Kenquist Nominees Pty Limited ATF The Kenquist Superannuation Fund v Campbell

THE COURT NOTES THAT: Any releases, or covenants not to sue given by group members are restricted to the claims the subject of this proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MCKERRACHER J: 1 The applicant seeks orders for the approval of the settlement of this proceeding pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (FCA), including the approval of the Settlement Distribution Scheme (SDS) which provides for specified deductions from the $7 million settlement sum. 2 This proceeding was brought by the applicant in 2015 as a representative proceeding on behalf of persons who purchased shares in a pharmaceutical company listed on the Australian Securities Exchange Limited during a certain period. Broadly speaking, the applicant claims that the company, through its directors, and financial and legal advisers, failed to disclose material information to potential investors. It is not necessary for present purposes to examine the details of the claim however a helpful summary can be found in Kenquist Nominees Pty Ltd v Campbell (No 2) [2016] FCA 911 per Yates J (at [3]-[17]). 3 As these reasons reveal, the outcome for the applicant has not been as favourable as may have been hoped by some at the outset; despite this, there is no reason, having regard to the steps taken and investigations conducted, to consider that a better settlement would be achievable. 4 The applicant relies upon an affidavit of Mr Wilks of Corrs Chambers Westgarth (its solicitor) dated 21 September 2020 (which is partly confidential), (the Wilks affidavit). Relevantly it annexes the following key documents (a) a copy of the partly confidential opinion of counsel as to the fairness and reasonableness of the proposed settlement (Counsel's Opinion); (b) a copy of the confidential Settlement and Release Deed executed by the parties on 4 February 2020; (c) a copy of the proposed revised confidential SDS (which has been slightly amended from that referred to in the initial application for approval so as to 'update' certain specified dollar figures) (Revised Scheme); and (d) the opinion of an expert costs consultant, Mr Matters contained in a reports dated 21September 2020. Mr Matters also prepared a second report to supplement his initial opinion which was annexed to a further affidavit of Mr Wilks sworn on 22 September 2020 (second Wilks affidavit). 5 Counsel's Opinion, which is detailed and comprehensive, was prepared by Mr Edwards, who appeared for the applicant at the hearing. The substance of Mr Edwards' oral submissions mirrored the Counsel's Opinion in support of the approval of settlement of this proceeding. A not insignificant portion of Counsel's Opinion was privileged and/or confidential. In that regard, although his ultimate opinion, (that the proposed settlement embodied in the Deed and the distribution for which the Revised Scheme provides is fair and reasonable and in the interests of Group Members), is not confidential, much of Mr Edwards' detailed reasoning to arrive at this conclusion is confidential and privileged.

MATTERS ADDRESSED IN COUNSEL'S OPINION 6 In oral submissions Mr Edwards adopted the structure of Counsel's Opinion as follows: (a) Section 1 (Introduction): (i) a summary of the background and parameters of the opinion, including a summary of the relevant principles governing s 33V approval applications, including by reference to the Court's Practice Note GPN-CA; (ii) a summary of counsel's involvement in the proceedings, given the somewhat unusual circumstance that the opinion was prepared by someone other than the counsel who originally had carriage of the proceeding. Certain confidential matters are also included as to the circumstances in which Mr Edwards came to be briefed; (b) Section 2 (Complexity, Duration and Stage of Proceedings): a summary of the issues in the applicant's case, and observations as to the complexity, duration, and stage of settlement; (c) Section 3 (Risks of Establishing Liability): after an analysis of the pleadings, counsel's confidential assessment of the merits of the applicant's liability case; (d) Section 4 (Risks of Establishing Causation, Loss and Damage): Counsel's confidential assessment of the risks of establishing causation, loss and damage; (e) Section 5 (Consideration of the Fairness and Reasonableness of the Settlement Sum): Counsel's consideration of the fairness and reasonableness of the settlement sum, including certain confidential matters, noting that: (i) counsel has openly stated certain legal matters, including changes in law post-dating the mediation which bear upon this question; and (ii) counsel gives consideration confidentially to the effect of those developments; (f) Section 6 (Consideration of Releases): Counsel considers openly, but in general terms, the