JAMES WONG & ORS v SILKFIELD PTY LTD AND SILKFIELD PTY LTD v SKYE COURT PTY... [2000] FCA 1421 | Case summary

REASONS FOR JUDGMENT 1 These are notices of motion filed in three proceedings of the court: QG167 of 1997, Q277 of 1999 and Q25 of 2000. Essentially, each motion seeks the court's approval of a deed of settlement in the proceedings in which it is filed. 2 It is necessary to refer to the history of events in relation to each of those proceedings. The claims of the members in each of the representative proceedings, which are QG 167 of 1997 and Q 277 of 1999, relate to the signing of contracts for the acquisition of units in the "Phoenician North Tower" building (the North Tower) and, in the case of proceedings Q25 of 2000, in respect of the "Phoenician East Tower" (the East Tower). 3 So far as is relevant to the representative proceedings, statements pursuant to s 49 of the Building Units & Group Titles Act 1980 (Qld) (the Act) in respect of contracts of sale for lots in the North Tower were signed by Ian Morrison, a director of Silkfield Pty Ltd (Silkfield), on 18 October 1996. From 31 October 1996 to August of the following year, contracts of sale for lots in the North Tower, through the agency of Skye Court Pty Ltd (Skye Court) trading as Chris Couper & Associates, were signed by a number of purchasers. On 25 September 1997, purchasers of some 39 lots in the North Tower advised the solicitors for Silkfield that they were rescinding their contracts. The settlement date for contracts to purchase lots in the building was 14 October 1997. On that day, the solicitors for the identified group members advised the solicitors for Silkfield that the contracts were avoided and/or rescinded. 4 Also on 14 October 1997, the solicitor for the identified group members briefed counsel to draft an application in this court and a statement of claim in those proceedings (QG 167 of 1997). On 17 October 1997, writs for specific performance were issued in the Supreme Court of Queensland by Silkfield against some (but not all) of the identified group members. On 22 October 1997, a letter from the solicitor for the group members to the solicitor for Silkfield set out the grounds for rescission under s 49 of the Act. On 24 October 1997, the application and statement of claim in QG 177 of 1997 was served on Silkfield. 5 On 30 October 1997, further writs for specific performance were issued in the Supreme Court of Queensland by Silkfield. A total of 15 such writs were issued. On 5 December 1997, a notice of motion was filed by Silkfield seeking a declaration that it was not open to the claimed group members to commence representative proceedings. That motion was heard by the Court on 16 December 1997 and judgment was delivered by me, dismissing the motion, on 16 January 1998. On 2 February 1998 a notice of appeal was filed, and on 30 March that appeal was heard by a Full Court of the Federal Court, who gave judgment on 20 November 1998 allowing the appeal by a majority (with Foster J dissenting). 6 On 16 December 1998, an application for special leave to appeal to the High Court was filed by the present applicants, and on 16 April special leave was granted. A notice of appeal was subsequently filed by the applicants, pursuant to special leave, on 7 May 1999, and the appeal in the High Court was heard on 23 June 1999. On 9 September 1999, the High Court allowed the appeal. 7 From 18 October 1999 to 9 November 1999, 14 individual applications were filed in the Federal Court by group members who did not settle the purchases of specified lots in the North Tower. The applications were made against Silkfield and the cross-respondents in the first application, QG167 of 1997, as well as against associates of Silkfield. 8 Application Q277 of 1999 was then filed on 15 November 1999, and the statement of claim was filed on 16 November 1999. On 22 November 1999, I made orders giving leave to amend the application to include relief pursuant to s 87 of the Trade Practices Act 1974 (Cth), made directions concerning delivery of pleadings and the making of discovery, and fixed 22 February this year as the date before which group members had the right to opt out of the two representative applications. 9 On 17 March 2000, I made orders for mediation of the representative applications to take place in Auckland, New Zealand. Mediation was conducted by Mr Walter Sofronoff QC on 14, 15 and 16 June 2000. On 30 June 2000, a settlement deed relating to both representative applications was executed by solicitors for the applicants and by James Raptis for himself, Silkfield and Raptis Group Limited. 