FEDERAL COURT OF AUSTRALIA Reiffel v ACN 075 839 226 Pty Limited (No 2) [2004] FCA 1128 PRACTICE AND PROCEDURE – representative proceedings – settlement – costs and disbursements – structured settlement apportioning costs and disbursements to group members on per capita basis and not pro rata to sums recovered – circumstances in which per capita allocation of costs appropriate – whether lump sum inclusive of costs appropriate settlement of class action – whether such settlement appropriate in absence of contradictor Federal Court of Australia Act 1975 (Cth), s 33V Reiffel v ACN 075 839 226 Limited [2003] FCA 194; (2003) 45 ACSR 67; (2003) 21 ACLC 469; (2003) ATPR 41–934 related Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 followed Johnson Tiles Pty Ltd v Esso Australia Ltd (1999) 94 FCR 167 cited King v AG Australia Holdings Ltd [2002] FCA 1560 cited King v AG Australia Holdings Ltd [2003] FCA 980 cited McMullin v ICI Australia Operations Pty Ltd (No 6) (1998) 84 FCR 1 cited MARLENE REIFFEL (for herself and representing the persons referred to in the Statement of Claim) v ACN 075 839 226 PTY LIMITED AND PANNELL KERR FORSTER CONSULTING AUSTRALIA PTY LIMITED (ACN 059 506 116) N 966 OF 2000 GYLES J 1 SEPTEMBER 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 966 OF 2000 BETWEEN: MARLENE REIFFEL (for herself and representing the persons referred to in the Statement of Claim) APPLICANT AND: ACN 075 839 226 PTY LIMITED FIRST RESPONDENT PANNELL KERR FORSTER CONSULTING AUSTRALIA PTY LIMITED (ACN 059 506 116) SECOND RESPONDENT JUDGE: GYLES J DATE: 1 SEPTEMBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This was a class action against an independent expert for statements in a prospectus. On 14 March 2003 I delivered reasons for judgment which dealt with liability generally (Reiffel v ACN 075 839 226 Limited [2003] FCA 194; (2003) 45 ACSR 67; (2003) 21 ACLC 469; (2003) ATPR 41–934). I found that the report of the second respondent, Pannell Kerr Forster Consulting Australia Pty Limited (PKF), was misleading and deceptive. The reasons also dealt with the issues of causation of loss and measure of damages in relation to the named applicant. Formal orders were made in due course. The proceeding continued in order to deal with the questions of causation of loss and the measure of damages for the balance of the class. In the events which happened, the parties agreed during the second hearing on the contentious issues as to the measure of damages but not as to causation. After judgment was reserved I was informed that the matter had settled. I received evidence and submissions relating to the settlement. I indicated a concern as to some issues. There was an adjournment. Some changes were made to the settlement, further evidence was led and further submissions were received. As a result I approved the settlement pursuant to s 33V of the Federal Court of Australia Act 1975 (Cth) and made consequential orders. I indicated that reasons would follow. These are those reasons. 2 The factual background is as follows: (a) The statement of claim defined a group of 146 members by reference to their participation in the trust (but excluding the promoters of the trust). (b) On 25 July 2001 an order was made under s 33J fixing a date for the filing of opt out notices. Twenty-three group members opted out, reducing the group at that point to 123. (c) On 9 May 2003 the applicant was directed to notify group members pursuant to s 33X of the Court's judgment of 14 March 2003 and a right to register a claim for damages. The time by which the notice of claim was to be filed was 18 July 2003 (later extended to 28 August 2003 for some group members). (d) Subsequently, notices of claim were filed representing 102 separate interests. The active group at that point was reduced to 102 (including some who had previously opted out but had now filed notices of claim). (e) On 31 July 2003 an order (described as a note) was made that the solicitors for the applicant would file statements of evidence and a list of documents in respect of the balance of group members on whose behalf they act by specified dates. Notice of that order was given to all group members who had filed a notice of claim. (f) Subsequently 89 group members filed evidence and lists of documents. Thus the active group was reduced to 89. (g) The offer of settlement involves a distribution of the settlement amount to 89 group members who completed the interlocutory steps. 3 In summary, the original group identified by the statement of claim of 146 trust participants has been reduced to a group of 89 by reason, in the case of any individual member of the group, of one of three matters: (a) filing an opt out notice; (b) failing to file a notice of claim; or (c) failing to file evidence or lists of documents. 4 This analysis includes eight parties (Leach interests) who originally filed opt out notices but subsequently filed a notice of claim and filed evidence and lists of documents, and who are part of the 89 group members covered by the settlement. A separate proceeding was instituted on behalf of those parties to protect their position. 5 The heads of agreement were executed by the solicitors for the applicants and by representatives of the respondent on 9 July 2004. There had been two earlier settlements in the proceedings arising from litigation against other parties. The basis of the settlement was the provision by the respondent of a significant sum on the basis that it was inclusive of interest and costs to be distributed to consenting group members on the basis outlined in the settlement – individual amounts being recorded for each party, the balance being for costs and disbursements. 