Wingecarribee Shire Council v Lehman Brothers Australia Ltd

Federal Court of Australia|2013-12-12|Before: Mr J, Jacobson J

NSD 2492 of 2007 Mr L W D Armstrong Counsel for the Applicants:

Counsel for the Respondent: Mr J C Sheahan SC with Mr S M Nixon and Mr J J Hutton

NSD 1795 of 2010 Mr J C Sheahan SC with Mr S M Nixon and Mr J J Hutton Counsel for the Plaintiffs:

AND: LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION) ACN 066 797 760

JUDGE: JACOBSON J DATE OF ORDER: 9 DECEMBER 2013 WHERE MADE: SYDNEY

THE COURT ORDERS THAT: Liquidators' application

Pursuant to section 477(2B) of Corporations Act 2001 (Cth), the Court approves the entry by the Liquidators in their capacities as liquidators of Lehman Brothers Australia Limited (LBA) and on behalf of LBA into: (a) the settlement agreement between the Applicants, Group Members, LBA and the Liquidators, being Tab 7 of Exhibit MWA-8 to the affidavit of Marcus William Ayres sworn on 29 November 2013 (Settlement Agreement), that approval being given nunc pro tunc to the extent necessary; and (b) so many agreements substantially in, or to the effect of, the form of the agreement for appointment of independent adjudicator in Schedule 5 of the Settlement Agreement, as the Liquidators consider appropriate.
The Liquidators' costs of this application are costs properly incurred in the exercise of their duties and powers as Liquidators of LBA.
Pursuant to section 37AF of the Federal Court of Australia Act 1976 (the Act): (a) pages 1 to 165 of Exhibit AKB-2 to the first affidavit of Amanda Kim Banton sworn on 2 December 2013; and (b) the confidential affidavit of Amanda Kim Banton sworn on 5 December 2013 and Exhibit AKB-3 (together "the Confidential Materials") be confidential as set out in Order 4 hereof.
The Confidential Materials: (a) not be required to be served on any other party; (b) be placed on the Court file in a sealed envelope marked "Confidential - Not to be opened without leave of the Court or a Judge"; and (c) be returned to the solicitors for the Applicants after the expiry of 28 days from the date of this Order.
Pursuant to section 37AJ(3) of the Act, the period during which Orders 3 and 4 shall operate shall be a period of 35 days from the date of this Order. Dispensation of notice
The Court being satisfied it is just to do so, the requirement specified in section 33X(4) of the Act that notice of the application to approve the settlement be given to group members, is dispensed with. Authority to Applicants
Pursuant to section 33ZF of the Act, the Court authorises the Applicants nunc pro tunc on behalf of all Non-Signatory Group Members to enter into and give effect to the Settlement Agreement, and any agreement for the appointment or removal of an independent adjudicator pursuant to clause 11 of the Settlement Agreement. Section 33V approval
Pursuant to sections 33V and 33ZF of the Act: (a) settlement and discontinuance of the proceeding upon the terms set out in the Settlement Agreement be approved; and (b) the Court declares that the persons affected and bound by this Order and Order 7 above are the Applicants, the Respondents and the Group Members. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1795 of 2010

IN THE MATTER OF LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION) ACN 066 797 760 Stephen James Parbery AND MARCUS WILLIAM AYRES in their capacity as liquidators for LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION) ACN 066 797 760

JUDGE: JACOBSON J DATE OF ORDER: 9 DECEMBER 2013 WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

Pursuant to rule 9.09(2) of the Federal Court Rules 2011 (Cth): (a) Neil Geoffrey Singleton be removed as a plaintiff in this proceeding; and (b) Marcus William Ayres in his capacity as a liquidator of Lehman Brothers Australia Limited (In Liquidation) (Scheme Administrators Appointed) ACN 066 797 760 be joined as a plaintiff in this proceeding.
Pursuant to section 477(2B) of the Corporations Act 2001 (Cth) (Corporations Act), approval is granted for the entry by the liquidators (Liquidators) of Lehman Brothers Australia Limited (In Liquidation) (Scheme Administrators Appointed) ACN 066 797 760 (LBA) into deeds substantially in the form of the Claims Resolution Process Deed (CRP Deed) exhibited at Tab 3 of Exhibit MWA-1 to the affidavit of Marcus William Ayres sworn 3 December 2013 (Ayres Affidavit) with such Client Claimants as the Liquidators consider appropriate. "Client Claimant" means a creditor of LBA who: (a) has a claim, the circumstances giving rise to which arose on or before 26 September 2008, and which claim arose from: (i) the provision by LBA of investment advice or investment management services in respect of the acquisition of an investment product; or (ii) any alleged representation by LBA in relation to an investment product or investment management services offered by LBA; or (iii) the sale by LBA of an investment product; and (b) is neither an applicant nor a group member in the proceedings Wingecarribee Shire Council and Ors v Lehman Brothers Australia Ltd (In Liquidation) (Proceedings NSD 2492 of 2007).
Pursuant to section 479(3) of the Corporations Act, the Court directs that the Liquidators will be justified in entering into, and thereafter performing and acting in compliance with, CRP Deeds with such Client Claimants as the Liquidators consider appropriate for the purposes of the liquidation.
Pursuant to section 477(2B) of the Corporations Act, approval is granted for the entry by the Liquidators into so many deeds substantially in the form of the Deed of Appointment for Independent Adjudicator exhibited at Tab 6 of Exhibit MWA-1 to the Ayres Affidavit as the Liquidators consider appropriate.
Pursuant to section 479(3) of the Corporations Act, the Court directs that the Liquidators will be justified in: (a) making offers or counter-offers, determined substantially in accordance with the principles set out in part B of Schedule 1 of the CRP Deed, to any Client Claimant who makes a claim (whether present, or future, certain or contingent, ascertained or sounding only in damages) against LBA and with whom the Liquidators have not entered into a CRP Deed; and (b) if, as a result of the process described in sub-paragraph (a) above, an amount is agreed between the Liquidators and a Client Claimant in respect of that Client Claimant's claim, admitting the Client Claimant in the winding up of LBA for such amount.
The costs of this application be costs in the winding up of LBA.
These orders be entered forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