10 So far as proceedings Q25 of 2000 are concerned, Sing Tek (David) Lim and Ewe Poh Sim (Diana) Lim signed a contract to purchase one lot in the East Tower. They instructed the solicitors for the applicants in the representative proceedings, although they were not members of either group in those proceedings, in November 1997. They filed their separate application, QG 25 of 2000, on 30 March this year. Orders were made for pleadings and discovery on 28 April 2000. By agreement, however, they joined group members in proceedings QG 167 of 1997 at the close of the mediation in New Zealand, and gave instructions concerning settlement. Those matters were not the subject of agreement at the mediation, but a settlement deed was executed by the Raptis interests (James Raptis, Silkfield and Raptis Group) on 30 June 2000, and then by the real estate interests (Skye Court, Christopher and Darrin Couper, and Robert Buys) on 12 August 2000. 11 The settlement deed in proceedings Q 25 of 2000 was made conditional on the Court's sanction of the settlement deeds in the two previous Federal Court proceedings, which the Federal Court of Australia Act 1976 (Federal Court Act) provides must (as representative proceedings) be sanctioned by the Court. The relevant provisions of the Federal Court Act in this regard are set out below. 12 Section 33V provides: "(1) A representative proceeding may not be settled or discontinued without the approval of the Court. (2) If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court." 13 Section 33X(4) provides: "Unless the Court is satisfied that it is just to do so, an application for approval of a settlement under section 33V must not be determined unless notice has been given to group members." 14 Section 33Z provides, inter alia: "(1) The Court may, in determining a matter in a representative proceeding, do any one or more of the following: … (f) award damages in an aggregate amount without specifying amounts awarded in respect of individual group members; (g) Make such other order as the Court thinks just. (2) In making an order for an award of damages, the Court must make provision for the payment or distribution of the money to the group members entitled. (3) Subject to section 33V, the Court is not to make an award of damages under paragraph (1)(f) unless a reasonably accurate assessment can be made of the total amount to which group members will be entitled under the judgment." 15 Section 33ZB provides: "A judgment given in a representative proceeding: (a) must describe or otherwise identify the group members who will be affected by it; and (b) binds all such persons other than any person who has opted out of the proceeding under section 33J. 16 In this particular case, it is relevant to observe that notice is the key element which protects the interests of members of a particular group, as identified by para 147 of the Law Reform Commission Report No 46, entitled "Grouped Proceedings in the Federal Court" (1988). That report recommended procedures to provide specific safeguards to protect the interests of both group members and respondents, and the essence of the recommendations (at paragraphs 182, 189 and 218) underlines the importance of providing notice of any proposed settlement to group members and allowing them an opportunity to respond. 17 In this particular case, notice of the proposed settlement was given to group members, and they were given the opportunity to either indicate their agreement with, or dispute the fairness or reasonableness of, the proposed settlement. That notice is consistent with the observations found in Lopez v Star World Enterprises Pty Ltd [1999] FCA 104, an unreported Federal Court judgment of 28 January 1999, and is also consistent with the position in the United States, where notice is a key element in distributing funds. 18 On the present application it is relevant for the Court to take into account, on the question of whether to approve the proposed settlement, the likely cost and duration of the proceedings if approval is not given, the amount offered and the likelihood of success in the proceedings. In respect of the first consideration, absent approval of the proposed settlement the litigation would clearly be at great expense to group members who have thus far contributed legal fees. The anticipated legal costs of the matters proceeding to trial is more than a million dollars, and the position now is that those group members who instructed solicitors Hogan Besley Boyd in the representative proceedings, and who have paid the costs of the proceeding to date, have reached what I find to be an informed agreement with the respondents. 19 The remaining group members have not instituted their own proceedings or given instructions to settle. As to the amount offered and the likelihood of success in the proceedings, although there are three categories (broadly speaking) of applicants, the amount offered is equivalent to 40 per cent of the maximum claim in the proceedings plus costs on an indemnity basis. The estimated 40 per cent has to be seen in the context of the respondents' contention that they have a proper defence to the claims made in each of the proceedings; that the documentation provided in the selling process was not misleading or deceptive; and that they had proper grounds for terminating contracts that were not completed and good causes of action for specific performance in the Supreme Court. 