Lifeplan Australia Friendly Society Limited v S&P Global Inc

A Introduction 1 This is an application pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (Act) that the Court approve a proposed settlement, and for dismissal of the proceedings (approval application). It has four unusual aspects. 2 First, in broad terms, this proceeding concerns the preparation by the respondents, S&P Global Inc (formerly McGraw-Hill Financial, Inc) and Standard & Poor's International, LLC (together, S&P), of credit ratings assigned by S&P to certain structured financial products. The identification of the group pursuant to s 33C of the Act restricts group membership to persons who had obtained certain of these financial products, and purports to exclude that part of their claim against S&P which relates to other products. Consequently, there are a number of related proceedings before this Court, including the following which are set down for determination in March 2018: (a) Clurname Pty Ltd ABN 66 002 898 231 & Anor v McGraw-Hill Financial Inc (Formerly McGraw-Hill Companies, Inc) (A Company Incorporated in New York) & Anor - NSD957/2015; (b) Coffs Harbour City Council ABN 79 126 214 487 v McGraw-Hill Financial, Inc (Now Known as S&P Global Inc.) & Anor - NSD1020/2014; (c) Coffs Harbour City Council ABN 79 126 214 487 v Australia and New Zealand Banking Group Ltd (Trading as ANZ Investment Bank) ABN 11 005 357 522 - NSD1021/2014; (d) MDA National Insurance Pty Ltd ABN 56 058 271 417 v McGraw-Hill Financial Inc (Formerly McGraw-Hill Companies Inc) & Anor - NSD414/2016; (e) Mitsub Pty Limited, As Trustee for the Chris Carroll Superannuation Fund ACN 130 784 333 v McGraw-Hill Financial, Inc. (Formerly McGraw-Hill Companies, Inc) & Anor - NSD1344/2015; (f) Liverpool City Council ABN 84 181 182 471 v McGraw-Hill Financial, Inc (Now Known as S&P Global Inc.) & Anor - NSD1018/2014. 3 The orders of the Court made on 24 November 2017, among other things, approved a notice to group members in what was described as the "Standard & Poor's Class Actions". Those orders put in place a regime whereby, if any group member in this proceeding did not register by 6 December 2017 with the applicants' solicitors (JWS), or otherwise opted out, they would remain a group member for all purposes but would not, without leave of the Court, have the benefit of any in-principle settlement which arose from the then proposed mediation. 4 As can be seen by the use of the adjective 'related', both the current proceeding and the related proceedings, of which mention has been made at [2] above, arise out of what appear, at least at first glance, to be a related substratum of facts. As the notice approved by the Court makes clear, notice was to be given to all persons who acquired synthetic collateralised debt obligations (referred to in a table in the notice) (SCDOs) and were not group members in yet another proceeding (which resolved some time ago). 5 My involvement in relation to this proceeding is limited to the case management and determination of the approval application. What became apparent to me, however, when the approval application was first called on, was that there was the potential, given the way in which the group membership has been identified, for group members with claims against S&P to span or overlap at least two sets of proceedings. 6 The issue of the identification of group membership is a matter I discussed at length in Dillon v RBS Group (Australia) Pty Limited [2017] FCA 896 at [49]-[61] where I sought to explain a concept which I described as "fundamental" to the regime established by Part IVA of the Act, but which is sometimes obscured. That concept is that a representative proceeding comprises a collection of persons and not a collection of the claims of persons. 7 In my view, the purported bifurcation of the claim of individual group members into different proceedings has caused a number of complexities to arise in this approval application, which would not have otherwise arisen in circumstances where proper attention had been given by those commencing the relevant proceedings to the way in which group membership ought be defined in accordance with s 33C of the Act. This is not a criticism which is directed entirely to the current applicants, because, as I have already noted above, there are further proceedings currently before the Court awaiting resolution. It will be necessary to return later in these reasons to this structural problem caused by a failure to pay close attention to the principled operation of Part IVA. 8 Secondly, the adjectival material placed before the Court on the approval application is, in my experience, unprecedented. It involves an extraordinarily large number of affidavits, two expert reports and a series of submissions. Ultimately, the issues requiring resolution in relation to the approval or otherwise of the proposed settlement come down to my consideration of well-established principles, with the complication that has arisen in this case by reason of the arguments advanced by the Objectors on the approval application, Bellarine Community Health Ltd and Leithner & Company Pty Ltd, to which I will come below. 9 Thirdly (and somewhat unusually), I have had the benefit of well-resourced Objectors who objected to the proposed settlement in the form originally proposed. This has been of considerable assistance in protecting the interests of a subset of participating group members. 10 Fourthly, and related to the third point, the proposed settlement in some respects became something of a moveable feast as the applicants adapted the proposed settlement to reflect issues raised by the Objectors. The final form of the proposed settlement distribution scheme (initially reflected in an affidavit sworn on 7 March 2018 and supplemented by Exhibit B tendered during the course of the hearing, and later as Exhibit C (SDS)), has only emerged after much 'give and take' consultation between the applicants and the Objectors. 11 I will divide the balance of these reasons into the following headings: • B Applicable Principles • C The Nature of the Proceedings • D The Applicants and their Role • E The Evidence as to Reasonableness • E.1 The Settlement Generally • E.2 The Practice Note • E.3 The Settlement Distribution Scheme • E.4 The Legal Costs of the Applicants • F The Objectors and their Key Contentions • G Consideration • G.1 The Identity of the Administrator • G.2 The Applicants' Reimbursement • H The Costs Application of Orient Holdings Pty Ltd • I Non-publication Orders • J Conclusion and Orders

