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[2016] VSC 784
Supreme Court of Victoria
2016-12-21
Digby J
Original judgment source is linked above.
PRACTICE AND PROCEDURE - Settlement of a group proceeding alleging breach of continuous disclosure obligations under s 674 and s 1041H of the Corporations Act 2001 (Cth) - Application for approval of settlement of group proceeding - Supreme Court Act 1986 (Vic) Part 4A, s 33V and s 33ZF - Whether terms of settlement fair, proper, reasonable and appropriate and likely to be in the interests of the group members as a whole - Whether settlement distribution scheme fair and reasonable - Whether provision for payment to the litigation funder and to the plaintiff are fair, proper, reasonable and appropriate - Settlement approved.
1 In March 2014 the plaintiff, Camping Warehouse Australia Pty Ltd (Camping Warehouse), commenced proceedings on its own behalf and on behalf of group members against the defendant, Downer EDI Limited (Downer), seeking damages. Camping Warehouse claimed that Downer had caused it damage by its alleged failure to properly inform the Australian Stock Exchange (ASX) pursuant to ASX Listing Rule 3.1 and make disclosures as required by the provisions of the Corporations Act 2001 (Cth) which mandate continuous disclosure of materially price sensitive information to the ASX and which prohibit misleading and deceptive conduct, including under s 674(2) and s 1041H of the Corporations Act 2001 (Cth).
2 Camping Warehouse's above claims were made in respect of the Waratah Train Project pursuant to which wholly-owned subsidiaries of Downer contracted with the Government of New South Wales to, inter alia, design and manufacture rolling stock and a related maintenance facility for 624 new double deck passenger rail cars (the Waratah Train Project).
3 The trial of this group proceeding commenced on 2 February 2016.
4 On 5 February 2016, which was the fourth day of trial, near the conclusion of opening submissions and shortly after the plaintiff had applied for leave to significantly amend its case, Camping Warehouse and Downer informed the Court that an in-principle settlement agreement had been reached between the parties.
5 On 26 February 2016, orders were made which included orders approving a Notice of Proposed Settlement to be sent to the group members and displayed on the pre-established website http://www.downerclassaction.com.au. The Notice of Proposed Settlement informed the group members of the terms of the proposed settlement and also informed the group members of their right to object to the proposed settlement if they chose to do so.
6 On 29 April 2016, Camping Warehouse applied pursuant to s 33V and s 33ZF of the Supreme Court Act 1986 (Vic) (the Act) for approval of the proposed settlement of these proceedings (the Approval Application).[1] The terms of the proposed settlement are set out in Camping Warehouse and Downer's "Terms of Agreement of Settlement" executed by the parties on 9 February 2016 and the associated "Settlement Scheme".
7 In the Approval Application the parties relied upon the following material:
(a) the plaintiff's summons filed 4 March 2016;
(b) the affidavit of Peter Trimbos affirmed 17 March 2016 together with Exhibit "PT-1";
(c) the affidavit of Mark Elliott sworn 18 March 2016, exhibiting the confidential and privileged joint opinion of Senior and Junior Counsel for the plaintiff dated 18 March 2016 (confidential joint opinion);
(d) the affidavit of Mark Elliott sworn 4 April 2016, confirming compliance with the orders of 26 February 2016 and informing the Court that no objection by a group member had been taken to the proposed settlement agreement;
(e) the defendant's outline of submissions for the application for approval of settlement dated 29 April 2016; and
(f) the affidavit of Paul Anthony Bannon sworn 2 May 2016.
8 I have considered and evaluated the above materials and submissions, including the confidential joint opinion, however because the subject settlement occurred at a very early stage of the trial, my consideration and evaluation of matters addressed below, including the strengths and weakness of the parties' positions in relation to the issues is necessarily broad and in that regard not as fully informed as it would have been at a significantly later stage of the proceeding when the parties had more fully presented their respective cases, and to some degree tested each other's evidence.
9 My evaluation of the parties' cases and other matters relevant to this application has however benefited from and been bolstered by the confidential joint opinion of Counsel for the plaintiff referred to I paragraph 7(c) above.
10 Counsel's confidential joint opinion, I accept, has been produced giving due and appropriate thought to Counsels' duties in relation to its production, which include well recognised duties not only to the plaintiff but also to group members as well as to the Court. Further, in this matter that confidential joint opinion has been produced by Counsel, in command of the facts and issues in this particular proceeding and with considerable familiarity and experience with the conduct and resolution of group proceedings of this nature.
11 The confidential and privileged joint opinion provided by the plaintiff's counsel, deals with matters including the following:[2]
(i) Analysis of plaintiff's claim and Downer's defences and the evidence proposed to be called at trial;
(ii) Causation issues in respect of the plaintiff's right to recover;
(iii) The separate IMF claims and their settlement;
(iv) Key settlement metrics and key financial terms of settlement;
(v) Security for costs and Litigation Funding agreement and other cases where payment to the Litigation Funder was identifiable, including as a percentage of the settlement sum;
(vi) Reasons why the proposed payment to the Litigation Funder is reasonable;
(vii) The interests of the group Members and the interests of justice;
(viii) Why the proposed payment to the plaintiff is reasonable (including details of Mr Hutchinson's activities concerning the plaintiff's conduct of the case).
12 On 3 May 2016, following consideration of the above materials and the oral submissions made on 29 April 2016, orders were made approving the proposed settlement pursuant to ss 33V and 33ZF of the Act. I summarise below my reasons for approving the parties' terms of settlement in this group proceeding by orders made on 3 May 2016.
13 On 1 June 2010, Downer released an ASX announcement which stated, amongst other things, that Downer had identified the need to raise a provision of $190m as a result of cost overruns within the Waratah Train Project which Downer was undertaking for the New South Wales government.
14 After Downer announced this adverse information concerning the Waratah Train Project (and other information concerning a further $70m of pre-tax impairment charges, which was not the subject of this proceeding) on 1 June 2010, Downer's shares fell $1.41 (equating to 24.18%) based on the opening and closing market prices of Downer shares on the ASX.
15 Camping Warehouse alleged that, in the circumstances, Downer had breached the continuous disclosure obligations imposed by s 674(2) and s 1041H of the Corporations Act 2001 (Cth) and ASX Listing Rule 3.1 as a result of Downer's failure to disclose materially price sensitive information to the ASX prior to 1 June 2010. In particular, Camping Warehouse alleged that Downer was in possession of all the information it required to disclose the $190m provision on 12 January 2010.
16 This group proceeding was brought by Camping Warehouse on behalf of persons who acquired shares in Downer on or after 12 January 2010 and who were, at the commencement of trading on 1 June 2010, holders of any such shares and who had claims for loss and damage caused by Downer's alleged wrongdoing.
17 A somewhat unusual circumstance associated with the subject matter of these proceedings was that in early 2014 some Downer shareholders who had acquired their shares between 25 February 2010 and 31 May 2010 had settled threatened claims against Downer. These earlier claims, which also included allegations of misleading and deceptive conduct and breach of continuous disclosure obligation on the part of Downer regarding the Waratah project, were funded by IMF (Australia) Ltd. In relation to those earlier IMF claims against Downer, the relevant shareholders were represented by Slater and Gordon Ltd Lawyers. These IMF funded claims were resolved before the issue of proceedings, and it is asserted by the plaintiff in this proceeding that such claims were settled on less advantageous terms than the proposed settlement in this proceeding. Camping Warehouse submits that the IMF funded claims and their settlement provide a helpful comparator with the present proceedings and proposed settlement, and thereby bolster the reasonableness of the settlement in respect of which approval is sought in this proceeding.
18 On 2 April 2014 it was announced to the ASX that the IMF funded claims were settled. The participating shareholders who released Downer in respect of the IMF funded claims were not part of the group represented in this proceeding, however the identities of the shareholders who settled the IMF funded claims are not known to the plaintiff and its legal advisers. This is because the identity of those shareholders has been withheld by the parties to the IMF funded claim, the litigation funder, and their lawyers.
19 In this proceeding, Camping Warehouse asserts that the IMF funded shareholders who were involved in the settlement of the IMF funded claims against Downer were primarily large, sophisticated or institutional investors in contrast to the primarily retail shareholders represented in this proceeding. For reasons I explain below, I am not satisfied that the settlement of the IMF funded claims provides a satisfactory or sufficiently reliable comparator in relation to the proposed settlement in this proceeding, nor am I satisfied that there is a sufficiently reliable basis upon which to conclude that the shareholders who settled the IMF funded claims were primarily large, sophisticated or institutional investors.
20 The terms of the settlement under consideration are summarised below. It is estimated that the sum which will be received by Camping Warehouse and the group members in this proceeding as a result of that settlement will be approximately 50 cents in the dollar of the losses suffered by each of them.
21 The key features of the settlement in this proceeding are as follows:
(a) Camping Warehouse and Downer settled the group proceeding for $8.25m, exclusive of legal costs (settlement fund);
(b) From the settlement fund it is proposed that the following payments are to be made:
(ii) reimbursement of the plaintiff's reasonable costs of participation and assistance in the running of the litigation of $100,000; and
(iii) ongoing costs of administration of the fund (estimated to be covered by the interest earned on the settlement fund).
22 Payments from the settlement fund will be made to registered group members after deduction of the litigation funding premium, reimbursement of the plaintiff's costs and administration costs.
23 It is estimated by the parties that there are 10,747 potential shareholders who can make a claim against the settlement fund. It is further estimated that there are 10,312,118 registered shares with a positive net variance (the aggregate of individual shareholders' excess of shares purchased over shares sold, over the period 12 January 2010 to 1 June 2010), less any shares of shareholders who have opted out of the proceeding before 21 January 2016.
24 The parties anticipate that payment from the settlement fund to the plaintiff and group members will be approximately $0.66 per share.
25 The settlement requires that the investigation of the size of the class and that the search to identify all class members be completed by 30 September 2016, with payments to group members to be completed by 30 September 2017.
26 On or before 31 December 2017, the balance of the fund (including any accrued interest not expended on administration costs) will be repaid to Downer.
27 Pursuant to a separate agreement between the parties, Downer has agreed to pay Camping Warehouse's legal costs in the sum of $2.85m.
28 The settlement fund is to be administered by Elliott Legal Pty Ltd (Elliott Legal). Group members are required to register their interest in the settlement with Elliott Legal by 1 March 2017, in default of which such members will lose their rights to claim compensation from Downer.
29 The scheme of Part 4A, Division 2 of the Act seeks to broadly enable the Court to facilitate the commencement and prosecution of group proceedings in relation to claims in respect of, or arising out of, similar related circumstances, which otherwise meet the requirements of the Act, and which are made on behalf of seven or more persons as a representative proceeding commenced by one or more of those persons representing some or all of those with applicable claims.
30 Section 33V of the Act provides that a group proceeding may not be settled without the approval of the Court.
31 Section 33V of the Act is in the following terms:
Settlement and discontinuance
(1) A group proceeding may not be settled or discontinued without the approval of the Court.
(2) If the Court gives such approval, it may make such orders as it thinks fit with respect to the distribution of any money, including interest, paid under a settlement or paid into court.
