JOSEPH GOODMAN v GLENHURST CORPORATION PTY LTD

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

ANNEXURE 'A' CONFIDENTIAL: NO ACCESS WITHOUT LEAVE OF A JUDGE OF THE COURT.

ANNEXURE 'B' Letter to be sent to group members «Title»«Given_Name»«Surname» «Address_Line_1» «Address_Line_2» «Street» «Locality»«State»«PostCode» Private & Confidential Dear «Title»«Surname» WESTPOINT COLLAPSE: The Australian Securities & Investments Commission's ('ASIC') class action: Joseph Goodman ('Applicant') against Glenhurst Corporation Pty Ltd ('Glenhurst') Federal Court Proceeding No VID 638 of 2008 (the 'Proceeding') 1. This notice relates to a class action (defined above as the Proceeding), arising out of the Westpoint collapse. This notice is sent to you by order of the Hon Justice Gordon made on 24 June 2010. 2. This notice is important and contains information which concerns your legal rights and money that may be paid to you. You should read it carefully. If you do not understand any part of it, please seek independent legal advice in relation to its contents. 3. On 24 June 2010 the Federal Court of Australia approved the settlement of the Proceeding. The settlement is now binding upon you. Glenhurst's insurer has until 12 August 2010 to pay the Settlement Sum of $2.5 million ('Settlement Sum'). The Liquidators of Glenhurst are entitled to deduct a maximum of $[] from the Settlement Sum on account of their costs and expenses. 4. Pursuant to the Settlement, the balance of the Settlement Sum is to be distributed among the Group Members in accordance with the formula set out at paragraph 8 of the Settlement Scheme based on the information contained in the approved Settlement Fund Distribution Schedule. 5. Your revised Estimated Settlement Amount, taking into account the Liquidators' Costs and an estimate of the STL Settlement Payments (as those terms are defined in the notice dated 31 May 2010) is [INSERT AMOUNT]. This is an estimate only, and may differ from the actual amount you may ultimately receive. 6. Assuming that no appeal is filed, the Liquidators are anticipated to distribute the settlement funds by cheques mailed to group members in the first week in September 2010. 7. It is advisable that you seek legal advice about this Notice, particularly if you do not understand any part of this document. ASIC is not able to give you legal advice. 8. If you have any questions regarding the contents of this letter or the settlement generally, please contact Christina Klemis of ASIC [christina.klemis@asic.gov.au or (03) 9280 3575)] or Joel Phibbs of ASIC on [joel.phibbs.@asic.gov.au or (03) 9280 3696)]. IN THE FEDERAL COURT OF AUSTRALIA

IN THE MATTER OF GLENHURST CORPORATION PTY LTD (IN LIQUIDATION) (ACN 006 277 087) BETWEEN: JOSEPH GOODMAN

AND: GLENHURST CORPORATION PTY LTD (IN LIQUIDATION) (ACN 006 277 087)