B Applicable Principles 12 As is well known, any settlement of a representative proceeding under Part IVA of the Act requires approval of the Court. In that regard, s 33V provides: 33V Settlement and discontinuance - representative proceeding (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 The fundamental question arising on an application made pursuant to s 33V of the Act is whether the settlement is "a fair and reasonable compromise of the claims made on behalf of the group members". This formulation derives from the judgment of Finkelstein J in Lopez v Star World Enterprises Pty Ltd [1999] FCA 104; (1999) ATPR 41-678 at 42,670, and what has also been described as the "foundational analysis" of Goldberg J in Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925; (2000) 180 ALR 459 at 465-466 [19]: see Foley v Gay [2016] FCA 273 at [7] per Beach J. 14 There are many examples where courts have sought to give an exposition of the relevant principles, both in this Court and in the Supreme Court of Victoria in exercising its identical jurisdiction under s 33V of Part 4A of the Supreme Court Act 1986 (Vic). From this long line of cases it is possible to draw out a number of key principles or themes. In this regard, the role of the Court in considering whether to approve a proposed settlement pursuant to s 33V of the Act has been described in various ways: (a) In Williams, Goldberg J stated at 465 [19] that: Ordinarily the task of a court upon an application such as this, is to determine whether the proposed settlement or compromise is fair and reasonable, having regard to the claims made on behalf of the group members who will be bound by the settlement. Ordinarily in such circumstances the court will take into account the amount offered to each group member, the prospects of success in the proceeding, the likelihood of the group members obtaining judgment for an amount significantly in excess of the settlement offer, the terms of any advice received from counsel and from any independent expert in relation to the issues which arise in the proceeding, the likely duration and cost of the proceeding if continued to judgment, and the attitude of the group members to the settlement. (b) In Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [8], the Full Court (Jacobson, Middleton and Gordon JJ) said: The role of the Court is important and onerous… It is protective. It assumes a role akin to that of a guardian, not unlike the role a court assumes when approving infant compromises. (Citations omitted) (c) In Hodges v Waters (No 7) [2015] FCA 264; (2015) 232 FCR 97 at 112 [70], Perram J said: Insofar as s 33V is concerned, the authorities are clear. Approval will be granted to a settlement where it is just to do so and that will be so where the settlement is fair and reasonable having regard to the claims made by the group members who are bound by it. In carrying out the assessment called for by s 33V the Court's function is protective, recognising, as it must, that the interests of the parties before it and those of the class members as a whole may not wholly coincide…As Richards itself demonstrates, some care must be taken to ensure that the settlement is not only fair as between the parties but also as between individual class members. (Citation omitted) (d) In Camilleri v The Trust Company (Nominees) Limited [2015] FCA 1468 at [40]-[51], Moshinsky J set out, with some detail, the principles relevant to an assessment of whether or not a proposed settlement distribution scheme is fair and reasonable among group members inter se: [40] In this case, as in many representative proceedings, the manner in which the settlement sum is to be distributed requires assumptions to be adopted and judgment calls to be made. There are different classes of claimants within the body of group members here, and it is necessary to arrive at some model that fairly and reasonably divides the settlement sum between those classes, recognising the differences in their respective claims. There is no single approach which alone can qualify as reasonable for sharing the fixed pool of funds among the claimants. Inevitably, adjustments in a given approach will be favourable for certain group members at the expense of others. [41] The question, therefore, can only be whether the model is within the bounds of fairness and reasonableness in its attempts to balance what are, unavoidably, conflicts between the interests of the different claimants. [42] As mentioned above, the applicants' solicitors have constructed the SDS for managing the distribution of the settlement funds among the claimants. The SDS, including the Loss Assessment Formula, reflects various 'judgment calls'. There is no doubt that other permutations of the distribution scheme could have been adopted. The question on this application is whether the SDS, as presented now, is within the bounds of reasonableness in achieving a broadly fair, 'rule of thumb' distribution between the claimants. [43] The cases indicate a number of factors relevant to the assessment whether a proposed distribution scheme is fair and reasonable having regard to the interests of the group as a whole. Some of these factors are as follows: (a) whether the distribution scheme subjects all claims to the same principles and procedures for assessing compensation shares; (b) whether the assessment methodology, to the extent that it reflects 'judgment calls' of the kind described above, is consistent with the case that was to be advanced at trial and supportable as a matter of legal principle; (c) whether the assessment methodology is likely to deliver a broadly fair assessment (where the settlement is uncapped as to total payments) or relativities (where the task is allocating shares in a fixed sum); (d) whether the costs of a more perfect assessment procedure would erode the notional benefit of a more exact distribution; (e) to the extent that the scheme involves any special treatment of the applicants or some group members, for instance via 'reimbursement' payments - whether the special treatment is justifiable, and whether as a matter of fairness a group member ought to be entitled to complain. [44] There are also procedural factors which relate to the fairness of a proposed distribution process, such as: (a) whether appropriate individuals have been nominated to administer the scheme; (b) whether the procedures for lodging and assessing claims are appropriate and to be conducted in a timely manner; (c) whether the scheme incorporates appropriate 'checks and balances', such as procedures for ensuring consistency between assessments and meaningful opportunities for review (and objection) by group members. [45] In my view, the proposed arrangements for distributing the fixed pool of settlement funds between the claimants are fair and reasonable. The rationale of the SDS, including the different treatment of "No Transaction Notes" and "Rollover Notes", is discussed in detail in the confidential affidavit of the solicitor and the confidential opinion of counsel. I am satisfied on the basis of those opinions that the difference in treatment is appropriate and justified. Further, I note the following matters which support the fairness and reasonableness of the proposed arrangements. [46] First, the SDS does not distinguish between the applicants on the one hand and group members on the other in terms of the procedures to be followed. They are all subject to the same assessment methodology. [47] Second, the loss assessment formulae under the SDS have been constructed to 'proxy' the kinds of damages-assessment principles which the applicants' representatives expect would in substance be adopted at trial. For example, the formulae take into account differing amounts in fact recovered to date by group members in respect of the notes the subject of the proceeding. [48] Third, apart from differences reflecting differences in quantum that likely could have been claimed by claimants respectively, the SDS otherwise does not discriminate between the applicants and the other claimants, or between different subcategories of claimants. [49] Fourth, under the SDS, claimants will be notified of the assessment made for them and will have an opportunity to seek a review, initially by the scheme administrator and then, if required, by independent counsel. [50] Fifth, the proposed administrator and the solicitors supporting him are experienced with the administration of such schemes. Their specialised skills and background familiarity with the matter should assist in the smooth and efficient administration of the scheme. [51] Sixth, the scheme is designed to be implemented on a transparent, fair and timely basis. 15 As I said in the Introduction, the principles are not attended by any doubt and the appropriate approach was common ground between both the parties and the Objectors. Critically, in the present circumstances, this involved an assessment not only of the settlement between the applicants and S&P inter se, but also the operation of the SDS in distributing the settlement amount among the three applicants and the participating group members.