32 Section 33V of the Act does not specify criteria for determining when a court should approve, or decline to approve, a settlement agreement.[3]
33 The overarching test applied by the Court is whether the settlement is fair and reasonable and in the best interests of group members. The way in which the Court approaches the application of this overarching test will depend upon the individual circumstances of the subject proceeding and any factors which may raise doubts as to the fairness of the proposed settlement agreement.[4] In some cases the Court has identified certain relevant factors.[5]
34 In Matthews v AusNet Electricity Services Pty Ltd,[6] Osborn JA framed the key questions for the Court in approving the proposed settlement as follows:
(a) whether the proposed settlement is fair and reasonable as between the parties having regard to the claims of the group members; and
(b) whether the proposed settlement is in the interests of group members as a whole and not just in the interests of the plaintiff and defendants.
35 The first question involves an assessment of the prospects of success of the claims made by the group members against the defendant and whether the proposed settlement figure falls within an acceptable range of settlement figures. Such an assessment will ordinarily require a consideration of the proposed settlement sum relative to the amount claimed and the strength of each party's case, to the limited degree such an assessment can be undertaken when the extent and quality of the evidence which may ultimately be admitted in the proceeding is unclear, and that evidence is un-tested at trial.
36 When considering the first question referred to above, Jessup J in Darwalla[7] was of the view that:
There will rarely, if ever, be a case in which there is a unique outcome which should be regarded as the only fair and reasonable one. In settlement negotiations, some parties, and some advisers, tend to be more risk-averse than others. There is nothing unreasonable involved in either such position and, under s 33V, the court should, up to a point at least, take the applicants and their advisers as it finds them. Neither should the court consider that it knows more about the group members' businesses than the applicants, or more about the actual risks of the litigation than their advisers. So long as the agreed settlement falls within the range of fair and reasonable outcomes, taking everything into account, it should be regarded as qualifying for approval under s 33V.
37 The second question involves an assessment of whether the terms of the proposed settlement are in the interests of the group members as a whole, not just the interests of the plaintiff and defendant.
38 This assessment requires a holistic consideration of the risks, possible disadvantages and benefits to the group members of the proposed settlement and also requires the Court to ensure that the interests of the group members who have not been involved in the conduct of the proceeding, or the settlement negotiations, are appropriately considered, taken into account and protected.
39 Court protection of the interests of the group members is particularly important in circumstances, such as the present, where there is no contradictor and both Camping Warehouse and Downer support the settlement agreement.[8] Such protection is usually afforded by a combination of both the court's evaluation of the appropriateness of the proposed settlement, including in respect of the group members, and by an appropriate suite of orders to effectuate the settlement and provide for suitable safeguards.
40 Section 33ZF of the Act provides that in a proceeding under Part 4A the Court may make any order that it thinks appropriate or necessary to ensure that justice is done in the proceeding.
General power of court to make orders
In any proceeding (including an appeal) conducted under this Part the Court may, of its own motion or on application by a party, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.
42 Similarly, s 33ZF(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) is in the following terms:
In any proceeding (including an appeal) conducted under this Part, the Court may, of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.
43 The above Federal and Victorian provisions differ only in that s 33ZF(1) of the Federal Court Act includes the addition of the words "or a group member".
Section 33ZF appears in Div 6 of Pt IVA which is headed "Miscellaneous". It bears the marginal note "General power of Court to make orders". These two features support the conclusion, that would in any event arise from its wording, that s 33ZF(1) was intended to confer on the court the widest possible power to do whatever is appropriate or necessary in the interests of justice being achieved in a representative proceeding. It is understandable parliament should have thought it appropriate to make such a provision. In enacting Pt IVA of the Federal Court of Australia Act, parliament was introducing into Australian law an entirely novel procedure. It was impossible to foresee all the issues that might arise in the operation of the Part. In order to avoid the necessity for frequent resort to parliament for amendments to the legislation, it was obviously desirable to empower the court to make the orders necessary to resolve unforeseen difficulties; the only limitation being that the court must think the order appropriate or necessary to ensure "that justice is done in the proceeding".
I think an order fixing a date by which claimants must identify themselves is capable of falling within s 33ZF(1). The criterion "justice is done", involves consideration of the position of all parties. An order preventing unfairness to a particular party may be necessary to ensure justice is done in the proceeding.
Second, although in a general sense s 33ZF(1) has been described as a plenary power, nevertheless it is not unlimited. It is in one sense both trite and question begging to assert that the power must be exercised judicially. But let me pass to the language of s 33ZF(1) itself. It uses the language "make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding". Grammatically, "thinks" is to be applied distributively, so that it reads "thinks appropriate" or "thinks necessary"; there is no "is" before "necessary". But as applied distributively, "thinks appropriate" has a lower threshold than "thinks necessary". But in the composite phrase, the concept is "thinks appropriate ... to ensure that justice is done in the proceeding" [my emphasis]. In other words, although the words "thinks appropriate" have a lower threshold than "thinks necessary", nevertheless the relevant element of necessity in another guise is enshrined in the coupling of the words "to ensure that". In summary, the question becomes whether I think it is appropriate, to ensure that justice is done in the proceeding, to make the orders sought by Newcrest. It is not whether I think it to be merely convenient or useful per se. Section 33ZF(1) is not a licence for me to impose my own expansive case management philosophy. Rather, I must be satisfied that any order that is made satisfies the statutory test. Now I accept that s 33ZF(1) is a very wide power and ought not to be construed narrowly (McMullin v ICI Australia Operations Pty Ltd (No 6) [1998] FCA 658; (1998) 84 FCR 1 at 4; [1998] FCA 658; 156 ALR 257 at 260 and Owners of the Ship "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404 at 421; 125 ALR 1 at 10). Nevertheless, any exercise of power has to fit within the statutory formulation.
47 Section 33ZF of the Act requires satisfaction that the subject order sought, or to be made of the court's own motion, is appropriate or necessary to ensure that justice is done in the proceeding.
48 Camping Warehouse submits that, in addition to the Court being empowered to approve all aspects of the proposed settlement pursuant to s 33V of the Act, s 33ZF also provides an appropriate basis for the orders which are sought as to payment out of the settlement sum for the litigation funder, BSL Litigation Partners, and payment out of the settlement sum for the plaintiff, Camping Warehouse.
49 Downer's position is that it makes no submission in respect of the terms of the settlement providing for payment to the plaintiff and to the litigation funder. In oral submissions however, Downer ultimately supported Camping Warehouse's application for approval of the proposed settlement,[12] which included terms providing for payment out of the fund to the plaintiff and the litigation funder in respect of which Downer offered no submission.[13] Furthermore, Downer did not submit that s 33ZF of the Act provided no basis for orders approving and effectuating such payments. Implicitly Downer supported Camping Warehouse's contention that s 33ZF of the Act also provided a proper basis for the orders sought.[14]
50 Section 33V(1) of the Act provides a degree of protection in relation to the outcome of any settled or discontinued group proceeding by providing that such a proceeding may not be settled or approved without the approval of the Court.
51 Section 33V(2) of the Act empowers any court which approves a settlement or discontinuance, to make such orders as that court thinks fit with respect to the distribution of any money including interest, payed under a settlement or paid into court. The language of s 33V(2) expressly empowers the Court to make distribution of any money paid under a relevant settlement, or paid into court.
52 The key question under s 33V(2) of the Act, as earlier mentioned, is whether the subject proposed settlement is fair and reasonable as between the parties having regard to the claims of the group members and in the interests of all group members in the relevant circumstances.
53 Section 33ZF, which follows s 33V(2) and also follows provisions dealing with the settlement of individual claims and the effect of a judgment in a group proceeding and stipulations as to aspects of appeals in group proceedings, is in the nature of a general catch all power intended to ensure that the Court can, in respect of a group proceeding, make any order considered appropriate to ensure that justice is done in the proceeding.
54 In this proceeding Camping Warehouse relies principally on s 33ZF of the Act for the orders sought for payment from the settlement sum to Camping Warehouse and to the litigation funder.[15] Camping Warehouse also relies on a number of decisions, including the two following recent decisions, to support what it submits is the breadth of power provided by s 33ZF of the Act: namely, Matthews v AusNet Electricity Services Pty Ltd (Ruling No 40) [2015] VSC 131 (J Forrest J and Daly AsJ) and Rowe v Ausnet Electricity Services Pty Ltd (Ruling No 6) [2016] VSC 166.
55 In Matthews v AusNet the Court referred to s 33ZF, in general terms, when describing the Court's role in exercising its supervisory powers to ensure that the settlement distribution process is undertaken in a timely, efficient and cost effective fashion. The Court did not however expressly shed light on the question of whether the Court considered it was appropriate or necessary to approve an order that there be specific payments made to the plaintiff and the litigation funder, to ensure that justice was done in the proceeding.
56 In Rowe v Ausnet Electricity Services Pty Ltd (Ruling No 6) [2016] VSC 166, John Dixon J relied upon s 33ZF of the Act to amend a deed settling a group proceeding to permit the engagement of assessors to assist the scheme administrator in that matter and to ensure the expeditious assessment of claims. In Rowe the scheme administrator also sought orders pursuant to ss 33V and 33ZF of the Act, and under s 1.1 of the subject Settlement Deed, for approval to pay a firm of solicitors a sum comprising the plaintiff's costs and disbursements and certain settlement administration costs and disbursements. John Dixon J deferred the cost claim by the scheme administrator for further consideration after a special referee had been appointed to report on those costs. His Honour did however invoke the Court's power under s 33ZF of the Act to appoint counsel to monitor the progress of the scheme. His Honour considered that such orders were required so as to ensure a just administration of the scheme.
58 Section 33ZF of the Act has been identified as the basis for a variety of different orders including in relation to cost agreements entered into between lawyers acting for a representative party and group members[17] and to award the payment of the costs of a consultant engaged in relation to a group proceeding,[18] to effect the engagement of senior counsel to assist in a claim assessment process,[19] to approve the payment of various funds from a settlement sum to be paid to lawyers attending to the settlement distribution scheme,[20] and to approve an order that costs incurred by a representative party be paid from a settlement fund.[21] Some judgments have referred to the extent to which s 33ZF(1) appears to provide a foundation for orders beyond those of an administrative or facilitative nature, at the same time alluding to the express limitations which the language of the section imposes by use of the words "appropriate" and "necessary" and the requirement that any order is directed to ensuring that justice is done in the proceeding.[22]
59 Section 33ZF has also been held to provide an appropriate basis for an order that members of an open class receiving compensation are to pay a proportionate amount of the plaintiff's unrecovered costs incurred in respect of the common questions in the proceeding.[23] In Thomas v Powercor Australia Ltd Beach J (as he then was) considered s 33ZF alternatively s 33ZG, alternatively the Court's inherent jurisdiction, empowered such an order. In Thomas the individuals who received compensation pursuant to the settlement of the group proceeding were, as part of the Court's approval of settlement, ordered to pay a specified sum from their compensation entitlement to the lawyers for the representative party. That sum included an amount which was in the nature of an uplift of both the plaintiff's solicitors and the plaintiff's counsel's fees.
60 In Pathway Investments Pty Ltd (supra) Pagone J approved consent orders which affected payment from the settlement sum to the litigation funder in that instance. His Honour's order resulted in the members of the open class in that proceeding paying a percentage of any settlement sum to the litigation funder, notwithstanding that at least some members of that open class were not contractually bound to do so pursuant to any arrangement with the litigation funder.