20 Further, directions have been given in the proceedings for determining issues of liability before individual reliance. The conduct complained of as being misleading or deceptive, and reliance on that conduct, are put in issue by the respondents and the cross-respondents. Further again, during the mediation, the issue of quantification of capital loss claimed by those owners who settled and onsold was very much a matter in issue. 21 The loss of the originally identified group is limited to deposits and interest. The cost and risk of litigating these claims outweighs, so it is said, the benefit of the certainty achieved by settlement. Further, the Raptis Group interests put in issue their responsibility for the representations made, and there is a question created as to the worth of Silkfield by the registration of a charge over its assets on 5 May 1999. That aspect seems to me to be not of substantial weight, however, having regard to Silkfield's position as a subsidiary and indeed a selling vehicle for the substantial publicly listed company. 22 Further, it is said that taking into account the amount offered and the inevitable risks of litigation, the settlement sum, together with the buy-back offer, constitute an offer which a reasonably prudent and well advised group member would accept. The fact of the matter now is that each group member represented by Hogan Besley Boyd, and Mrs Lee (who was present at the mediation in Auckland) are willing to accept the proposed settlement. It seems to me that it remains only to consider the position of those persons who have not expressed their willingness to participate in the proposed deed of settlement. 23 So far as Mr and Mrs Harfield and Mr McGahan are concerned, they are aware of these proceedings, the settlement proposal, and today's application. Neither of those two purchasers have advised whether they read the s 49 statement, whether they relied on it, or whether any other representation was made on which they relied; nor have they provided evidence that they have suffered any damage. They have not instituted proceedings of their own. They did not avoid the contracts. Absent reliance on s 49, no relief is available to them as a consequence of the giving of the s 49 statement. 24 I think there is nothing unfair or unreasonable in the deed of settlement, which excludes them from any share in the proceeds. In particular, the position of Mr McGahan indicates to me that he is seeking to have an unquantified benefit conferred on him without him having contributed or having been involved in the settlement process. The fact is that he has not made out a claim for damages, and one rhetorically asks whether in fact he has suffered any. His position seems to me to typify that of a parasitical freeloader who is not prepared to do anything in his own self-interest which may have a cost to him. 25 So far as those group members who retain their lots are concerned, those who did not opt out will be bound by the terms of the settlement deed. Of those, only Mr and Mrs Van Drongelen are presently excluded. Almost at the last moment, Messrs Steven and George Tsai have indicated that they wish to be treated in the same way as the other members of the group who have retained their lots. 26 So far as Mr and Mrs Van Drongelen are concerned, the proposed deed of settlement, as varied to consider the position of Messrs Steven and George Tsai, excludes them from a remedy. I have had particular regard to the evidence concerning the Van Drongelens' position. In particular, on 13 July 2000 Clayton Utz (on behalf of the Raptis interests) wrote to them and said, amongst other things: "…if you still wish to be involved in the settlement process, our client is prepared to re-include your unit in those units which it will retake, refurbish and resell paying to you the original purchase price exclusive of air-conditioning and furniture costs. If you wish to be so involved in the settlement please confirm by return, and we will forward to you a copy of the deed agreement between our client and the class members." The letter also indicated that all class members are bound by the terms of those clauses in the proposed agreement which related to non-disclosure. 