C The Nature of the Proceedings 16 As briefly mentioned above, this proceeding concerns the rating by S&P of certain financial products, being the SCDOs. In summary, the applicants' claims against S&P in relation to the relevant SCDOs are based on a series of interrelated contentions, namely: (a) S&P did not have reasonable grounds to assign the credit ratings it did to the SCDOs; (b) S&P did not exercise reasonable care and skill in assigning credit ratings to the SCDOs; (c) S&P lacked the independence it held itself out as possessing; (d) S&P knew that the assumptions used and its ratings methodology were inappropriate such that its ratings were overstated, they were not independent, and S&P engaged in contravening conduct which could be characterised as attracting relief under the tort of deceit. 17 The proceedings were defended. Speaking very generally, S&P's existing defence (which does not join issue with the current iteration of the statement of claim) asserts that: (a) S&P had a reasonable basis for making the impugned representations; (b) S&P did not owe a duty of care to the applicants and group members in connexion with the ratings it assigned to the SCDOs; (c) the reliance on the ratings was not reasonable, and the ratings were not the cause of the loss of the applicants and group members; and (d) the relevant claims were the subject of limitation defences on the basis that they were statute barred. 18 It is important to record for the purposes of this broad overview that given that S&P has yet to file a defence to the final iteration of the applicants' statement of claim (in which allegations of deceit were made), no issue has been joined in relation to the allegations of deceit. It is plain, however, that this allegation is also denied by S&P. 19 The claims of the applicants and group members total $62 million, inclusive of interest of $29 million, calculated in accordance with court rates. The conditional settlement struck between the parties has not arisen spontaneously on the eve of trial, which, as mentioned above, was set to commence in March 2018, together with the related proceedings. The proceeding has been the subject of three mediations: two in 2016 and another, more recently, in December 2017. None of these mediations were successful in the sense that a conditional settlement was agreed during the course of discussions at the mediations; however, following the last mediation, a conditional settlement was agreed. 20 I will return to Part VAA of the Act later in these reasons, which deals with suppression and non-publication orders. It suffices for present purposes for me to indicate that I am acutely conscious of the fact that the related proceedings are listed for hearing before another judge of the Court. In these circumstances, this seems to me to be a paradigm example where the primary objective of the administration of justice (of safeguarding the public interest in open justice: see s 37AE of the Act) is outweighed by the necessity to prevent prejudice to the proper administration of justice by me revealing details of the settlement in this proceeding, except to the extent necessary for me to explain my reasons. 21 The proceeding is highly complex. It is unnecessary to describe it in greater detail than I have, other to note that the claims of the applicants and group members are put on a number of different bases, namely: (a) claims for statutory compensation pursuant to ss 1041I or 1325 of the Corporations Act 2001 (Cth) which is said to be available by reason S&P's alleged conduct in contravention of ss 1041H or 1041E of the Corporations Act (the former being apportionable, the latter being non-apportionable); (b) a claim for statutory compensation pursuant to ss 12GF or 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) for alleged conduct in contravention of the prohibitions on false or misleading or unconscionable conduct in relation to financial services; (c) damages at common law for negligence, negligent misstatement and, most latterly, deceit; (d) a claim for exemplary damages for deceit; and (e) interest on statutory compensation or damages awarded.