61 It is to be noted that s 33V of the Act is engaged upon an application for approval or at the time of payment out of court of a sum paid into court to compromise a proceeding. However, s 33ZF of the Act operates in a more flexible setting. Section 33ZF of the Act has no temporal limitation and on one scenario a court could, at the very early stages of a class action, and in the appropriate circumstances invoke the power provided for in s 33ZF of the Act to approve a proposed payment from the potential common fund to a litigation funder. The court's consideration of the related issues at this early stage of the proceeding would probably include thorough scrutiny of the proposed funding arrangements and it may well be that at that point those funding arrangements could be adjusted and fashioned in accordance with the requirements of the court.
62 Ultimately, the class action regimes which form part of the Act, and the very similar regime established by the FCA Act, are intended to bring about greater access to justice. A major constraint to such access is the very significant cost of litigation including that of a representative proceeding. Accordingly, a legislative and jurisprudential environment which, in appropriate circumstances and to an appropriate extent accommodates a fair and reasonable opportunity for litigation funders and representative plaintiffs, to obtain payment for the effort and risk which they may make, and take, in relation to a group proceeding will promote access to justice and will probably facilitate recovery on the part of large group of persons, where absent such funding the claims of potential group members would not have been instigated and pursued and potential claimants would recover nothing.
63 The second reading speech by the Attorney-General, Victoria, Assembly, Courts and Tribunals Legislation (Miscellaneous Amendments) Bill 2000; Parliamentary Debates, 31 October 2000, 1250:
We live in an age of mass production and distribution of goods and services. The potential for loss or damage which can be caused by a single supplier of goods or services on a mass scale is enormous.
However, while the overall damage may be great, the amount of damage incurred by an individual may be relatively small in proportion to the legal fees and court costs.
In the worst cases, litigants can face ruin yet lack the means to bring proceedings to redress the wrong they have suffered. The class actions procedure addresses some of the imbalance between ordinary litigants and large and powerful corporate litigants.
64 In my view the breadth of the language in s 33ZF is sufficient to empower the Court to make orders including orders which are directed to authorising and effecting payments out of the common fund which the Court considers to be appropriate or necessary to ensure justice was done in the proceeding, including in appropriate circumstances and to an appropriate extent authorising and effecting payment to a litigation funder or payment to a representative party. This construction is, I consider, supported by the object and purpose of the Act referred to elsewhere in these reasons.[24]
65 The considerations to be addressed in assessing whether the proposed settlement is fair and reasonable as between the parties and in the interest of group members as a whole and otherwise appropriate, here include:
(a) whether the settlement is fair and reasonable, as between the parties, including as informed by what appears to be the range of likely outcomes informing a reasonable settlement sum;
(b) is the settlement figure of $8.25m fair and reasonable in light of:
(ii) taking into account the complexity and likely duration of the litigation;
(iii) the stage of the proceedings at which the proposed settlement was reached; and
(iv) the plaintiff's prospects of success in the proceeding including relative risks associated with the establishment of liability and a quantum of loss and damage;
(c) are the terms of the proposed settlement in the interests of group members as a whole and not just in the interests of Camping Warehouse and Downer, in particular the:
(i) $825,000 claimed by the litigation funder; and
(d) what effect, if any, does the separate agreement for payment by Downer of Camping Warehouse's legal fees of $2.85m have on the proposed settlement agreement;
(e) the effect of the available expert evidence;
(f) the terms of the confidential advice received from Counsel for the plaintiff.;
(g) any objections from the group to the proposed settlement;
(h) any other special features or circumstances, for example here potentially the settlement in early 2014 of IMF funded claims.
Fairness and reasonableness of the settlement as between the parties
66 The submissions by Camping Warehouse and Downer that the settlement was fair and reasonable, as between the parties focused, in substance, on the following considerations:
(a) the legal framework within which the proposed settlement is to be considered;
(b) the litigation risks faced by Camping Warehouse;
(c) the quantum of the settlement compared to the sum claimed in the context of the litigation;
(d) the proposed deductions from the settlement sum, and the reasonableness of the amounts which will become payable to eligible participating group members.
67 Camping Warehouse also sought to rely upon an earlier settlement of the IMF funded claims as a comparator for the fairness and reasonableness of this settlement.
The legal framework within which the proposed settlement is to be considered
68 The legal frame within which the proposed settlement is to be considered is addressed above.
69 The documents relied upon by Camping Warehouse to establish Downer's knowledge as at 12 January 2010 included a number of communications between Downer, EDI Rail, the wholly owned subsidiary responsible for the Rolling Stock Manufacture project (RSM project), and the senior management of Downer. Of particular importance to Camping Warehouse's claim was a number of versions of a spreadsheet known as the Forecast Cost of Completion (FCAC). The various versions of that document and the amendments made to it appear, prima facie, to demonstrate that the financial position of the RSM project was deteriorating at the relevant time.
70 In addition to the risk that Camping Warehouse would be unable to establish that Downer had the requisite knowledge, as of 12 January 2010, which on the extensive material to be put forward by both parties on this issue was an assertion attended by some real risk for Camping Warehouse, Downer's defence to the group proceeding also relied on:
(a) the existence of internal debates within Downer as to the proper accounting treatment of the RSM project and the TLS Contract;
(b) Downer's auditors having approved the half-year accounts, which were in part based on the December 2009 FCAC and the manner in which Downer had accounted for the RSM project; and
(c) the information revealed to the market on 1 June 2010 having emerged from a complex factual matrix and only becoming known to Downer as a result of the detailed review which was undertaken in April and May 2010, with details of the forecast loss only being confirmed on 31 May 2010.
71 It is clear enough, on the basis of the extensive and complex evidence Downer proposed to adduce to establishing the above defences, including its proposed evidence directed to rebutting that Camping Warehouse's case that Downer had the requisite knowledge on 12 January 2010, that there was a credible prospect, that Downer would succeed in establishing one or more of a number of the above defences. However it is also evident that before there could be a comprehensive evaluation of the strengths of the plaintiff and the defendant's respective cases, a very large body of evidence would have to be tested at trial.
72 In my view, the manner in which Camping Warehouse proposed to present a key part of its primary case was also likely to be attended by substantial risk to the plaintiff.
73 Camping Warehouse proposed to adduce evidence from a number of senior Downer executives. Those executives had, it appears, been somewhat uncooperative to Camping Warehouse, hence the absence of witness statements and the need for Camping Warehouse to subpoena each of these foreshadowed witnesses. In this regard Camping Warehouse's case was precarious and potentially vulnerable to the subpoenaed Downer witnesses giving evidence which did not support, or was otherwise somehow unhelpful to, Camping Warehouse's case.
74 A further risk faced by Camping Warehouse at trial arose in relation to the necessary establishment of causation. Camping Warehouse's foreshadowed case sought to rely upon market-based causation,[25] rather than seeking to establish a case which included Camping Warehouse demonstrating that it, or the other group members, were materially affected by particular representations including as to the profitability of the RSM project, and that they relied upon those representations when purchasing their shares.
75 In February 2016, at the time the proposed conditional settlement was entered into between Camping Warehouse and Downer, there was no decided case in Australia as to whether market-based causation was a potentially effective means of establishing causation in group proceedings, although there has been some consideration of the efficacy of this mode of proof.[26]
76 In the circumstances outlined above, Downer submits that a substantial 'discount' is objectively reasonable having regard to the vicissitudes and risks of the litigation.[27]
77 Considering the difficulties Camping Warehouse faced in establishing the group members' claim, and the extent and complexity of the defences relied upon by Downer, it is clear that sufficient risk existed in connection with the plaintiff's claims to justify it compromising those claims for considerably less than the damages sought by it in these proceedings.
Quantum of the settlement compared to the sum claimed in the context of the litigation
78 Both parties engaged experts to provide evidence as to what portion of the adverse Downer share price movement on 1 June 2010 was attributable to Downer's disclosure of a $190m provision for the RSM project. The experts, Greg Houston for Camping Warehouse and W Scott Dalrymple for Downer, filed a joint expert report and prior to that each expert prepared an individual report and supplementary reports.
79 Camping Warehouse's expert, Mr Houston, estimated that the price movement attributable to the disclosure was $1.56.[28] Downer's expert, Mr Dalrymple, estimated that the price movement attributable to the disclosure was $1.00. The evidence of both these Experts was extensive and complex.
80 The estimated return to the group members of $0.66 payout per share[29] is equal to a 66% return on Mr Dalrymple's assessment and approximately a 42% return on Mr Houston's assessment of the share price change caused by Downer's announcement of the $190m provision.
81 As a result of the parties conditional settlement early in the trial, the expert evidence referred to above was not tested at trial. Accordingly, I am not in a position to undertake an informed comparative evaluation of the expert evidence put on by Camping Warehouse and by Downer. Suffice to observe that the extent and complexity of the expert evidence of both Mr Dalrymple and Mr Houston gives rise to further uncertainties in relation to the outcome of this part of the case for Camping Warehouse.
82 Taking into account all of the very real risks and uncertainties to which I have referred, including those which may have arisen in relation to the acceptance of evidence given by foreshadowed witnesses at trial, including witnesses from Downer's management, I consider that the proposed compromise of Camping Warehouse's claim resulting in a return per Group Members share in the range of 42% to 66% of the relevant share price movement said to be caused by Downer's conduct, is a fair and reasonable outcome for the parties, including the group members, in the circumstances which include the share price impact asserted by the parties' experts.[30]
83 I consider that this level of recovery referred to falls within the range of acceptable outcomes opined by the experts and which appear to be likely given the nature and quantum of the plaintiff's claim, the Downer defences outlined above and the difficulties Camping Warehouse confronted in the establishment of liability and loss and damage. I am therefore satisfied that the proposed settlement of this proceeding between Camping Warehouse and Downer falls within that permissible range and is fair and reasonable.
84 In 2014 Downer settled what have been referred to in this litigation as the IMF funded claims which were made by some of its shareholders who had acquired shares in Downer between 25 February 2010 and 31 May 2010. These shareholders had entered into litigation funding agreements with IMF and were represented by Slater & Gordon Ltd. The IMF funded claims also concerned allegations of misleading or deceptive conduct and breaches of continuous disclosure obligations in connection with the Waratah project.
85 Camping Warehouse submitted that it can be inferred that the investors involved in the IMF funded claims were primarily institutional investors, or individuals with significant shareholdings. In my view, however, such an inference is insufficiently supported by evidence in that regard, as explained below.
86 Because the IMF funded claims did not reach the stage where proceedings were initiated in any court in Australia, the settlement was not subject to the judicial approval process under s 33V or otherwise. Neither is there a plead case nor any other additional forensic material available to enable a meaningful assessment of the IMF funded claims.
87 Although the terms of the settlement of the IMF funded claims remain confidential, counsel for Camping Warehouse submitted that the terms on which the IMF funded claims settled are less advantageous to those shareholders than the terms of the proposed settlement in this proceeding.
88 Counsel for Camping Warehouse also submit that although there are different issues to be considered in respect of a settlement prior to commencement and a settlement mid-way through trial, the IMF funded claims settlement serves as a comparator and suggests that this settlement is prima facie reasonable and in the interests of the shareholders who are members of the present class.[31]
89 Counsel for Downer submitted that the IMF funded claims settlement is not a valid comparitor because of difficulties in identifying all the participants in the IMF funded claims settlement, and because of differences in the way the respective claims were articulated and because of additional differences in the basis of the distribution of the final settlement sum to individual claimants.