REASONS FOR JUDGMENT 1 The Australian Securities and Investments Commission (ASIC), with the consent of the named applicant (Joseph Goodman (the Applicant)), commenced this class action on 13 August 2008 pursuant to s 50 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) (the class action). By an application and statement of claim, the proceedings made claims against Glenhurst Corporation Pty Ltd (ACN 006 277 087) (in liquidation) (Glenhurst) in negligence, for breach of statutory duty by way of a breach of s 912A(1)(a) of the Corporations Act 2001 (Cth) (the Act), for misleading and deceptive conduct in breach of s 12DA of the ASIC Act and s 1041H of the Act, for negligent misstatement, for breach of ss 945A and 1012A of the Act in that Glenhurst failed to provide a product disclosure statement and other claims arising from the conduct of Glenhurst's representatives. The claim was for losses suffered by clients of Glenhurst who had invested in products issued by entities associated with Westpoint Corporation Pty Ltd (Westpoint). 2 As Glenhurst was a company in liquidation, the Applicant sought leave nunc pro tunc to begin and proceed with the proceedings pursuant to s 471B of the Act. On 16 September 2008, Finkelstein J granted the Applicant leave: Goodman v Glenhurst Corporation Pty Ltd [2008] FCA 1482. As his Honour noted in paragraph [3] of his reasons for decision, "the reason the [A]pplicant seeks leave to bring an action against an insolvent company is that [Glenhurst] has insurance cover which may indemnify it in respect to the claims being advanced by the Applicant and the group members." The insurer was QBE Insurance (Australia) Limited (ACN 003 191 035) (QBE). 3 On 10 February 2008, the Applicant obtained judgment in the class action against Glenhurst in default of appearance, for damages to be assessed and interest. 4 ASIC then commenced a further proceeding in the Supreme Court of Victoria (No 6973 of 2009) pursuant to s 50 of the ASIC Act on behalf of Glenhurst against QBE (the QBE Proceeding). QBE filed a defence on 10 July 2009. By that defence, QBE admitted the insurance policy, most of the terms of the policy, that the class action was a claim for compensation by the Applicant and the Group Members against Glenhurst alleging a breach of professional duty in the conduct of Glenhurst's profession but denied liability on a number of bases including: 1. in breach of cl 4.14 of the insurance policy and further misleading or deceptive conduct arising out of the non-disclosure by Glenhurst of the alleged failure of various entities in the Westpoint group to repay amounts invested in Westpoint products upon those repayments falling due; and 2. that the claims made against Glenhurst were directly or indirectly based upon, attributable to or in consequence of actual dishonest acts or omissions of Glenhurst, acts or omissions of Glenhurst committed with a reckless disregard for the consequences of those acts or omissions and wilful breaches of contract or duty by Glenhurst. 5 Glenhurst remains in liquidation. The Applicant and the Group Members cannot recover the full amount of their losses from Glenhurst. In fact, the liquidators of Glenhurst filed a Form 524 on 24 January 2010 indicating that they did not expect that a dividend would be paid to any class of creditor. 6 In April 2010, a Deed of Settlement was entered into between the Applicant, ASIC, Glenhurst, the liquidators of Glenhurst and QBE (the Goodman Deed). Pursuant to the Goodman Deed, the Applicant and Glenhurst have agreed to seek approval of a resolution of the assessment of damages in the class action. At the same time, a Deed of Settlement was entered into between Glenhurst, QBE and ASIC (the QBE Deed). Under the QBE Deed, QBE has agreed to pay to the liquidators of Glenhurst $2,500,000 (the Settlement Sum). Upon payment of the Settlement Sum, releases will take effect and consent orders will be filed in the QBE Proceeding to dismiss that proceeding with no order as to costs. It is the Goodman Deed which provides that the Settlement Sum will be distributed pro-rata according to the net capital loss of the Applicant and the Group Members whose names appear in the Settlement Sum Distribution Schedule to the Goodman Deed. 7 ASIC engaged AXIOM Forensics (AXIOM), an independent forensic accountant, to estimate the total of the Applicant and Group Member's claims against Glenhurst. AXIOM estimated the claims totalled $8,994,576. The total amount invested by the Applicant and the Group Members who stand to receive a payout under the settlement is estimated at $8,092,000. Under the terms of the proposed settlement, distribution pro-rata of the $2.5 million represents approximately 28% of the total net claims (being the amount invested less any capital returns) and approximately 34% of the capital invested. 8 ASIC will determine the claims and each eligible Group Member's individual proportion of the Settlement Sum. The Applicant's costs and the liquidator's costs will not be recovered except that (1) ASIC will retain any amount that remains after completion of administration of the scheme in respect of the Applicant's costs of the class action and (2) the liquidators will deduct costs of $24,578. Accordingly, the Settlement Sum to be paid by QBE will be distributed pro-rata according to the net capital loss of the Applicant and each Group Member. That net capital loss is the amount invested less any dividends the investors are paid by the liquidators of Glenhurst (see [5] above) and any other adjustments for amounts they have received including, for example, amounts received from the settlement of the State Trustees proceeding: see Casey v State Trustees Limited [2010] FCA 163.

