Mid-Coast Council v Fitch Ratings, Inc

1. Pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (Act) the settlement of this proceeding on the terms set out in Exhibit B on the application be approved.
2. Pursuant to s 33ZB of the Act, the approval order in order 1 bind the group members who have not opted out of the proceeding pursuant to s 33J of the Act.
3. Solicitor for the plaintiffs, Amanda Banton of Squire Patton Boggs, is appointed the administrator of the settlement distribution scheme referred to in Exhibit B and is to act in accordance with the term of that scheme, subject to the unanimous consent of those affected by the scheme to vary the terms of that scheme, consistent with arranging for the distribution of the settlement moneys in accordance with the overarching purpose.
4. The proceeding be dismissed with no order as to costs of the proceeding and all costs orders made in the proceeding be vacated.
5. The hearing listed to commence on 2 September 2019 be vacated.
6. The scheme administrator and the parties have liberty to apply on three days' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

LEE J: 1 This proceeding pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) (Act) was set down for a lengthy hearing scheduled to commence on 2 September 2019. Approximately a fortnight ago, my Associate was contacted by the parties and informed that an 'in principle' settlement had been agreed. I arranged for the proceeding to be relisted as soon as practicable, which was on 19 July 2019. In circumstances where I was expressly informed that there were only 20 group members, all of whom were funded and all of whom were represented by the solicitors on the record (and hence could provide their informed instructions as to the settlement: T2.25), I dispensed with the need to file an interlocutory application and the usual affidavit evidence filed on a s 33V application relating to prospects. The matter was adjourned until today for the hearing of the s 33V application. 2 The fundamental question arising from a s 33V application is whether the proposed 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 [15], which cited the requisite elements of a fair and reasonable compromise identified by Goldberg J in Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925; (2000) 180 ALR 459 at 465-466 [19]; see also Lifeplan Australia Friendly Society Limited v S&P Global Inc (Formerly McGraw-Hill Financial, Inc) (A Company Incorporated in New York) [2018] FCA 379 at [13] per Lee J. 3 In my view, there is a distinction between the way in which the Court fulfils its role on a s 33V application in cases where all group members are legally represented, and in cases where some group members are unrepresented. The point of distinction is that in the former case, the Court can usually work on the assumption that group members have apparently given informed instructions in relation to the proposed settlement. This does not mean that the Court does not have a role in cases where all parties to the settlement agreement are represented, however, the extent of the protective role reflects the relevant context. 4 Unfortunately, in the present case, the issue was somewhat more complicated than what was indicated to me on 19 July 2019. This is because I have just been informed at the hearing today that in fact not all group members were both funded and represented. 5 In its current iteration, the class action captures persons who: (a) acquired interests during the period between 2007 and 2008 in one or more synthetic collateralised debt obligations known as Palladin AA and Palladin AAA (Palladin SCDOs) which were assigned credit ratings issued on behalf of the first respondent (Fitch); (b) acquired those interests in reliance upon those credit ratings; and (c) suffered loss and/or damage as a result of their investment in the Palladin SCDOs. 6 Turning to the issue of representation of group members, in an affidavit sworn on 24 July 2019, Ms Shaan Palmer, solicitor for the applicant, deposed that solicitors employed by the applicant came to know the identity of the group members in this proceeding by having dealings with them in connexion with related proceedings, or otherwise upon review of information provided by the Commonwealth Bank of Australia pursuant to a confidentiality regime. Relevantly, Ms Palmer provided evidence concerning the number of entities to have acquired Palladin SCDOs. Ms Palmer confirmed that 22 entities were recorded as having acquired one of the Palladin SCDOs. Of those 22, 17 are represented by the solicitors for the applicant and are funded group members. Of the remaining five group members, Ms Palmer provided evidence of a variety of communications with each of them. 7 In the light of this information, which only became apparent to me upon receipt of the affidavit evidence this morning, I indicated to the parties that while it was my preference to resolve the matter at the hearing today, I was in two minds as to whether or not I should proceed. 8 Despite my initial reservations, I have decided to proceed with the application for broadly two reasons. 