90 Senior Counsel for Downer submitted that, taken together, these factors devalued the utility of the IMF funded claims settlement as a comparator.[32]
91 However, during the course of the hearing on 29 April 2016, Senior Counsel for Downer accepted that the IMF funded claims settlement could provide some comfort to the Court in approving the present settlement.[33]
92 Finally, I note that Downer submitted that the IMF funded claims settlement did not in any way contradict approval of the proposed settlement in this proceeding.
93 I am ultimately persuaded by Downer's submissions, and the lack of detail in relation to the IMF funded claims and the resolution of those claims, to ascribe very little weight to the possible comparison of the resolution of those claims and the proposed settlement in this group proceeding. This is principally because it was not possible to consider the way in which the IMF funded claims would have been articulated by way of a pleading and also because it is not possible on the material presented in this matter to identify and take into account the substance of those claims and the potential defences to them, or the assessments which must have been made by Downer and its advisers in relation to the IMF claims. Neither do I have available to me sufficiently reliably information as to the exact sum for which the IMF claims were settled or as to the number or nature of the relevant shareholders.
94 Finally, I note that Downer submitted that taking all relevant matters into account, the proposed settlement of this matter should meet with Court approval.
Are the terms of the proposed settlement in the interests of the group members as a whole?
95 Before considering whether the payments to be made from the settlement fund to Camping Warehouse, the litigation funder and the administrator are fair and reasonable and in the interests of the group members as a whole, it is apposite to observe in relation to the group members in this proceeding, that the terms of the proposed settlement provide for an even distribution among the shareholders. This distribution is estimated by the parties to be $0.66 per share based on their estimates of the size of the group and the number of shares (with an aggregate positive net variance) held after adjustments including shareholders excluded by the IMF funded claims settlement and those shareholders who opted out of this group proceeding in accordance with the opt out notice procedures. The term aggregate "positive net variance" refers to the aggregate of individual shareholders' excess of shares purchased over shares sold over the relevant period.
96 However, because the payout per share does not differentiate as between group members in this proceeding, it is not necessary to consider whether the settlement is fair and reasonable as between different classes or categories of group members, as may be necessary in proceedings where the damage suffered by group members, or by the plaintiff, differed.[34]
97 While the terms of the proposed settlement require that the group members relinquish any rights they may have to claim against Downer in relation to the subject matter of this proceeding, in my view a further factor of relevance to my overall assessment of whether the plaintiff's settlement of the claims in this proceeding on behalf of the group members is in the interest of group members as a whole, is the very likely reality that absent the plaintiff's instigation of the group proceeding and thereafter this proceeding being funded and pressed as it has been by this active party, the group members would, in all likelihood, not have had the resources to pursue their possible right to recover from Downer in relation to its alleged breaches.
98 Such rights were unlikely to have been exercised by the group members individually because of the relatively small magnitude of the claims in relation to the complexity of the litigation and the likely effort and cost involved in prosecuting those claims. A quick calculation involving the number of affected shares, the number of affected shareholders, and the estimated payout per share, reveals that the average payout per group member is likely to be $633.29.[35]
99 Therefore, while the group members may have had a legal claim which they could have brought against Downer, the overwhelming majority of those group members would probably, absent a litigation funder, be highly unlikely to recover any damages because individual shareholders would probably not have considered it cost effective to instigate and prosecute their claims. This is particularly so in the circumstances where the IMF funded claims had already settled with Downer and the group members in this proceeding had not taken part in that settlement. Accordingly, but for the group proceeding, they would have received nothing. This does not mean, however, that anything greater than nothing is a fair and reasonable outcome for such group members, or does it mean that anything greater than nothing is in those group members' interests.
100 It is also significant that the group members, other than Camping Warehouse, are benefiting by sharing in the financial outcome of this proceeding, without having entered into litigation funding agreements, or being required to provide money to fund the initiation and to progress the claim and also without being exposed personally to the risks of litigation, including a costs order and the attractiveness of the proposed terms of settlement. Further, by reason of s 33ZD of the Act, group members have not been exposed to the risk that the proceeding may fail and an adverse costs order may be made against these group members.
101 In relation to the proposed terms of settlement which provide for payment to the plaintiff and payment to the litigation funder I consider it to be relevant and legitimate to take into account factors, including the practical actuality referred to in the last preceding paragraphs, in the assessment of whether, in all the relevant circumstances, the subject proposed settlement is fair and reasonable and in the interests of the group members as a whole. Here the proposed payments to the litigation funder and the plaintiff are relatively modest as a proportion of the settlement sum and are, in my view, fair and reasonable in all the circumstances referred to, including the earlier mentioned effort and risk related justification for such payments and also taking into account that those costs have generated material benefits for the group members and done so in circumstances where it would have been unlikely that absent funding and the effort and risk on the part of the plaintiff and the litigation funder the proceeding would probably not have been commenced.
102 Further, I note that no group member has come forward to object to the proposed settlement agreement, despite all group members being informed of the proposed settlement agreement and its terms by Camping Warehouse. This is hardly surprising, considering the size of each individual group member's claim and the existence of the opt out procedure.
103 In other settlement approval cases, the absence of group member objections has been a factor relied upon as weighing in favour of approving the settlement.[36] However, such reliance has often taken place in a context where there have been group members with the means and the ability to object to a proposed settlement if they consider it to be in their interests to do so. In P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 4),[37] Finkelstein J described this issue in the following terms:
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.
104 In the present proceeding, I am not satisfied that I am in a position to safely conclude whether or not the group members affected by the proposed settlement under consideration include one or a number of institutional or otherwise experienced investors with the means and resources to render it likely that they would raise objection to the proposed settlement in circumstances where they considered it unfair or unreasonable or inappropriate. Accordingly, I do not place any significant weight on the absence of objections from the group members as a supporting factor in favour of the approval of this settlement.
105 The terms of the proposed settlement provide for $825,000 to be paid to BSL Litigation Partners Limited (BSL) as consideration for providing Camping Warehouse with litigation funding. Camping Warehouse submitted that the payment to the litigation funder BSL is:[38]
(a) reasonable remuneration for the obligations accepted, risks undertaken and work performed by BSL; and
(b) properly capable of approval by the Court pursuant to s 33ZF of the Act.
106 Camping Warehouse and BSL entered into a litigation funding agreement on 18 June 2015 (the Funding Agreement) whereby BSL agreed to pay Camping Warehouse's costs of the case in return for the repayment of the case costs[39] and consideration for the financing of the case by BSL under that agreement, up to a maximum of 40% of any money received or payment made to settle, compromise or resolve any or all of the claims made in the proceeding.
107 As Camping Warehouse's solicitor conducted the case on a "no-win, no-fee" basis, the liability of BSL prior to settlement of the proceeding was limited to:
(a) providing the security for costs ordered on 11 June 2015 in the sum of $200,000;
(b) providing the further security for costs ordered on 4 February 2016 in the sum of $685,000; and
(c) paying all disbursements incurred in running the case.
108 Had the proceeding concluded unsuccessfully for Camping Warehouse, in addition to the costs referred to in the last preceding paragraph, BSL would also have been liable for Downer's taxed costs. Based on Downer's applications for security, Downer's taxed costs were expected to be in the order of $3m to $4m. This estimate[40] of $3m to $4m is based upon Downer seeking security for in excess of $3m of costs (across two applications).
109 In the circumstances outlined, BSL took on a real and substantial risk of liability in relation to significant costs including a possible adverse costs order.
110 Counsel for Camping Warehouse submitted that the $825,000 reflected in the terms of the proposed settlement, entered into by Camping Warehouse and Downer, is reasonable given the potential liability of BSL in the order of $3m to $4m. Furthermore, Camping Warehouse submits that the proposed payment to BSL of 10% and the settlement fund is also reasonable given that that amount is only one-quarter of BSL's possible entitlement of 40% under the funding agreement.
111 Camping Warehouse submitted that the premium which litigation funders regularly seek, and are paid, is in the range of 35% to 40%.[41]
112 Downer's position on this aspect is, in accordance with clause 2.2 of the terms of the proposed settlement, that it makes no submission with respect to the $825,000 payable to BSL.
113 I accept Camping Warehouse's submission that the payment to the litigation funder here is below the range of percentages often sought and approved by courts and recovered by litigation funders upon the settlement of a group proceeding in Australia. I am also of the view that the particular sum to be paid in this instance to BSL is, taking into account the factors I have referred to, including the risks borne by BSL, is a fair and reasonable sum to pay to the litigation funder in this instance.
114 Not infrequently in group proceedings in relation to this type of cause of action the payment to the litigation funder is agreed between the litigation funder and the group members, who are, or often comprise, large and sophisticated investors.[42] In this matter it is necessary to determine whether the amount to be paid to the litigation funder is fair and reasonable in circumstances where only Camping Warehouse has agreed to the litigation funder's terms and there is, in my view, insufficient information upon which to conclude that the group members associated with this proceeding included large and sophisticated investors of a type which may have taken issue with the proposed level of payment to the litigation funder if they considered such a payment unjustified or otherwise inappropriate.
115 Counsel for Camping Warehouse contends that the reasonableness of the payment to BSL is not affected by Camping Warehouse being the only group member to execute the funding agreement because:
(a) common fund arrangements whereby all group members are liable to pay a funding premium to the litigation funder, even without having entered into a litigation funding agreement, are permissible;
(b) Downer actively prevented Camping Warehouse from communicating with group members, thereby effectively preventing BSL from entering into litigation funding agreements with other group members; and
(c) BSL has acted in the interests of all group members by providing the funding, which has permitted this proceeding to reach trial and a point at which it was capable of settlement on reasonable terms for the benefit of all group members.
116 I observe, in this context that representative plaintiff seeking funding and the funder contemplating funding litigation must often each make a difficult choice, namely:
(a) before committing to provide funding, the litigation funder may seek to reach agreement with sufficient group members to create a contractual right that the litigation funder be remunerated in the event of the successful resolution of the proceeding.
(b) the litigation funder commits, without first having secured the type of agreements referred to above. The litigation funder would then be at risk of finding itself unable to communicate with group members prior to reaching a successful resolution of the proceeding, and thereby being unable to put in place an agreed arrangement to be remunerated for funding which it provided. On this scenario is it likely that such a funder will not be able to agree upon a funding arrangement with a sufficient number of Group Members and therefore ultimately upon the successful resolution of the proceedings group members will take the benefits of the proceeding without contributing to its cost.
117 The courts have in a number of instances approved settlements that seek to equalise or compensate "funded" group members, namely group members who have entered into an agreement with a litigation funder and thereby contributed to the proceeding, as distinct from "unfunded" group members, namely group members who have not entered into an agreement with a litigation funder and would otherwise have received the benefit of the proceeding without having to contribute to its expense. The two methods that have been utilised for this purpose have come to be known as the "common fund" approach and the "funding equalisation formula" approach. The funding equalisation formula approach has however received the most judicial support.
118 Before dealing with funding equalisation formula approach and the common fund approach, an explanation of the essential difference between the two approaches is called for.
119 The funding equalisation formula approach shares the burden assumed by funded group members among all group members. This diminishes the burden assumed by individual funded group members. It does not enlarge the benefit received by the litigation funder.
120 The common fund approach results in the burden assumed by funded group members being imposed on all unfunded group members. This does not diminish the burden assumed by individual funded group members. However, this model enlarges the benefit received by the litigation funder. The funding equalisation approach is therefore more beneficial to group members, and the common fund approach is generally seen as beneficial to litigation funders.
