Plaintiffs v Defendant

2 The group members are described as all persons, save for the persons named in the Schedule 1 to the statement of claim, who sold and transferred title to their residential properties to a company called Money For Living (Aust) Pty Ltd ("Money for Living"), and participated in what was described as the Money For Living Scheme, which is set out in the statement of claim. The persons named in the Schedule are persons who also participated in the Money for Living Scheme who are group members in an application issued in the Federal Court of Australia by the solicitors Russell Kennedy.

3 The description of the group members goes on to identify them as persons who retained the defendant, Kerrili Pty Ltd, which trades as a firm of solicitors called Diakou Faigen, who were solicitors at all relevant times carrying on practice in this State.

4 The plaintiffs and those that they represented were induced to participate in the Money For Living Scheme, the general effect of which was that the plaintiffs and the group members agreed to sell their residential properties to a company at an assessed market value, which was reduced to a certain price on the basis that the vendors were given a life tenancy interest in their properties. They were to receive the balance of the purchase price by instalments.

5 The Scheme also involved the company that purchased the properties on-selling the properties to an investor, and in circumstances where that occurred, it was the investor who evidently was required to pay the balance of the instalment payments to the said persons. The obvious benefit of such a scheme was to free up a piece of real estate owned by elderly persons, so that they could acquire money in their later years for their enjoyment.

6 Prior to executing the various agreements, the plaintiffs and the group members retained the firm of solicitors to act on their behalf, and to provide independent advice. It was asserted in the statement of claim that between January 2004 and July 2005, the said solicitors acted on behalf of the plaintiffs and each of the group members. It was pleaded that the solicitors failed to exercise reasonable care, skill, and diligence, and were accordingly guilty of negligence in acting as solicitors for the plaintiffs and the said group members. Further, it was alleged that the said solicitors breached their fiduciary duties, which they owed to the plaintiffs and the group members.

7 Unfortunately for those who participated in this Scheme, the company Money For Living and another related company entered into voluntary administration in September 2005, as the companies could not pay their debts, and thereafter ceased to make payments as required pursuant to the various agreements. In addition, some of the investors who had purchased the properties ceased to make payments to the group members.

8 The parties to this group proceeding have compromised their differences. On 27 April 2007, the plaintiffs' solicitors issued a summons seeking a variety of orders. Orders were sought to deal with opt out notices by any of the group members and directions were given as to how that was to be effected. In addition, orders and directions were sought in respect to seeking the approval by the Court of the proposal to settle the group proceeding pursuant to s.33B of the Act.

9 The summons came on before me on 1 May 2007, and upon being assured by counsel representing the various parties that all persons who had a claim against the defendant firm of solicitors had been identified, the Court made orders including, inter alia, an order that the plaintiffs have leave to file and amend a statement of claim, and that the plaintiffs' solicitors post to the identified group members an opt out notice. The persons were identified in Schedule 2 to the orders.

10 In addition, the plaintiffs' solicitors were required to post out a separate document to each group member giving notice of the plaintiffs' application for approval by the Court of the proposed settlement. The proceeding was then further adjourned to enable those steps to be taken and the matter returns to Court this day to consider and determine the application for approval of the settlement.

"33V (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".

12 By reason of s.33X(4), the application for approval must not be determined unless notice has been given to group members, unless the Court was satisfied it was unnecessary to give notice to the group members. One of the orders the Court made on 1 May 2007 was that the plaintiffs' solicitors were obliged to inform each identified group member of the application for approval, informing any group member that if he or she wished to object to the approval, the person was obliged to file with the Court and the solicitors acting for the plaintiffs a notice which was attached to the notice of proposed settlement setting out the basis of their objection.

13 The Act does, in most cases, envisage that notice will be given to group members by some form of media advertisement. This happens in cases where the group members are not identified. Indeed, on some occasions a group proceeding may go right through to conclusion without a group member actually being aware that the proceeding affects that person. However, in this case, because each possible group member had been identified, the Court ordered that the identified group members were to be notified in writing of the application and the proposed settlement, thereby avoiding the expenses of advertisement.