fairness of the releases for which the (confidential) Deed provides, including the implications of the law in this area for the form of orders the Court may make; (g) Section 7 (Consideration of Fairness and Reasonableness of the SDS and proposed deductions): Counsel openly considers the fairness and reasonableness of the SDS, and the proposed deductions from the Settlement Sum, save in relation to certain confidential (and privileged) matters, noting that: (i) Subsection (B) of the opinion concerns proposed deductions in respect of legal costs and disbursements, and counsel expresses his opinion subject to an assumption that the costs consultant will prepare a further report to complete certain work identified by him that he had not yet done at the date of the opinion. The detailed conclusions of the costs consultant have been treated as confidential, given that, were the settlement not approved, this information may provide a forensic advantage to the Respondents. That report has been prepared and produced and supports the applicant's proposed orders; (ii) Subsection (C) concerns proposed deductions in respect of After-The-Event (ATE) insurance costs, part of which is confidential as it relates to the terms of the ATE policy, the premiums for which are sought to be deducted, but in respect of which the applicant owes certain obligations of confidence to the insurer (which would be live in the event the settlement were not approved); (iii) Subsection (D) concerns the proposed deduction in respect of the 'Applicant's Reimbursement Payment' for time and inconvenience; (iv) Subsection (E) concerns Administration Costs of the SDS; (v) Subsection (F) concerns the proposed 'equalisation order', by reason of which it is proposed that approved deductions be shared across all Group Members, regardless of whether they signed litigation funding agreements with JustKapital Portfolio Pty Limited (the Funder), or not. (vi) Subsection (G) contains counsel's conclusion. 7 Counsel has an obligation to independently consider whether the deductions sought meet the requirement of being fair and reasonable and in the interests of group members. This is an added duty beyond simply advocating for the deductions sought. I am satisfied that the approach adopted in Counsel's Opinion considers the law and the facts of this particular case as objectively as possible, and that a view has properly been reached on whether the deductions sought by the applicants are fair and reasonable. 8 Leave was also granted for counsel to appear for the Funder. The Funder and the applicant rely on an affidavit sworn by Mr Roberts, a solicitor for the Funder who explained that in order to maximise return to the applicant, in the somewhat unusual circumstances of this case where a different legal team and a new funder became involved in the proceeding, the Funder had agreed amongst other things, to forego any entitlement to a multiple of the costs paid or 40% of the gross proceeds as commission, to relinquish its rights to be paid a substantial monthly management fee, and to negotiate to reduce an amount payable by way of contingent premium under the ATE insurance policy.

CONFIDENTIALITY ORDER 9 The applicant seeks a non-publication order in respect of identified material in the Wilks affidavit and the second Wilks affidavit, including Counsel's Opinion. The non-publication order is warranted in the present circumstances to prevent prejudice to the proper administration of justice. It is important to encourage candour in the preparation of material on an application such as this. I am satisfied that the material over which confidentiality orders are sought is properly confidential. It includes the candid assessment by legal practitioners acting for the applicant of the risks associated with the claims in this case (both factually, and legally). That material is privileged and is only disclosed by practitioners in these applications such that the Court can properly protect the interests of non-parties, being the Group Members. 10 A further relevant factor is that there is likely to be a commonality of issues as between this proceeding and other representative proceedings of this kind. In these circumstances, the candid views of counsel and instructing solicitors, including in respect of, for example, assessment methodologies for claim value and legal risks, which would ordinarily be protected from disclosure pursuant to legal professional privilege, may be relevant to other existing or future representative proceedings in which counsel and instructing solicitors act. The public disclosure of such information, and particularly the views of the legal representatives, may present respondents in those proceedings with an unfair advantage which may prejudice the interests of the applicants and potential group members in those other cases.