In the Federal Court of Australia NSD 2492 of 2007

AND: LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION) ACN 066 797 760

JUDGE: JACOBSON J DATE: 12 DECEMBER 2013 PLACE: SYDNEY

NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1795 of 2010

IN THE MATTER OF LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION) ACN 066 797 760 Stephen James Parbery AND MARCUS WILLIAM AYRES in their capacity as liquidators for

LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION) ACN 066 797 760 Plaintiffs

JUDGE: JACOBSON J DATE: 12 DECEMBER 2013 PLACE: SYDNEY

Introduction 1 On 29 November 2013 Wingecarribee Shire Council, City of Swan and Parkes Shire Council (the Applicants), who are the applicants in a very substantial representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) (the Act), entered into a Settlement Agreement with the respondent in that proceeding, Lehman Brothers Australia Ltd (In Liq) (LBA) and its liquidators, Mr Stephen James Parbery and Mr Marcus William Ayres (the Liquidators). 2 As explained later, the proceeding is at a very advanced stage. Judgment in favour of the Applicants was given last year but the orders made by the primary judge are under appeal. The Settlement Agreement provides for disposition of the orders at first instance and of the appeal. 3 Approval is required for the settlement of the proceeding under s 33V of the Act and the Settlement Agreement is expressly made subject to that condition. The Settlement Agreement is also conditional upon and subject to the approval of the Court under s 477(2B) of the Corporations Act 2001 (Cth) (the Corporations Act). The Liquidators require approval under that provision because the terms of the Settlement Agreement, and ancillary terms, may extend for a period of more than three months after the date when the Settlement Agreement was entered into. 4 The only other precondition to the Settlement Agreement is the approval of a scheme of arrangement, described in the Settlement Agreement as Scheme Approval. That condition was satisfied by the orders which I made on 31 October 2013 approving a scheme (generally described as the Insurance Scheme), and the expiration of the appeals period of 21 days from the date of those orders. 5 The Applicants apply by an interlocutory process for orders which include an order under s 33V of the Act approving the Settlement Agreement. 6 The Liquidators apply by a separate interlocutory process for orders under s 477(2B) of the Corporations Act for approval for them to enter into the Settlement Agreement as well as a number of ancillary agreements providing for the appointment of Independent Adjudicators to determine the claims of the Group Members in accordance with the Claims Resolution Process (CRP) described in the Settlement Agreement. 7 In addition, by a further interlocutory process filed by the Liquidators in matter No NSD 1795 of 2010, which is the general matter relating to the winding up of LBA, the Liquidators seek certain additional orders under s 477(2B), and directions under s 479(3) of the Corporations Act. 8 The orders sought under s 477(2B) provide for approval for the Liquidators to enter into a deed in the form of a Claims Resolution Process Deed (CRP Deed), the effect of which would be to enable the Liquidators to offer to client creditors of LBA, other than the Applicants and Group Members, a claims resolution process on substantially similar terms to the CRP under the Settlement Agreement. 9 The directions which the Liquidators seek under s 479(3) would permit them to make settlement offers to the non-Group Member client creditors of LBA, determined substantially in accordance with the principles set out in the CRP Deed, which mirrors the process contemplated by the CRP under the Settlement Agreement.