6 On 10 July 2004, an email message was sent to the group members advising them in general terms of the proposed settlement. Those group members without access to email were informed of the proposed settlement by letter dated 12 July 2004. On 14 July 2004, each group member was sent detailed advice regarding the effect of settlement in relation to his or her individual claim. The advice canvassed in detail the strengths and weaknesses of claims as assessed by counsel and solicitors at the end of the further hearing, including particular reference to the risks for investors in particular categories. The group members were also advised of the other factors weighing for and against settlement of their respective claims. A settlement authority, by which each group member was invited to accept or reject a specific offer of settlement, net of legal costs in each case, was also enclosed. The quantum of this offer was calculated by reference to the liability category within which the group member fell. 7 For the purposes of the proposed settlement, the group members have been divided into three categories or classes reflecting their relevant liability position having regard to legal advice: (a) Category A – counsel for the respondent did not make any submission with respect to the reliance evidence of these group members. It is proposed that each of these group members receive 90 per cent of the assessed full value of their claims, including an appropriate allowance for interest. Forty-four group members fall into this category. (b) Category B – counsel for the respondent argued that for group members in this class the evidence of reliance was not sufficient for them to succeed. It is proposed that each group member in this category receive 70 per cent of the assessed full value of their claims, including an appropriate allowance for interest. Thirty-nine group members fall into this category. (c) Category C – this category consists of those group members who were part of the Leach proceedings and who counsel for the respondent submitted were out of time. For these claims it is proposed that each group member receive 60 per cent of the assessed full value of their claims, including an appropriate allowance for interest. Six group members fall into this category. Two Leach group members, whom counsel for the respondent conceded were not out of time, do not fall in this category. 8 Eighty-eight of the 89 group members returned the settlement authorities accepting the offer. The solicitors for the applicant were unable to contact one member notwithstanding a number of attempts. In his case, the amount exceeds an amount for which he had provided written settlement instructions at around the time of a prior mediation. 9 I have no difficulty in approving the structure of the settlement if the question of legal costs is set aside. It constitutes a reasonable assessment of the different positions occupied by different members of the class (Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459). 10 So far as legal costs are concerned, the first point I noted was that they are substantially allocated on a per capita basis rather than pro rata to the sums recovered. I am satisfied that this was appropriate as the work required for each was roughly similar, the principal issue for determination being reliance. Quantum issues were not likely to be very different. I also noted that fee agreements were entered into with each of the parties involved in the settlement which authorised the deduction of costs and disbursements in the general manner proposed. Evidence was led from the solicitors concerned as to the manner in which the total amount deducted has been calculated. Evidence was led from a qualified costs assessor vouching for the appropriateness of the quantum. Originally, the disbursements to be deducted included that costs assessor's fees calculated as a percentage of the bill. Certain aspects of the bill were modified following argument. The basis upon which the costs assessor's fees were charged was also altered, the effect of which was to reduce substantially the amount of fees payable to the costs assessor from the deducted monies. 11 A question arises as to whether a lump sum settlement inclusive of costs is appropriate in settlement of a class action, particularly where there is no contradictor. An inherent conflict of interest exists. It is submitted that there should be no criticism or condemnation of the practice as such, as this would hinder compromise of such actions. It is suggested that respondents seek finality and certainty as to financial obligations. It was submitted that the supervisory role of the Court is adequate to protect class members, particularly having in mind the practice of having the bill considered by an expert independent costs consultant. It was pointed out that arrangements can be made for a contradictor if that becomes necessary. It was also pointed out that in New South Wales, which is the jurisdiction in question here, there are avenues for dealing with complaints about costs against solicitors. . Reference was also made to Johnson Tiles Pty Ltd v Esso Australia Ltd (1999) 94 FCR 167. 12 Although I was satisfied that it was appropriate to approve the settlement in the present case I do not wish to be taken to have expressed any general approval of a settlement structured in this way. 13 The other issue worth mentioning is that, whilst it was the initial position of the parties that I should make orders designed effectively to close the class, I was not, in the end, asked to make any such order. There is at least a question as to the power to do so and the appropriateness of doing so (cf McMullin v ICI Australia Operations Pty Ltd (No 6) (1998) 84 FCR 1; King v AG Australia Holdings Ltd [2002] FCA 1560 at [5]–[7]; King v AG Australia Holdings Ltd [2003] FCA 980 at [7]–[10]). I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles. Associate: Dated: 1 September 2004 Counsel for the Applicant: JT Gleeson SC Solicitor for the Applicant: Slater & Gordon Solicitor for the Second Respondent: N Smith of Minter Ellison Date of Hearing: 23, 29 July 2004 Date of Order: 29 July 2004 Date of Reasons: 1 September 2004