REASONS FOR JUDGMENT
1 This is a class action which the parties have agreed to compromise, subject to court approval as required by s 33V of the Federal Court of Australia Act 1976 (Cth). The action has a long history. In fact, the class action is a consolidation of two actions. One was commenced on 18 December 2006 by the first applicant. The other was commenced on 10 December 2008 by the second applicant. Progressing the consolidated claims has been both a lengthy and costly process. There have been over ten interlocutory disputes and a number of appeals. There was also a related action in which it was alleged, and an appeal court found, that an agreement to fund a class action where the class number exceeds twenty is a managed investment scheme which is prohibited unless registered under the Corporations Act 2001 (Cth). Now, many millions of dollars in costs later, the parties have agreed to resolve their dispute if the court agrees.
2 It goes without saying that the court should encourage the settlement of class actions and other complex cases. Perhaps more than most cases, class actions lend themselves to compromise because of the uncertainty of their result, difficulties of proof, complexities in the assessment of damages, as well as the expense of a long trial.
3 Some courts take the settlement of an action more seriously than others. For example, the US District Court for the Eastern District of Louisiana imposes responsibility for instituting settlement discussions on the parties' attorneys. Local Rule 16.3E provides:
As officers of the court, counsel in civil cases have a responsibility to minimize the expense of the administration of justice, to refrain from burdening unnecessarily those members of the public called for jury duty, and to avoid inconveniencing witnesses unnecessarily. To these ends, they should conduct serious settlement discussions in time to avoid the expense to the public and to litigants, and the inconvenience to jurors and witnesses, occasioned by settlements made on the eve of, or at the outset, of trial.
Despite much chatter about cost saving measures, I am not aware of an equivalent rule having been adopted (naturally with appropriate modification) by an Australian court. Nor am I aware of any move to incorporate such a rule.
4 Despite the obvious advantages of settling class actions, there remains the need to ensure that the interests of class members are adequately looked after. In the trial preparation, and the conduct of the trial itself, their protection depends, in no small measure, on the capacity of the named applicant to monitor the actions of the lawyers who have been retained to run the case. When it comes to a settlement it is the court that assumes responsibility for protecting the interests of the class members. In that task the court necessarily places considerable reliance on the parties' lawyers. I say "parties' lawyers" to make clear that I do not think that it is just the applicant's lawyers that carry the burden of ensuring that the court is given sufficient information to assess whether a proposed settlement is to be approved. A settlement proposal is, in reality, a proposal put up by both sides. So the respondent's lawyers should also bear some responsibility for ensuring that the court has all the information that objectively describes the merits of the case and brings to the court's attention the obstacles to recovery and the benefits to be derived from the proposed settlement.
5 It is the practice in this court to require the applicant to notify class members of the proposed settlement so that they may have the opportunity to object at the s 33V hearing. If the settlement is complex and contains elements which the lawyers think might not find favour with the judge (or which the judge may wish the parties to modify), it may be appropriate to apply to the court for a preliminary evaluation of the proposed settlement. If, at such a hearing, the judge has reservations about the settlement, the parties may be able to resume negotiations to remove any potential obstacle to approval. This is the normal practice in United States courts (see the Manual for Complex Litigation, 4th ed, s13.14) and, in appropriate cases, is worthwhile utilising here.
6 By way of background, this class action is brought on behalf of 109 purchasers of securities issued by the Multiplex companies between 2 August 2004 and 30 May 2005. The securities are Multiplex Group stapled securities and Multiplex Step-Up Income Distributing Trust Issued Exchangeable Securities and both are traded on the Australian Stock Exchange (ASX). It is alleged that the securities were purchased at an over-value. The case which the applicants seek to make relate to the Multiplex's Wembley Stadium, West India Quay and Qantas Hangar projects that were undertaken by a Multiplex company. The projects proved to be very unprofitable and when that was disclosed to the market the price of the securities dropped.
7 The first project concerned Multiplex's contract to design and build Wembley stadium for a fixed price. Originally the forecast profit was approximately ₤42 million. By February 2006, Multiplex had announced to the ASX that the project had made an AU$465 million loss. The applicants' main contentions are that (1) there was an overstatement of Multiplex group profits by reason of its failure to recognise a loss on the Wembley Stadium project in its accounts for the six month ended 31 December 2004 and (2) at various dates in 2005 Multiplex failed to disclose that the Wembley Stadium project was forecast to make a loss.
8 As regards the West India Quay development, it is alleged that the project was to be carried out under a fixed price contract for around ₤100 million which was due to be completed in May 2004. But, as a result of problems with construction works, by August 2004 the project was not completed, ultimately resulting in a write-off of ₤10 million. The applicants' complaints are similar to those in relation to Wembley Stadium.
