REASONS FOR JUDGMENT
1 This is an application under s 33V of the Federal Court of Australia Act 1976 (Cth) (Federal Court of Australia Act) for the approval of the settlement of a class action. There is a history to this matter which needs to be recited.
2 On 24 December 2010, an originating application under Pt IVA of the Federal Court of Australia Act was filed in the Court. That instituted proceedings as between Mrs Richards, who was the lead plaintiff and representative of a class, and Macquarie Bank Limited (the Bank) and Storm Financial Limited (Receivers and Managers Appointed) (in liquidation). After considerable interlocutory work and related directions hearings, a trial in respect of those proceedings commenced before Reeves J on 24 September 2012.
3 On 15 March 2013, and at a time when final addresses in the trial of the proceedings were due to commence, a deed of settlement was executed as between Mrs Richards and the Bank. Upon that being notified to the Court, Reeves J vacated further hearing dates and directed the parties to apply to the Court for approval upon filing of the settlement documents concerned. Later that month and as a consequence of the filing of an application for approval, the application came on before me for initial directions. Thereafter, some 28 objection notices were filed. On 2 May 2013, the approval application was heard by me, with judgment being delivered the following day: see Richards v Macquarie Bank Limited (No 4) [2013] FCA 438.
4 The settlement concerned provided for the distribution of $82.5 million, inclusive of interest and costs, as between a class which comprised approximately 1050 group members. The settlement had as a feature a funders' premium. That entailed about $28.875 million, or about 35% of the settlement sum. That would have seen a subclass within the overall class, comprised of some 317 group members who had contributed funds to the litigation, receive about 42% of the combination of their lost equity and legal cost contributions. The balance would then have been allocated to the subclass comprising those who had not made contribution to the litigation. There were approximately 733 persons in this subclass. They would have received about 17.6% of their lost equity
5 On 24 May 2013, the Australian Securities and Investments Commission (Commission) lodged an appeal against the approval of the settlement in those terms. On 12 August 2013, the Full Court decided to allow the Commission's appeal: see Australian Securities and Investments Commission v Richards [2013] FCAFC 89. That saw the matter returned to the Court's original jurisdiction. Thereafter, Mrs Richards and the Bank entered into further negotiations, which culminated in a revised settlement scheme being propounded for approval. These reasons for judgment must necessarily be read having regard to the history as cited, in conjunction with my earlier reasons for judgment and those of the Full Court.
6 It is also necessary to record that there is litigation presently before the court which is yet to be resolved as between the Commission and Macquarie Bank Limited. It is a feature of that litigation that persons who have a grievance against the Bank, though not parties to that litigation, may rely upon findings made in that litigation in other proceedings.
7 Following directions in respect of the second application for approval, 42 notices of objection were received. In addition, 285 notices were separately received by the Court in which support was voiced for the approval of the scheme as revised following the Full Court's judgment. It will be evident enough from that fact alone, in other words that there is support and objection, that there is no universality of support for the approval of the scheme. That absence of universality was further manifested in the appearance and related submissions on the hearing of the approval application yesterday. At that hearing, both Mrs Richards and the Bank were represented by counsel, as was, again, the Commission. In addition, a group of 19 of those who had lodged objections, and who have come to be represented by the solicitors firm Thompson Eslick, also made submissions by counsel. Further, two individuals who had lodged objection notices made submissions in person.
8 It is convenient first to deal with the essence of the submissions made by the individuals as to their objection to approval.
9 I was reminded by each gentleman, courteously, yet nonetheless powerfully, of the variation as between the original settlement scheme as propounded and the present in the absence from the present of provision for a funders' premium, which would have seen, as I have mentioned, a return of some 42% to those who had provided funds for the litigation.
10 Obviously enough, the notion that those who had provided money which had enabled the conduct of litigation which had, in the end, culminated in a consensual settlement, had a powerful attraction for me: witness my original reasons for judgment. It did not have such an attraction for the Full Court in terms of the manner in which the prospect that there may be such a differential distribution of settlement moneys had not been notified in advance.
11 It is a necessary feature of our legal system, and fundamental to the rule of law, that the judgment of an appellate court must be respected. It was in deference to that fundamental principle and also the desirability nonetheless, if possible, of compromising the litigation that those representing Mrs Richards (and necessarily, then, those having the carriage of the proceeding for the plaintiff) and the Bank, struck a revised settlement scheme.
12 It would be subversive of the rule of law were I to refuse to approve the settlement scheme for the reason only that it did not provide for a premium of the kind which the earlier scheme provided. That is an idea whose time has passed. That is not to say, as the Full Court allowed, that such a premium could never be provided for. It is just that due notice in advance of the prospect of such a premium is necessary in order for there to be a fair and reasonable compromise sufficient to attract the Court's approval.