27 Cheryl and Kees Van Drongelen wrote on 22 July 2000 to Mr Hickey at Clayton Utz and referred, amongst other things, to a letter to them from Hogan Besley Boyd dated 22 June 2000, wherein Mrs Blucher of Hogan Besley Boyd had written: "The Deed of Settlement is being finalised this week. With that in mind, we must know whether you are inclined to be included in the settlement set out above [that is, for group members who still own their units], or not. If you do not wish to be included, then any further issues which you have will be between yourselves and the Respondents." The letter from Mr and Mrs Van Drongelen of 22 July said: "We do not wish to be included in the settlement as you have presented it to us in your fax (ie group members who still own their units). However this does not mean that we do not want a settlement. As suggested in your fax we will pursue this further with the respondents." The letter concluded: "As obviously neither your clients [being a reference to the Raptis interests] nor Hogan Besley Boyd are prepared to offer us compensation for losses incurred, we will seek further legal opinion. You have stated in your second to last paragraph that the offers to settle made to the class members were all made on the basis that non-disclosure clauses would be in any agreement. We have no agreement and therefore no non-disclosure agreement." 28 It is plain from the correspondence viewed overall, and in particular those passages to which I have referred, that the Van Drongelens' position is that they wish to have a settlement different from that proposed, but without any personal involvement by way of submission and inferentially by way of cost. They have certainly been aware of the proposed settlement, and of their exclusion from the benefits of it, and notwithstanding repeated communications have not attended or made any submissions concerning either the appropriateness of the settlement or their loss, if any. 29 I think it appropriate in this respect also to specifically refer to a letter of 25 September 2000 sent by Mrs Blucher to Mr and Mrs Van Drongelen which, amongst other things, enclosed the notices of motion and supporting affidavits then filed in the representative proceedings. The letter said: "As a group member you are entitled to be heard when the court considers the material before it. It is a matter for you to instruct solicitors to appear on your behalf (or appear in person) if you wish to be heard. We remind you that you can only notify the court of any interest you have if you do this. Once again, we strongly suggest that you should not wait any longer to obtain legal advice if you oppose the proposed settlement. The settlement makes no provision for repurchase of your unit." 30 Having regard to all of the material, and in particular to the inferences which I draw that, in a sense, the Van Drongelens want to have some of the cake without contributing in any way to the preparation of it, I do not think it either unreasonable or unfair for the deed of settlement to exclude them from participation in the proposals. 31 It seems to me that, having regard to the totality of the material before me, the making of the orders sought (as varied by the most recent negotiations with Messrs Steven and George Tsai and the amendments to the deed of settlement agreed as a consequence of that), is just. 32 By clause 3.3 of the settlement deed, the settlement sum is to be distributed by Hogan Besley Boyd in accordance with instructions from the identified group members as previously given to that firm. The settlement deed acknowledges that no part of the settlement sum will be paid to the entities listed in schedule 1B. It notes that Hogan Besley Boyd does not hold instructions from those entities. The settlement sum is to be distributed by that firm in accordance with the agreement contained in the "Heads of Agreement" document executed by group members in Auckland on 16 June 2000, which document is in evidence before me. 33 In the light of all the material before me and the reasons which I have just given, the orders that I make are as follows. 34 In the matter of QG 167 of 1997: (1) The representative proceedings commenced by application QG 167 of 1997 be settled on the terms contained in the settlement deed executed by the parties in applications QG 167 of 1997 and Q 277 of 1999; varied to delete from schedule 1B the name Steven Ming-Hong Tsai, and to include in schedule 3: Steven Ming-Hong Tsai (Lot 48) $222,000, and George Ming-Chou Tsai (Lot 65) $224,000. (2) The affidavit of Wendy Ann Blucher, sworn 14 September 2000, which incorporates the settlement deed as annexure WB10, as varied by order 1 of these orders, be sealed to give effect to clause 8.1 of the deed whereby the contents of the deed are to be kept confidential. 35 In the matter of Q 277 of 1999, I make the same orders, with the variation of substituting "Q 277 of 1999" for "QG 167 of 1997" where it first appears in the first order for proceedings QG 167 of 1997. 36 In proceedings Q 25 of 2000, I make these orders: (1) The proceedings commenced by application Q 25 of 2000 be settled on the terms contained in the settlement deed executed by the parties to that application. (2) The affidavit of Wendy Ann Blucher, sworn 20 September 2000, which incorporates the settlement deed as annexure WB1, be sealed to give effect to clause 9.1 of the deed whereby the contents of the deed are to be kept confidential. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender.

JAMES WONG & ORS v SILKFIELD PTY LTD AND SILKFIELD PTY LTD v SKYE COURT PTY LTD ACN 011 025 586 & ORS

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