Background 10 I endeavoured to summarise the relevant background in my judgment in Re Lehman Brothers Australia Ltd (2013) 94 ACSR 528 ("Re Lehman (No 1)") at [4]-[25]. 11 The essential background to the present applications may be stated briefly. The Applicants and Group Members are a group of local government authorities from New South Wales and Western Australia, public utilities and charitable organisations. They fall into two broad categories, namely Individual Managed Portfolio (IMP) clients of LBA and non-IMP clients as described in Re Lehman (No 1) at [5]-[6]. 12 There are three Applicants and 69 Group Members on whose behalf the proceeding (the Class Action Proceeding) is brought. Together, those entities are defined as Client Creditors in the Settlement Agreement. They comprise creditors or purported creditors of LBA who have, or purport to have a claim arising on or before 26 September 2008 in relation to: the provision by LBA of investment advice or investment management services in respect of the acquisition of an investment product; or any alleged representation by LBA in relation to an investment product or investment management services offered by LBA; or the sale by LBA of an investment product. 13 There are also 287 creditors of LBA (the non-Group Members described as the Other Client Creditors) who have claims which arose on or before 26 September 2008, from the same facts or circumstances which gave rise to the claims of the Client Creditors under the Settlement Agreement. 14 On 21 September 2012 Rares J delivered extensive reasons for judgment in the Class Action Proceeding. His Honour found that LBA was liable to compensate the Applicants for their losses incurred as a result of their investments in structured finance products, generally described as synthetic collateralised debt obligations (SCDOs): Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in Liq) (2012) 301 ALR 1 (Class Action Judgment). 15 On 3 December 2012 (varied on 21 December 2012 and 25 March 2013) his Honour made orders in the Class Action Proceeding determining what were found to be common issues as between the Applicants and the Group Members (Common Issues Orders). The Common Issues Orders gave effect to his Honour's reasons in the Class Action Judgment. 16 On 25 March 2013 his Honour also made declarations in the Class Action Proceeding in favour of the Applicants, declaring each of them to be entitled to be admitted to proof in a particular sum of money (the Declarations). 17 On 15 April 2013, pursuant to leave to appeal granted on 25 March 2013, LBA filed a notice of appeal against the Common Issues Orders and the Declarations (the Appeal Proceeding). 18 The grounds of appeal are very extensive. In broad terms, the appeals in relation to the Declarations made in favour of the Applicants are particularly directed at the primary judge's findings in respect of non-IMP claims, being those made by the City of Swan during the early period of its dealings with LBA, and Parkes Shire Council through its entire dealings. 19 Importantly, the appeal challenges a significant proportion of the primary judge's rulings on the Common Issues Orders on the ground that they were either wrong or that they required consideration of the individual circumstances of Group Members, and ought not to have been made in terms that were binding on LBA in respect of the claims of Group Members. 20 In May 2013, the Liquidators applied to the Court for orders under s 411 of the Corporations Act convening meetings of creditors of LBA for the purpose of considering a scheme of arrangement (the Scheme) between LBA and its creditors. I described the Scheme in my reasons for judgment in Re Lehman (No 1). 21 There were five proposed classes of scheme creditors under the Scheme. They comprised the Applicants and the Group Members as well as the non-Group Members, LBA's trade creditors and three other classes of creditors including a related party of LBA described in [44] of Re Lehman (No 1) as LB Asia Holdings. 22 The principal objects of the Scheme were to provide for the realisation of certain insurance proceeds totalling $48 million for the benefit of all Client Creditors and to establish a claims resolution process for the resolution of the claims of all Client Creditors, that is to say of the Applicants and the Group Members, as well as the non-Group Members: see Re Lehman (No 1) at [34] ff. 23 The Scheme provided for the termination of the appeal from the orders of Rares J in the Class Action Proceeding. This was a critical feature of the terms of the Scheme. 24 The Scheme, if it had been approved, would have effected a compromise of the claims of all unsecured creditors of LBA including the Applicants, the Group Members and the non-Group Members. 25 However, after the orders convening meetings of creditors were made, Lehman Brothers Holdings Inc (LBHI), the parent company of LB Asia Holdings, obtained an assignment of the claims of LB Asia Holdings, which had an effective right of veto over the Scheme. LBHI indicated that it did not support the Scheme: Re Lehman Brothers Australia Ltd (No 2) (2013) 95 ACSR 685 ("Re Lehman (No 2)") at [4]-[5]. 26 As a result, the Liquidators considered it to be in the best interests of LBA's creditors not to pursue the Scheme, but instead to propose a new scheme of arrangement (the Insurance Scheme), thereby obtaining for all Client Creditors, that is to say the Applicants, the Group Members and the non-Group Members, the benefit of the payment of the insurance proceeds in the amount of $48 million: Re Lehman (No 2) at [8]. 27 The Insurance Scheme differed from the Scheme in that it did not effect a compromise of the claims of all unsecured creditors. Nor did it provide for the termination of the appeal in the Class Action Proceeding which remained on foot. Also, the Insurance Scheme did not contain a CRP: Re Lehman (No 2) at [20]. 28 I made orders convening a meeting of scheme creditors under the Insurance Scheme on 25 September 2013 and I made orders approving the Insurance Scheme on 31 October 2013. 29 Although the Insurance Scheme is not itself an element of the Settlement Agreement that has been entered into, the pool of funds generated by the Insurance Scheme will form part of the overall pool from which the Applicants and the Group Members will receive their distributions under the Settlement Agreement.