GROUP MEMBERS AND NOTICES 9 There are 97 Group Members listed in the proposed amended Settlement Sum Distribution Schedule to be substituted to form part of the Goodman Deed. The proposed settlement includes an equal distribution to Group Members who had not made their own claim under the QBE insurance policy of Glenhurst. The majority of Group Members invested $50,000. Some invested considerably less. A number of investors invested considerably more. Given the size of the investments, there is no real risk that the total proofs of claim to be submitted will be less than the Settlement Sum agreed between ASIC and QBE. 10 By notice of motion dated 14 May 2010, the Applicant sought orders in respect of the form and content of the notice of approval of the settlement pursuant to s 33(4) of the Federal Court of Australia Act 1976 (Cth) (the FCA). On 18 May 2010, procedural orders were made for the distribution of a notice to Group Members, the publication of a notice in the newspaper and fixing the application to approve the settlement. 11 Pursuant to the Orders made on 18 May 2010, notices of objection to the settlement were received from five investors. One investor (Mr Dance) provided up to date contact details and advised of the death of his wife but did not otherwise object to the settlement. Another investor (Mr Krieser) objected because his name was omitted from the Settlement Sum Distribution Schedule to the Goodman Deed. ASIC accepts that his name should be included in the Schedule. That omission has been rectified in the proposed new Settlement Sum Distribution Schedule. 12 Three other investors (Messrs Buttigieg, Messrs Cutajar ($50,000) and Mr Dunn (to the extent of $150,000)) (the Maynards Objectors)objected on the basis that investments they had made in York Street Mezzanine Pty Ltd were not listed on the Settlement Sum Distribution Schedule to the Goodman Deed. The schedule does refer to some investments in York Street Mezzanine Pty Ltd Promissory Notes. ASIC submitted that the Maynards Objectors were not Group Members because in relation to the investments in Westpoint products listed in the notice of the objections filed by those investors, they did not invest on the advice of Glenhurst but through another financial adviser, Maynards Financial Services Pty Ltd (Maynards). In support of that contention, ASIC provided documentary evidence (including correspondence and ASIC records) relating to the investments listed in the notices of objection. I have read those materials. The ASIC records disclose that from 14 February 2004, Mr Coory (a financial advisor) ceased to hold a proper authority from Glenhurst and commenced as the holder of the proper authority for Maynards. The other documents establish that: 1. Messrs Cutajar invested after 14 February 2004 and using the services of Maynards, not Glenhurst; 2. Messrs Dunn invested $100,000 before 14 February 2004 on the advice of Glenhurst and that investment is included in the Settlement Fund Distribution Schedule. However, further investments totalling $150,000 were made after 14 February 2004 and using the services of Maynards, not Glenhurst; and 3. Messrs Buttigieg invested $150,000 before 14 February 2004 on the advice of Glenhurst and that investment is included in the Settlement Fund Distribution Schedule. However, a further investment of $200,000 was made after 14 February 2004 using the services of Maynards, not Glenhurst. In addition to the documentary evidence, Ms Klemis from ASIC, gave evidence of discussions by telephone with Mr Buttigieg. In general terms, ASIC sent a letter by courier to Mr Buttigieg outlining ASIC's position in relation to the investments through Maynards. Ms Klemis then spoke by telephone to Mr Buttigieg. Her evidence, which I accept, was that she explained to Mr Buttigieg that ASIC did not accept that the additional investment of $200,000 was to be included as part of the settlement because the amount related to investments made on the advice of Maynards and that Mr Buttigieg told her did not intend to appear today to suggest otherwise. In those circumstances, I accept ASIC's submissions that the amounts invested by the Maynards Objectors on the advice of Maynards are not to be included in the Settlement Fund Distribution Schedule and those investors are not to be included as Group Members in relation to those amounts.