9 The Qantas Hangar contract was entered into for a fixed price of around AU$71 million and was due to be completed by August 2004. By June 2004 it is said that Multiplex had forecast that the project would make a loss of AU$20 million. Again, the complaints are similar.
10 There is a further allegation levelled at Multiplex. The applicants say that in their results for the six months to 31 December 2004, Multiplex sought to offset the losses from the Wembley Stadium, West India Quay and Qantas Hangar projects by recognising ₤25 million of non-core fee income. The validity of this accounting is in issue.
11 On these bases the applicants plead that the Multiplex companies (1) contravened the scheme of continuous disclosure provided for by ss 674 and 675 of the Corporations Act and (2) contravened the prohibitions on misleading and deceptive conduct in ss 1041H, 1041E, 670A and 728 of the Corporations Act, s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) and s 9 of the Fair Trading Act 1999 (Vic). Each allegation is denied by Multiplex.
12 The parties have been negotiating a settlement for some time, initially under the auspices of an experienced mediator. In broad terms the agreement they have reached is as follows:
(1) Multiplex will pay the settlement amount ($110 million) in full and final settlement of the claims of the applicants and group members. This payment is made without any admission of liability;
(2) The settlement amount is to be paid into a nominated account to be held until the settlement is approved; and
(3) The applicants and all class members will release the Multiplex companies from all future claims.
13 The settlement amount is to be applied as follows: first, in payment of the applicants' costs in a sum to be approved by the court (approximately $11 million for Maurice Blackburn's legal fees); second, in payment of the cost of administering the fund and distributing the amounts to class members in the manner provided for; third, in payment of the applicants' reimbursement claims (approximately $60,000); and fourth, the balance of the funds to be distributed between the applicants and the class members (approximately $100 million).
14 The applicants' solicitors (Maurice Blackburn) have filed a memorandum in support of the proposed settlement. The memorandum is necessarily confidential. Some aspects may, however, be disclosed for they will not disclose real confidences: disclosure will merely state the obvious. First, the solicitors express some confidence that the action will succeed. Second, they readily acknowledge that proving loss will be difficult. The problem is one of causation. It is necessary to explain why this is so.
15 The applicants may not attempt to prove that they, or the class members, relied upon the published statements made by Multiplex about the state of the Multiplex business when they traded in Multiplex securities. Instead, the principal focus of their action will be on the market-based causation theory. Under this theory, causation may be made out if it can be demonstrated that the contraventions caused the market to inflate the price of the securities. The decision of the New South Wales Court of Appeal in Ingot Capital Investments Pty Ltd v Macquarie Equity Markets Ltd (2008) 73 NSWLR 653 suggests that it may not be possible in Australia to rely on the market-based causation theory. That case posits that it is necessary to prove reliance in cases where it is alleged that a contravention of the continuous disclosure provisions of the Corporations Act induce a plaintiff to enter into a particular transaction.
16 While Maurice Blackburn consider that market-based causation involves a different categorisation of the effect of the contraventions and can be distinguished from Ingot Capital, they necessarily accept that the question is uncertain. Further, the relative novelty and legal importance of the issue suggests that, even were the applicants to succeed at trial, the matter would likely go on appeal, perhaps to the High Court if special leave is obtained. This would effectively delay the resolution of the claims for several more years.
17 Counsel retained by the applicants have provided an opinion that, in their view, the settlement is reasonable. Once again I will not disclose what has been said in that opinion as it is privileged and filed on the basis that privilege will be maintained. Nonetheless, without giving anything away, I am able to say that in reaching the view that the settlement is reasonable, counsel took into account: (1) the lack of certainty on questions of liability; (2) the uncertainty as to the approach the court might take to expert evidence of economists who would be called to assess the "true value" of the securities; (3) the possibility that the court might require proof of individual reliance as a condition of causation; and (4) the very real risk of additional cost and delay caused by any further appeals.
18 Should the proposed settlement be approved? A settlement will be approved under s 33V if it is fair and reasonable. The factors which have led me to conclude that what has been proposed is fair and reasonable are as follows.
19 First, the terms of the settlement were agreed in arm's length negotiations.
20 Second, when the settlement was agreed in principle, the case had reached the stage, as a result of detailed pleadings, the provision of lengthy particulars and discovery, that Maurice Blackburn and counsel had sufficient information to assess the merits of the class claims.
21 Third, Maurice Blackburn and its counsel, who have recommended the settlement, are specialists in class action litigation. They understand, and are able to assess and evaluate, the risks and rewards of this kind of litigation. Moreover, the fees to which they will be entitled under the proposal are shown by independent evidence to be fair and reasonable. It could not be suggested that the lawyers' interests have been put ahead of the class members.