D The applicants and their role 22 The applicants are Lifeplan Australia Friendly Society Limited (a friendly society and fund manager), Big Sky Building Society Limited (a wholly owned subsidiary of Lifeplan Australia) and Defence Health Limited (a not-for-profit health insurance provider for the defence community). 23 Each of the applicants, obviously enough, is an entity which alleges it purchased the SCDOs (one or more of them) in reliance on alleged contravening conduct of S&P, and suffered loss as a consequence. The applicants, however, have a role which transcends simply representing group members in the orthodox way under Part IVA of the Act; they have funded the litigation in the sense that they have been responsible for payment of the legal expenses in order to advance not only their individual claims, but also the claims of group members. This is far from an insignificant matter. Indeed, the evidence discloses that but for the applicants funding themselves, this litigation would only have been brought with the involvement of a litigation funder (being a funder responsible not only for paying the costs incurred by the applicants, but also for potential adverse costs). Assuming a settlement had been struck in this counter-factual, that is, with the involvement of a litigation funder in the usual way, the potential recovery for the applicants and group members would have been diminished by a very significant sum. The evidence discloses that a litigation funding fee would have been in the region of 30 to 45 per cent (leaving aside any management fee that may have been payable). 24 In a proceeding of such complexity, it is unusual to find applicants willing to chance their arm in this way, and this is a matter to which I will return in Section G.2 below when considering the applicants' claim for reimbursement.

E.1 The Settlement Generally 25 As I indicated in the Introduction, a tsunami of material was placed before me on the approval application. 26 Wading manfully through this material prior to coming onto the bench, the greatest assistance I received was from the confidential opinion prepared by counsel for the applicants, which was exhibited to the affidavit of Ms Antonietta Vozzo sworn on 7 March 2018. For obvious reasons, confidentiality must be maintained in relation to this document. Having said that, and without disclosing unnecessary details, the opinion prepared by Mr Hoffmann QC and Ms Rich helpfully and transparently discloses the reasoning process by which those counsel, who have been involved in the proceeding since 2016 and 2017 respectively, formed their subjective view that the proposed settlement is fair and reasonable and in the interests of group members. The reasoning process, with respect, demonstrates that the analysis undertaken by counsel is of the level of sophistication that one would expect in dealing with a settlement of such complexity, and has involved a multifactorial balancing exercise, the details of which are inappropriate to recount. In order to seek clarification of a few short matters raised in the opinion, I also had the benefit of an in camera confidential exchange with Mr Hoffmann, the transcript of which has been suppressed in accordance with Part VAA of the Act. 27 The opinion of counsel, as supplemented by my exchanges with Mr Hoffmann, convinced me not only of the soundness of the subjective assessment of counsel, but also that the proposed settlement as between the applicants and S&P falls within a range that can be regarded as fair and reasonable and in the interests of group members. I deliberately use the word 'range' because my role is not, soothsayer-like, to prognosticate the likely outcome of the proceeding and engage in a form of discounting exercise that I would regard as appropriate. It goes without saying that the appropriateness of a particular settlement sum is a matter upon which minds can legitimately differ. The appetite for risk of some clients and those that represent them will obviously differ from person to person. The question the Court needs to satisfy itself of is: whether or not a proposed settlement falls within an acceptable range of settlements that can be characterised as being able to be approved? Conscious of these matters, I am content that the proposed settlement does so.

E.2 The Practice Note 28 In concluding that the proposed settlement ought be approved, I have had regard to the matters set out in the Class Actions Practice Note (GPN-CA) (Practice Note), in particular [14.4], which provides that: 14.4 The material filed in support of an application for Court approval of a settlement will usually be required to address at least the following factors: (a) the complexity and likely duration of the litigation; (b) the reaction of the class to the settlement; (c) the stage of the proceedings; (d) the risks of establishing liability; (e) the risks of establishing loss or damage; (f) the risks of maintaining a class action; (g) the ability of the respondent to withstand a greater judgment; (h) the range of reasonableness of the settlement in light of the best recovery; (i) the range of reasonableness of the settlement in light of all the attendant risks of litigation; and (j) the terms of any advice received from counsel and/or from any independent expert in relation to the issues which arise in the proceeding. 29 Obviously enough, the Practice Note does not seek to mandate some sort of formulaic approach, and some of the matters referred to in the Practice Note will not be relevant in individual cases (for example here, the ability of the respondent to withstand a greater judgment, or the risks of maintaining a class action). Having said this, to the extent that these factors are relevant, I am satisfied that the opinion of counsel has sufficiently addressed them.

