The Proposed Settlement
34 Principles to which this Court can properly have regard in considering whether to approve a settlement of a representative proceeding under Pt IVA of the Act have been the subject of much judicial consideration, as well as being addressed in Practice Note CM 17 Representative proceedings commenced under Part IVA of the Federal Court of Australia Act 1976 (Cth) (issued by this Court on 9 October 2013). A key matter for the Court is whether the Court can be satisfied that settlement has been reached in the interests of the group members as a whole, and not just in the interests of the applicant(s) and the respondent(s): Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 at 258; cf Lopez v Star World Enterprise [1999] FCA 104 at [15] and King v AG Australia Holdings Ltd (2002) 121 FCR 480 at [43]. In this respect, it is of utmost importance that the Court be satisfied that the settlement is fair and reasonable to all group members: Australian Securities and Investments Commission v Richards [2013] FCAFC 89.
35 While there is no "checklist" of factors of which the Court must be satisfied in determining whether a settlement should be approved (Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322 at [33]-[34]) clauses 11.1 and 11.2 of Practice Note CM 17 in particular provide some guidance:
11. Court approval of settlement
11.1 When applying for Court approval of a settlement, the parties will usually need to persuade the Court that:
(a) the proposed settlement is fair and reasonable having regard to the claims made on behalf of the group members who will be bound by the settlement; and
(b) the proposed settlement has been undertaken in the interests of group members, as well as those of the applicant, and not just in the interests of the applicant and the respondent/s.
11.2 When applying for Court approval of a settlement the parties will usually be required to address at least the following factors:
(a) the complexity and likely duration of the litigation;
(b) the reaction of the group to the settlement;
(c) the stage of the proceedings;
(d) the risks of establishing liability;
(e) the risks of establishing loss or damage;
(f) the risks of maintaining a representative proceeding;
(g) the ability of the respondent to withstand a greater judgment;
(h) the range of reasonableness of the settlement in light of the best recovery;
(i) the range of reasonableness of the settlement in light of all the attendant risks of litigation; and
(j) the terms of any advice received from counsel and/or from any independent expert in relation to the issues which arise in the proceeding.
36 Detailed evidence has been filed by the parties in support of the proposed settlement. In particular I note the affidavits of:
Ms Stephanie Carmichael filed 27 February 2015, 8 May 2015 and 14 May 2015;
Mr Stewart Levitt filed 4 May 2015;
Mr Andrew Perkins filed 8 May 2015 and 28 May 2015;
Mr Terence Potter filed 13 May 2015;
Mr Joseph Mazzeo filed 13 May 2015;
Mr Gregory Williams filed two affidavits on 15 May 2015 and two affidavits on 20 May 2015.
37 The Deed was executed by the applicants and the respondents in February 2015. While the Deed remains confidential it is appropriate to note that its principal terms include the following:
The Deed was entered by the parties to resolve all proceedings between them, without admission of liability, and to avoid the cost and inconvenience of the litigation between them. In particular, the applicants and each Settling Group Member will provide a release to CBA in respect of any claim concerning the circumstances of the proceeding.
The proposed gross settlement sum is $33,680,000.
Settling Group Members are defined as Group Members who are not Excluded Persons or Nil Offerees, and are listed in an annexure to the Deed.
Excluded Persons and Nil Offerees retain all existing rights against the respondents, and will be entitled to reimbursement for any contribution to costs of the proceedings they have made.
The CBA will pay compensation to Settling Group Members, such compensation to be calculated in accordance with the ASIC Compensation Model.
The applicants' legal costs incurred in respect of the representative proceedings are to be reimbursed from the aggregate compensation amount. The respondents pay their own costs. The parties bear their own costs of and in relation to the Deed.
Settling Group Members are entitled to receive, by way of compensation, 55% of the loss of the group member calculated under the ASIC Compensation Model and attributed to CBA, less a pro rata amount in respect of the applicants' costs of the proceeding.
Interest is taken into consideration in determining the amount payable to a Settling Group Member.
The compensation to which each Settling Group Member is entitled will first be applied to reduce the debit balance (after the release of any security) of the Settling Group Member's margin loan with CBA. If the Settling Group Member's compensation is insufficient to meet that debit balance, CBA will write off any remaining debit balance (subject to realisation of security for the loan). Any remaining compensation is then applied to reduce certain other debt owed by the Settling Group Member to CBA.
If the amount of compensation to which a Settling Group Member is entitled exceeds the debit balance of their margin loan and certain other indebtedness they have to CBA, the remaining compensation will be paid in cash to the Settling Group Member.
Compensation payable to Mr and Mrs McArdle would first be applied to their margin and home loan. If any remaining indebtedness in respect of the McArdles' home loan existed after the application of the compensation amount, CBA would write it off.