ASSESSMENT 11 Without repeating all the matters raised orally and in the materials, I am satisfied on the basis of the evidence, including Counsel's Opinion, as to the following matters: 12 The proceedings are complex - both factually and legally. They encompass factual issues concerning pharmacological matters, United States law and regulatory processes, and legal issues concerning the scope of liability of directors and advisors under the law of statutory knowing involvement, together with 'market based causation'. The last issue was one which was likely to be highly contentious at trial, and which typically involves evidence concerning the efficiency of the market in aid of the proposition that the share price was inflated by non- disclosure of material information. The nature and complexity of such evidence is demonstrated in the relatively recent decision of this Court in TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Limited [2019] FCA 1747, delivered after the mediation of this matter. A review of the reasons of Beach J in Myer indicates the complex nature of these proceedings (see, for example at [1514]-[1537]), as well as providing an indication of the time and expense that would have been involved in taking them to trial. 13 With the prospect of appeals and the individual determination of Group Members' claims, assuming success at a trial on common issues, the applicant and Group Members would be unlikely to have received any money from the litigation until 2022 at the earliest. 14 Very detailed attention was given and disclosed confidentially by counsel as to the applicant's prospects on liability, causation, loss and damage. 15 As to the reasonableness of the settlement sum of $7 million in the aggregate, the American Law Institute has noted the following in its Principles of the Law of Aggregate Litigation (2010) s1.04 (Comment f): Ideally, the amount of compensation a claimant receives should reflect the merits of the claim itself, including the likelihood that the claimant would prevail at trial and the amount the claimant would win. In practice, the ideal is rarely achieved. Rough justice is normal in aggregate proceedings. (see also: M. Legg, 'Class Action Settlement in Australia: Compensation on the Merits or Rough Justice', UNSW CLE: Class Actions: Case Management, Mediation and Settlement Distributions in Focus, 15 March 2016 (at 9-10). 16 At the time of the final mediation in August 2019, the solicitors for the applicants had in their possession claims data in respect of the 628 Original Registered Group Members and the claims of an additional 10 persons who had sought to register after the expiry of the initial registration deadline on 16 November 2018. It is appropriate in assessing the estimated aggregate value of claims to have regard to the totality of registered data, and not just the claim values known at the initial cut-off period. The mediation, however, did proceed on the basis that what was being negotiated was a settlement sum that would go only to Original Registered Group Members, and that persons who had not registered by this point in time would not participate. 17 A difficulty (one of a number) arose however, following the decision in BMW Australia Ltd v Brewster; Westpac Banking Corporation v Lenthall [2019] HCA 45, which was delivered on 4 December 2019. BMW concerned a challenge to the power of courts to make a 'common fund order' pursuant to s 33ZF of the FCA and s 183 of the Civil Procedure Act 2005 (NSW). The High Court considered that s 33ZF did not authorise the making of such an order, and in so doing it articulated a narrower understanding of the ambit of s 33ZF than had previously been understood. Section 33ZF of the FCA had been the source of power by which the Federal Court had regularly made 'class closure' and 'registration' orders, and was the juridical basis of the Full Court's decision endorsing such orders in Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (2017) 252 FCR 1 - an order of that kind was made in these proceedings on 13 September 2018. 18 In the wake of BMW, a challenge was mounted to the making of such orders in the Supreme Court of New South Wales under the cognate legislation to s 33ZF (s 183 of the Civil Procedure Act). That question was referred to the Court of Appeal of the Supreme Court of New South Wales in Haselhurst v Toyota Motor Corporation Australia [2020] NSWCA 66, where a five judge bench of that Court held that such 'class closure' orders were beyond power on the basis that they effected a contingent extinguishment of group members choses in action. That decision was handed down in April 2020. 19 The Court of Appeal subsequently reiterated its position in Wigmans v AMP Ltd [2020] NSWCA 104 and expressed the view that a number of decisions of this Court that had sought to distinguish Haselhurst were incorrect (see Fisher (trustee for the Tramik Super Fund Trust) v Vocus Group Ltd (No 2) [2020] FCA 579 per Moshinsky J and Inabu Pty Ltd as trustee for the Alidas Superannuation Fund v CIMIC Group Limited [2020] FCA 510 per Jagot J with both cases following the approach taken by Beach J in Newstart 123 Pty Ltd v Billabong International Ltd [2016] FCA 1194). Further, on 1 June 2020 (three days before the handing down of Wigmans), this Court followed Haselhurst and cast doubt on the statements made about the breadth of s 33ZF in Melbourne City Investments and noted that that decision must now be approached with caution after the High Court's decision in BMW: The Owners - Strata Plan No 87231 v 3A Composites GmbH (No 3) [2020] FCA 748 per Wigney J (at [185]-[186]). 