The Settlement Agreement 30 The Settlement Agreement is, as I have said, conditional upon the approvals referred to previously: see [3]-[9] above. 31 The Effective Date of the settlement is the date on which any right of appeal from the settlement approval under s 33V of the Act, and any right of appeal from the orders under s 477(2B) of the Corporations Act expires. I came to the view that I should make orders under those provisions. I made the orders on 9 December 2013 and accordingly the Effective Date of the Settlement Agreement will be 21 days from that date. 32 The claims of the Applicants and Group Members in the Class Action Proceeding and the Appeal Proceeding are dealt with separately. The Applicants are to be admitted to proof in the winding up of LBA in specified amounts that are consistent with the Declarations made by the primary judge. The amounts are subject to adjustments contemplated by the Declarations relating to a return on an SCDO described as the Esperance SCDO. The Applicants are not required to submit any further proof of debt in the winding up of LBA. 33 As a result, the Applicants receive the benefit of the Class Action Judgment and Declarations they obtained from Rares J. This is secured by the dismissal of the appeal brought by the Liquidators but there is some element of compromise because the Applicants agree to the dismissal of their proposed cross-appeal which was the subject of an application for leave filed on 27 September 2013. 34 The claims of the Group Members are to be dealt with under the detailed provisions of the CRP which will result in each Group Member's claim being agreed or determined by an expert adjudication process. I will refer to this in more detail below. 35 Part 10 of the Settlement Agreement contains comprehensive provisions to bring the Class Action Proceeding and the Appeal Proceeding to an end. Those provisions operate from the Effective Date. They provide, relevantly, that: the Applicants and Group Members are barred from instituting or maintaining any recovery proceeding, namely, any claim against LBA in respect of a liability, the circumstances of which arose before 26 September 2008, being the date on which administrators were appointed to LBA; the Liquidators are authorised to discontinue, stay or dismiss the Class Action Proceeding (save to the extent the relief sought in the Second Further Amended Application has been granted before the date of the Settlement Agreement, but in terms which make clear that the Common Issues Orders are not binding on the parties or the Independent Adjudicator under the CRP); the parties will execute short minutes of order dismissing the Appeal Proceeding; and the Applicants and Group Members are precluded from enforcing claims against LBA other than through the CRP.

The CRP 36 The CRP contained in the Settlement Agreement is in substantially the same terms as the claims resolution process that was proposed to be established under the Scheme: Re Lehman (No 1) at [39]-[42] and [45]. 37 The CRP provides a process for resolving the claims of the Applicants and Group Members who are together defined in the Settlement Agreement as the Client Creditors. The steps are described in paragraph 13 of the affidavit of Mr Ayres of 29 November 2013, sworn in the Class Action Proceeding. 38 I do not propose to set out each of the steps in the process. It is sufficient to say that the steps for Group Members involve submission of proofs, an offer and counter-offer process with a view to reaching agreement but if agreement is not reached, the claim is to be referred to an Independent Adjudicator. The Independent Adjudicators are to be selected, on the cab-rank principle, from a panel of two retired judges and eight senior counsel. 39 The CRP entails a relatively compressed timeline. Proofs are to be submitted within 42 days of the Effective Date and the Independent Adjudicators are to make a determination within a period of no longer than 120 days. 40 Section 4 of Part B of the CRP requires the Independent Adjudicators to apply certain guidelines in determining liability. This section of the CRP is broadly derived from Common Issues Orders and the Class Action Judgment although it departs from the Common Issues Orders in four principal ways: First, the CRP omits any presumption of fiduciary obligations owed to IMP Client Creditor Group Members or non-IMP Client Creditors to whom LBA provided financial advice or with whom LBA was in a financial advisory relationship: see cll 53, 54 of the CRP. The guidelines do not contain any directions in respect of claims for breach of fiduciary duty. However, cl 22 provides that the guidelines in respect of particular types of claims are not exhaustive. It is therefore open to a Client Creditor to establish under the CRP that it has a claim for breach of fiduciary duty. Second, a presumption that LBA, by investing a client's funds in SCDOs, breached duties of care in contract or in tort is not extended by the CRP to Client Creditors who were neither IMP Client Creditors or local government authorities subject to duties under the Trustee Act 1925 (NSW) or its analogue in Western Australia: see cll 53, 54 of the CRP. Third, the CRP imposes a discount for contributory negligence where a Client Creditor fails to establish a breach of fiduciary duty or certain contractual breaches. The discount is uncapped for IMP Client Creditors, but fixed at 15% for non-IMP Client Creditors. I referred to this at [64] of Re Lehman (No 1). It is dealt with in cll 62 and 63 of section 5 of the CRP. The rationale for this approach appears to be that it provides certainty, reduces the time for determination of a claim and ensures that dividends will better reflect the relative strengths of the claims of IMP Client Creditors and non-IMP Client Creditors. Fourth, the CRP requires that 100% of recoveries from third parties are to be offset against the calculation of losses under the CRP, which will ultimately be admitted to proof in the winding up: see cl 64 of the CRP. 41 There are also a number of differences between the CRP and the claims resolution process under the Scheme. The principal difference of substance is found in cl 57(f) of the CRP which deals with the quantification of Client Creditors' claims in respect of certain SCDOs described as the Federation Notes. 42 There was no such provision in the claims resolution process under the Scheme because the Federation Notes had previously been unwound with full repayment to noteholders. However, it now appears that noteholders may become subject to an order for damages, the effect of which will be to require them to disgorge some or all of the repayment of capital. Clause 57(f) provides for an adjustment of that liability if it results from a judgment or Court order or from a settlement approved by LBA. 43 Although cl 57(f) potentially discriminates between Group Members according to the date on which their claims are determined, it is consistent with the rationale commonly applied in the assessment of creditors' claims. This is, that claims should be assessed having regard to the facts known at the date of assessment, and that they should not later be revised, either up or down, in the event that circumstances change after the date of assessment.