Separate proceedings brought by Dr Anthony Oliver and Dr Mark Irving against CBA would sought to be dismissed by the Court with any existing costs orders vacated.
The Deed would be terminated in circumstances including the objection of ASIC, the objection by an Excluded Person or Nil Offeree to the proposed settlement, or the refusal of the Court to make orders in respect of settlement sought by the parties.
A person who is a Group Member, but not a Settling Group Member, an Excluded Person or a Nil Offeree, may register to participate in the settlement. The term "Group Member" is defined in clause 2 of the - now - ninth further amended statement of claim, in the terms set out earlier in this judgment. The settlement sum attributable to a Registered Settling Group Member is calculated in accordance with a formula in the Deed, at what appears to be a discounted rate. Those Group Members who fail to register in accordance with the Deed will not be entitled to receive any compensation pursuant to the terms of the Deed or the settlement.
38 In his first affidavit filed 20 May 2015, Mr Gregory Williams, solicitor for the respondents, deposed that Mr Shamus Toomey, a solicitor under his supervision at Clayton Utz had, on 15 May 2015, enquired of Ms Stowell of ASIC as to whether ASIC had any objection to the terms of the settlement as contained in the Deed, and that Ms Stowell had asked for an explanation of the difference in the payment to the Registered Settling Group Members compared with the payment to Settling Group Members. Mr Williams deposed that on 19 May 2015, the day before the hearing, Mr Williams received an email from Ms Stowell in which she said that:
With the exception of the relevant clause in the Deed, ASIC did not object to the settlement of the proceeding on the terms set out in the Deed.
ASIC understood that the purpose of the discount rate was to achieve some parity between Registered Settling Group Members and Settling Group Members, as Settling Group Members will have Group Members contributions and the additional costs of the applicants' solicitors deducted from their compensation amounts. ASIC's concern however was that the effect of the provision was that CBA would have to pay less compensation overall to Group Members than would otherwise be the case.
Subject to the amount of the sum that CBA would be retaining after the application of the discount rate, and the costs of distributing that money, ASIC considered that the amount could be distributed among the class or on a pro rata basis to a charity which assisted people in financial distress.
39 No formal appearance was made by or submissions tendered on behalf of ASIC at the hearing of this matter on 20 May 2015.
40 In my view the terms of settlement are fair and reasonable, for the following reasons.
41 First, earlier in this judgment I made remarks in respect of leave granted to the applicants to file a ninth further amended statement of claim, the position of Excluded Persons and Nil Offerees, and the rationale on which those persons are excluded from the terms of the settlement reached between the applicants and the respondents. In summary - those persons retain existing rights against the respondents and were either:
persons whose conduct or relationship to Storm was such that there remain other issues in dispute between them and the respondents (Excluded Persons); or
persons who suffered no loss (Nil Offerees).
42 Second, I am satisfied that the ASIC Compensation Model provides a fair method of calculating loss suffered by investors and a fair allocation of the attribution of that loss. As a general proposition I note that I have previously recognised the ASIC Compensation Model as being a fair and reasonable tool: Lee v Bank of Queensland Limited at [39]. Specifically in the context of this case, I note the detailed and uncontested evidence of Mr Terence Potter in his affidavit sworn 12 May 2015 concerning the development of the Model and its application.
43 Third, I note the complexity and duration of this litigation, involving multiple causes of action and significant factual disputes. I note that the initial hearing of the proceeding has concluded, however I also note that that hearing dealt only with the determination of the applicants' claims and the common questions. It is not in dispute that, even had the trial Judge delivered a decision in respect of the matters before him, it would then be necessary for individual proceedings to be constituted pursuant to ss 33Q, 33R and 33S of the Act in order to resolve the claims of Group Members. I am satisfied that those individual proceedings would be costly, complex and lengthy.
44 Fourth, I note that the settlement sum approves a 55% return on the loss suffered by investors attributable to the Bank. I also note the confidential opinions of Counsel which were provided to me in respect of the litigation, and the fact that the parties on both sides were represented by experienced lawyers. In this context I note the observations of Hayne J in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603:
146. Was there, then, enough material to show that the settlement was reasonable? The trial judge and the Full Court held that the evidence that was led, exiguous as it was, was sufficient to show that it was reasonable and I am not persuaded that that conclusion was wrong. The settlement discounted the insured's claim by between 40 and 50 per cent. Presumably, then, the insured is to be taken to have estimated the chances of the insurer succeeding in its defence as being about that level. It is as well to remember, however, that there are uncertainties inherent in litigation and that predictions of the chances of success in litigation can never be precise. It follows that the comparison between the amount of the settlement and the amount of the claim can never be anything more than a general indication of what the parties see as the risks of continuing the litigation. There was evidence available to the insured, at the time it compromised with the insurer, that the insurer had refused to deal with it in the previous year and the insurer alleged that if it had known all the facts it would not have dealt with the insured in the year in question. No doubt it was on this basis that senior counsel retained to advise the insured about the possible compromise told the insured that it should settle "because the way things were [the insured] would lose" and that it was better to accept the sum of $900,000 rather than "losing everything because there was no disclosure" of the claims history.