Application for Approval, Relevant Principles and Analysis 13 In support of the application to approve the settlement, an affidavit sworn on 22 June 2010 by Ms Skreiner, Litigation Counsel for ASIC, explained the background to the litigation and the reasons it is thought that the Settlement Sum is to be regarded as a fair, reasonable and adequate compromise of the claims of the Group Members. The affidavit explained the settlement in the following terms: The total amount recoverable, not taking into account any of the claims that may have already been paid out under the QBE policy, would be the $4,000,000 limit of indemnity under the QBE policy. That amount is inclusive of costs. The proposed settlement involves QBE paying [the Settlement Sum] pursuant to that policy, almost all of which will be distributed to the Applicant and the Group Members. In addition to general risks associated with complex litigation of this nature, the following specific risks were taken into account in arriving at the proposed settlement: (a) QBE may successfully establish its pleaded defences, and consequently the QBE policy would not respond to the Glenhurst claim; (b) even if Glenhurst succeeded in the QBE proceeding, QBE may have appealed that decision which would have led to further delay and costs in recovering the amount for the Applicant and Group Members; (c) the $4,000,000 limit of indemnity under the QBE policy is, pursuant to the policy, inclusive of costs; (d) any and all other claims already paid out by QBE under the QBE Policy would have been subtracted from the $4,000,000 limit of indemnity; (e) the default judgment against Glenhurst could be set aside. 14 Exhibited to Ms Skreiner's affidavit was advice from Counsel. That advice deals with the prospects of success. Counsel is of the view that in the circumstances it was appropriate for the proceedings to be settled on the terms set out above. 15 Being an action commenced under Pt IVA of the FCA, the class action cannot be compromised without the approval of the Court: s 33V of the FCA. The Applicant and Glenhurst seek that approval. The principles that govern approval applications under s 33V of the FCA are well established: see Dorajay Pty Ltd v Aristocrat Leisure Limited [2009] FCA 19 at [10] and [11] and the authorities there cited. 16 The task of the Court in determining whether approval should be given under s 33V of the FCA is to determine whether the proposed settlement or compromise is fair, reasonable and adequate having regard to the claims made on behalf of the Group Members who will be bound to the settlement and to be satisfied that any settlement or discontinuance of representative proceedings has been undertaken in the interests of the Group Members as a whole and not just in the interests of the Applicant and the Respondent: Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 at 258 and Haslam v Money for Living (Aust) Pty Ltd (Administrators Appointed) [2007] FCA 897. 17 Consistent with those principles, I would approve the proposed settlement of these proceedings. The amount each Group Member will recover is a substantial proportion of the loss. No Group Member is required to bear any costs. The litigation is being settled after judgment and before assessment of damages which will avoid significant costs and uncertainties and will avoid the need for an examination of Glenhurst's conduct in relation to the QBE insurance policy. The Applicant has been advised that regardless of the total amount of the claims, QBE's liability would be capped at $4 million inclusive of costs and expenses. Glenhurst remains in liquidation and the Applicant and the Group Members cannot recover the full amount of their losses from Glenhurst: see [5] above. Counsels' advice is that settlement is fair, reasonable and adequate. As a result of those facts and matters, the general risks of litigation and the specific risks associated with this proceeding (see [13] above), the settlement of $2.5 million out of a possible $4 million (less costs and expenses) is fair, reasonable and adequate having regard to the claims made by the Applicant and the Group Members. 18 I note that Group Members who did not make their own claim under the QBE policy will participate in the settlement and receive the same pro-rata distribution as those members who did make a direct claim. In my view, the inclusion of those investors as Group Members and their participation in the settlement on the same terms is fair, reasonable and adequate. The fact that they did not make a direct claim under the QBE policy is not through any fault on their part. It was an error and omission by Glenhurst. Counsel for ASIC submitted that their claims against Glenhurst are equally as strong as the claims of the other Group Member. It is unnecessary to assess the accuracy of that submission. For present purposes, it is sufficient that all Group Members who invested in Westpoint Products did so on the advice of Glenhurst. 19 For those reasons, there will be Orders approving the settlement in accordance with the minutes of proposed orders which I have initialled and directed be placed on the Court file. A number of exhibits to two affidavits filed in support of the approval application, together with Annexure A to those Orders, are confidential and appropriate Orders limiting disclosure of those documents will be made accordingly. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.