King v AG Australia Holdings Ltd

REASONS FOR APPROVING SETTLEMENT 1 On 26 August 2003 I made an order approving a settlement between Mr King ("the applicant") and the first respondent, AG Australia Holdings Ltd (formerly GIO Australia Holdings Ltd) ("GIO"). The settlement was of the representative proceeding the applicant had commenced on 31 August 1999 against GIO, an adviser to that company and its directors. On 8 September 2003 I made orders effectively disposing of the proceeding concerning 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 though it is desirable to set out my reasons for making them and to record the context in which they were made. 2 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 impugned conduct 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. 3 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. 4 When the proceeding commenced there were 67,000 shareholders (this and most other figures in these reasons (unless the context indicates otherwise) are rounded out) 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, 22,000 retained Maurice Blackburn Cashman ("MBC") to act on their behalf. In early 2001, 18,000 potential group members opted out of the proceeding. This left 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. 5 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 settling the matter. 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. 6 Of those who were sent the questionnaire, 5,000 responded by indicating they either did not consider themselves to be a group member or they did not wish to participate in the proceeding. This left 22,000 shareholders represented by MBC and 23,000 shareholders who were not represented by that firm but who had neither opted out nor taken a step to indicate they did not wish to be involved in the proceeding. By reference in June 2003 to information that was more up to date, the number in this latter group was 25,000. In addition, only 1688 of those who were sent the questionnaire replied providing the basic information sought including information concerning reliance. 7 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 chartered 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 called '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 (set out in [7] above) 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 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 Form Cs 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. 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 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 A few days before 8 August 2003, I was asked to list the matter on very short notice. I did so and I was then informed that the matter had settled, at least as between the applicant and GIO, though the settlement was subject to Court approval. I was told by senior counsel appearing for GIO that there were some commercial imperatives of fundamental importance which required the parties to seek and obtain Court approval for the settlement by the end of August. I accepted this was so and acted on that basis. I then made orders fixing a hearing to consider the settlement for 26 August 2003 and authorising a letter to be sent by MBC informing those who were (by this time) all the members of the representative group of the terms of the proposed settlement which included informing them of the proposed payment to MBC of approximately $15 million for professional costs and disbursements. The letter indicated, as a range, the amount (per share) payable under the settlement if the shares had been compulsorily acquired in December 1999 (the range was $1.16 to $1.32) and also indicated, as a range, the percentage of the nett loss payable under the settlement if the shares had been sold on the stock market before December 1999 (the range was approximately 55% to 63%). The letter also contained an invitation to any person who objected to the settlement to either appear (personally or through a solicitor) at the hearing on 26 August 2003 or send a letter setting out their reasons for objecting to a nominated post office box by 22 August 2003. Ultimately, no written objections were received and no one appeared at the hearing to object. 12 The final settlement is reflected in two documents. The first is an agreement between the applicant and GIO. The second is a scheme of settlement. The latter is annexed to these reasons (as Annexure A) and I will not repeat matters of detail contained in it. Prior to the hearing on 26 August 2003 I was furnished with an opinion from MBC and an opinion from senior and junior counsel for the applicant dealing with the question of whether the settlement was fair, proper and appropriate. Their opinions supported the settlement and, for my part, I had little difficulty in accepting that the amounts for which the case was being settled were appropriate in all the circumstances. One line of defence in the proceeding, referred to by senior counsel for GIO on 26 August 2003 (viewed as a defence of substance) was that had the respondents not conducted themselves as they did, the true and parlous financial position of GIO in late 1998 and early 1999 would have been revealed and the takeover by AMP would not have proceeded. No damage would have been suffered. 13 The gist of the settlement was this. During the hostile takeover bid, AMP offered to purchase GIO shares at $5.35 each during a period concluding 4 January 1999. By May 1999 GIO shares were trading on the stock exchange for $3.90, by August 1999 for $2.64 and by December 1999 for $2.30. AMP compulsorily acquired any GIO shares not acquired during the takeover for $2.75 in December 1999. In February 1999 shareholders were paid a total of 50 cents by way of capital return and interim dividend. The difference between the takeover offer price and the compulsory acquisition price was $2.60 though an adjustment had to be made for the 50 cents paid in the interim. Thus the total theoretical loss suffered crystallised in December 1999 at $2.10 for those shares compulsorily acquired. For those sold on the market between January and December 1999 the amount of the total theoretical loss suffered would depend on the sale price of the shares and whether the 50 cents had been received. 14 As part of the settlement, GIO will pay $97 million into a fund. That will be paid rateably to group members depending on the number of shares held, whether the shares were sold on market or compulsorily acquired and whether they were paid the 50 cents in February 1999. The best present estimate of the total theoretical loss of all group members is approximately $151 million. If that broadly remains the position (and the import of the submissions and evidence of the applicant was that it was likely to be) when all issues of shareholding and final group membership are resolved then an individual group member will receive approximately 60 percent of the total theoretical loss they suffered, though this will vary for group members who sold shares on the sharemarket between January and December 1999 for the reasons given in the preceding paragraph. 15 I should refer to two other aspects of the settlement. The first is the amount GIO agreed to pay to MBC by way of professional costs and disbursements. Counsel for the applicant relied on an affidavit of Mr Joseph Mazzeo who is a barrister and solicitor of the Supreme Court of Victoria and who has practiced exclusively in the area of legal costs consultancy since 1992. He reviewed the files of MBC (engaging a senior costing clerk to assist him) and also scrutinised a bill of costs prepared by MBC and presented to GIO totalling $14,999,168.86. He expressed the opinion that the account was fair and reasonable and accurately reflected and applied the method of calculating costs and disbursements specified in the fee and retainer agreement between MBC and the applicant. Mr Mazzeo also constructed a notional bill using the scale of costs applied in the Federal Court and reached the conclusion that the total costs and disbursements would, on that basis, be $17,513.347.09. 16 At the hearing on 26 August 2003 senior counsel for GIO indicated that his client accepted the amount it had agreed to pay as costs was a fair and reasonable amount. No complaint was made by any group member about the agreed sum. While the amount is considerable, and includes an uplift fee of 25%, I did not form the view that this aspect of the agreement between the applicant and GIO (requiring as it did that the proposed settlement, so far as it relates to costs, be approved by the Court) should lead to the settlement not being approved. 17 The second matter I should refer to is the process to finally identify group members who will participate in the settlement and the amount they will be paid. As earlier noted the group now comprises 23,099 shareholders. A process will be followed to identify precisely the number of shares held by each group member and to confirm they were held in the relevant period. MBC will initially be the arbiter on these questions. That may lead to a division of opinion about an entitlement of a particular shareholder presently in the representative group to participate in the settlement, or about the number of shares to be used to calculate the payment due under the settlement. There is a mechanism in the settlement scheme for such disputes to be addressed by the Court. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons herein of the Honourable Justice Moore.