20 Although the final mediation took place in August 2019, the Deed was not entered into by the parties until February 2020 due to the sudden and unexpected death of one of the respondents. This most unfortunate delay in the chronology of this case explains the relevance of the recent decisions outlined above. The settlement reached at that time was on the basis of aggregate assessments of the claims only, and the assumption that orders requiring registration or 'class closure orders' made at an early stage in the proceeding were within power. These recent decisions cast doubt on the validity of the registration order made on 13 September 2018 in this proceeding which purported to bar members from participation in the settlement who failed to register. In Wigmans, however, the Court of Appeal left open the following: We can also envisage cases where there has been an in principle settlement, after which group members are notified, and given the opportunity to participate (it might be expected that such notification would advise the quantum offered to group members and the mechanism by which their claims would be assessed), and if what Beach J [in Newstart] has written about unregistered group members being given adequate opportunity to participate is understood in that sense, then to that extent there is no difficulty with the reasoning. In reliance on this passage, when the present application was initially brought before Yates J, an additional registration process was ordered, allowing group members to register to participate in the settlement up until 18 September 2020. Counsel then confidentially explains his approach to considering what, if any, impact the addition of new members could have on the overall fairness of the settlement. 21 There is also a confidential analysis as to the consideration of the Settlement Sum on a risk-weighted basis, the risks of maintaining the proceeding and the apparent ability or otherwise of the respondents to withstand a greater amount in judgment. 22 There is then an analysis of the consideration of the fairness and reasonableness of the releases required to be given by group members pursuant to the Deed. Of course, the release does not extend beyond the claims the subject of this proceeding. As Lee J said in Smith v Commonwealth of Australia (No 2) [2020] FCA 837 (at [145]): … the reason why settlements of class actions work is that the claim as between the applicant and the respondent is settled in accordance with usual principles that attend settlement of litigation between parties. The reason why there is a settlement and quelling of the claims as between the group members and the respondent, is that by a combined operation of ss 33V and 33ZB a "statutory estoppel" is created. That is why it is important for a s 33ZB order to accompany a s 33V order. This reflects the fact that orders are being made which bind persons who are not parties to the proceeding. 23 To the extent the definition of 'Claims' in the Deed extends beyond the claims the subject of the proceeding, the applicant cannot bind group members, and the Court cannot make s 33ZB orders binding on group members. One would necessarily construe the definition of 'Claims' in the Deed as limited in this sense, and on that basis make the orders (if the Court is otherwise inclined to approve the settlement). The practice of the Court in like situations has been to expressly note in the orders that 'Any releases, or covenants not to sue given by group members are restricted to the claims the subject of these proceedings': see Santa Trade Concerns Pty Limited v Robinson (No 2) [2018] FCA 1491 per Lee J (at [23]). On this basis, it is fair and reasonable and in the interests of Group Members to give the releases as the price of obtaining the settlement offered, and for the s 33ZB order to bind them to such releases in the manner described above. 24 The SDS provides the mechanism for equalising the position of all Group Members inter se, so far as the deduction of various categories of costs is concerned: (1) legal costs, both paid and unpaid; (2) ATE costs, paid and unpaid; (3) the applicant's reimbursement payment; (4) costs of the additional registration process; and (5) administration costs. 25 It is proposed that a partner of KPMG, accountants, be appointed as the administrator of the SDS. That large firm has provided a capped quote for such services and has familiarity with the role by reason of work done during the litigation on claim assessment and quantification. 26 The SDS contains other provisions regulating the role of the administrator and the administrator's role and immunities, including as to creation of a database, the provision of notices of estimated distribution and verification of claims, the mode of distribution and provision of distribution statements, the application of interest and determination of any trust income, dispute resolution processes in orthodox form and the reporting of conclusion of the administration to the Court. 27 Counsel then analyses in detail the deductions of various costs and expenses including legal costs on which further independent expert advice has been provided by the expert costs consultant, Mr Matters. The amount of costs which the applicant now seeks the Court to approve is less than the full amount incurred, less than the amount considered by Mr Matters to be reasonable (noting Corrs' decision to limit its professional fees to 75% of its incurred and invoiced professional fees), and also less than the amounts that were notified to Group Members in the s 33V notice issued pursuant to the Court's 10 August 2020 orders. 