121 In Dorajay Pty Ltd v Aristocrat Leisure Ltd,[43] Stone J approved the settlement of a group proceeding that provided for different amounts to be allocated out of the settlement fund to funded and non-funded group members to take into account that funded group members had undertaken the liability for the costs of the action through a litigation funder. This allocation occurred in the context of a settlement where the funded group members were to receive $109m from the settlement fund and the non-funded group members were to receive $27m.[44]
122 Finkelstein J in P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 4)[45] explained the reasoning behind approving the allocation of the settlement fund between funded and unfunded group members, and the method by which it would be undertaken, in the following way:
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...
123 In Modtech Engineering Pty Ltd v GPT Management Holdings Ltd,[46] the proposed settlement distribution scheme to be approved by the Court provided for a funding commission to be deducted from the individual entitlements of all group members and paid to the litigation funder, irrespective of whether the group members had executed a litigation funding agreement. Approximately 92% of the group members had executed a litigation funding agreement for the purposes of the proceeding. Gordon J did not approve this aspect of the settlement distribution scheme and instead required that the unfunded group members have deducted from their individual entitlements the amount they would have been required to pay the litigation funder if they had entered into a litigation funding agreement, with those amounts to be added back into the settlement sum and distributed pro rata to all group members.
124 Her Honour was of the view that as the unfunded group members had made a decision, for whatever reason, not to enter into a litigation funding agreement, they should not now be required to make a payment to the litigation funder. Further, the litigation funder had made a commercial decision to fund the proceedings even though it had only entered into litigation funding agreements with 92% of group members. However, her Honour was of the view that this did not mean that the unfunded group members should receive a windfall and that it was fair and reasonable to apply the funding equalisation methodology.
125 Courts have on occasions applied the funding equalisation formula approach as one available method of ensuring that group members are treated fairly and equally and that unfunded group members do not receive a windfall at the expense of those group members who have entered into litigation funding agreements.
126 Here, as mentioned, there is the unusual circumstance whereby this group proceeding commenced at about the same time as the settlement of the IMF funded claims occurred. Hypothetically, if the IMF funded claims and the present group proceeding had been included as the one proceeding there may have been a number of litigation funding agreements entered into by number and the size of the claims, as occurred in Dorajay, P Dawson Nominees and Modtech. Application of the funding equalisation formula approach would likely have resulted in the litigation funder being adequately recompensed from the litigation funding agreements entered into with the institutional investors and it would have avoided the unfunded group members receiving a windfall as against the funded group members.
127 I also consider the present circumstances to be materially different to those in Modtech, because the group members in the present proceeding did not have the opportunity to enter into a litigation funding agreement with BSL, as a result of the interlocutory processes in this proceeding and as a result of BSL also being thereby prevented from effectively communicating with shareholders.
128 In Pathway Investments Pty Ltd v National Australia Bank Ltd (No 3)[47] a different approach was taken to the method of payment to be made by group members to the litigation funder. Pagone J explained how the payments to be made by the group members to the litigation funder as follows:
The amounts payable to the group members are subject to the payment of a "Funding Commission" to the litigation funder. Clause 11.3 contemplates the deduction of the Funding Commission from the allocation to each participant under the proposed settlement scheme. The Funding Commission is defined in cl 2.1 to mean the amount payable to the litigation funder by each original group member and by each registered group member. Each original group member is to pay the funding commission pursuant to the terms of the funding agreement with the litigation funder. The funding commission payable by the registered group members is that pursuant to the orders which were made on 24 August 2012.
The original group members had each entered into agreements with the litigation funder agreeing to pay to the litigation funder a certain percentage of any distribution by reference to the number of the bank shares which they held: 40% if less than 1 million shares; 35% if between 1 million shares and 10 million shares; and 30% if more than 10 million shares. One of the orders made on 24 August 2012 provided for payments of comparable amounts by the registered group members (as defined). Group members potentially affected by this order have been on notice of its terms and none has objected. It is not for the court to express a view about the commercial desirability of the quantum paid to the litigation funder under these arrangements, and there is no reason shown to withhold approval of the settlement because of the proportion of the settlement amount to be received by the litigation funder rather than by the group members themselves. In other cases it might be necessary for separate justification of the amounts paid to a litigation funder before the court approves a settlement but that does not appear necessary in this instance. The amounts payable from the distribution to the original group members appear to have been agreed to between sophisticated parties with substantial means and neither they, nor the registered group members, have raised objection.[48]
129 In the Pathway Investments case the orders made by Pagone J on 24 August 2012 required unfunded group members to either opt out by a specified date or register for the group proceeding by that same date. By registering for the group proceeding, those unfunded group members were put on notice that a percentage of the sum recovered on their claim would be paid to the litigation funder. These group members who did not opt out and did not register by the specified date were still members of the group proceeding, however they would not share in the proceeds of any settlement unless they signed a statutory declaration and could demonstrate special circumstances as to why they had not registered by the specified date.
130 In Farey v National Australia Bank Ltd[49] Jacobson J made orders pursuant to s 33ZF of the FCA Act to open and then close the class eligible to participate in any potential settlement sum. The group proceeding had been initiated as a closed group proceeding, with the group members being those who had a potential claim against the defendant and had entered into a litigation funding agreement with IMF. The purpose of the orders sought was to enable the parties to know precisely how many group members would participate in any settlement and the total amount of the claims of those group members, so as to assist the parties to negotiate a settlement. The orders made by Jacobson J were similar to those made by Pagone J in Pathway Investments, in that they required those who had not entered into a litigation funding agreement to either register for the group proceeding by a certain date, thereby accepting they would be required to make payment to the litigation funder, or opt out of the proceeding by that same date. Those who did not register or opt out would remain a group member but not be entitled to participate in the distribution of any future amount agreed in settlement of the proceeding, subject to any further order of the Court.
131 In the subsequent settlement approval application made in Farey v National Australia Bank Ltd,[50] Beach J made the following observations about the orders made by Jacobson J:
As noted, these orders, appropriately in my view, equalised the contribution each group member made towards the costs of the prosecution of the proceeding (including IMF's funding commission), irrespective of whether or not that group member had entered into an agreement with IMF. In effect, what was put in place was a common fund type mechanism to ensure that there were no "free riders".
132 No similar orders were made in the present proceeding putting the group members on notice about the payments to be made to the litigation funder until the notice of proposed settlement was sent out to group members in March 2016, which was subsequent to the completion of the opt out procedure on 21 January 2016.
133 However, the completion of the opt out procedure and resultant crystallization of the participating group before settlement, and the approval of settlement in these proceedings, is in my view a circumstance which provides support for approval of the component of the settlement earmarked for payment to the litigation funds. This is because at the point at which the appropriateness of the proposed payment to the litigation funder was considered the body of group members was further delimited by those relevant shareholders who had opted out and the time for shareholders to opt-out had concluded. Therefore, not only was the ratio of settlement sum to the amount to be transferred out of that sum as recompense to the litigation funder set; the number of participating group members had crystalized and the implications of the approval, principally in relation to the ratio mentioned, including the likely settlement dividend to shareholders in the group, was closely ascertainable.
134 In Blairgowrie Trading Ltd v Allco Finance Group Ltd (rec and mgr apptd) (in liq),[51] the applicants sought orders under ss 23 and 33ZF of the FCA Act for approval of what was essentially a common fund approach at an early stage in the proceeding. The subject matter of the proceeding related to various alleged disclosures and non-disclosures by Allco Finance Group regarding its financial position. Only the representative plaintiffs had entered into the funding agreement with the litigation funder. The agreement between the applicants and the litigation funder, and the orders sought, required the applicants to pay the litigation funder the legal costs and funder's premium from any amounts recovered in the proceeding by all group members, not just those amounts recovered by the applicants as a result of their respective claims. The funder's premium was to be in the range of 32.5% to 35% of any amount or amounts ultimately recovered in the proceeding.
135 With regard to the litigation funding agreement and retainer agreement, Wigney J stated:
The following critical points should be made. First, group members, other than the applicants, are not a party to any retainer agreement with Maurice Blackburn. They are not presently obliged to pay any legal costs or disbursements incurred in the conduct of the proceeding. Second, group members, other than the applicants, are not a party to any funding agreement with ILFP and are not otherwise liable to pay any commission (or any other amount) to ILFP. Third, the resolution sum includes, or may include, money received on account of any settlement, judgment or order in respect of claims of group members other than the applicants. That money is not the applicants' money. In the absence of any order by the court, it is not money that the applicants can pay away, or agree to pay away, as they see fit. Fourth, that is exactly what the applicants purport to do in cl 9.1. And fifth, the payments that the applicants have promised to make to ILFP are referrable to amounts (legal costs and commission) that group members other than the applicants have never agreed to pay and are not otherwise legally obliged to pay.[52]
136 Wigney J dismissed the application. His Honour did not consider that the orders were appropriate or necessary to ensure that justice was done in the proceeding, as required by s 33ZF of the FCA Act. Although Wigney J provided a number of reasons for refusing to make the orders sought, it appears that his Honour was principally troubled by the stage of the proceedings at which the application for approval of proposed payments to the litigation funder had been made, namely shortly after the filing and service of pleadings.
137 Wigney J summed up the difficulty concerning the stage of the proceedings at which the orders were sought in this way:
Second, it is neither appropriate nor necessary to impose the applicants' commercial bargain in relation to the payment of commission on the group members as a whole, at least at this early stage of the proceeding. The fact that orders that have this effect have been made in the context of anticipated settlements, which require the approval of the court under s 33V of the FCA Act, does not assist the applicants. This issue is considered later in the context of the applicants' arguments concerning equality of outcome. It is sufficient to say in this context that different considerations are likely to apply at the settlement stage. In particular, at that stage of the proceeding there is at least some degree of certainty in relation to how the proceeding is likely to be determined, including the likely amount of the settlement sum, and therefore the likely commission payable to the litigation funder.
That may be contrasted with the position here. There is, at this early stage of the proceeding, considerable uncertainty and a lack of information concerning the implications of making such an order. The applicants' arguments presuppose the coming into existence of what they call a common fund. As will be explained later in the context of the applicants' equality arguments, unless the proceeding settles, a common fund will not necessarily come into existence. If the proceeding does not settle, much will depend on how the common questions of fact and law are determined, the manner in which issues that are not common are determined and, if it comes to it, how damages are awarded. In any event, at this stage of the proceeding it is not possible to even estimate the size of any such fund, or the total amount that might be recoverable by group members. It is therefore not possible to estimate the size of any commission that might be payable to ILFP in the future. It could not be appropriate or necessary to make an order effectively approving and authorising the payment of commission to ILFP in circumstances where the amount payable cannot even be estimated.[53]
138 Wigney J dismissed the application in Allco because of the circumstances peculiar to that application, in particular the application being brought at such a preliminary stage in the group giving rise to unacceptable associated uncertainties. His Honour also alluded to concerns in relation to certain constitutional issues which, for present purposes need not be elaborated.[54]
139 It is also to be noted that in Allco, Wigney J considered the application before the Court for approval of payments to a litigation funder, under s 33ZF of the FCA, and although his Honour rejected that application, for the reasons referred to above, his Honour appeared to consider that an application pursuant to s 33ZF of the FCA was an inappropriate vehicle for the type of orders sought.