14 Each group member who is affected by this application has received notice relating to the proposed settlement. I have been informed, and the evidence reveals, that no notice has been filed by any of the group members of this proceeding objecting to the approval of the settlement.

15 As earlier stated, each of the possible claimants who participated in the Scheme have been identified. All told, there are 117 possible claimants. That number is ascertainable by reason of the fact that they are the persons who entered into the various agreements pursuant to the Scheme. There are 67 group members in this proceeding. The remaining 50 are persons who have been identified as group members in a proceeding brought in the Federal Court by Messrs Russell Kennedy.

16 The majority of the group members of the Federal Court proceeding either transferred, or were in the process of transferring, their properties to the companies involved in the Scheme, and their interests had not been transferred to third party investors. In this proceeding the remedy sought is damages, whereas in the Federal Court proceeding an order is sought for rescission of the contract of sale.

17 Following the collapse of the Scheme, 115 of the 117 potential claimants retained one of the three law firms, namely Messrs Slater & Gordon, which is the firm that instituted this proceeding, Messrs Russell Kennedy and Messrs Dellios West & Co. Slater & Gordon have been retained by group members who received advice in respect of 59 of the transactions, and Russell Kennedy was retained by claimants who had received advice in respect of 44 transactions. The firm Dellios West & Co were retained by claimants who have received advice in respect to 12 of the transactions, and seven of those are group members in this proceeding and five are group members in the Federal Court proceeding.

18 There was one group member not represented by any of the said firms and that person is Ms Elaine Carley of Rosebud, who entered into the Scheme and had her property transferred to a third party investor. Apparently the third party investor had complied with the obligations pursuant to the various agreements and was paying monthly payments to Ms Carley.

19 Settlement discussions took place over a long period involving the legal representatives of all parties, including all potential claimants, and eventually a settlement was reached which covered all claims against the firm of solicitors not only in this proceeding but also in the Federal Court proceeding. The result is that a compensation sum is to be paid. It will be distributed amongst the claimants and also provide for payment of the legal costs. I interpolate to observe that in the Federal Court proceeding there are a number of parties who are respondents, in addition to the defendant firm in this proceeding. The Federal Court proceeding may involve other issues, although settlement covers both proceedings against the defendant firm.

20 In addition, Mr and Mrs Ian Daly are plaintiffs in the proceeding in this Court separate from this proceeding against the firm of solicitors. However, they are parties to the proposed settlement. They have agreed to the settlement and have signed all necessary documents. Mr Peter Riordan SC has been granted leave to appear on their behalf today. He has informed the Court that despite the fact that Mr and Mrs Daly have a separate proceeding, they do not at this stage seek any order in respect to that proceeding. However, it is accepted by all that they are parties to the settlement.

21 In addition to the notice concerning any objection to this approval, the Court ordered that on or before 4 May 2007, the plaintiffs' solicitors post out an opt out notice by ordinary mail to all group members who were identified in the Schedule to the orders. Any group member who wished to exercise their right to opt out was required to do so by 4 p.m. on 17 May 2007, by filing a notice with the Court and forwarding a copy to the plaintiffs' solicitors. Those represented by Messrs Dellios West & Co have opted as will appear hereafter.

22 In support of the summons, a solicitor employed by Slater & Gordon, Benedict Tobin Hardwick, swore an affidavit on 27 April 2007. He deposed to the fact that between October 2006 and April 2007, each of the clients who had retained Slater & Gordon were informed on at least seven separate occasions of the advice of the solicitors respecting a proposed settlement, and by correspondence dated 20 April 2007, the clients were provided with a copy of the executed deed of settlement.

23 In addition, they were provided with a copy of a draft release that they had to sign, and having obtained advice from Slater & Gordon, the said persons were prepared to sign the draft release. During the negotiations, the clients were informed as to the progress of the discussions and on four occasions in late 2002 and also during 2003, group members attended an information session at the solicitors' office to discuss the progress of the litigation and settlement negotiations. In an affidavit sworn by Mr Paul Dellios of Dellios West & Co on 27 April 2007, he also deposed to discussions had between his firm and his group member clients and the advice that he had given them.

