Inabu Pty Ltd v Leighton Holdings Limited

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2244 of 2013

BETWEEN: INABU PTY LTD (ACN 003 657 654) AS TRUSTEE FOR THE ALIDAS SUPERANNUATION FUND

AND: LEIGHTON HOLDINGS LIMITED (ACN 004 482 982)

JUDGE: JACOBSON J DATE: 25 AUGUST 2014 PLACE: SYDNEY

Introduction 1 On 6 June 2014 I made orders for notification to group members of a Proposed Settlement and Opt Out Rights in respect of a representative proceeding brought by the applicant (Inabu) against the respondent (Leighton). The proceeding and the Proposed Settlement are described in my Reasons for Judgment in Inabu Pty Ltd v Leighton Holdings Limited [2014] FCA 622 ("Inabu (No 1)"). 2 Following upon the despatch of notices to group members, more than 3,000 claimants registered details of their shareholding in accordance with my orders. Together with the Funded Group Members (who, pursuant to Order 14 of my orders of 6 June 2014, were deemed to have already registered their claim), more than 6,000 people therefore qualify as Participating Group Members under the regime prescribed by my orders in Inabu (No 1). 3 A small number of other group members registered their details outside the time limits contained in my orders. Those persons fall into a number of separate categories which I will explain later. 4 By failing to comply with the timetable set out in Order 14 of my orders of 6 June 2014, which provided for class closure and eligibility to participate in the Proposed Settlement, the non-compliant group members are, subject to any order to the contrary, not entitled to receive a distribution under the terms of the Proposed Settlement: see Order 17 made on 6 June 2014. 5 The present application is for approval of the Proposed Settlement under s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act). If I approve it, a question arises as to whether I should vary Order 17 so as to permit the non-compliant group members to participate.

background 6 The claim against Leighton arises out of a profit downgrade announced on 11 April 2011. It is sufficiently explained in [1] of my Reasons in Inabu (No 1). 7 The Proposed Settlement was reached at a very early stage of the proceeding, indeed, before Leighton had filed a defence. However, a great deal of preparatory work was undertaken by both parties and the Proposed Settlement was reached following an extensive exchange of information. 8 The terms of the Proposed Settlement are recorded in a confidential Settlement Deed entered into in May 2014, referred to in Order 1 of my orders of 6 June 2014. The Settlement Deed was executed following upon a successful mediation with the Hon Kevin Lindgren AM QC. 9 Although the Settlement Deed is a confidential document, the essential terms are now in the public domain and are described in an affidavit of Inabu's solicitor, Ms Rebecca Gilsenan, affirmed on 29 May 2014. 10 The relevant terms of the Settlement Deed for present purposes are that Leighton will pay to the Participating Group Members $69.45 million to settle the proceedings and that the precise amount payable to each such person will be determined under a Loss Assessment Formula which will form part of the Settlement Scheme: see Inabu (No 1) at [2]-[3]. The Loss Assessment Formula is a confidential document. 11 The approval of the Court under s 33V of the Act is the last remaining condition of the Proposed Settlement. The condition which permitted Leighton to establish an escrow account described in [6] of Inabu (No 1) was not enlivened. This is because only seven Opt Out notices were received and they did not comprise a sufficient number of shares to satisfy that condition. 12 The manner in which the Proposed Settlement is to be administered is described in the Settlement Scheme which is Exhibit RG3-1 to Ms Gilsenan's affidavit of 12 August 2014. 13 The principal terms of the Settlement Scheme are: the settlement sum is presently held in an interest bearing account: see cl 4.1 and Order 2 made on 6 June 2014; upon Court approval of the Proposed Settlement, the proceeds of the account are to be transferred into a Distribution Fund, but 30% of the interest earned to date on that sum will be paid to Leighton to allow it to meet its tax obligations: see cl 4.4(a) and (b); upon Court approval of the Proposed Settlement, Maurice Blackburn will be appointed as Administrator of the Settlement Scheme in accordance with the terms of that document: see cl 5.1; Maurice Blackburn is to administer the Settlement Scheme properly on behalf of all Participating Group Members: see cl 5.2; clauses 6 and 7 deal with Maurice Blackburn's obligations to estimate the value of the claims payable to Participating Group Members and the rights of those persons to request a recalculation. Maurice Blackburn is to use the Loss Assessment Formula to estimate the value of claims. If claimants are dissatisfied, they will be entitled to apply to the Court for "judicial review": see cl 7.3; the nature of the review referred to in cl 7.3 is not defined but it may be analogous to an appeal from a rejection of a liquidator's proof of debt; clause 9 deals with payment to the funder of the amount of the funder's premium payable by Funded Group Members. It provides for Maurice Blackburn to notify the funder of the assessed value of each Funded Group Member's claim and for the payment of the amount to the funder; clause 10 deals with distribution of the Settlement Sum to Participating Group Members. Prior to the distribution the following payments are to be made from the Distribution Fund: (i) any reimbursement to Inabu; (ii) Inabu's legal costs incurred up to 15 August 2014; and (iii) administration costs incurred by Maurice Blackburn in administering the Settlement Scheme; the remaining part of the Settlement Sum is to be distributed to Participating Group Members in accordance with the Loss Assessment Formula: see cl 10. Provision is made in cl 8 for a preliminary payment and cl 10 deals with payment of the balance due under the Loss Assessment Formula; clause 12 provides that on transfer of the amount in the interest bearing account established pursuant to cl 4.1 and Order 2 made on 6 June 2014 into the Distribution Fund, Participating Group Members and all other group members release Leighton from losses and claims arising out of or connected with the circumstances giving rise to the proceeding. The releases are subject to an exception stated in cl 12.2.