Camping Warehouse unable to communicate with Members in relation to possible funding arrangements
140 Camping Warehouse submits that neither Camping Warehouse or BSL were able to communicate with group members in this proceeding to seek their support for the litigation funding arrangements entered into by Camping Warehouse and their approval for consideration to be paid to BSL from the settlement fund.
141 Camping Warehouse submits that the inability of Camping Warehouse or BSL to communicate with group members arose as a result of Downer's objections to Camping Warehouse being provided with the contact details of group members. As a consequence of those objections, communications with the group members, including the advising of the opt out notice and the notice of settlement, took place through a mail house distribution service nominated by Downer and on the basis that the information provided to the mail house distribution service was not be disclosed to the Camping Warehouse or its legal representatives.
142 Camping Warehouse highlights that its inability, and the inability of BSL, to communicate with group members, as a result of Downer's objections to Camping Warehouse being provided with the contact details of group members, has resulted in all communications with the group members, including advice in respect of the opt out notice and the notice of settlement taking place through a mail house distribution service nominated by Downer. Furthermore, Camping Warehouse notes pursuant to Court orders the information provided to the mail house distribution service was not accessible to it or its legal representatives. This circumstance, Camping Warehouse contends, disabled its ability to agree litigation funding arrangements with group members.
143 Camping Warehouse also relies on the Court's rejection of Camping Warehouse's proposed draft Opt Out Notice which referred to Camping Warehouse having entered into the funding agreement and foreshadowed Camping Warehouse's intention to communicate with group members directly once it had been permitted access to Downer's Register of Members. The plaintiff's proposed draft communication concerning a funding agreement with BLP stated:
This proceeding has been fixed for trial commencing on 2 February 2016 on an estimate of 8 to 10 days. While the Plaintiff has been indemnified in relation to its costs of this proceeding since commencement in March 2014, including giving security for Downer EDI's costs of defending the claim, the further conduct of this proceeding to trial will be expensive.
The plaintiff has now entered into a litigation funding agreement with BSL Litigation Partners Pty Ltd to provide funding for the conduct of this proceeding up to and including trial (BLP Litigation Funding Agreement). The plaintiff will contact all potential Group Members separately in relation to the litigation funding arrangements once the Court permits the plaintiff's lawyers access to the register of Downer EDI's members as of 1 June 2010.
144 It would appear likely that Camping Warehouse included the above information about litigation funding because it considered it to be important to provide group members with information which may be relevant to the protection of their interests, including information that was likely to be relevant to a group member's decision whether to opt out of the proceeding.
145 Camping Warehouse's proposed Opt Out Notice was provided to the Court on 20 August 2015. On 13 October 2015 that Opt Out Notice was rejected by the Court and orders were made to the effect that, rather than Camping Warehouse's proposed Notice, instead Downer's proposed Notice be used as the basis for the Opt Out Notice to be sent to members.
146 On 6 November 2015 Court orders approved a Notice to group members based on Downer's proposed Opt Out Notice. That Notice did not mention that Camping Warehouse had entered into litigation funding arrangements. Those orders stipulate that communications with group members must be through a mail house distribution service. No information concerning the relevant group was made available to Camping Warehouse.
Litigation funding probably facilitated settlement of this proceeding
147 The need for a substantial injection of litigation funding arose upon Downer making an application for security for costs and Camping Warehouse and Downer compromising the claim for security for costs in the sum of $200,000 to be payable by 18 June 2015.
148 Camping Warehouse contends that it procured funds pursuant to a specific funding arrangement to enable payment of the $200,000, by way of security for costs, ordered by the Court.
149 But for the plaintiff's litigation funding arrangements in respect of this proceeding, it is probable, as addressed above, that this proceeding would have been stayed and the approximately 10,747 group members who suffered loss and were represented in this proceeding would not have shared in the $8.25m settlement sum now agreed by the plaintiff and the defendant.
150 As earlier observed, without the litigation funding in place the group members would probably not have been in a position to prosecute this proceeding and thereby vindicate their rights. As a consequence, access to justice would probably have been denied to approximately 10,747 group members.
151 On 4 February 2016 Camping Warehouse was ordered to provide further security for costs in the sum of $685,000. The litigation funder BSL provided the money which enabled further security to be provided. Camping Warehouse tendered to Downer's lawyers a cheque for the sum of security required on several occasions on 5 February 2016. These tenders of the required sum of security by Camping Warehouse, it is reasonable to infer, demonstrated that BSL was prepared to fulfil its funding obligations to the plaintiff and thereby place it in a position where it could continue to prosecute these proceedings.
152 The plaintiff and the defendant settled this proceeding almost immediately after Camping Warehouse tendered the required security for costs. The willingness and capacity of BSL to pay the security ordered coupled with the almost immediate settlement reached in these proceedings thereafter, in my view, provides an adequate basis upon which to also infer that the litigation funder's willingness and capacity to pay the required further substantial security was an important factor leading to the settlement of the case on that same day.
Additional factors rendering the settlement fair and reasonable
153 In the further particular circumstances of this case including those below, I consider that the component of the overall settlement proposing payment from the settlement sum to the Litigation Funder BSL of $825,000, is fair and reasonable as between the parties having regard to the claims of the group members and in the interests of the group members as a whole and not just the interests of Camping Warehouse and Downer. I also consider that the order authorising and effecting that payment is one which in those circumstances, including the terms of the overall settlement in this matter is appropriate and necessary to ensure that justice is done in the proceeding. Those further particular circumstances are:
(a) that the proposed payment to BSL is only 10% of the settlement fund, which is a level of recompense to the litigation funder which is at the low end of such funding arrangements referred to in other relatively similar cases;
(b) the sum of the proposed payment to BSL is proportionate to the settlement sum, that is, it represents a sum which is a relatively small proportion of the Settlement Sum and also represents a sum which will have a relatively small impact on the total amount ultimately paid to each group member;
(c) Camping Warehouse, it appears, could not itself meet the case funding and security for costs burdens of the proceeding without assistance. Accordingly, if the funding agreement had not been entered into, the group proceeding would probably not have been commenced, or the increasing cost burden, including order for security for costs, would most likely have collapsed;
(d) had the group proceeding collapsed, there is a very real prospect that the other group members would not have prosecuted their claims, either individually or through another group proceeding. Furthermore, had the group proceeding collapsed, the group members probably almost certainly not have received any compensation for Downer's alleged non-disclosures;
(e) BSL's ability to provide the security for costs appears to have been a substantial factor leading to the settlement of the proceeding on the terms reached;
(f) at the time the funding agreement was entered into, Camping Warehouse did not have the contact details of the group members it was representing. This prevented Camping Warehouse and BSL from being able to approach group members in relation to a possible funding agreement;
(g) after entering into the funding agreement, Camping Warehouse sought the group members' contact details but was thwarted by Downer's objections;
(h) orders of the type made by Pagone J in Pathway Investments would not have been possible in this case because the opt out procedure had been completed before group members were advised of the existence of the funding agreement;
(i) applying the earlier referred to type of funding equalisation formula in this case, would result in BSL receiving only a proportion of Camping Warehouse's entitlement under the proposed settlement. This would not be appropriate recompense to the Litigation Funder commensurate with what appears to be the critical importance of the funding agreement to Camping Warehouse's ability to continue to prosecute and settle the group proceeding, nor appropriate recompense to the Litigation Funder for the risks assumed by BSL in agreeing to fund this litigation, including in relation to BSL's provision of security for costs;
(j) had Camping Warehouse and BSL had the opportunity to communicate directly with group members before the opt out procedure was completed, BSL may have been able to procure sufficiently broad agreement to the funding agreement to render the funding equalisation formula approach appropriate in this matter. Alternatively, Camping Warehouse and BSL may have been in a position to approach the Court for orders of the type made by Pagone J in Pathways Investments;
(k) there is no sufficient basis upon which to conclude that group members are likely to be sophisticated investors or otherwise. However, it is likely that had Camping Warehouse and BSL been able to contact the group members before entering into the funding agreement, the group members would have required time to consider the merits of the proceeding, the terms of the funding agreement, the cost of opting out and thereafter prosecuting their own claims, and generally whether it would be worth their while to sign the funding agreement and 'stay in' the group proceeding. This process would have involved delay and cost to the group members, which the group proceeding regime seeks to avoid; and
(l) no objection has been raised in respect of the proposed settlement. However, I again note that I have ascribed little weight to this factor for the reasons stated earlier.
154 As earlier observed both parties put forward the Terms of Settlement which are the subject of the Camping Warehouse approval application. Those proposed Terms of Settlement expressly record that the relevant order are sought under both s 33V and s 33ZF of the Act, including at order [11].
155 Further, although Downer did not make submissions in support of the orders sought in relation to the proposed payment to the litigation funder and the plaintiff in response to the plaintiff's submissions that s 33ZF of the Act provided power to make such orders, Downer supported Camping Warehouse's approval application. Downer at no time submitted that the provisions of s 33ZF provided an unsuitable basis for such orders. Neither did Downer submit that 33V of the Act was an unsuitable basis for such orders. By implication Downer supported these bases upon which Camping Warehouse sought orders for the approval of the subject settlement.[55] In accord with clause 2.2 of the terms of settlement, Downer made no submission in support of order for the payment to Camping Warehouse or the litigation funder.[56]
156 The terms of settlement include a payment of $100,000 to Camping Warehouse as reimbursement for the plaintiff's reasonable time and expenses.
157 Camping Warehouse supports the case for a substantial payment from the settlement sum to the plaintiff on the basis of the very substantial preparation work undertaken by Mr Alan William Hutchinson the plaintiff's director a person who also controls and owns a substantial beneficial interest in the plaintiff company. Downer did not seek to contradict Camping Warehouse in relation to these matters.[57]
158 Mr Hutchinson's time, work and contribution to advancing this proceeding on behalf of the plaintiff, and to simultaneously advance the case for the group members, included:
(a) instructing the plaintiff's solicitor including by staying abreast of the progress of the case by reading correspondence, affidavits, and submissions throughout the duration of the proceeding;
(b) attending conferences with the plaintiff's solicitor and counsel and giving instructions as required;
(e) preparing a witness statement and preparing and making himself available for cross-examination;
(f) furnishing instructions for finalising and swearing an affidavit in lieu of the witness statement; and
(g) reading large parts of the defendant's discovered materials and the court book as part of his preparation to give evidence and so as to be in the best position to provide instructions to his solicitors and counsel.
159 I accept that not only did Mr Hutchinson expend considerable time and effort in the advancement of the claims in this proceeding, his company accepted considerable exposure to costs in the event that BSL failed to honour the cost indemnification arrangements.
160 I also infer and accept that Mr Hutchinson's representative preparation tasks were also likely to be extensive and time consuming given the nature of the plaintiff's case.[58] This is because here the plaintiff's claim relies on indirect causation, and seeks to establish required proof of market efficiency. Market efficiency is potentially relevant to the claim of all group members. Accordingly, it is likely that Mr Hutchinson spent very little time on matters that were solely relevant to the individual aspects of the plaintiff's claim. Furthermore, it is also probable, given the above and the details presented in relation to the time devoted by Mr Hutchinson to tasks intended to advance this litigation, that most work performed by Mr Hutchinson in relation to this matter would properly be described as having been performed in a representative capacity.