9 First, a registration order was made by Wigney J on 12 October 2018. This registration regime (known in the lingua franca of Pt IVA proceedings as a "soft closure") provided for a notice to be sent to all 22 group members that had been identified. That notice required group members to register by 6 November 2018 (Registration Date) in the event that they wished to obtain any benefit pursuant to any "in principle" settlement reached at the then ordered mediation, or within 28 days of the mediation being "terminated by the Mediator". Consistent with that order, a notice was sent out to group members on or around 15 October 2018 which explained, in pellucid terms, that in the event that the recipient was to "do nothing" by the Registration Date, they would "lose [their] rights as a Group Member if the Class Action settles prior to the termination of the Mediation unless the Court orders otherwise". Further, in the orders of Wigney J dated 12 October 2018, the recipient was told as follows: If you do nothing by the Registration Date, that is you do not: (i) register with Squire Patton Boggs by completing and submitting the "Group Member Registration Form"; or (ii) return an opt-out notice to the Registrar of the Federal Court of Australia, and a settlement agreement is reached in relation to the Class Action before the Mediation is terminated, you will not be notified of the settlement agreement. Unless the Court grants you leave, you will not be entitled to receive any compensation from the Class Action. You will also be prevented from making a claim in respect of or relating to the subject matter of the Class Action against Fitch by separate proceedings and from making a claim at a later stage of these proceedings. You should obtain your own legal advice about your rights in respect of claims against Fitch in those circumstances. (emphasis added) 10 Accordingly, I am satisfied that the notice sufficiently articulated to the recipients, in clear and unmistakable terms, that in the event that the matter was settled at a mediation, the rights of the group members could be affected. Further, I am satisfied that the recipients were given sufficient warning that if they chose to "do nothing" by the Registration Date, they would receive no further notification of the proposed settlement agreement. 11 Secondly, Ms Palmer gave oral evidence before me in which she explained the steps that had been taken, by the solicitors for the applicant, over a long period of time, to apprise the five unfunded group members of the proceeding and stress the need for them to be involved in the registration process if they wished to participate in any settlement. That evidence, which I accept, involved extensive dealings with the five group members who variously decided to: opt-out; not respond to repeated requests as to whether they had in fact acquired Palladin SCDOs; not respond to entreaties to register; or otherwise not communicate their intentions. It is unnecessary for me to detail these communications, except in summary form, but I am satisfied on the basis of the evidence presented by Ms Palmer that all of the five group members have had ample opportunity both prior to and after the receipt of the notice on or around 15 October 2018 to participate meaningfully in the proceeding if they wished to do so. 12 Thirdly, the proceeding settled at a mediation which had not been previously terminated. At the case management hearing on 23 May 2019, I was called upon to make orders facilitating the resumed mediation. Accordingly, I made an order pursuant to s 53A of the Act that the parties "reconvene the adjourned mediation" by 14 June 2019. Prior to making that order, I had been informed that the mediation had been adjourned and not terminated, although, I must say, given the way the information was communicated to me, I did not understand at that time the significance of the mediation having been adjourned rather than terminated. 13 For these reasons, I am content to proceed to hear the s 33V application today. 14 Prior to dealing further with the settlement, it is convenient to first deal with an application which has been made by Fitch for an order pursuant to s 37AG(1)(a) of the Act. In its application, Fitch requests that until further order of the Court and "in order to prevent prejudice to the proper administration of justice", various aspects of the evidence adduced on the application for approval (which were subject to interim orders pursuant to s 37AI of the Act) be the subject of suppression and non-publication orders. In support of the application, Mr Stoljar SC who appears on behalf of Fitch made essentially two points. 15 First, Mr Stoljar handed up orders (which became Exhibit C on the application) made in the matter of Clurname Pty Ltd v Commonwealth Bank of Australia (No 1) [2015] FCA 153. On 7 August 2015, Foster J made orders "to prevent prejudice to the proper administration of justice", which made central aspects of the settlement reached in proceedings against Clurname and the Commonwealth Bank of Australia confidential. Mr Stoljar contended that if I was not to make the confidentiality orders sought by Fitch, then an interested observer would only see what was, in effect, part of the picture and not the entirety of the ultimate tripartite deal that has been struck as between Fitch, the Commonwealth Bank (which is a cross-respondent to this proceeding and included in the resolution of the proceeding) and those making claims. 