7.8 III 31 July 2005 - 30 October 2005 No-Transaction 7,601,453.85 $0.150 1,140,218.08 4.3 IV 31 October 2005 - 7 January 2006 No-Transaction 7,258,273.26 $0.200 1,451,654.65 5.5 V 8 January 2006 - 29 April 2006 No-Transaction 5,033,571.29 $0.500 2,516,785.65 9.5 VI 30 April 2006 - 30 May 2006 No-Transaction 1,627,915.29 $0.600 976,749.17 3.7 VII 31 May 2006 - 30 July 2006 No-Transaction 6,701,417.40 $0.700 4,631,812.95 17.3 VIII 31 July 2006 - 23 March 2007 No-Transaction 17,008,868.52 $0.750 12,756,651.39 48.0 TOTAL 83,272,753.07 26,594,580.01 100

R. The figures in Table 3 are subject to change in the event that it is necessary to apply Settlement Distribution Rules O4-O6 after opt out is complete, or at any stage prior to completion of the Settlement Scheme.

Use this if the relevant Fincorp Debenture holder or Unsecured Note holder is a company.
Insert name of company and, if the company is holding the Fincorp Debentures or Unsecured Notes in its capacity as the trustee of a trust, the name of the trust.
Delete as appropriate.
Use this if the relevant Fincorp Debenture holder or Unsecured Note holder is a person.
Insert name of person.

Legal Profession Act 2004(Vic)

At a glance

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Judgment (44 paragraphs)

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Cases Cited (6)