24 Mr Hardwick deposed that he had regular discussion with the plaintiffs and other group members and they had all expressed their desire for the approval process to be expedited, as they were all anxious that the matter should be finalised as soon as possible. The clients represented by Dellios West & Co also expressed the same desire.

25 The defendant firm entered into an agreement to settle the proceeding without an admission of liability. It was agreed between the parties that the terms of settlement are to remain confidential. Accordingly, the Court has in the past ordered, and will order, that certain documents relating to the settlement are to remain confidential and that certain affidavits in support of the application filed with the Court remain confidential.

26 On 22 May 2007, Mr Hardwick swore a further affidavit which was marked confidential and it will remain so. Accordingly, I will only state in general terms the contents of the affidavit because of a number of contentious matters and in particular the continuing proceedings in the Federal Court. Attached to the said affidavit was a copy of the written advice provided to the plaintiffs and 58 other group members represented by Slater & Gordon. In addition, there are opinions of Mr Craig Harrison of counsel, who appears on behalf of the plaintiffs and who has opined that in his view, the settlement is in the interests of the plaintiffs and the group members.

27 In Williams v FAI Home Security Pty Ltd[1], Justice Goldberg in the Federal Court identified some nine criteria which are relevant to the quotient of an approval of an compromise. These criteria had been stated by the United States Court of Appeal for the Third Circuit. Amongst the criteria are the complexity and duration of the litigation, the risks of establishing liability and damages and of maintaining the class action, and the question of reasonableness of the settlement in light of all the attendant risks of the litigation.

28 I have carefully read the confidential affidavit of Mr Hardwick and the exhibits. I have read all the affidavits and exhibits that have been filed in support of this application. Settlement results in a sum of money being paid by the defendant on a no liability basis, and each of the claimants who are to receive a distribution are to sign a release.

29 In addition, it would appear, and appears to be the view expressed by counsel for the plaintiffs and the solicitors, that by reason of s.42(2)(e) of the Transfer of Land Act 1958, in practical terms each of the claimants does have an enforceable life tenancy in their property, subject to certain conditions which are not relevant, and hence, in practical terms, one proceeds on the basis that the settlement of each group member's claims results in a continuing exclusive possession of their property. In addition, they are to receive a sum of money after payment of the legal costs.

30 Mr Macaulay SC, who appears with Ms Burchell for the defendant, points out that he does not wish to be placed on record as saying that he supported that conclusion. He does so as an overabundance of caution, because in another place arguments may occur contrary to that view.

31 Section 42(2)(e) of the Transfer of Land Act 1958 makes it clear that an estate of a registered proprietor is paramount, except with respect to registered and other certain interests, and s.42(2) relevantly provides -

"Notwithstanding anything in the foregoing, the land which is included in any Crown grant, certificate of title, or registered instrument, shall be subject to -

(e) the interest (but excluding any option to purchase) of a tenant in possession of the land ... notwithstanding the same respectively are not specially notified as encumbrances on such grant certificate or instrument".

32 In another proceeding in the Federal Court arising out of the failure of this Scheme, Justice Finkelstein expressed views as to the effect of that provision, and the right of the - what I will call the vendors, to their life tenancy in their former properties. His Honour said this -

"I base this conclusion on s.42(2)(e) of the Transfer of Land Act 1958 (Vic), and the equivalent provisions in the Torrens legislation in other States.

These principles will protect the tenancies granted to the clients (who it must be assumed were always in possession of their homes) over subsequent dealings with the land. Put another way, the client's live tenancies are secure, that is their tenancies are 'guaranteed' and survive any adverse claims made by subsequent registered proprietors and mortgagees, provided they (the clients) continue to pay $1 per annum by way of rent, and do not vacate their home".

33 The Scheme envisaged, as I have already indicated, that elderly persons were induced to part with their real estate in their later years, on the basis that they would be guaranteed to have exclusive possession of their property until a certain event may occur, usually death, and also to receive a sum of money and, it would appear, also to receive the benefit from another party, whether it be the original purchaser or an onsold investor, paying the expenses relating to the property, such as local rates, et cetera.