161 For these reasons the material relied on by Camping Warehouse has enabled me to appreciate the extent of Mr Hutchinson's attendances and work undertaken in relation to the advancement of this proceeding.
162 On the basis of that material and Camping Warehouses' submissions, I am satisfied that the majority of attendances and work undertaken by Mr Hutchison was of a representative nature and benefited the group members as a whole. I am also satisfied that remuneration of $100,000 in respect of Mr Hutchinson's efforts taking into account his considerable business experience and the extent and value of his time applied to this proceeding is fair and reasonable.
163 In Darwalla,[59] Jessup J approved reimbursement payments to be paid to seven group members totalling $418,360 for the time and effort those group members expended in pursuing the group proceeding on behalf of all group members. The reimbursement payments were made in the context of a settlement sum of $30.5m and payment of legal costs and disbursements of $10.5m.[60] His Honour said:
I consider it prima facie reasonable that particular parties who have sacrificed valuable time and incurred expenses in the interests of prosecuting this proceeding on behalf of group members as a whole should be able to look to the corpus of the settlement sum for some degree of compensation and reimbursement.[61]
164 Since Darwalla, reimbursement payments have been approved in a number of settlement approvals under s 33V.[62]
165 Section 33ZD(a) of the Act states that the Court may order the plaintiff or the defendant to pay costs.
166 Section 33ZD(b) of the Act states that the Court may not order a group member or sub-group member to pay costs, except as provided under ss 33Q and 33R, which relate to the determination of issues not common to all group members.
167 In the circumstances of this case, the exceptions contained in s 33ZD(b) do not arise, however, if the proceeding had not been successful it is likely that it would have been Camping Warehouse which would probably have borne a costs order and although indemnified by BSL, would be protected subject to BSL performing its obligations under the funding agreement between those parties.
168 In Darwalla, Jessup J considered, without deciding the point, whether lead plaintiffs should receive compensation beyond that recoverable for the time and expense they had expended on bringing the group proceeding. His Honour stated that:
As the applicants pointed out in their submission, payments of this kind occur frequently in class actions in the United States. There, both the philosophy behind, and the calculation of, the payments concerned are a little different from those relied upon by the applicants in this proceeding. The payments are commonly referred to as "incentive payments", and take account not only of the time and expense involved getting up a case for trial, but also of the exposure and risks to which those who choose to be lead plaintiffs in class actions necessarily subject themselves. There is also on occasion, I detect, a suggestion that, as a matter of policy, there should be some encouragement for people to assume the role of lead plaintiffs, without whom the particular kind of generalised justice embodied in such proceedings could not be achieved.
...
As to the policy considerations urged by counsel, I hear, in their submissions, an echo of the policy underlying the allowance of incentive payments in the United States to which I have referred above. Counsel suggested that a similar policy objective should be perceived in the provisions of Pt IVA of the Federal Court Act. Although I cannot, for my own part, perceive such a policy in those provisions, and although, sitting as a single judge, I would be reluctant to introduce, for the first time, a policy principle that lead applicants should be able to carve out some part of the settlement sum to compensate them for the risks and exposures to which they have been subject in the litigation, and to provide some kind of incentive for future litigants, I see no need to decide the present question by reference to either such consideration. The basis of the claim presently before me is that the claimants should be compensated for the time which they have devoted to getting up the case for trial. If a particular allowance, by way of carve-out from the settlement sum, is not to be regarded as fair or reasonable upon the basis which underlies its calculation, I do not consider it would be appropriate, in effect, to rationalise the approval of such an allowance upon some broader policy basis. If there comes a day when the court recognises, and is prepared to approve some kind of reward for, the risks and exposures to which lead applicants subject themselves in proceedings under Pt IVA, that step will be taken, I consider, consciously, and deliberately by reference to clearly identified criteria, and involving its own articulated basis of quantification.
169 In Farey v National Australia Bank Ltd,[63] Beach J was of the view that incentive-style payments could potentially be made to representative plaintiffs. In that matter his Honour stated that:
The deductions are just and there is adequate power to approve them as part of approving the settlement (ss 33V(2) and 33ZF(1)). But to say that the present proposed payments are not incentivisation payments should not be taken to indicate that such reward style payments cannot ever be authorised or justified. There is adequate statutory power (ss 33V(2) and 33ZF(1)) to approve incentive reward payments and their deduction from the settlement proceeds.
170 However, his Honour went on to qualify the above by saying:
But if such incentive mechanisms are to be invoked, in the usual case they should be approved at least in a preliminary or contingent way (subject to further order) at or close to the inception of the proceedings and then unconditionally approved (if appropriate) in the subsequent formal s 33V process. Of course, where there is an external litigation funder who has taken on the costs risk, including any exposure to an adverse costs order, it may be difficult to see how any such incentivisation award could ever be justified in addition to reasonably remunerating the applicant for the time spent in pursuing the proceeding for the benefit of the group members and any out of pocket expenses.
171 Downer, in accordance with clause 2.2 of the terms of the proposed settlement, also made no submission with respect to the $100,000 payment to Camping Warehouse.[64] No submission, or objection by any person, was made against the approval and the Court effecting the subject settlement including a payment to Camping Warehouse in relation to its controlling officer's efforts to initiate and progress this proceeding.
172 Every case of this type turns upon its own particular facts and circumstances in relation to the proposed settlement and its components, including this aspect. The plaintiff, Camping Warehouse, has, in this matter, applied considerable time and effort to a number of the tasks which necessarily fall to be undertaken by a plaintiff in proceedings such as these. Furthermore, the plaintiff has for a significant period, and in relation to what was likely to be a material sum, exposed itself to potential liability for the defendant's costs in the proceeding.
173 The above authorities demonstrate that courts are willing to approve settlements that provide for reimbursement and compensation payments to the lead plaintiff. In this case I am satisfied that the payment to Camping Warehouse of $100,000 as compensation and recompense for its time, effort and potential risk to it is fair and reasonable and the payment is compensation for the reasons I have referred to, in the interests of the group members as a whole. Importantly, it is to be appreciated that such a payment is not an incentive payment for taking on the role of lead plaintiff but rather it is compensation for the time necessarily and reasonably spent by the plaintiff, in the nature of representative efforts in prosecuting the case on behalf of the group members. Therefore, in my view, it is sound to characterise such efforts and potential exposure borne by the plaintiff as being incurred for the benefit of the group matters in the proceeding, and justifiably compensable on that basis.
174 The sum of the proposed payment to Camping Warehouse is proportionate to the settlement sum, that is, it represents a sum which is a relatively small proportion of the Settlement Sum and also represents a sum which will have a relatively small impact on the total amount ultimately paid to each group member.
175 In these circumstances and as a result of the burden upon, and exposure of, the plaintiff to which I have referred, I consider that it is fair, reasonable and appropriate that the plaintiffs claimed compensation should, in this case, be ordered to be paid from the settlement sum. I consider that in the circumstances of this proceeding the proposed payment to the plaintiff as part of the overall settlement is also both fair and reasonable as between the parties, having regard to the group members' interests as a whole and not just the plaintiff and the defendant, and is here appropriate and necessary to ensure justice is done in the proceeding.
176 I again add that in making the orders in relation to payment to Camping Warehouse, I have primarily relied upon s 33V of the Act. I have however, as explained above, placed secondary but independent reliance upon s 33ZF of the Act as a provision also empowering the Court to make the current orders sought by the plaintiff, including the Orders for payment to the plaintiff and the Litigation Funder.
177 The terms of the proposed settlement make the following provision for the payment of administration costs to the administrator, Elliott Legal:
(a) ongoing costs of administration of the fund of $25,000 per calendar month until 31 December 2017; and
(b) reasonable fees for contact with class members and provision of administration to each class member of $22 per group member payable monthly in respect of each shareholder on a pro-rata basis up to and including the month in which the funds clear for each individual shareholder or 31 December 2017, whichever occurs first.
178 Counsel for Camping Warehouse contends that the costs of administering the fund are fair and reasonable, given the numerous and complex tasks which are required to be undertaken by Elliott Legal, including:
(a) ascertaining the addresses of up to 10,747 shareholders, some of whom may not have been on Downer's share register for nearly six years;
(b) determining whether individual shareholders' claims should be admitted;
(c) arranging for payments to be made to group members whose claims have been admitted; and
(d) the potential for involvement in the dispute resolution procedure involving expert determination, and if necessary a hearing before an Associate Judge of this Court.
179 Furthermore, the parties expect that the administration costs will be covered by the interest earned on the settlement fund, which was established in 2016.
180 Downer has made no objection to the amount specified with respect to Elliott Legal's estimated ongoing costs in the administration of the fund or Elliott Legal's reasonable fees for contact with the group members and provision of administration services.
181 Having considered the settlement terms for the administration of the settlement fund, including the number of group members and the tasks required to be undertaken by Elliott Legal, together with the quantum of the administration costs to be paid, I am satisfied that the administration costs are fair and reasonable and the payments contemplated are in the interests of the group members as a whole.
Effect of the separate agreement for payment of legal fees
182 Downer has entered into a separate commercial agreement whereby it is to pay $2.85m for Camping Warehouse's legal costs and disbursements.
183 Senior counsel for Camping Warehouse submitted that because these legal costs were dealt with in a separate agreement between the parties and were not treated as a charge upon the settlement fund, the legal costs did not need to be reviewed by the Court.[65]
184 Counsel for Downer submitted that the legal costs were not reviewable by the Court, as they are a private matter the subject of a contractual agreement between Camping Warehouse and Downer.
185 In Jarra Creek Central Packing Shed Pty Ltd v Amcor Ltd,[66] Jacobson J said that:
The question of whether the legal fees and disbursements are fair and reasonable is a separate question from whether the settlement is fair and reasonable. This is because no question arises of any part of the sum of $25 million for costs and disbursements being available to Group Members.
186 At all events Camping Warehouse has substantiated those legal costs by way of evidence from an expert legal costs consultant.[67] Camping Warehouse's expert report of Peter Trimbos, dated 17 March 2016 assesses and verifies the reasonableness of Camping Warehouse's legal costs. No objection or dispute was raised by Downer or any other person in relation to any component of the plaintiff's agreed legal cost claim.
187 In the above circumstances, to the extent it may be necessary or appropriate to approve the sum of $2.85m which Downer has agreed to pay the plaintiff in relation to legal costs and disbursements I consider those costs to be fair and reasonable.
188 For the reasons I have expressed, I consider that the proposed conditional settlement is proper, fair, reasonable and appropriate as between the parties, having regard to the claims of the group members, and is also in the best interests of group members as a whole, and not just the interests of the plaintiff and defendant.
189 Further, for the reasons I have expressed, I consider that the orders set out below are in the circumstances appropriate, given my conclusions referred to in the last preceding paragraph, and also appropriate and necessary to ensure that justice is done in this proceeding.
190 Furthermore, when considering here whether all or any component of the orders sought by Camping Warehouse to effectuate the subject settlement are appropriate to ensure that justice is done in the proceeding, I have recognised and taken into account that many of the terms of settlement reflected in the orders sought are interdependent and very much part of a package of agreed interrelated terms. The elements of the proposed settlement, including the orders sought in relation to the settlement sum, the sum to be paid to the litigation funder and the sum to be paid to the plaintiff company are of this nature. Therefore, consideration as to whether it is appropriate to approve and order payment to the litigation funder, and to the plaintiff, as part of the overall settlement, is also informed by all of these components which, viewed together, amount to a fair and reasonable settlement in the sense referred to in Matthews v AusNet Electricity Services Pty Ltd at [34].