Steps taken to notify Group Members and implement Settlement Scheme 14 I am satisfied that Inabu's solicitors have complied with the orders I made on 6 June 2014 for the despatch of notices and other steps to notify group members of the Proposed Settlement and Opt Out Rights. The evidence of compliance with my orders is contained in Ms Gilsenan's affidavit of 12 August 2014, commencing at [8]. 15 The technical issue explained in [11(d)] of the affidavit does not prevent compliance with the orders. 16 No Group Member has objected to the Proposed Settlement. As I said earlier, only seven group members have submitted Opt Out notices. 17 Order 14 of my orders of 6 June 2014 required group members, other than Funded Group Members, to register details of their shareholding by 18 July 2014 and provide a statutory declaration verifying the details by 1 August 2014. 18 Funded Group Members were not required to register or provide a statutory declaration: see Inabu (No 1) at [10]. 19 Confidential lists of complying and non-complying group members were in evidence (Confidential Exhibit A). Relevant details of the lists are as follows: (a) List 1 (2,304 claimants) being Funded Group Members. (b) List 2 (3,909 claimants) being non-funded group members who provided registration details and a validly executed Statutory Declaration in accordance with my orders. (c) List 3 (98 claimants) who provided registration details after 4 pm on 18 July 2014 but on or before 4 pm on 1 August 2014 and who supplied a validly executed Statutory Declaration by 1 August 2014. (d) List 4 (4 claimants) who provided registration details by 4 pm on 18 July 2014 but whose Statutory Declarations were not received until after 4 pm on 1 August 2014. (e) List 5 (14 claimants) who registered online between 4.01 pm on 18 July 2014 and 4 pm on 1 August 2014 and provided Statutory Declarations that were received after 4 pm on 1 August 2014. (f) List 6 (7 claimants) who missed both of the deadlines for registration details and the statutory declaration, but who subsequently provided the necessary information following upon enquiries made by them to Maurice Blackburn. Five of those persons provided an additional statutory declaration explaining why they were late in registering their claims.