Section 33V - Relevant principles 44 The principles which guide the exercise of the Court's discretion to approve a settlement under s 33V of the Act are well established. A recent statement of the principles is to be found in Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 at [7]-[14]; see also Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [6]-[8]. 45 The overarching consideration stated in the authorities is that the Court's jurisdiction is to be exercised if the Court is satisfied that the settlement has been entered into in the interests of group members as a whole, and not simply in the interests of the applicant and the respondent. 46 This jurisdiction enables the Court to ensure, as far as possible, that the interests of the group members are not subordinated to those of the applicant or any funder. The Court's role is most sensitive when some group members are not represented by the solicitors for the applicant: see ASIC v Richards at [8]. That is not the case in the present matter where all of the Group Members are clients of the Applicants' solicitors and have entered into funding agreements with the same funder.

Fairness and reasonableness of the settlement 47 This is not a matter where it is necessary to consider each of the nine factors identified by Goldberg J in Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459. Although those factors often provide a useful guideline, there are a number of special features of this matter which point in favour of the fairness and reasonableness of the settlement to all Group Members without the need to consider the factors separately. 48 Critical to the fairness and reasonableness of the Settlement Agreement is that, subject to the four points of departure from the Common Issues Orders referred to at [40] above, the Group Members obtain the benefit of the judgment of Rares J and the orders made by his Honour without subjecting the Common Issues Orders to further consideration on appeal. 49 The effect of the Settlement Agreement is therefore to provide for the determination of the claims of Group Members in a streamlined expert determination without the need for a more expensive and more time consuming trial process. The trial process would have resembled a large collection of separate mini-trials (albeit with considerable complexities) which would have been costly and slow. 50 Instead, the claims of Group Members will be assessed for full value, applying the principles of liability and quantification of loss prescribed in the Settlement Agreement, which largely reflect the successful result obtained at the trial. The claims will then be admitted for full value in the liquidation. 51 This highlights another critical factor which demonstrates the fairness and reasonableness of the Settlement Agreement. LBA entered into voluntary administration on 26 September 2008, and was ordered to be wound up on 2 October 2009. Thus, the claims of Group Members could only be paid pro rata from the liquidation. 52 There is protection of the interests of Group Members insofar as they will be entitled to exercise any right to appeal to the Court under s 1321 of the Corporations Act against any determination of a Client Creditor's established CRP claimed amount with which they do not agree: see cl 12.2 of the Settlement Agreement. It is true that the right of appeal is more limited than one from an order of the Court, and that the Group Members will be bound by the terms of the CRP. However, these are all features of the streamlined determination process with its consequential benefits for Group Members. 53 The Settlement Agreement does not prefer the interests of the Applicants to those of the Group Members. It recognises the judgment debts established at the trial by the Applicants but that merely reflects the more advanced state of the Applicants' cases, whilst at the same time making provision for the claims of Group Members largely upon the basis of the legal principles established at the trial. 54 The Common Issues Orders were subject to appeal and therefore to the possibility that the benefits of those Orders may be lost or narrowed. The grounds of appeal from the Common Issues Orders are extensive. The appeal raises difficult questions as to the nature of the jurisdiction to make orders binding on all Group Members, as well as upon the answers to many of the questions. The risk to Group Members that the Common Issues Orders may be set aside in whole or in part has been avoided. 55 The modifications to the Common Issues Orders which are expressed in the CRP do not uniformly favour one claimant sub-group over others. This is so whether or not the categorisation of Group Members is divided into IMP or non-IMP or into LGA or non-LGA or into any combination of them. Each is potentially affected by one or more of the modifications. Thus, there are elements of concession on the part of all Group Members, but they are spread across the entire group. 56 I have taken into account the confidential opinion of senior counsel and junior counsel which addresses the fairness and reasonableness of the Settlement Agreement in considerable detail. This is an important aspect of the exercise of my discretion to approve the Settlement Agreement, which in my opinion falls well within the range of fair and reasonable outcomes, taking everything into account: Darwalla Milling Co Pty Ltd Ltd v F Hoffman-La Roche (2006) 236 ALR 322 at [50]. 57 Finally, it is relevant to take into account the attitude of the Group Members. All except two of them have taken positive steps to endorse the Settlement Agreement by executing powers of attorney to enable the funder to sign the Settlement Agreement on their behalf. The other two Group Members, described as the non-signatory Group Members, refrained from executing a power of attorney, not because they oppose the settlement, but because they do not wish to press their claims. Accordingly, I made orders under ss 33X and 33ZF of the Act allowing the Applicants to enter into the Settlement Agreement and dispensing with further notice requirements.