E.3 The Settlement Distribution Scheme 30 My satisfaction that the settlement sum is fair and reasonable, however, is not the end of the matter. Indeed, in this case no objection whatever has been made by any group member to the overall settlement sum. The only objections that have been made were: first as to a deficiency of information in order to allow one group member, Orient Holdings Pty Ltd (Orient), to assess its position and take advice from its chosen legal representatives in relation to the proposed settlement; and secondly, as to the proposed SDS by the Objectors. 31 The Objectors were granted leave to appear on the approval application pursuant to orders made on 2 March 2018. The need to focus on the SDS, in contradistinction to the overall settlement sum as between the applicants and S&P, is obvious; the protective role of the Court is to ensure that there is fairness and reasonableness in the way in which the claims of the applicants and the group members are treated in making their claims on the overall settlement sum. There are competing objectives that inform an acceptable settlement distribution process. The primary objective, as I have explained, is that the treatment of the applicants on the one hand and the group members on the other can be described as fair and reasonable. 32 The way in which this fairness and reasonableness is identified, however, must be approached on some rational basis. This rational basis can only be reflected by the notion that, as a general proposition, the individual amounts paid to applicants and group members under a settlement distribution scheme should have some relationship to the individual compensation that reflects the merit of the individual claims, such that each of the applicants and group members receives compensation commensurate to the amount to which they otherwise would be entitled (assuming the settlement the subject of the application involves the payment of a compromised amount). Necessarily, of course, the assessment of the worth or merit of an individual claim requires application of the substantive law in identifying the remedies available to the applicants and the group members. It is in that way that the assessment of what is fair and reasonable does not become arbitrary or idiosyncratic, but has some principled basis. 33 A further objective of a settlement distribution scheme is one that has not, at least to my knowledge, received attention in either the authorities or the submissions before me. That is that in accordance with the dictates of Part VB of the Act, s 33V, which is a provision of the Act with respect to the practice and procedure of the Court, must be interpreted and applied, and the power conferred by it must be exercised or carried out, in a way which best promotes the overarching purpose of the civil practice and procedure provisions (being the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible: see s 37M(1) of the Act). 34 In Kadam v MiiResorts Group 1 Pty Ltd (No 4) [2017] FCA 1139 at [1]-[4] and [48]-[50], I sought to explain the case management "revolution" that was supposed to be introduced by the insertion of Part VB into the Act, and the imperfect recognition of the significance of that change. In my opinion, the dictates of these important case management principles must be given prominence in the consideration of the administration of settlement schemes in representative proceedings. 35 In this sense, a settlement distribution scheme must seek to facilitate the distribution of a settlement sum in a way that maximises efficiency and minimises cost to group members. It is not an overstatement to say that the accumulated experience of the Court is that this objective is given insufficient prominence in the way in which settlement distribution schemes have evolved. No empirical evidence has been put before me on the approval application, but during the course of argument I expressed concern as to amounts that would likely be charged by JWS as administrator of the SDS. By this I do not mean to make any criticism (express or implied) of those legal representatives. The fact is that there are different forms a settlement distribution scheme may take. Some involve little more than the application of set assessment criteria to details supplied by group members - in effect, an essentially arithmetic exercise. Others involve multifarious processes which involve a number of evaluative assessments, some of which can be quite complex. One only has to have regard to examples such as mass tort claims where there is often a need by court-appointed administrators to make fine and potentially controversial assessments as to the amount of loss that can be claimed by group members, which might fall into several different categories of loss. 36 For my part, I think the Court should be vigilant in giving effect to the overarching purpose, and ensuring that settlement distribution schemes involve the distribution of sums to group members with a minimum of cost and a maximum of efficiency. During the quarter century since the enactment of Part IVA of the Act, it appears that settlement distribution schemes have become increasingly cumbrous. The time may well come, in cases of settlement distribution schemes which involve little more than arithmetic exercises, when the Court should consider inviting tenders for service providers to arrange for the most cost-effective way of distributing settlement funds. 37 Returning to the proposed SDS, it appeared in its first form at pages 130-142 of confidential Exhibit CMB-2 to the affidavit of Mr Christopher Beames affirmed on 7 March 2018, and was supplemented by Exhibit B tendered during the hearing. In its final form as Exhibit C, the SDS contains the relevant loss-assessment formula. It is unnecessary for the purposes of these reasons to detail the SDS in great detail; it suffices to note that at its core is a loss-assessment formula which involves the assessment of the applicants' and group members' loss (Claim SCDO Loss) as follows: Claim SCDO Loss = CL + I - (3PR + 3PI) Where: "CL" is capital loss determined in accordance with Exhibit C; "I" is interest determined in accordance with Exhibit C; "3PR" is third-party recoveries determined in accordance with cl 2.7 of the loss-assessment formula in Exhibit C (to which it will be necessary to return to below); and "D3PI" is interest on third-party recoveries determined in accordance with cl 2.7 of the loss-assessment formula in Exhibit C. 38 As has become customary, the SDS provides that certain payments will be made from what is described as the 'scheme distribution fund' (SDF) prior to the distribution of the SDF to the applicants and group members, being (a) an amount to the applicants for their legal costs; (b) an amount to the applicants for what is described as the "applicants' reimbursement"; and, (c) an amount to the administrator for administration costs incurred by the administrator to date. I will return to (b) and (c) in Section G below.