191 I consider that in this particular matter it is fair and reasonable that group members who have clearly benefited from both the plaintiff's efforts, and the possible risk the plaintiff has exposed itself to in pursuing the relevant claims, and who have likewise benefited from the litigation funder's efforts and assumption of risk, all of which have rendered the prosecution and settlement of this proceeding possible, should bear a concomitant burden representing a reduction in the common fund so as to provide for appropriate payments to the representative plaintiff and to the litigation funder.
192 Finally, I add that in my view s 33V of the Act provides the primary foundation for the orders in this proceeding. That section of the Act expressly empowers orders which deal with the distribution of money payed under a settlement. However, as I have sought to explain, I also consider that s 33ZF of the Act provides a proper basis for such orders, in particular Order 11 below. I emphasise however that the appropriateness of the orders made in this proceeding pursuant to s 33V and s 33ZF of the Act are dependent on the particular facts and circumstances relevant to this proceeding.
193 Accordingly, I approve the subject Terms of Agreement of Settlement executed on 9 February 2016 and the Settlement Scheme proposed by the plaintiff pursuant to s 33V and s 33ZF of the Act.
194 For the above reasons the following orders[68] are appropriate:
Costs inter partes
9. All costs orders made to date in the proceeding be vacated.
Other parties
11. Pursuant to section 33V(2) and section 33ZF of the Act, the amount of:
(a) $100,000.00 be approved as the amount of the Plaintiff's Reimbursement Claim as defined in the Settlement Distribution Scheme; and
(b) $825,000.00 be approved as the amount of the Litigation Funder's Consideration as defined in the Settlement Distribution Scheme.
Court supervision
[1] Plaintiff's summons dated 4 March 2016 and hearing 29 April 2016, including at Transcript T17-18, and T21. 6-11.
[2] By reason of the agreed basis upon which that opinion was provided and accepted, it would not be appropriate that any further detail of the contents of that document be disclosed see: P Dawson Nominees Pty Limited v Brookfield Multiplex Ltd (No 4) [2010] FCA 1029 [14] and [17]; Wingecarribee Shire Council v Lehman Brothers Australia Ltd (In Liq) (No 9) [2013] FCA 1350 [56] and [59]; Jarra Creek Central Packing Shed Pty Ltd v Amcor Limited [2011] FCA 671 ('Jarra Creek'), [83]; Pathway Investments Pty Ltd & Anor v National Australia Bank Limited (No 3) [2012] VSC 625 [5].
[3] Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Limited (No 2) [2006] FCA 1388; (2006) 236 ALR 322 ('Darwalla'), [35].
[5] Refer to Goldberg J in Williams v FAI Home Security Pty Ltd (2000) 180 ALR 459 and Jessup J in Darwalla [2006] FCA 1388; (2006) 236 ALR 322, [33]-[35].
[6] [2014] VSC 663, [34].
[7] [2006] FCA 1388; (2006) 236 ALR 322, [50].
[8] T47.7-8; T47.30-31. It is noted that Downer agreed to terms of settlement which included payments to the litigation funder and the plaintiff, however Downer, although it supports the plaintiff's application, made no submissions in support of these particular payments.
[9] [1998] FCA 658; (1998) 84 FCR 1 at 4.
[10] Although s 33ZF of the FCA Act and s 33ZF of the Act are not in identical terms, the differences are minor and the analysis and application of Federal Court decisions dealing with s 33ZF of the FCA Act are instructive in construing and applying s 33ZF of the Act.
[11] [2015] FCA 328; (2015) 230 FCR 469 at 479-80 [33].
[16] Matthews v AusNet Electricity Services Pty Ltd (Ruling No 40) supra; Rowe v Ausnet Electricity Services Pty Ltd (Ruling No 6), [13].
[17] Johnson Tiles Pty Ltd v Esso Australia Ltd [1999] FCA 1363; [1999] 94 FCR 167 at 176 [37].
[18] Matthews v AusNet Electricity Services Pty Ltd (Ruling No 40) supra.
[19] Rowe v Ausnet Electricity Services Pty Ltd (Ruling No 6), [27].
[20] Jarra Creek Central Packing Shed Pty Ltd v Amcor Ltd [2011] FCA 1115, [3].
[21] Hobbs Anderson Investments Pty Ltd v Oz Minerals Ltd [2011] FCA 801, [21] and [23].
[22] Earglow Pty Ltd v NewCrest Mining Limited (supra) and at [31]-[37]; Courtney v Medtel Pty Ltd [2002] FCA 957; (2002) 122 FCR 168 at 182 [48]-[49] and 183-4 [52]-[53].
[23] Thomas v Powercor Australia Ltd [2011] VSC 614, [37], Order [7].
[24] Refer judgment paragraphs [29]-[33] and [62]-[63].
[25] Market-based causation is conditional upon the premise that if a disclosure failure by the company takes place and the market for a company's securities is efficient (meaning the price of the shares is determined on the basis that all material information regarding the company was publicly available), a shareholder will suffer loss simply by having paid too much for the securities due to the company's contravention.
[26] In Re HIH Insurance Lted (in liq) (2016) 335 ALR 320; [2016] NSWSC 482, a decision handed down on 20 April 2016, Brereton J accepted that causation could be established via market-based causation, or as his Honour termed it "indirect causation". Prior to the decision in HIH Insurance Lted, there had also been very limited judicial dicta in Australia which appeared to be supportive of market based causation as an acceptable mode of proof. See also P Dawson Nominees Pty Ltd v Multiplex Ltd (2007) 242 ALR 111; [2007] FCA 1061, Finkelstein J at 114 [11] regarding causation and the efficient market hypothesis. Finkelstein J at 114 [11] also made reference to American law and Basic Inc v Levinson [1988] USSC 36; (1988) 485 US 224 regarding the "rebuttable presumption of reliance", stating this would only be relevant if it is necessary to establish reliance; Grant-Taylor v Babcock & Brown Ltd (in liq) (2015) 104 ACSR 195; [2015] FCA 149, Perram J in obiter at 237 [219] that reliance does not need to be established in "fraud-on-the-market" cases to establish causation. See case supporting the need for the establishment of reliance: Woodcroft-Brown v Timbercorp Securities Ltd (2013) 96 ACSR 307; [2013] VSCA 284 at 320-1 [68], 324 [81], 353-6 [226]-[239] (Warren CJ, Buchanan JA and Macaulay AJA) regarding recovery under s 1022B(2)(c) and s 1041I of the Corporations Act 2001 (Cth), reliance upon non-disclosure necessary; survey of authorities by Farrell J at [73] in Caason Investments Pty Ltd v Cao [2014] FCA 1410. Contrast cases of inducement resulting from a positive representation with non-disclosure cases. In Caason Investments Farrell J observes that, "causation may be found if disclosure would have caused action or inaction other than that which was taken": at [73].
[27] Downer points to the application made by Camping Warehouse on the fourth day of trial to amend its Further Amended Statement of Claim as demonstrating an appreciation by Camping Warehouse and its advisers of the dynamics and attendant risks associated with the plaintiff's claims.
[28] Houston provided a range of $1.47 to $1.65, of which $1.56 is the midpoint.
[29] This is the total estimated return following deductions from the settlement fund, notified in the Notice of Group Members of Settlement.
[30] Defendant's Outline Submissions (29 April 2016) [10]-[11].
[34] See, eg, Matthews v AusNet Electricity Services Pty Ltd [2014] VSC 663 and Rowe v AusNet Electricity Services Pty Ltd [2015] VSC 232.
[35] Calculated as ($0.66 per share × 10,312,118 registered shares with a positive net variance) ÷ 10,747 potential shareholders = $633.29 estimated recovery per share; see Orders made by Digby J dated 3 May 2016, Attachment 1 'Schedule', T16.13-21.
[36] P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 4) [2010] FCA 1029, [23].
[37] [2010] FCA 1029, [23].
[38] T17.4-T18.21. Matthews v AusNet Electricity Services Pty Ltd (Ruling No 40) [2015] VSC 131 (J Forrest J), [12]-[14]; exercise required for Rowe v AusNet [2016] VSC 166 (J Dixon J); Earglow Pty Ltd v NewCrest Mining Limited [2015] FCA 328; (2015) 230 FCR 469 at 479-80 [33]; McMullin v ICI Australia Operations Pty Ltd (No 6) [1998] FCA 658; (1998) 84 FCR 1 at 4; and Pathway Investments Pty Ltd v National Australia Bank Ltd (No 3) [2012] VSC 625, [19]-[20].
[39] A defined term in the Litigation Funding Agreement which includes amounts paid by way of security for costs and adverse cost orders.
[41] T22.19-27. See Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd [2009] FCAFC 147; (2009) 180 FCR 11 at 48 [189]; Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386; IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) [2009] FCAFC 9; (2009) 253 ALR 240; and International Litigation Partners Pte Ltd v Chameleon Mining NL [2011] NSWCA 50; (2011) 276 ALR 138 at 141 [18]; IMF Bentham Ltd, Offer of Funding .
[42] Pathway Investments Pty Ltd v National Australia Bank Ltd (No 3) [2012] VSC 625, [20].
[43] [2009] FCA 19, [17] ('Dorajay').
[44] Dorajay [2009] FCA 19, [12].
[45] [2010] FCA 1029, [28] ('P Dawson Nominees').
[46] [2013] FCA 626, [55] ('Modtech').
[47] [2012] VSC 625 ('Pathway Investments').
[48] Pathway Investments [2012] VSC 625, [19]-[20].
[50] [2016] FCA 340, [30].
[51] [2015] FCA 811; (2015) 325 ALR 539, ('Allco').
[56] Refer paragraphs [49], [154] and [155].
[58] During the course of the hearing on 29 April 2016, senior counsel for Camping Warehouse submitted that it was reasonable for Camping Warehouse to be paid for the work and endeavour of Mr Hutchinson, particularly in circumstances where although the funding agreement between Camping Warehouse and BSL required BSL to indemnify the plaintiff for any adverse costs order, the plaintiff still remained at risk that it would have to personally bear any costs order if BSL were to default on the litigation funding agreement.
[59] [2006] FCA 1388; (2006) 236 ALR 322, [367]-[368].
[62] See P Dawson Nomiees Pty Ltd v Brookfield Multiplex Ltd (No 4) [2010] FCA 1029, [29]; Jarra Creek [2011] FCA 671, [143]-[152]; Matthews v AusNet Electricity Services Pty Ltd [2014] VSC 663, [423]-[426]; Downie v Spiral Foods Pty Ltd [2015] VSC 190, [92]-[93], [167]-[175].
[63] [2016] FCA 340, [43].
[67] Affidavit of Peter Trimbos affirmed 17 March 2016.
[68] These orders were made on 3 May 2016.
Camping Warehouse
Downer EDI
(1998) 84 FCR 1
(1994) 181 CLR 404
(2006) 236 ALR 322
(2000) 180 ALR 459
(2015) 230 FCR 469
(2002) 122 FCR 168
(2016) 335 ALR 320
(2007) 242 ALR 111
(2009) 180 FCR 11
(2006) 229 CLR 386
(2009) 253 ALR 240
(2011) 276 ALR 138
(2015) 325 ALR 539