13 There are, underpinning the Full Court's judgment, certain related considerations which do intrude upon whether, or whether subject only to particular conditions, approval of the scheme in its revised form should be granted. In my earlier reasons for judgment, I canvassed authorities which relate to the considerations pertinent to approval of a scheme. I do not propose to repeat what is there stated, nor do I propose to repeat the view expressed in my earlier reasons for judgment that the compromise concerned in terms of the sum offered and proposed to be accepted is fair and reasonable, having regard to the causes of action pleaded and the risks of litigation. It is not, though, the sum itself which falls for approval but rather the scheme of which that settlement sum forms part that falls for consideration of approval.
14 Before turning to features of that scheme, it is convenient to deal with one of the issues raised on behalf of the 19 objectors. That was that there ought to be an adjournment of this application so as to provide for further mediation, and mediation which would incorporate, by direction, mediation not only of this proceeding as including now the overtly identified interests of those 19 objectors, but also mediation in respect of the separate litigation I have mentioned as between the Commission and the Bank.
15 I accept that I have power compulsorily to order such mediation (see s 53A of the Federal Court of Australia Act). The subject of the 19 objectors' submission is therefore a matter which goes to discretion, not power. As to discretion, it is relevant to note, and indeed, it was common ground, that there was, at a much earlier stage in proceedings, an attempt to achieve a comprehensive settlement via a mediation conducted by The Honourable Kevin Lindgren AM. Hindsight can be a powerful educator, and hindsight of 2103 might well instruct that prudence ought to have intruded in a mediation conducted by that highly experienced and well-respected person, such that a comprehensive compromise was achieved. It was not, though, such education which was available at that time, and no such comprehensive settlement then commended itself. It is neither necessary, nor desirable nor appropriate to explore why that was so, other than explicitly to record that it is no reflection on the mediator that it did not.
16 As it happened, a further mediation, on this occasion not involving the Commission, did occur, this time conducted by The Honourable Michael McHugh AC.
17 The background against which that mediation in respect of the proceedings as between Mrs Richards and the Bank did occur could not have been more fulsome in terms of the evidentiary foundation of the relative strengths and weaknesses of the respective parties' cases. This time, a settlement was achieved, subject to court approval.
18 In that settlement, if approved, the Bank has the benefit of comprehensive releases and indemnities. There is no doubt that those releases will have an impact, so far as class members are concerned, upon whatever benefit they might otherwise have been able to gain from findings made in the litigation instituted by the Commission. To put matters bluntly, the Bank is not a charity. There is, when one examines the settlement concerned, a benefit for the bank, and it is the one mentioned. That is the quid pro quo represented by those releases and indemnities. The Bank is hardly to be criticised for seeking that, nor, for that matter, are those acting for Mrs Richards to be criticised for recognising that that is indeed the quid pro quo. I should add that I do not regard the provision in the revised scheme for indemnity as anything other than fair and reasonable.
19 Against that background, and bearing in mind the history recited, I see little point at all in forcing parties who have already reached a compromise to seek to abandon that and reach some wider compromise. There comes a time when enough alternative dispute resolution is enough. That time, in my view, has been reached. I do not, therefore, propose to adjourn the proceeding as requested by the 19 objectors. It is necessary to consider not just their particular interests, nor even, for that matter, those of other objectors, nor even, for that matter, that larger number who support the settlement and have voiced that support by the filing of notices with the Court, but rather the interests of the group as a whole. There is also a public interest in lending finality to litigation.
20 I turn, then, to some features of the scheme as revised. The funders' premium, which would have seen the return of some 42% of equity and funding contributions is no longer a feature of the revised scheme, as I have mentioned. Also gone from the revised scheme is a provision in respect of foregone claims which would have allowed the bank to recoup funds not claimed by participating group members as part of the settlement. In lieu of that, there are provisions in the revised scheme which allow for the redistribution of such unclaimed funds amongst the participating group members. That is, in effect, a benefit for participating group members, which was not a feature of the earlier scheme.
21 There is the addition in the revised scheme of provisions allowing for the payment to the solicitor's firm, Levitt Robinson, who act for Mrs Richards, of the unpaid costs of the Commission's appeal to the Full Court, as well as costs associated with the revised settlement. In principle, those provisions are not controversial, although there is a controversy about the allowance of Levitt Robinson's costs as a whole. It will be necessary to say something to that later in these reasons for judgment. It is also a feature of the revised scheme that there is clarification in the calculation of the equity contributions and a changed manner in which what one might term storm-related settlements with other banks are accounted for.