Solicitors' costs and funder's commission 58 This is not a case in which the settlement that the Court is asked to approve contemplates the passing on to non-contracting group members a share of the legal costs or a share of the funder's commission: cf Modtech; see also Modtech Engineering Pty Ltd v GPT Management Holdings Ltd (No 2) [2013] FCA 1163 and Courtney v Medtel Pty Ltd (No 5) (2004) 212 ALR 311 at [59]. 59 Here, the Class Action Proceeding is brought by a "closed class". It is confined to persons who entered into funding agreements with the common funder and who are clients of the Applicants' solicitors. 60 Counsel for the Applicants and the Liquidators therefore submitted that the Court should not have regard to the fairness or reasonableness of the quantum of legal costs incurred, as the funding agreements have already dealt with this issue. 61 It is true, as was submitted by counsel for the Applicants, that the economic burden of the costs has already passed to the funder who has paid the solicitors' costs and disbursements on a "pay as you go" basis. But ultimately the burden is borne by the Group Members pursuant to their contractual liability under the funding agreements and the amount of the liability reduces the distribution payable to them under the Settlement Agreement. 62 It was open to any Group Member to object to the fairness and reasonableness of a particular item of costs and to call for an assessment or taxation. This was so notwithstanding the existence of the terms of the funding agreements. No question of the review of the private contractual arrangements between the parties arises in the exercise of such a right. 63 But the submissions made to me on behalf of the Applicants and the Liquidators would have had the practical effect of depriving Group Members of the opportunity to object to the overall quantum of legal fees without the Group Members being heard on that question. There was no evidence to indicate that the Group Members were aware of the actual billing practices that took place between the solicitors and the funder. The details of the bills were entirely a matter between the solicitors and the funder. 64 It therefore seems to me that I should reject the submission that the Court is not concerned with the fairness or reasonableness of the costs as an incident of the approval under s 33V of the Act. It is part of the onerous task of the Court in determining whether to grant approval: see Lopez v Star World Enterprises Pty Ltd [1999] FCA 104 at [16]. 65 Nevertheless, it seems to me that there are special features of this case which enable me to be satisfied that the interests of Group Members have been sufficiently protected. 66 First, the Class Action Proceeding is a very complex one and the matter as a whole has involved a complex inter-relationship between representative proceedings under Part IVA of the Act and the insolvency of LBA and the Lehman Brothers Group. Critical to the success of the Class Action Proceeding was the litigation by two of the Applicants to set aside a deed of company arrangement. That proceeding was ultimately the subject of an appeal to the High Court: see Lehman Brothers Holdings Inc v City of Swan (2010) 240 CLR 509. This helps to explain the size of the bill. 67 Second, I am satisfied on the evidence of the Applicants' solicitor, Ms Amanda Banton, that the solicitors' fees and disbursements were subject to more than the usual level of scrutiny than may otherwise be attended to the approval of payment of legal costs. 68 The scrutiny to which those fees were subject was not that of the Group Members, but this was a case in which the funder appears to have had a special incentive to ensure that a tight rein was kept on fees. This was because the complexity and scale of the collapse of the Lehman Brothers Group meant that the risks that the fees may be irrecoverable from LBA were substantial. 69 Ms Banton addresses this, and the degree of supervision exercised by the funder, in her confidential affidavit sworn on 3 December 2013. It seems to me that this demonstrates a very close degree of supervision by the funder over the budgets prepared by the solicitors and the invoices which were submitted for payment. 70 An officer of the funder appears to have conducted a line by line review of the time entries included in the invoices and to have liaised with Ms Banton with regard to any question about the invoices. In some instances, the solicitors agreed to a reduction in the fees. 71 Third, Ms Banton's confidential affidavit addresses in considerable detail the costs that were incurred in relation to litigation work and non-litigation work including the Scheme and the Insurance Scheme. The effect of her evidence is that costs were charged in accordance with the funding agreement and retainers and that no substantial fees or disbursements were incurred that were unnecessary or unreasonable. 72 I do not have a report from a costs consultant but I am persuaded, in light of the matters referred to above, that the costs and delay that would be incurred if I were to require a report were not warranted in the present case. 73 There are substantial difficulties for a judge of the Court in determining, without some further assistance, the fairness and reasonableness of a large amount of costs and disbursements. Nevertheless, I am persuaded by the matters referred to above, including my consideration of the content of Ms Banton's affidavit that there is nothing which requires the intervention of the Court in relation to this question.