E.4 The Legal Costs of the Applicants 39 The evidence discloses that the amount sought to be recovered by the applicants out of the SDF is up to $4.9 million. To the uninitiated this might seem a very large sum. To those with experience of complex, hard-fought and large-scale representative proceedings which have reached the stage of being ready for hearing, however, this amount, in my view, seems quite reasonable. Indeed, given the amount of work that has been necessary to prepare for hearing, it compares favourably with other legal costs that have been approved under s 33V of the Act in not entirely dissimilar circumstances. 40 I pause to remark that on this application, I indicated at the outset that I did not require the applicants to adduce evidence from an independent cost assessor in order for them to justify the amount of legal costs. Without, I hope, slipping into overstatement, I regard such evidence as next to useless. I have seen many examples, but I am yet to see a cost assessor retained by a solicitor who has formed the robustly independent view that the fees charged by his retaining solicitor were unreasonable. 41 As a consequence of the view that I have taken with regard to the present legal costs, it is unnecessary to explore further how it is that in less clear-cut cases, the reasonableness of legal costs ought to be assessed by the Court. It may be that the time has come for the Court to establish a regular practice of appointing a referee to inquire and provide a report to the Court. In any event, in the present case, without adopting this expedient, I am satisfied that the applicants' costs are reasonable.

F The Objectors and Their Key Contention 42 As I indicated above, the SDS evolved during the period immediately preceding the hearing of the approval application, in response to matters raised by the Objectors. Far from this being a criticism of the applicants, it is entirely appropriate for the applicants and their representatives to have responded to the issues raised by the Objectors and to attempt to fashion a resolution of matters that they considered were the subject of legitimate concern. 43 The Objectors previously objected to the proposed settlement on the basis of: (a) an excessive recovery for the applicants and some participating group members compared to others; (b) the way in which interest had been calculated on gross capital loss, notwithstanding that the applicants and some group members recovered some part of their loss prior to the settlement; and (c) interest being calculated at the pre-judgment interest rate provided for in the Interest on Judgments Practice Note (GPN-INT) rather than a lesser amount (being the cash rate published by the Reserve Bank of Australia). 44 Over the course of the few days immediately preceding the hearing of approval application, the issues between the applicants and the Objectors narrowed, and, during the course of the hearing, ultimately evaporated. The controversy centred on the various iterations of cl 2.7 of the loss-assessment formula in Exhibit C. 45 In effect, the loss-assessment formula, as originally drafted, contemplated that the capital loss of the applicants and group members be assessed without taking into account third party recoveries. This is of significance because on 2 October 2009, this Court ordered that Lehman Brothers Australia Limited (LBAL) be wound up and that liquidators be appointed. A resolution process was thereafter set up by which a number of participating group members sought and received recoveries from LBAL (LBAL Scheme). As I understand the evidence, there are 30 group members subject to the SDS, of which there are: (a) three, including one of the Objectors, who made a claim in the LBAL Scheme and whose claims were rejected because the liquidators had determined that they had previously released LBAL from any claim; (b) one who made a claim in the LBAL Scheme but whose claim has yet to be adjudicated; (c) two who have not made claims in the LBAL Scheme but intend to do so; and (d) five, including the other Objector, who are assumed to have not had claims against LBAL. 46 The issue raised by the differential treatment of those (such as the applicants) who had recovered from the LBAL Scheme and those who had not, is not straightforward. The position originally taken by the applicants was that those group members who had a claim, but who had not recovered, had not acted reasonably in mitigating their loss and that, accordingly, those group members who had taken steps to recover should not be penalised by the failure of non-recovering group members to pursue all available means to recover their loss. 47 Balanced against this, however, was the core contention of the Objectors that the question of whether or not a party had acted reasonably in mitigating its loss quintessentially calls for an individual examination of the circumstances which attended the decisions made by that person. Those decisions are often made in an entirely different factual situation than becomes clear with the benefit of hindsight. Whether or not this is seen through the prism of mitigation, where the question arises as to whether or not a party has acted unreasonably, or whether it is seen as a question of causation, is unnecessary to examine in these reasons. 48 It was recognised by the applicants that it was necessary for there to be, in effect, some assessment undertaken by an identified person as to whether or not a group member had acted reasonably in the relevant sense. It was initially proposed than this assessment be made by the administrator of the SDS, proposed to be JWS. This proposal seemed to me to create a real difficulty: with the best will in the world, how can one expect those solicitors (who owe duties to the applicants and who have taken a position adverse to the Objectors) to provide an assessment of the conduct of the Objectors? 49 Happily and commendably, this impasse was resolved by agreement being reached as to a regime whereby this assessment will be undertaken by an independent umpire who will receive relevant information and make a binding determination pursuant to a mechanism contained in cl 2.7 of the loss-assessment formula in Exhibit C. In my view, as reflected by the withdrawal of the objection, this is a satisfactory resolution to this potentially vexed issue.