34 The effect of the settlement is that the former vendors will still have exclusive possession of their property, but they will receive a sum less than what they would have received, but for the failure of the Scheme. However, there are doubts as to whether they will receive the expenses in relation to their property. It is necessary to compare that result with the expectations under the Scheme, but taking into account the risks involved in the litigation. As has often been said, there are risks inherent in all litigation, and in the end it is a question of considering and balancing the risks involved, and considering what is in their best interests.

35 I do not propose to state in any detail the terms of the settlement, other than to notice first that the defendant firm does not admit liability. The defendant firm will pay a lump sum of compensation of some millions, inclusive of any liability for legal costs and disbursements, and the amount that is paid will be shared amongst the group members and plaintiffs in this proceeding, the interests of the applicants and group members in the Federal Court proceeding, and also Mr and Mrs Daly.

36 Only group members who do not opt out of the proceeding, and who have signed a deed of release and returned it to the solicitors, whether they be Messrs Slater & Gordon, or Russell Kennedy in the case of the Federal Court proceeding, will be entitled a share in the compensation sum. The compensation sum will be reduced by an amount for each group member who elects to opt out of this proceeding, or the Federal Court proceeding.

37 The settlement also involved the law firms entering into what are described as Heads of Agreement, and these are to deal with questions of costs and distribution. A formula was worked out with respect to the distribution of compensation, and in so arriving at the formula, the solicitors retained a firm of actuaries to calculate what are appropriate payments.

38 I do not think I need say any more, other than to note that under the proposed settlement, it is anticipated that the group members will continue to enjoy exclusive possession of their property. They will receive a lesser sum than if the Scheme had gone through, and there is some risk that the payment of the expenses relating to their property will not occur. No person who is represented by Slater & Gordon has opted out of the proceeding. Ms Carley, who resides in Rosebud West, was provided with all relevant information, has now agreed to participate in the settlement, and has executed a release. She did not opt out.

39 When Mr Hardwick swore his affidavit in May, he stated that 63 of the 67 group members in this proceeding had provided executed releases. In the Federal Court proceeding, a number of claimants have executed releases, with the effect that some 94 of 117 group members have now executed releases.

40 In addition, as I have already stated, no person has come forward today to object to this settlement, either by filing a notice or seeking to be heard this day. I have read the affidavit of Paul Dellios, sworn 22 May 2007. He states that he has advised each of his clients, that is, clients in this proceeding and the Federal Court proceeding, as to the terms of the settlement and the law firms' Heads of Agreement. Each of his clients has agreed to the settlement, and has executed a form of release and confidentiality undertaking.

41 Each of Mr Dellios' clients signed a notice of opting out in relation to this proceeding, evidently for the sake of convenience, and to avoid any problems relating to the terms of the settlement. This was a result of an understanding between his firm and their clients to avoid conflict with the Slater & Gordon group proceeding, which I am, of course, dealing with. He also deposes that his Federal Court clients have also signed a release and a confidentiality undertaking.

42 By opting out, his clients are not members of this group proceeding, and this would expose the defendant hereafter to a claim. However, I have raised that matter with Mr Macaulay and, as I anticipated, there is an agreement in place between the defendant firm and the said parties, and accordingly, there is no objection taken by the defendant to the course adopted by those persons opting out.

43 The solicitors, both Mr Hardwick and Mr Dellios, have sworn that in their opinion, the settlement is in the best interest of their respective clients, and as I have already stated, Mr Craig Harrison of counsel, appearing for the plaintiffs, has also given written memoranda to the same effect. One matter that must be noted is that of the parties that were earlier identified, one was Mrs Sonya Scott. It now appears that that was an error. She was identified in the Schedule to the orders made on 1 May 2007 as a group member, but later evidence revealed that she did not have any interest, and accordingly, is not a group member. The evidence revealed that discussions had taken place involving Mrs Scott, and she accepts that that is the position.