Approval of entry into the Settlement Agreement under section 477(2B) Corporations Act 74 Under s 477(2B) of the Corporations Act, the approval of the Court, or LBA's committee of inspection, or a resolution of creditors is required because the term of the Settlement Agreement may end, and the obligations of the parties may be discharged by performance, more than three months after 29 November 2013, which was the date on which the Settlement Agreement was entered into. This is plain from the fact that the independent adjudication process may take up to 120 days. 75 The principles which the Court applies in considering whether to exercise its discretion are well settled. They were recently reiterated by Gordon J in Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (In Liquidation) (No 14) [2013] FCA 459 at [9]-[10]. 76 As her Honour said in that case, the Court will generally grant approval if an agreement appears to be for the benefit of those concerned in the winding up, giving significant weight to the commercial judgment of the liquidator as to whether the agreement is for the benefit of creditors. The Court will generally not interfere unless there can be seen to be some lack of good faith, an error of law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct. 77 These principles emerge from the seminal authority Re Spedley Securities Ltd (In Liq) (1992) 9 ACSR 83 and from a line of subsequent authorities, most of which are referred to in ASIC v GDK at [9]-[10].

Exercise of the powers under section 477(2B) 78 Here, one of the Liquidators, Mr Ayres, has given evidence of the merits of the Settlement Agreement. I am satisfied that his evidence reflects a broad commercial judgment which is informed by his joint conduct of the liquidation since his appointment on 14 April 2011. 79 There is nothing in Mr Ayres' evidence to suggest that his judgment is affected by lack of good faith or an error of law or principle within the principle stated in Re Spedley Securities and other authorities. 80 Indeed, Mr Ayres' detailed evidence indicates that the Settlement Agreement is in the best interests of all creditors including the Other Client Creditors. This is because the Other Client Creditors will be given an opportunity to resolve their claims in the winding up on the same terms as Group Members, through the proposed CRP Deed. 81 This approach follows in large measure the detailed judgment in the Class Action Proceeding and the Common Issues Orders, subject to the modifications referred to earlier. 82 It has the advantage of time and cost savings for all creditors which will enable them to obtain a much earlier distribution from the winding up than would otherwise be available. Mr Ayres' evidence makes it clear that the Settlement Agreement will not cut across the general expectation that the winding up will proceed in as expeditious a fashion as the circumstances allow: Re HIH Insurance Ltd [2004] NSWSC 5 at [15]. 83 Here, the thrust of the evidence is that the Settlement Agreement, and the carrying out of the CRP will shorten rather than prolong the winding up by resolving the Class Action Proceeding, terminating the Appeal Proceeding and providing a basis for the resolution of the claims of the Other Client Creditors. 84 Whilst it may have been open to the Liquidators to obtain the approval of the committee of inspection or the creditors, Mr Ayres' evidence indicates that the approval of the Court was a more appropriate course.

Court approval of entry into CRP Deeds with Other Client Creditors 85 The Liquidators' interlocutory process in matter No NSD 1795 of 2010 deals with their proposal for addressing the claims of the 287 Other Client Creditors. The proposal provides for a complementary claims resolution process which I described briefly earlier in my reasons: see above at [8]-[9]. 86 This process is intended to bring within the purview of the CRP the claims of all of the Other Client Creditors, whether or not they agree to enter into a claims resolution process deed, referred to as the CRP Deed. Thus the process consists of: LBA and the Liquidators offering to enter into a CRP Deed with each Other Client Creditor who is agreeable to doing so; and LBA and the Liquidators making offers and counter-offers to those Other Client Creditors who do not agree to enter into a CRP Deed, such offers or counter-offers to be on the basis of the compromise embodied in the Settlement Agreement. 87 The CRP Deed is substantially to the same effect as the CRP under the Settlement Agreement. It provides for the same persons as Independent Adjudicators and contains the same guidelines for the determination of liability and quantum. It seems likely that the Liquidators will be able to conduct the process under the CRP Deed and the CRP under the Settlement Agreement by a single administrative process. 88 As with the CRP, the Other Client Creditors who are dissatisfied with the determination by the Independent Adjudicator will have rights to appeal under s 1321 of the Corporations Act. So too, any Client Creditors who do not enter into the CRP Deed, but to whom offers are made, and who are dissatisfied with the amount for which their claim is admitted, will be able to appeal against the Liquidators' decision under s 1321. The touchstone for evaluating the appropriateness of the assessment will be the principles and guidelines stated in the CRP. 89 If any collateralised debt obligations (CDOs) purchased by the Other Client Creditors were not the subject of claims in the Class Action Proceeding, it would be necessary for them to be valued in order to determine the loss. 90 However, it appears that all of the non-class action CDOs have either matured, been wiped out or unwound or otherwise made the subject of the Settlement Agreement, as in the case of the Federation Notes. It appears that the only remaining instruments sold by LBA were all the subject of valuation by Rares J in the Class Action Proceeding. Accordingly, it appears that no additional questions in relation to the value of CDOs will arise in the claims of the Other Client Creditors.

