King v AG Australia Holdings Ltd

REASONS FOR JUDGMENT Introduction 1 On 26 August 2003 I approved a settlement between Mr King ("the applicant") and the first respondent, AG Australia Holdings Ltd (formerly GIO Australia Holdings Ltd) ("GIO"). While the settlement resolved most issues between the parties, it did not finally resolve which of all the former shareholders of GIO would receive compensation from the settlement fund established as a result of the settlement. These reasons deal with the issue of which former shareholders will participate in the settlement. Why it is necessary for the issue to be considered by the Court will be apparent shortly. Reasons for the approval of the settlement were published on 17 September 2003: see [2003] FCA 980. It is convenient to repeat some of the background leading to the settlement in the way in which it was described in those reasons. The settlement scheme is annexure "A" to these reasons. 2 The settlement was of a representative proceeding the applicant had commenced on 31 August 1999 against GIO, an adviser to that company, and its directors. The proceeding was brought under Part IVA of the Federal Court of Australia Act 1976 (Cth). On 8 September 2003 I made orders effectively disposing of the proceeding concerning the other respondents and also orders dealing with cross-claims involving both the original respondents and third parties. All the orders have been made by consent. 3 The applicant has been represented in the proceeding by Maurice Blackburn Cashman ("MBC"). The applicant alleged that he and the members of the representative group were shareholders in GIO when it was the subject of a hostile takeover bid by AMP Insurance Investment Holdings Pty Ltd ("AMP"). They did not sell their shares and the gist of the case maintained by the applicant was that by retaining the shares, he and the other members of the group suffered loss. That loss was caused by the misleading and deceptive conduct of the respondents (while that simplifies the allegations, it is an adequate description for present purposes). A significant element in the conduct complained of was a Part B statement issued in late 1998. A summary of the applicant's case (as then formulated) can be found in King v GIO Australia Ltd (2000) 100 FCR 209 at 215. Much of that case (but by no means all) is based on allegations that the respondents, including GIO, engaged in conduct in contravention of Part V of the Trade Practices Act 1974 (Cth). In December 1999, AMP compulsorily acquired all remaining shares in GIO at a price which was only a little more than half the price offered a year earlier. 4 For the applicant to have succeeded both on his behalf and on behalf of all the group members, it would have been necessary for him to have established that the conduct complained of was unlawful. The determination of that question (though the issues were, in fact, more complex) was fixed for hearing in May 2004 and, in all probability, the hearing would have taken several months. If the applicant had been successful then attention would have turned to the position of individual group members. In order for any individual group member to have established an entitlement to damages, it would have been necessary to demonstrate they did not sell their shares because of the conduct of the respondents. This description represents a gloss on the issues and the path the proceeding was likely to take. However, it serves to illustrate that the potential liability of the respondents to the claims made by the applicant (on his and the group members' behalf) and the correlative prospects of success for group members, depended substantially on the question of whether an individual group member relied on the content of the Part B statement. One of the criteria for group membership was that the shareholder did not accept the takeover offer by reason of the representations and conduct of the respondents. 5 The history of the composition of the group and the number of group members is discussed at [4] - [10] of my reasons of 17 September 2003 for approving the settlement. However I should mention three matters. The first is the procedure adopted to enable potential group members to opt out, the second is a process undertaken in early 2003 involving sending group members a "Form A" for completion, and the third is a process undertaken in mid 2003 involving sending group members a "Form C". When the proceeding commenced there were approximately 67,000 shareholders who, potentially, might have a compensable claim, assuming the matters referred to in the preceding paragraph were established. These 67,000 were the shareholders who owned and retained shares during the period of the hostile takeover bid. Of these shareholders, approximately 22,000 retained MBC to act on their behalf. In early 2001, approximately 18,000 potential group members opted out of the proceeding. This occurred after a notice was sent to all potential group members indicating they could opt out of the proceedings as contemplated by s 33J of the Federal Court of Australia Act 1976 (Cth). This left approximately 50,000 shareholders who may have had a compensable claim against the respondents. Some people may not have opted out because they believed they were never in the representative group. Some may have known that they retained shares during the hostile takeover bid for reasons unrelated to the conduct of the respondents. 6 By the middle of 2002, it was clear that GIO wanted to take steps to ascertain, as best it could, the number of shareholders who really had and would wish to pursue a claim of the type identified by the applicant in the pleadings. Plainly enough (and this was made clear by counsel appearing for GIO in submissions they made) GIO wanted to have some understanding of its potential liability in the proceeding. Its potential liability would be relevant to any discussions directed towards settlement. In a judgment I gave on 11 July 2002 ((2002) 121 FCR 480), I made orders (which were opposed by the applicant) designed to facilitate communications between GIO and shareholders for the purpose just discussed. In a later judgment given on 16 December 2002 ([2002] FCA 1560) I effectively authorised (over the opposition of the applicant) GIO to send out a questionnaire to ascertain which shareholders viewed themselves as not being a group member and which shareholders did not want to participate in the proceeding (whether or not they were a group member). The questionnaire was also intended to elicit some basic information about the nature of any claim from those shareholders who did not take either of those positions, including information concerning reliance. Of those who were sent the questionnaire, approximately 5,000 responded by returning a form, "Form A", indicating they either did not consider themselves to be a group member or they did not wish to participate in the proceeding. 