G Consideration 50 I have already expressed my view that I believe that the overall settlement is fair and reasonable and in the interests of group members. By reason of the revised cl 2.7 of the loss-assessment formula in Exhibit C, I am now also satisfied, subject to matters I will presently come to, that the SDS provides a fair and reasonable mechanism for the distribution of the SDF to the applicants and group members. 51 This leaves two outstanding matters: the first is the question of the identity of the administrator of the SDS; the second is the so-called 'Applicants' Reimbursement' (as this term is defined in the SDS), proposed in the amount of $250,000.

G.1 The Identity of the Administrator 52 As to the first of these matters, for reasons I have already explained, I have some misgivings about JWS becoming the administrator of the SDS. After considering the SDS, it seems to me that the task necessary to determine the amount to be paid to most group members is essentially an arithmetic exercise. The only exception relates to those group members whose claims will be subject to final and binding determination by the umpire to be chosen between the parties. 53 In these circumstances it might be thought to be somewhat excessive for legal professionals to be charging for the administration of the SDS at prevailing market rates for the provision of legal services, rather than the administration task being undertaken by a service provider willing to undertake this work at a lower rate of remuneration. Despite these misgivings, given the relatively small size of the group and the efficiency which has hitherto characterised the conduct of the applicants' case, I am inclined, not without some hesitation, to accede to the request that JWS be appointed as the administrator without exploring further the possibility of another entity undertaking the task at lesser cost. 54 I stress, however, that for the reasons I have already explained, it seems to me that in a number of cases this would not be the appropriate course to take. If a notion exists among those conducting Part IVA work that solicitors for applicants will somehow automatically become scheme administrators, the time has come for that notion to be exploded.

G.2 The Applicants' Reimbursement 55 As to the second issue, the amount of the proposed Applicants' Reimbursement is very large compared to the sorts of sums paid to applicants in other Part IVA proceedings. It is important to recall that this is a payment, an entitlement to which is not reflected in the text of Part IVA, but rather has emerged in the cases. 56 It is a trite but true observation that a representative proceeding can only be brought if an applicant is willing to take on the burden of time and effort to represent others. As a recognition of this, it has become common for those costs properly incurred by the applicant in acting in a representative capacity to be the subject of some compensation. This is not to be confused, in horse-racing parlance, as a "sling"; it has to be rationally connected to the work that has been done by the applicant in pursuing the claims on behalf of group members. In other cases, an "incentivisation" payment has been contemplated: see Farey v National Australia Bank Ltd [2016] FCA 340 at [43] per Beach J. 57 Again, despite some misgivings as to the amount claimed, I am persuaded, in the unique circumstances, to approve the reimbursement. In this regard, I stress that this acquiescence should not be taken to be a precedent for future cases; it seems to me appropriate to approach the notion of a reimbursement to the applicants with some latitude in this special case. The applicants have done the group members a commendable service in pursuing this proceeding on their behalf and obviating the necessity for there to be a litigation funder. A litigation funder would no doubt have taken (in circumstances where a settlement had been reached) a percentage of the settlement on terms which would have resulted in a considerably lesser amount being paid to group members. For this reason, I am prepared to accept the amount proposed for the Applicants' Reimbursement.