Applicable legal principles 91 The Liquidators seek approval under s 477(2B) of the Corporations Act for the entry into the CRP Deeds and directions under s 479(3) of the Corporations Act that they would be justified in entering into the CRP Deeds. They also seek directions under s 479(3) that they would be justified in making offers and accepting counter-offers in respect of the Other Client Creditors who do not agree to enter into the CRP Deed. In addition they seek directions that they would be justified in admitting to proof the amounts that may be agreed with the Other Client Creditors in respect of their claims. 92 I have addressed the principles which govern the exercise of the power under s 477(2B). 93 The seminal authority on the exercise of the power to give directions under s 479(3) is Re G B Nathan and Co Pty Ltd (In Liq) (1991) 24 NSWLR 674 at 679. See also Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 at [65]. What is required is something more than the making of a business or commercial decision. It must raise a legal issue of substance or procedure, including in particular, an issue of power, propriety or reasonableness: see also Re Bell Group (In Liq); Ex Parte Woodings [2013] WASC 409 at [38]-[39].

Exercise of the powers under section 477(2B) and section 479(3) 94 The reasons which I gave for the exercise of the discretion under s 477(2B) of the Corporations Act to approve the entry by the Liquidators into the Settlement Agreement and the CRP apply equally to the exercise of the power in relation to the CRP Deed. 95 Moreover, it is appropriate to exercise the power under s 479(3) to give directions in relation to the processing of the claims of the Other Client Creditors. Whilst the Liquidators' actions involve the exercise of commercial judgment, they also raise legal issues in relation to the application of the principles and guidelines which form part of the claims resolution process under the CRP Deed. 96 In addition, the Liquidators' proposal to make offers and accept counter-offers in respect of Other Client Creditors who do not enter into the CRP Deed raise questions of reasonableness. 97 There are two principal reasons why I consider it is appropriate for the Liquidators to adopt the proposed course. 98 The first is that it is proper, and in the interests of the creditors as a whole, and consistent with the general principles which apply to the determination of claims in a winding up, that like claims should be treated alike. 99 Second, the Liquidators' proposal is consistent with the approach that was adopted in, and arrived at after extensive litigation in the Class Action Proceeding. In that matter, Rares J observed that the proceedings were "very much in the nature of a test case" and that the parties had acted with substantial commonsense and reasonableness in the conduct of the litigation which was complex and difficult to resolve: Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in Liq) (No 8) [2013] FCA 411 at [7], [11]. 100 His Honour also considered that the Class Action Judgment and the Common Issues Orders provided, potentially, an appropriate basis for the resolution of Other Client Creditors' claims: Wingecarribee (No 8) at [11]-[12]. 101 That is precisely the course which the Liquidators propose. It follows that it is appropriate to make the directions that are sought. 102 I should add that as to the question of quantum of the claims of the Other Client Creditors, none of the valuations made by Rares J of the CDOs was the subject of the appeal or the proposed cross-appeal. If CDOs were disposed of by Group Members or the Other Client Creditors prior to the determination of their claims, the question of value and the issue of the reasonableness of their disposal will depend upon the individual circumstances of the claimant. But some guidance may be obtained from the approach adopted by Rares J and there is no reason to suggest that a better or more precise result would be achieved by judicial determination of the remaining claims.

Confidentiality 103 At the commencement of the hearing counsel for the Applicants sought confidentiality orders in relation to affidavit evidence filed by the Applicants' solicitor, Ms Banton, and an exhibit containing the opinion of counsel. Pursuant to s 37AF of the Act I ordered that those documents be kept confidential and be sealed on the Court file in an envelope marked "Not to be opened except by leave of the Court". 104 The confidentiality orders are in line with the well-established approach taken in representative proceedings: see Jarra Creek Central Packing Shed Pty Ltd v Amcor Limited [2011] FCA 671 at [155]; Williams v FAI; Darwalla. 105 Counsel's advice was privileged and was filed on the basis that privilege would be maintained: P Dawson Nominees Pty Limited v Brookfield Multiplex Ltd (No 4) [2010] FCA 1029 at [17] (Finkelstein J). There is no inconsistency between the maintenance of the confidentiality in the advice of counsel and the tender of the advice in support of an application for approval under s 33V of the Act: Jarra Creek at [157]-[159].

Conclusion and orders 106 For the reasons set out above, on 9 December 2013 I made orders and gave directions in accordance with the short minutes that were submitted to me by the parties. I certify that the preceding one hundred and six (106) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Pt IVA Federal Court of Australia Act 1976(Cth)

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