7 The third matter is of importance to the issue I am addressing in these reasons, namely the "Form C" process. In June 2003, the applicant (supported by GIO) applied for orders intended to crystallise the number of shareholders who wished to continue to participate in the proceeding by asserting a claim of the type alleged by the applicant (on behalf of each member of the representative group) at the commencement of the proceeding and to whom GIO (and other respondents) might be liable. The orders had the effect of redefining the representative group. I made those orders on 19 June 2003. I did so because a point had been reached where, in my opinion, it was appropriate and fair to attempt to identify with precision the shareholders (and their identity) on whose behalf the proceeding was being maintained in substance and not merely in form. The central order redefining the class was in the following terms: On 7 August 2003 the Fifth Application and the Seventh Further Amended Statement of Claim be amended to provide that the group members to whom the proceeding relates within the meaning of s 33H of the Act be the identified group members [in effect the shareholders who completed and returned a form they were sent] provided that the addition or deletion of persons to or from the said list may be effected at any time by the Court if it is satisfied that the omission or inclusion of the person on the said list was the result of an error by any party, its representative or the Court or otherwise. The words "or otherwise" were added by me to the draft proposed by the parties to allow the Court to deal with any unforseen consequences of the course that was then being charted for the proceeding. 8 As a result of the orders, all shareholders who had not opted out (other than clients of MBC and the 5,000 shareholders referred to in [6] above) were sent a letter to an address in a database maintained by GIO. The letter was headed "IF YOU WISH TO PARTICIPATE IN THIS REPRESENTATIVE ACTION FOR COMPENSATION YOU MUST COMPLY WITH THIS NOTICE. IF YOU DO NOT DO SO YOUR RIGHTS MAY BE LOST". The letter was ultimately sent to 25,806 people. 9 The letter contained a form described as "Form C", which the recipient was told had to be filled out and returned by 24 July 2003 (in a reply paid envelope included with the letter) for the recipient to continue as a group member. The letter contained a lengthy explanation about what had to be done and what was occurring. One of the orders made on 19 June 2003 was that the members of the group would be redefined by reference to a list of people who completed and returned "Form C". The letter sent with "Form C" correctly stated the position concerning the effect of not returning the form by 24 July 2003. In addition to the letter, advertisements were placed in both the Australian newspaper and a major metropolitan daily newspaper in each capital city advising that these steps had to be taken to remain a member of the representative group. Of those who were sent the letter, 1957 returned a completed "Form C" within the specified time (what occurred is a little more complex but this description is sufficient for present purposes). They became members of the representative group redefined by the orders made on 19 June 2003 (and later varied in minor respects which need not be detailed). On behalf of its clients, MBC completed and returned "Form C"s with the result that a further 21,142 people became members of the representative group, redefined by the orders made on 19 June 2003. By this process the representative group totalled 23,099. This was apparent by early August 2003. This group was called the Schedule of Identified Group Members ("SIGM") and became the representative group on whose behalf the proceeding was being maintained. 10 I was then acting on the basis that the combined effect of ss 33ZB and 33ZE of Part IVA was as follows. Any judgment ultimately given would not bind people who may have initially been members of the representative group but were not one of the 23,099 who had completed "Form C" and became, in aggregate, the representative group by the orders made on 19 June 2003. Those who did not become part of the redefined representative group had the benefit of a temporary suspension of limitation periods in which they could sue at least until 7 August 2003. At the hearing on 19 June 2003, no party demurred from these propositions (and in particular the effect of the orders on any limitation periods) when they were discussed. 11 The matter was listed for hearing on 25, 26 and 27 November 2003 to revise the SIGM which, as amended, will become the Final List of Identified Group Members ("FLIGM"), as defined in Clause 2.1 of the Settlement Scheme. It is only the people in the FLIGM who will participate in the settlement. 12 Following the settlement and subsequent publicity, MBC received a number of enquiries from people asserting a right to participate in the settlement who did not appear on the SIGM. In addition, there are a number of individuals who MBC suggests be excluded from or added to the SIGM on a range of grounds. These reasons deal with these issues. MBC has grouped these people into categories. A convenient way of structuring these reasons is to set out the categories and the principles applied by MBC in each category when proposing whether an individual or entity should be excluded or included in the SIGM. These reasons are intended to provide a public record of the approach I have adopted to each category and, generally, the result of adopting it. During the hearing on 25, 26 and 27 November 2003 I made a number of rulings concerning the circumstances of specific individuals. Generally, I do not propose to repeat those rulings which can be found in the transcript. The number of people I have set out when discussing each category may not, in certain instances, be entirely accurate. That is because of overlaps between categories and because the discussion of the circumstances of some individuals who properly should fall into one category, arose when considering another category or at a later point in the hearing.