Settlement Approval 20 The principles which inform the exercise of the discretion to approve a settlement under s 33V of the Act are well established. They have been stated in a large number of authorities over the past 20 years and reiterated in more recent authorities including Jarra Creek Central Packing Shed Pty Ltd v Amcor Ltd [2011] FCA 671 at [68]ff, Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 at [8]ff, as well as by a Full Court in Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [7], [8]. 21 The underlying principle is that the Court must be satisfied that the settlement is fair and reasonable in the interests of the group members as a whole: Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 142 ALR 177 at 184, 185. 22 Each case is to be determined on its merits but the nine factors referred to by Goldberg J in Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 at [19] have been said to provide a useful guide: see the review of the authorities in Modtech Engineering at [10]-[14]. 23 Each of the nine factors is addressed in the written submissions provided by counsel for Inabu which I have marked as "MFI-2". 24 Here, the overriding considerations which point in favour of the grant of approval are the complex factual and legal issues involved in the proceeding and the fact that the Proposed Settlement was reached after a mediation before an experienced mediator in the light of an extensive exchange of information between the parties. 25 The process for the exchange of information is described in Ms Gilsenan's affidavit affirmed on 12 August 2014 at [86]. It was conducted over a period of six months and involved discovery of agreed categories of documents, and the exchange of expert loss reports and position papers prior to the mediation. In Ms Gilsenan's opinion, Maurice Blackburn received sufficient information to be able to adequately consider the merits of the Proposed Settlement. 26 The question of the fairness of the settlement to all group members is addressed in paragraphs 87-88 of Ms Gilsenan's affidavit as follows: The Settlement Sum was negotiated without the parties knowing how many unfunded group members would register to participate in the Proposed Settlement nor the amount of the aggregate losses of the unfunded group members who would register to participate. Commonly in settlements of funded open class shareholder class actions, funded group members are protected from dilution of their claims by a minimum amount of the settlement sum being reserved for funded group members. In the Proposed Settlement, no portion of the Settlement Sum was reserved for the funded group members and as such the funded group members assumed a risk of dilution of their recovery through the registration and class closure process. I considered this to be a novel approach to settlement of an open class representative proceeding and there were extensive negotiations between the parties regarding the terms of settlement between the 6 March 2014 mediation and the execution of the Settlement Deed on 16 May 2014. Following the class closure on 1 August 2014 I am able to determine the levels of participation of funded group members and unfunded group members and the overall rate of return to all group members. I consider the Proposed Settlement to be reasonable and in the best interests of the applicant and group members. While there were a large number of unfunded group members who registered to participate in the Proposed Settlement their claims were of a relatively low value compared to those of the funded group members and therefore the risk of significant dilution was not realised. 27 The fairness question is also to be considered in light of the submissions prepared by Leighton's counsel in support of the settlement. Those submissions draw attention in particular to Leighton's intention to defend the proceeding if settlement had not been reached and to the difficult unresolved issues as to what must be established to prove causation in a shareholder class action. 28 Those difficulties were described by Finkelstein J in P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 4) [2010] FCA 1029 at [15]-[16]; see also the remarks of Besanko J in Wepar Nominees Pty Ltd v Schofield (No 2) [2014] FCA 225 at [39(4)]; (2014) 99 ACSR 234 at [39(4)]. 29 Further difficulties arise in relation to the methodology to be applied to determine the quantum of any loss. The difficulties are described in Leighton's submissions which I have marked as "MFI-3". 30 The risks of establishing liability and damages are addressed in the confidential advice of counsel. It is not appropriate that I "should second-guess" that advice which supports the fairness of the settlement: Darwalla Milling Co Pty Ltd v F Hoffmann-La Roche Ltd (No 2) (2007) 236 ALR 322 at [50]. 31 All other matters relevant to the fairness and reasonableness of the settlement are fully addressed in the submissions of counsel for Inabu. These matters include equal treatment of group members and the amount of the funder's premium. 32 The reasonableness of the legal costs payable under the Proposed Settlement is addressed in the report of Mr Ian Ramsey-Stewart, an independent costs consultant retained by Inabu. 33 Senior counsel for Inabu took me through the principal parts of Mr Ramsay-Stewart's report. I see no reason to go behind the opinion expressed in it: Darwalla at [102]; Jarra Creek at [136]. 34 The position in relation to costs is analogous to that which applied in Wingecarribee Shire Council v Lehman Brothers Aust Ltd (No 9) [2013] FCA 1350 at [69]-[70]; (2013) 97 ACSR 227 at 237. This further supports the reasonableness of the amount claimed.

Claim for Reimbursement 35 Inabu seeks payment of an amount of $8,648 as reimbursement for the time spent by a director, Mr David Sloper, in assisting with the work conducted on behalf of group members in the proceeding. 36 The claim is supported by a detailed affidavit of Mr Sloper and, in particular, by detailed contemporaneous time records which he kept. His activity record and time sheet record were in evidence. 37 I am satisfied that Inabu's claim for compensation is made by reference to properly detailed contemporaneous records. The hourly rate used to calculate the claim is consistent with the amounts paid to Mr Sloper in other contract work. It is less than the hourly rate allowed by Pagone J in Pathway Investments Pty Ltd v National Australia Bank (No 3) [2012] VSC 625 at [17]. 38 Approval of the claim is consistent with the approach adopted by Jessup J in Darwalla at [76]. It meets the requirements stated by Gordon J in Modtech Engineering Pty Ltd v GPT Management Holdings Ltd (No 2) [2013] FCA 1163 at [10]-[11].

Inclusion of Non-complying Group Members 39 The possibility that some group members would miss the 18 July 2014 deadline but seek to register and provide a statutory declaration by 1 August 2014 was anticipated in the debate which took place at the hearing of Inabu (No 1). In the expectation that this would occur, Ms Gilsenan allowed the online registration page to remain available until 4 pm on 1 August 2014. 40 It seems to me to follow that I should not treat the 98 claimants in List 3 as non-complying group members. 41 Statutory declarations have been provided by some of the non-complying group members. The explanations given are all readily understandable. It seems likely that there are similar explanations for others in Lists 4, 5 and 6. 42 The claims of the persons recorded in List 4 and List 5 are small. Their claims would amount to 0.04% of the overall claim value. 43 The value of the claims of the persons recorded in List 6 have not been calculated but Maurice Blackburn expect that the value of the claims will be of a similar relative value to those of the persons comprising List 4 and List 5, that is to say, approximately a further 0.04%. 44 I have power to vary the orders fixing time for compliance with registration details and statutory declarations: Dorajay Pty Ltd v Aristocrat Leisure Ltd [2008] FCA 1311 at [14]; (2008) 67 ACSR 569 at [14]; see also Order 7 made in Jarra Creek. 45 The considerations which arise in the present case are similar to those explained by Stone J in Dorajay at [14]. In my opinion it is appropriate to vary the orders in the terms contemplated by the 12 paragraph version of the draft short minutes of order handed up in Court on 15 August 2014 (subject to minor amendments to Order 5).

Conclusion and Orders 46 All other considerations are sufficiently covered by the submissions which are comprehensively recorded in MFI-2 and MFI-3. I will therefore make orders in terms of the short minutes of order referred to above. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.