16 Secondly, Mr Stoljar made the point, picking up on observations made earlier in these reasons, that the protective jurisdiction of the Court is not enlivened in the same way in this case as in a proceeding where there are a significant number of absent non-party group members who may not be apprised of the details of the settlement. To this end, Mr Stoljar submitted that the Court should proceed on the basis that the funded group members, after receiving legal advice, are fully aware of the circumstances of the settlement. As a result, Mr Stoljar submitted that the public interest considerations that might be present in Pt IVA cases where there are a large number of absent group members, are not present in this proceeding. 17 I do not propose to set out at any length observations relating to the previous trend in Pt IVA approval hearings of making very wide-ranging confidentiality orders at the request of parties. Nor is it necessary to dwell further on my earlier admonition that this "trend should be discouraged": see Liverpool City Council v McGraw-Hill Financial, Inc (now known as S&P Global Inc) [2018] FCA 1289 at [102]. In Liverpool City Council at [102]-[120] I set out the considerations in making such an order, including the fact that the order must be necessary "to prevent prejudice to the proper administration of justice". It follows that the test is a demanding one, and that necessary is a "strong word": see Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 at 664 [30]. Confidentiality orders are not necessary simply because it may be convenient, reasonable or sensible, nor is it sufficient that a confidentiality order may be viewed as serving "some notion of public interest": see Hogan at 664 [31]. The regime in Pt IVA does not permit some form of balancing process pursuant to which the Court weighs competing considerations. 18 Although the orders made in Clurname were not accompanied by reasons, it is entirely explicable as to why a confidentiality order would have been made in the circumstances of that case. At that time, there were related proceedings that had been filed but not yet served. It is understandable in those circumstances that confidential material in relation to part of the overall justiciable controversy might have been thought to reach the demanding test required in order for the Court to make the relevant confidentiality orders. Indeed, I have made similar orders in circumstances where there were related proceedings that have settled at staggered times. 19 Mr Stoljar made the point that given the extant order in Clurname, there may be some distortion in an observer not being able to understand the full picture without amendment of that order. This is not an insignificant matter, but it does not seem to me to mean that it is necessary that I make an order depriving the outsider of at least some information relating to the settlement. 20 In response to the submissions made by Mr Stoljar, I make the following three observations. First, there is acute public interest in the way in which class action litigation is conducted in this Court which is reflected in the recent Law Reform Commission reports, academic commentary and widespread coverage of cases of this type more generally. I am required in deciding to make a suppression order to take into account that the primary objective of the administration of justice is to safeguard the public interest in open justice. This public interest extends to the use of an arm of government, being a Court as defined in Ch III of the Constitution, in the way in which it is being used in this litigation (that is, a mechanism by which private entities are deriving profit from the maintenance of litigation). 21 Secondly, it must not be forgotten that through the use of judicial power on this application, the Court has quelled the controversy between the relevant parties and group members in approving the settlement; this is a public act and should be open to scrutiny. 22 Thirdly, and related to the second point, there is the necessity for the Court to consider the information as to the settlement being available to interested non-parties. One must not forget that there are five unfunded group members whose rights are being extinguished by the settlement. Again, this underscores the necessity for the settlement to be open to public scrutiny. 23 For these reasons, I decline to make the confidentiality orders sought by Fitch and propose to discharge the interim orders that I made concerning confidentiality. 24 In all the circumstances, the proposed settlement, which involves payment to the group members of an amount of $27 million, which amount is equal to approximately 94.72% of the total claims (comprising compensatory damages, interests and costs as at 28 June 2019 incurred by the applicants and the participating group members) seems to me to fall clearly within the range of settlements that can be regarded as fair and reasonable in the interests of the group members. There can be no doubt that this is a settlement which ought to be approved. 25 Accordingly, I propose to make orders approving the settlement of this proceeding on the terms set out in Exhibit B, and appointing Amanda Banton of Squire Patton Boggs as administrator of the settlement distribution scheme. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.