JAGOT J:
1 These reasons for judgment explain why I made orders on 12 December 2018 approving the settlement of this proceeding on the terms set out in the settlement deed and settlement distribution agreement. Both of these documents are subject to confidentiality orders.
2 Section 33V of the Federal Court of Australia Act 1976 (Cth) provides that:
(1) A representative proceeding may not be settled or discontinued without the approval of the Court.
(2) If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court.
3 It is well established that the guiding principle to the exercise of power under s 33V(1) is whether the settlement represents a "fair and reasonable compromise" of the group members' claims: Lopez v Star World Enterprises Pty Ltd [1999] FCA 104; (1999) ATPR 41-678 at [15].
4 The Court's Class Actions Practice Note (GPN-CA) provides that:
14.3 When applying for Court approval of a settlement, the parties will usually need to persuade the Court that:
(a) the proposed settlement is fair and reasonable having regard to the claims made on behalf of the class members who will be bound by the settlement; and
(b) the proposed settlement has been undertaken in the interests of class members, as well as those of the applicant, and not just in the interests of the applicant and the respondent(s).
14.4 The material filed in support of an application for Court approval of a settlement will usually be required to address at least the following factors:
(a) the complexity and likely duration of the litigation;
(b) the reaction of the class to the settlement;
(c) the stage of the proceedings;
(d) the risks of establishing liability;
(e) the risks of establishing loss or damage;
(f) the risks of maintaining a class action;
(g) the ability of the respondent to withstand a greater judgment;
(h) the range of reasonableness of the settlement in light of the best recovery;
(i) the range of reasonableness of the settlement in light of all the attendant risks of litigation; and
(j) the terms of any advice received from counsel and/or from any independent expert in relation to the issues which arise in the proceeding.
14.5 To the extent relevant, the affidavit or affidavits in support of the application for Court approval should state:
(a) how the settlement complies with the criteria for approving a settlement;
(b) why the proceeding has been settled on particular terms;
(c) the effect of those terms on class members (ie. the quantum of damages they are to receive in exchange for ceasing to pursue their claims and whether class members are treated the same or differently and why);
(d) the means of distributing settlement funds;
(e) the time at which it is anticipated settlement funds will be received by class members;
(f) the frequency of any post-approval report(s) to be provided to the Court regarding the distribution of settlement funds;
(g) the terms of the costs agreement including the reasonableness of legal costs;
(h) the terms of any litigation funding agreement and its application if the settlement is approved;
(i) a response to any arguments against approval of settlement raised by class members; and
(j) any issues that the Court directs be addressed.
5 The material submitted to support the application for approval of the settlement satisfies the requirements of para 14.5 of the Practice Note. Having regard to the considerations in para 14.4 of the Practice Note, and in particular in light of the confidential advice from counsel which forms part of the evidence, I am persuaded that the proposed settlement is fair and reasonable having regard to the claims made on behalf of the class members who will be bound by the settlement and has been undertaken in the interests of class members, as well as those of the applicant, and not just in the interests of the applicant and the respondent as provided for in para 14.3(b) of the Practice Note.
6 The case alleged that the respondent contravened the continuous disclosure requirements in s 674(2) of the Corporations Act 2001 (Cth) and engaged in misleading and deceptive conduct in respect of a rail earthworks project in 2012 and promulgated earnings guidance for the 2013 financial year in 2012 without reasonable grounds which made such guidance misleading. It is sufficient to say that neither claim is straightforward. Each claim raises numerous issues of fact, inference and legal principle. It is fair to say that the difficulties and complexity of the case exceed its overall scale, a fact reflected in the legal costs compared to the total settlement sum. In such a case, there is good reason for compromise to be reached if an appropriate compromise sum is able to be negotiated.
7 Regrettably, the case did not settle at an early stage. This too has caused the legal costs to be greater than might be expected given the settlement sum. Despite early mediation the proceeding was scheduled for a hearing of four weeks in December 2018 before settlement was achieved after a further mediation in September 2018. By that stage many interlocutory steps necessary for the hearing, including extensive discovery and the filing of evidence including expert evidence had been completed, but further substantial steps remained which, if necessary to be undertaken, would have involved even greater legal costs which must be taken into account in assessing the reasonableness of the settlement sum.
8 The settlement sum is $6.7 million. There are 170 registered group members, 121 of whom signed funding agreements. I consider the settlement sum reasonable having regard to what might reasonably have been expected to be achieved through the litigation in the context of the numerous issues of fact, inference and legal principle which would have to be resolved. Given this context, it would be unrealistic to evaluate the reasonableness of the settlement sum by reference to the best possible outcome for group members in a manner divorced from the risks of the litigation.
9 The releases required as part of the settlement do not extend beyond the matters the subject of the proceeding. The releases, accordingly, do not weigh against the characterisation of the settlement as one which is a fair and reasonable compromise of the claims of group members.
10 The settlement distribution scheme regulates the distribution of the settlement sum. The scheme reflects the orders previously made in the proceeding in respect of group members and the terms of the funding agreement into which 121 of the 170 group members entered, subject to some variations which are beneficial to group members. In particular, while the funder has in fact paid $1.6 million in legal costs and disbursements (enabling the settlement to be achieved), it has agreed to seek to recover $1.4 million as part of the distribution. The scheme also permits the funder to deduct the commission in accordance with the funding agreement in the amount of $1.295 million. I accept the submissions for the parties that it is fair and reasonable (and reflects the orders made earlier in the proceeding) that this amount be deducted from the settlement sum before any distribution to group members and that the issue of power to make a common fund order is not directly in issue in this matter given the terms of s 33V(2) of the Federal Court of Australia Act 1976 (Cth) enabling the Court to make such orders as are just with respect to the distribution of any money paid under a settlement. The commission will represent just over 19% of the gross settlement sum and around 35% of the net settlement sum if the total amount of legal fees capped at $3 million is approved (that is, $1.6 million to the applicant's lawyers and $1.4 million to reimburse the funder). If those fees are approved, a total of $2.405 million (or nearly 36%) will be available for distribution to group members.
11 There is evidence from an experienced costs assessor that all legal fees incurred are reasonable. It is also apparent that the total fees and disbursements exceed those which are being claimed, with the funder having agreed a reduction in its claim relating to the legal fees it has paid of some 11% (down to the proposed $1.4 million) and the applicant's lawyers agreeing a reduction of 36% (down to the proposed $1.6 million). According to the costs expert these deductions more than account for any aspect of the legal expenses which might be thought to have warranted reduction to be fair and reasonable.
12 Given these circumstances, and acknowledging that but for the legal work and willingness of the funder to fund the litigation the settlement would not have been achieved, I am satisfied that the proposed distributions as set out in the settlement distribution scheme should be approved. In so concluding, I am aware that the $3 million cap does not apply to any interest earned on the settlement sum before distribution but accept the amount of such interest will be minor and in the circumstances should be distributed in the manner provided for in the settlement distribution scheme, to any outstanding legal costs incurred to obtain the Court's approval of the settlement, to any outstanding administration costs of administering the scheme for distribution, and then to increase the claimant distribution sum. In the context of the proceeding as a whole, I consider the deductions from the settlement sum fair and reasonable and proportionate to the proceeding as a whole.
13 The confidential evidence includes the formula by which the distributions to group members will be calculated. It is sufficient to say that the formula reflects the fact that there are two different claims asserted in the proceeding involving different group members requiring the proof of different facts and which have different apparent prospects of success. The formula is reasonable in the circumstances.
14 For these reasons, I approved the settlement on 12 December 2018.
I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.