22 There has been, in respect of the revised scheme as originally filed, further revision as a result of consultations between counsel, the results of which repose in exhibit 6. Those consultations have, to my complete satisfaction, been engaged in with a genuine spirit of promoting, to the extent possible, compromise of litigation. I commend all counsel who have appeared for the spirit in which the approval application has been approached. Even allowing for that, there remain a number of issues which could not be conceded by one party or another. I do not in any way suggest that the absence of concession in these respects is unreasonable. This truly is a peculiarly difficult case in which to consider what is fair and reasonable in terms of settlement.
23 I propose to deal in turn with particular areas which remain controversial. First, payment of interest on costs contributions. Two clauses in the revised scheme are pertinent: clause 34 and clause 40. Clause 34 forms part of a group of clauses which provide for the submission of information grounding that part of a group member's claim on the overall settlement fund, which relates to interest payments made on borrowed funds used to make contributions to the applicant's costs, ie, Mrs Richards' costs, or the costs of the appeal to the Full Court, or both.
24 Clause 40 makes provision of the payment of simple interest on such contributions, those contributions being referred to in clause 39, at the greater of two rates:
(a) in the case of funding group members who contributed to costs using borrowed funds, and on the provision of evidence acceptable to the administrator and the accountant of the cost of those funds at the rate paid by the funding group member; or
(b) at the rate applied at the Federal Court of Australia when calculating prejudgment interest pursuant to s 51A(1) of the Federal Court of Australia Act, and practice note CM16.
25 The intention of the payment of interest is obvious enough and was supported by Mrs Richards and the Bank. Viewed in the abstract, there is much to be said in favour of returning to those who have put Mrs Richards, and those advising her, in funds sufficient not just to institute the proceedings, but to prosecute them to the point where the Bank, notwithstanding what can only be described as a closely contested trial, nonetheless felt moved, following further mediation, to come to an agreement. There is an attraction in the provision of interest on moneys used for that purpose. Others who, for one reason or another, could not or did not contribute will, nonetheless, have the benefit of the compromise achieved and achieved only by the institution and prosecution of litigation.
26 There are, though, other considerations which also intrude as a matter of fairness. These were highlighted by the Commission in its submissions. The Commission drew attention to the possibility that some of the funding group members may have borrowed funds at particular high rates of interest. There was no evidence as to what particular rates were at large amongst funding group members. In particular, there was no evidence to support a proposition that rates as high as 89% per annum had been visited upon particular funding group members. That appears to be something of a red herring.
27 Nonetheless, in prospect at least, is the possibility that rates of interest higher than those for which practice note CM16 makes provision could, nonetheless, be at large. Of greater resonance is the submission made by the Commission that there was nothing in the original notice in respect of the proposed litigation which went to the possibility that group members might receive some particularly elevated rate of interest or, indeed, any rate of interest at all in respect of contributions to the litigation. When I made earlier reference to a need to respect the judgment of the Full Court, I meant, also, that the need extended to a need to respect, not just the very issue addressed, but also the underlying foundation for why the funders' premium was regarded as not fair in the particular circumstances. A critical factor in that regard was the absence of notice in advance.
28 For all that, funding group members have been kept out of an amount of capital contributed. How, if at all, can one balance respect for the principle for which the Full Court's judgment stands and the unattractive notion that those who have contributed and have contributed to the benefit of all should receive something for that loss of use of their capital, be that capital from their own available funds or capital which is borrowed? In reflecting upon that, it seems to me that a person reading the notice originally would regard it as going without saying that a person should at least receive interest of the kind which is customary in litigation in respect of the loss of use of capital up to judgment. I do not consider that it would be regarded as going without saying that, if one had borrowed, one ought to receive the interest back, however much that interest might be. For that reason, it does not seem to me that it is fair and reasonable to approve a settlement which admits of the possibility of a rate of interest higher than that for which practice note CM16 provides. I do consider that it is fair and reasonable to make provision for the payment of interest at that rate and as provided for in greater detail in clause 40(b) at present. Thus, if I were otherwise disposed to approve the revised scheme, that approval would be conditioned upon interest being paid only in accordance with the present clause, 40(b).
29 In other words, removal of clause 40(a) and related clauses which intrude upon the ability to make the higher rate of interest, principally, it would seem to me, clause 34 is necessary. That, nonetheless, would leave as approved a scheme which entails funding group members receiving a rate of interest on contributions at the rates of interest, or by reference to the rates of interest, described in practice note CM16. That is a rate which is regarded as generally appropriate in litigation. I note further that practice note CM16 entails rates of interest which are not just regarded as appropriate in this Court but also have a wider approval amongst other courts in this country.