H The costs Application of Orient Holdings Pty Ltd 58 By order made at the first return date of the approval application, on 9 February 2018, Orient was granted leave to be an intervener for the purposes of the approval application. 59 By way of brief background, the settlement agreement initially struck between the applicants and S&P included an elaborate regime for keeping confidential the proposed terms of settlement in this proceeding. Part of this confidentiality regime was an express obligation of confidence on all group members not to contact Ms Amanda Banton, a partner of the firm Squire Patton Boggs (SPB), who is involved in the related proceedings discussed at [2] above, or employees SPB, in relation to the details of the settlement. Due to the potential overlap of group members between this proceeding and the related proceedings (discussed at [3]-[5] above, it appeared to me that an issue would likely arise in relation to this confidentiality regime if a group member in this proceeding had retained Ms Banton. After standing the matter down for a period to allow the parties to identify any group members affected by this issue, Orient appeared and made submissions as to the inappropriateness of the confidentiality regime and of its desire to obtain advice from Ms Banton. Following argument, I was persuaded to approve a notice of settlement in a form reflecting the confidentiality regime agreed to in the proposed settlement, but stood over the question of the settling of a bespoke notice of settlement to be provided to Orient. 60 Further argument proceeded on 15 February 2018 as to whether or not S&P would proceed with the proposed settlement if an order were not made enjoining Orient from obtaining advice as to the proposed settlement from Ms Banton, or if an order were made granting Orient leave to opt out. Despite the issue being identified with precision on numerous occasions, an answer to that question was not provided until the filing, in Court, of an affidavit of S&P's solicitor on 16 February 2018. Happily, by that stage, the issue had been resolved by agreement between Orient and S&P to the effect that the terms of the proposed settlement (reflected in the settlement deed) could be disclosed to Ms Banton and retained counsel, but not to its litigation funder. 61 On the application for costs, Ms Lyons, who appeared on behalf of Orient, contended that it was appropriate that S&P pay the costs of Orient pursuant to either s 33ZF or s 43 of the Act. This was put on several bases. First, it was contended that Orient was forced to intervene as it had not been given adequate notice of the terms of a proposed notice to be sent to group members regarding the approval application. Secondly, it was said it was reasonable for Orient to intervene in order to vindicate its right to consult the legal advisers of its choice and form a view as to whether or not it would object to the proposed settlement. Thirdly, it was said that Orient was not in the same position as a traditional intervener because of the unique role of a group member as provided for in Part IVA of the Act. Fourthly, it was submitted that S&P had been dilatory in informing the Court as to the position it would take in the event that Orient opted out and in relation to S&P consenting to Orient having access to the legal advice that it preferred. 62 In the course of his very comprehensive submissions in response, Mr Hewitt, who appeared for S&P, made the point that any failure to notify was something that could not be blamed on S&P, that S&P acted reasonably in seeking to restrict the provision of information concerning the terms of the settlement and, indeed, S&P was ultimately successful in resisting the communication of that information to Orient's litigation funder. Finally, Mr Hewitt contended that it was inappropriate to expect S&P to be forced to make its position clear in the event that Orient either opted out or, alternatively, was allowed to share information as it originally wished, including with its litigation funder. 63 I do not accept that it was unreasonable for the Court to obtain a definitive response from S&P as to the position it would take if information was communicated to third parties as Orient originally wished (or if Orient was given leave to opt out, notwithstanding the time for opt-out had passed). There was considerable shilly-shallying by S&P in giving a direct answer to a question as to what it would do in the posed counterfactuals. This involved unnecessary appearances and delay in the approval of notices. 64 On balance, however, it seems to me that Orient (which, the evidence reveals, in this proceeding has only a relatively modest claim) took the decision to involve itself. In a sense that step was vindicated because it was then entitled to obtain the advice of Ms Banton and counsel, and ultimately Orient did not maintain any objection. Orient was, at all times, entitled to protect its position. 65 That being said, it seems to me the decision of Orient for it to expend legal costs, while understandable, was not something the consequences of which should be visited upon S&P. Despite my concerns about the difficulty in obtaining a clear understanding of the position taken by S&P, both parties were ultimately partly successful in maintaining their positions. In my opinion, in the circumstances, it is appropriate that there be no order as to costs in relation to the intervention of Orient.

I Non-publication Orders 66 The parties urged upon me the making of non-publication orders with respect to the affidavit and other material filed in respect of the approval application. As I have recorded at [20] above, my opinion is that in this proceeding in particular, non-publication orders are warranted. Nevertheless I wish to record some general remarks regarding the making of non-publication orders, to which I have had regard in being persuaded to accede to the parties' request. 67 It must be remembered that Part VAA of the FCAA provides that the starting point for the consideration of non-publication orders is the safeguarding of the public interest in open justice. In that regard, s 37AE provides clearly the mandatory consideration the Court must take into account in determining whether or not to exercise its power under Part VAA: In deciding whether to make a suppression order or non-publication order, the Court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice. (Emphasis added) 68 Non-publication orders should not be sought in some routine, automatic fashion. The grounds for making an order require the Court to be satisfied that the making of the order, relevantly, is necessary to prevent the mischief identified in ss 37AG(1)(a)-(b) of the FCAA. Relevantly for present circumstances, the Court must be satisfied that the order is necessary "to prevent prejudice to the proper administration of justice" (see s 37AG(1)(a)). As the High Court remarked in Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 at 664 [30], the word 'necessary' is a "strong word". 69 I am satisfied, having considered the evidence received on the approval application, that a non-publication order is necessary to prevent prejudice to the administration of justice not only in this proceeding, but perhaps more importantly, in the related proceedings. I stress that the circumstances of this proceeding are unique in the sense outlined throughout these reasons; in most other proceedings it will be necessary for the parties to address the factors set out in Part VAA, Div 2, which attend the exercise of the Court's discretion as to whether or not to make a non-publication order.

I Conclusion and Orders 70 For the reasons given above, it is appropriate that the settlement be approved in accordance with s 33V and that the proceeding be otherwise dismissed. I will make orders accordingly. I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.