28 As to costs paid directly by the Funder, the applicant seeks the Court's approval via the SDS for reimbursement to the Funder of the paid component of certain ATE insurance premiums, together with the costs of procuring deeds of indemnity from the insurer to satisfy orders that were made for security for costs. Counsel gives a detailed explanation as to his view that the deductions of ATE insurance premiums from the settlement sum is reasonable on the basis of recognised legal authority. The ATE Policy provided some indirect benefit to the applicant and all Group Members by giving the applicant an additional source from which to cover any adverse costs exposure beyond the Funder's financial capacity (if that were to become an issue) up to the limit of cover, and this in turn facilitated them conducting the proceeding as representatives on behalf of the group more generally, 29 The SDS makes provision for a further deduction from the settlement sum, namely a reimbursement payment to the applicant of $4,500. It is a relatively small sum supported by affidavit verifying that the applicant has spent considerable time acting on behalf of Group Members. 30 There are also registration costs and administration costs. The (capped) costs of administering the settlement should be borne by the settlement amount. KPMG has agreed not to charge anything beyond its initial estimate notwithstanding that additional work has been necessitated by the number of New Registered Group Members. 31 There is a funding equalisation order proposed. It is only to operate in respect of costs incurred, and not in respect of any Funder's commission, as no commission is proposed to be charged in this settlement. This latter caveat is important because much of the debate, and change in the law in this area has related to the sharing of commission, not costs. Counsel explains in a very detailed way the background and history of orders of that nature in this Court. I will not repeat the analysis which is part of the public record. This case was commenced in November 2015 on an 'open class' basis, but also on the basis that a number of Group Members had signed litigation funding agreements, with the former Funder (Litman), as continued by the current Funder (JustKapital) in 2016. The key consideration on this approval application is that no commission is sought, and the equalisation order now sought is to ensure an equal distribution amongst the Group Members when factoring in the costs burden. 32 More will be available to Group Members than was notified to them in the s 33V notice. When the notice of proposed settlement was sent to Group Members it advised that, following the proposed deductions, the net amount available to Group Members would be approximately $1,930,967.35, being approximately 27.5% of the $7 million settlement sum. The proposed deductions have been reduced by the fact that Corrs has agreed to limit its professional fees to 75% of its incurred and invoiced professional fees. The evidence now is that the net amount of the settlement available to Group Members will be approximately $2,340,837.60, being approximately 33.44% of the $7 million settlement sum. 33 The percentage of the settlement which will be available to Group Members if the deductions are approved as set out above is not high, but has been increased by Corrs' approach to its fees. While in other cases courts have approved settlements which resulted in relatively low percentages of the settlement going to group members such as Santa, (where group members received approximately 30% of the settlement sum), and Petersen Superannuation Fund Pty Ltd v Bank of Queensland (No 3) [2018] FCA 1842, (where ultimately 33% of the settlement sum was available for distribution to group members) and Caason Investments Pty Ltd v Cao (No 2) [2018] FCA 527 (where the proportion of the settlement sum available for distribution following approved deductions was approximately 31%), it is still the case that the net amount proposed to be available to group members from this settlement is towards the low end of the range which courts have been prepared to approve. It is, however, within the range which the Court has historically been prepared to approve, due largely to Corrs' reduction of professional fees. Further, if the deductions are properly to be assessed individually as fair and reasonable, the mere fact that they consume a high proportion of the settlement is not a basis for denying them. This is especially so where the legal practitioners have voluntarily written down, and not sought to recover, fees which they have incurred to try and advance the claims of the applicant and Group Members and produce a resolution of them and in circumstances where the settlement can otherwise be regarded as fair and reasonable. 34 No objections of substance to the proposed settlement have been received, and no Group Members have indicated a desire to be heard.

DISPOSITION 35 On the basis of these matters, the proposed settlement embodied in the Deed and the distribution for which the SDS provides is fair and reasonable and in the interests of Group Members. It is approved pursuant to s 33V of the FCA. 36 Orders will be made accordingly. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McKerracher.

SCHEDULE OF PARTIES NSD 1364 of 2015 Respondents Fourth Respondent: MORGANS CORPORATE LIMITED ACN 010 539 607 Fifth Respondent: DIBBSBARKER