44 Although Part 4A of the Supreme Court Act does not state the matters that the Court should consider on an application for approval of a group proceeding, such applications are not new, and the Court has, over many, many years, considered and determined applications for approval of settlements, particularly in proceedings such as claims by infants and by persons under some disability.

45 The paramount consideration on an application such as the present is whether the proposed settlement is in the best interest of the claimants. In the majority of disputed proceedings in litigation, there is a risk that a claimant may fail, or receive substantially less, than what is sought. Hence, it is a question of balancing the risks which, as I have stated, are inherent in all litigation, and seeking to determine whether, if the matter was to go to trial, the complaint may recover a less favourable outcome than that proposed in the settlement.

46 Hence, the main concern in an application such as the present is to identify the risks involved in the litigation, to weigh them, and to seek to determine the likely outcome of the proceeding, and compare it with the settlement.

47 There are always risks in litigation. Litigation may go for a long period of time. Litigation brings pressures on all those involved, particularly the parties. I have been informed, and I am not surprised, that the parties in this proceeding - by that I mean the plaintiffs and the group members - are very concerned that this matter should be dealt with and finalised as soon as possible so they can get on with their lives, and enjoy the benefits of the Scheme insofar as they represent a benefit now.

48 The legal representatives for the parties, and by that I do not mean just the solicitors and Mr Harrison, but all others who are involved in the failure of this Scheme, have all expressed their view that the settlement is an appropriate one and one that is in the best interests of the plaintiffs and all group members.

49 I am satisfied on the material that the legal representatives have carefully considered and weighed the risks, and in my opinion the Court should accord substantial weight to their opinions. I have considered the memoranda of advice given to the plaintiffs and the group members, and also the opinions expressed by the legal representatives. I am satisfied the settlement is in the best interests of the plaintiffs and the group members, and in my view the settlement should be approved.

50 This proceeding, as I have already indicated, is one of those group proceedings where all group members have been identified. This does not occur in all group proceedings. Indeed, a proceeding may be finalised without a group member ever being aware of the existence of the proceeding. Difficulties do arise where the situation is one where there is an unknown number of group members and the settlement involves payment of a certain sum of money. Fortunately, this proceeding avoids the difficulties involved because the group members are identified and the circumstances of their involvement in the Scheme are known.

51 This means that determination of the likely amount they may have recovered if the matter went through to the end, and the settlement, can be compared. As I stated, the legal representatives have engaged an actuary and the amount of distribution to each claimant has been determined as a minimum sum.

52 In addition, the evidence reveals the amount of costs that are to be paid, and accordingly, the legal representatives were able to advise their clients as to the difference between what I could describe as a hundred per cent success, and the settled amount. Taking into account the risks inherent in this litigation and also the confidential material, which reveals that there were some areas of concern, I am satisfied, when all that is balanced up, that the compromise is in the best interests of each claimant, and I will order that the settlement should be approved.

53 In addition, application has been made to the Court that certain documents which have been filed should remain confidential, and in support of that application, Mr Hardwick has sworn a further affidavit on 5 June 2007. Attached to that affidavit is a summary of the reasons why the documents should be kept confidential and should not be made available to other interested parties. I have read the exhibit to that affidavit, which sets out the concerns of the legal teams representing all the parties, and by that I include also Mr Leonard Warren, a partner of Russell Kennedy, who are the solicitors for the applicants in the Federal Court proceedings. And I will not reveal the arguments that have been in Court but it is very clear to me that, because other questions may arise in another place which may have an effect upon various claims made, it is in the interests of all parties that the documents should be kept confidential, and I propose to order that certain documents, which in a moment I will identify with counsel, should be kept confidential.

54 It was put to me that in accordance with the normal practice, the exhibits should be returned to the parties. That is the normal procedure. But I think in the circumstances of this group proceeding that the various exhibits to the affidavits should be kept on the Court file, and sealed in an envelope or envelopes with a notation that they are not to be opened and revealed without an order of a judge of this court.

[1] [2000] FCA 1925.