(emphasis added.)
45 As correctly submitted by Mr Hollo for CBA, the settlement was reached at a point where both applicants and respondents had had the full benefit of having their claims presented and tested, and it could be expected that both parties had a full appreciation of the risks inherent in their positions.
46 Fifth, there is no evidence that any Group Member has objected to the settlement, despite Group Members being provided with notice of their right to oppose the proposed settlement following orders of the Court made on 3 March 2015.
47 Sixth, I note the agreement reached between the applicants and the respondents requiring Group Members to register to participate in the proposed settlement, and accordingly to, in effect, "close the class" of Group Members. The parties seek a specific order from the Court to give effect to this agreement. In particular, the respondents submit that such orders can be made pursuant to s 33ZF of the Act and are common place in settlement of representative proceedings.
48 Section 33ZF provides:
General power of Court to make orders
(1) 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.
(2) Subsection (1) does not limit the operation of section 22.
49 Certainly in Collin v Aspen Pharmacare Australia Pty Ltd [2013] FCA 952 and Thomas v Powercor Australia Limited [2011] VSC 614 the Court was prepared to make orders of the type sought by the applicants in this case. Perhaps more to the point I note the analysis of such orders by Wilcox J in McMullin v ICI Australia Operations Pty Ltd (1998) 84 FCR 1 at 4 where his Honour observed:
Section 33ZF appears in Division 6 of Part 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 Part 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.
50 I am satisfied that an order of this type pressed by the parties is supported by s 33ZF of the Act, and is not uncommon in settlement of representative proceedings.
51 In the present case I am also satisfied that group members have had a reasonable opportunity to not only be familiar with the proceeding given the length of the trial and the publicity associated with it, but to be informed of the requirement for registration if required. In particular I note that orders were made on 3 March 2015 requiring notices to be sent to Group Members as well as the publication of advertisements to put Group Members on clear notice of the effect of the potential closure of the class and the need to register if so required. I note further the submission of the respondents that the orders were directed to Group Members who were not known to the parties.
52 In her second affidavit filed 8 May 2015, Ms Carmichael deposes that a number of persons have in fact registered to participate in the proposed settlement.
53 I am also satisfied that an order of this type is not only fair and reasonable, but necessary to facilitate the settlement agreed by the parties and the distribution of the settlement proceeds in an efficient manner.
54 Finally, despite the apparent concern of ASIC in respect of provisions of the Deed concerning Registered Settling Group Members and their settlement sum, I am not persuaded that this constitutes a reason to refuse approval of the Deed. I form this view in light of the following factors:
There is evidence before the Court to the effect that ASIC had been provided a copy of the Deed in February 2015 and apparently only identified its limited concerns in respect of the Deed on the day before the hearing after inquiries were made by the respondents' solicitors. I use the term "apparently" in that the only material before me that ASIC had concerns is in the evidence provided by the respondents' solicitors. It is in my view somewhat surprising that ASIC, if it had a concern in respect of the terms of the Deed, would simply express that concern to the respondent's solicitor, on the day before the approval hearing, and after extensive negotiations had occurred between relevant parties.
In any event, I accept the submission of the respondents that the "discount rate" payable to Registered Settling Group Members as defined in the Deed is intended to result in such members receiving the same level of compensation in percentage terms as that provided to the Settling Group Members, who funded the representative proceedings. To that extent the purpose of the Deed is to treat Group Members in the same manner, and thereby promote the overall fairness of the proposed settlement.
To the extent that ASIC appears concerned that CBA is "getting off lightly" in its payment of compensation to Registered Settling Group Members, I note that the Deed is the outcome of commercial negotiations between parties and should be amended only for good reasons. Further, I do not consider that the Court should approach the question of consideration of the fairness of the Deed in terms of whether CBA has paid "enough" money or is otherwise adequately "penalised" by the terms of the settlement.
In his first affidavit filed 20 May 2015 Mr Williams deposed that, to the date of that affidavit, one person only had registered an interest in this respect, and it was unknown at that point whether that person would be entitled to any compensation.
In the absence of supportive submissions I am not persuaded of the apparent utility of the proposal that any amount(s) representing the application of the discount rate to the compensation of Registered Settling Group Members should be donated to charity or otherwise dealt with.
55 I note the importance of the settlement being fair to all group members - including the one Registered Settling Group Member - and not merely the applicants and the respondents, however in the circumstances I consider it would be grossly unfair to refuse approval of the Deed and the associated scheme on the basis of the material before me.