22 Fourth, the class members will recover in the order of 62 cents in the dollar of Maurice Blackburn's estimate of the reasonable value of their respective claims, which is a significant recovery.
23 Fifth, no class member opposes the settlement. In this case this is a significant factor. Generally speaking, it is dangerous to assume that silence equals assent as class members with only a very small stake in the action have little incentive to object. The court is there to protect their interests, acting akin to a guardian. The absence of any objector adds to the court's responsibility; it does not relieve it of its task. Here, however, a large number of class members (and in terms of the dollar value of their claims they represent around 99%) are institutional investors. Most, if not all, have in-house legal departments. In any event they are experienced investors. They, more than most, are able to assess the benefits of the settlement. If any of them were unhappy with the proposal I am sure they would have come forward.
24 Sixth, it is impossible to ignore the vagaries of litigation and the risk of failure in a case such as this, as well as the expense that will be incurred by protracted litigation and the likely appeals that will follow when novel points of law are at issue, whichever way the trial goes. In this type of litigation the parties are well served by a "bird in the hand" approach.
25 There are, I should mention, several aspects about the proposed settlement that are unusual and require separate consideration, but do not warrant withholding consent. First, the distribution of the settlement sum between class members involves the use of two different methods of loss assessment. The measure of a group member's loss will be assessed by taking the average of (1) the price paid for the security less the price received and (2) the price paid less the true value of the security, the value being assessed by an expert economist. The distribution formula is designed to account for uncertainty regarding the proper method for assessing loss. I see no problem with this method of distribution.
26 Second, the distribution to class members will not be proportionate. Unequal treatment is often a hallmark of unfair terms. But not in this case. When the original actions commenced, each class member had entered into a funding agreement with a litigation funder. As a result of the Full Court's decision in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11, which held the scheme of which the funding agreements were a central aspect constituted an illegal managed investment scheme, the agreements were terminated. At the same time the retainer agreements between the class members and Maurice Blackburn, which were also part of the scheme, were terminated. New funding agreements were entered into with only those group members who were "wholesale investors" to whom the relevant provisions of the Corporations Act did not apply.
27 What is now proposed is a distribution which involves a "funding equalisation factor" by which non-funded class members will have deducted from their entitlement an amount equal to the commission payable to the litigation funder that would have applied had the non-funded class members' funding agreements remained on foot.
28 It is said that fairness to the funded class members, without whom the proceedings could not have continued, requires that the non-funded group members are in no better position for having been unfunded for a matter of weeks prior to the in-principal settlement having been reached. The effect of applying the "funding equalisation factor" is to redistribute an amount equivalent to the commissions that would have been payable by the non-funded group members between all group members. I believe that, in the circumstances of this case, it would be unreasonable not to apply the proposed funding equalisation factor. Other judges have adopted the same position: see eg Dorajay Pty Ltd v Aristocrat Leisure Ltd [2009] FCA 19.
29 Third, the settlement proposes a payment to the applicants as compensation for their time and expenses incurred in prosecuting the proceedings on behalf of group members. The submission is that each of the applicants spent considerable time providing instructions and monitoring the progress of the action on behalf of all group members and should be reimbursed accordingly. I am satisfied that the proposed reimbursement is reasonable. A similar provision was upheld in Darwalla Milling Co Pty Ltd v F Hoffman-La Roche (No 2) (2006) 236 ALR 322, [76].
30 The fourth matter is the restraint imposed on Maurice Blackburn not to act in any further claims against Multiplex arising out of the same facts. A restraint in similar terms was considered in Williams v FAI Home Security Pty Ltd (No 5) [2001] FCA 399, [21]-[26], also in the context of the approval of the settlement of a class action. Goldberg J referred to the potential for such a provision to be an unreasonable restraint of trade and thus unenforceable. He also referred to CSR v Rothfield (unreported, Hedigan J, SC of Vic, 3 April 1992) where Hedigan J had granted an interlocutory injunction restraining a firm of solicitors from acting in respect of claims that might be made against the plaintiffs arising out of their activities in relation to the manufacture and export of asbestos products. The solicitors had acted for a number of plaintiffs against CSR and proceedings were settled on terms that the solicitors would not act in claims against CSR arising out of exposure to asbestos. Hedigan J found that such a provision was arguably valid.
31 I think the validity of the provision is an open question. But even if it is invalid, that should not affect the settlement. As a practical matter, the validity of the restraint is a matter that can only arise between Maurice Blackburn and other potential clients. I am not troubled if, by its own agreement, Maurice Blackburn is out of the market for the provision of legal services in limited matters. Nor, I think, would the class members be in any way concerned.
32 For the reasons foregoing I approved the settlement.
I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.