FEDERAL COURT OF AUSTRALIA Australian Securities & Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 8) [2011] FCA 997 Citation: Australian Securities & Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 8) [2011] FCA 997 Parties: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v GDK FINANCIAL SOLUTIONS PTY LTD (ACN 085 488 311), WINDSOR VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) (ACN 088 339 913), WESTERN RETIREMENT VILLAGE MANAGEMENT PTY LTD (ACN 091 443 239), THE MEWS VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) (ACN 091 526 224), PERIDON MANAGEMENT PTY LTD (IN LIQUIDATION) (ACN 088 322 276), ROSEDALE VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) (ACN 089 667 096), PETER HASTINGS WARNE, RENTAL FLEETS AUSTRALIA PTY LTD (ACN 082 558 978), JOHN MONTGOMERIE, ANDREW REGINALD (TRUSTEE OF BANKRUPT ESTATE OF ROHAN ELLIOT VON STANKE) YEO, GIUSEPPE DE SIMONE, SEACHANGE MANAGEMENT PTY LTD (ACN 091 443 211), ZMB AUSTRALIA PTY LTD (ACN 105 746 067), YOUNG TURKS PTY LTD (ACN 005 872 122) and TOUMA PTY LTD (ACN 124 195 366) File number: VID 590 of 2006 Judge: DODDS-STREETON J Date of judgment: 21 July 2011 Catchwords: CORPORATIONS – Unregistered managed investment scheme – Application by representative of investors in the scheme for approval of agreement to settle various claims on the scheme fund – Whether compromise fair and reasonable and in the interests of the investors – Whether investors must be notified of application for approval Legislation: Corporations Act 2001 (Cth) s 601EE(2) Federal Court of Australia Act 1976 (Cth) s 23 Cases cited: Australian Securities & Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 6) [2010] FCA 1092 cited ZMB Australia Pty Ltd v Warne [2011] FCA 311 discussed ZMB Australia Pty Ltd v Warne [2011] FCAFC 65 considered and applied Date of hearing: 12 July 2011 Date of publication of reasons: 30 August 2011 Date of last submissions: 12 July 2011 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 47 Counsel for the Seventh Defendant: Ms D Hogan-Doran Solicitor for the Seventh Defendant: Arnold Bloch Leibler IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 590 of 2006 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: GDK FINANCIAL SOLUTIONS PTY LTD (ACN 085 488 311) First Defendant WINDSOR VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) (ACN 088 339 913) Second Defendant WESTERN RETIREMENT VILLAGE MANAGEMENT PTY LTD (ACN 091 443 239) Third Defendant THE MEWS VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) (ACN 091 526 224) Fourth Defendant PERIDON MANAGEMENT PTY LTD (IN LIQUIDATION) (ACN 088 322 276) Fifth Defendant ROSEDALE VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) (ACN 089 667 096) Sixth Defendant PETER HASTINGS WARNE Seventh Defendant RENTAL FLEETS AUSTRALIA PTY LTD (ACN 082 558 978) Eighth Defendant JOHN MONTGOMERIE Ninth Defendant ANDREW REGINALD (TRUSTEE OF BANKRUPT ESTATE OF ROHAN ELLIOT VON STANKE) YEO Tenth Defendant GIUSEPPE DE SIMONE Eleventh Defendant SEACHANGE MANAGEMENT PTY LTD (ACN 091 443 211) Twelfth Defendant ZMB AUSTRALIA PTY LTD (ACN 105 746 067) Thirteenth Defendant YOUNG TURKS PTY LTD (ACN 005 872 122) Fourteenth Defendant TOUMA PTY LTD (ACN 124 195 366) Fifteenth Defendant JUDGE: DODDS-STREETON J DATE OF ORDER: 21 JULY 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The Court approves the entry by the Seventh Defendant, in his capacity as a representative of cash investors in the Mews Scheme, into an agreement in settlement of the Touma Proceedings, and the subject matter of those proceedings, substantially in terms of the Deed of Settlement. 2. The further hearing of the Touma Proceedings be vacated until further order. 3. The Court direct each of: (a) The seventh defendant, in his capacity as a representative of cash investors in the Mews Scheme; (b) Brian Keith McMaster and Mark Francis Xavier Mentha in their capacities as: i. Joint and several receivers of the Mews Scheme; ii. Joint and several liquidators of The Mews Village Nominees Pty Ltd (in liquidation); and iii. Joint and several liquidators of Western Retirement Village Management Pty Ltd (in liquidation); to execute the Deed of Settlement within seven days of the date on which these orders are made. 4. The costs and expenses of the seventh defendant of and incidental to the application which have been necessarily and properly incurred be paid out of the Mews Scheme. 5. The costs and expenses of the Mews Receivers of and incidental to the application which have been necessarily and properly incurred be paid out of the Mews Scheme. 6. The exhibit marked "Confidential Exhibit SJD-40" to the affidavit of Simon John Dollard sworn 18 July 2011, remain confidential on the court file and not be provided to any other parties or persons without the express consent of Peter Hastings Warne or order of this court. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 590 of 2006 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: GDK FINANCIAL SOLUTIONS PTY LTD (ACN 085 488 311) First Defendant WINDSOR VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) (ACN 088 339 913) Second Defendant WESTERN RETIREMENT VILLAGE MANAGEMENT PTY LTD (ACN 091 443 239) Third Defendant THE MEWS VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) (ACN 091 526 224) Fourth Defendant PERIDON MANAGEMENT PTY LTD (IN LIQUIDATION) (ACN 088 322 276) Fifth Defendant ROSEDALE VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) (ACN 089 667 096) Sixth Defendant PETER HASTINGS WARNE Seventh Defendant RENTAL FLEETS AUSTRALIA PTY LTD (ACN 082 558 978) Eighth Defendant JOHN MONTGOMERIE Ninth Defendant ANDREW REGINALD (TRUSTEE OF BANKRUPT ESTATE OF ROHAN ELLIOT VON STANKE) YEO Tenth Defendant GIUSEPPE DE SIMONE Eleventh Defendant SEACHANGE MANAGEMENT PTY LTD (ACN 091 443 211) Twelfth Defendant ZMB AUSTRALIA PTY LTD (ACN 105 746 067) Thirteenth Defendant YOUNG TURKS PTY LTD (ACN 005 872 122) Fourteenth Defendant TOUMA PTY LTD (ACN 124 195 366) Fifteenth Defendant JUDGE: DODDS-STREETON J DATE: 21 JULY 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT INTRODUCTION 1 On 21 July 2011, I made the orders set out above approving an agreement between the seventh defendant, Peter Warne, in his capacity as a representative of the cash investors in the Mews Scheme (an unregistered managed investment scheme described in further detail below) and the fifteenth defendant, Touma Pty Ltd ("Touma"), to settle Touma's claims on a fund comprising the proceeds of sale of certain land used in the Mews Scheme ("the Mews land"). 2 My reasons for approving the agreement to settle the Touma claims are set out below. 3 The application for approval was made by an amended interlocutory process dated 24 June 2011, pursuant to s 601EE(2) of the Corporations Act 2001 (Cth) ("the Act"), s 23 of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act") and in accordance with the order of Finkelstein J made on 2 April 2009. 4 Section 601EE(2) of the Act provides that the court may make any orders it considers appropriate in winding up an unregistered managed investment scheme. 5 On 2 April 2009, Finkelstein J ordered, inter alia, that the seventh defendant, in his capacity as a representative of cash investors in the Mews Scheme, could properly and justifiably defend the Touma claims and enter a settlement of those proceedings, provided that the coming into effect of any such settlement were subject to the approval of the court. 6 Section 23 of the Federal Court Act provides: The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate. 7 The application was supported by: (a) The affidavits of Simon Dollard of the solicitors for the seventh defendant, sworn on 24 June 2011 ("June affidavit") and 18 July 2011 ("July affidavit"). (b) The confidential written submissions of the seventh defendant dated 24 June 2011. (c) The non-confidential written submissions of the seventh defendant dated 11 July 2011. (d) The written submission of the fifteenth defendant dated 8 July 2011. 8 Mr Dollard's June affidavit referred to his previous affidavit sworn on 22 February 2010 (which had since been amended) and annexed a confidential draft deed of settlement of the Touma proceedings. 9 Mr Dollard exhibited a number of documents. Confidentiality was claimed, inter alia, for the following: (a) counsel's opinion to the seventh defendant dated 3 May 2011 ("May opinion") regarding compromise of appeal proceedings filed by ZMB Australia Pty Ltd ("ZMB") and Young Turks Pty Ltd ("Young Turks") against the seventh defendant ("ZMB appeal"); (b) counsel's opinion to the seventh defendant dated 23 June 2011 regarding the reasonableness of the compromise of Touma's claims on the Mews fund ("June opinion"); and (c) the deed of settlement. 10 Mr Dollard confirmed and adopted all factual matters set out in the June opinion of counsel, particularly paragraphs 9 and 28 thereof. 11 At a hearing on 12 July 2011, I ordered that the above documents remain confidential and reserved the costs. 12 Mr Dollard also confirmed and adopted the matters in the June opinion concerning the compromise of Touma's costs claims, in respect of which a costs specialist employed by the seventh defendant's solicitors had provided advice. 13 Mr Dollard concurred with counsel's views that the proposed settlement of the Touma proceedings was fair and reasonable and in the interests of the investors of the Mews Scheme. BACKGROUND 14 The application has a long and complex history. It arose from the winding up of an unregistered managed investment scheme known as the Mews Scheme. The background to the Mews Scheme was described by Finkelstein J in Australian Securities & Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 6) [2010] FCA 1092 ("ASIC v GDK (No 6)") at [3] to [4] as follows: A managed investment scheme, commonly referred to as the "Mews scheme" because it involved the establishment of what was to be called the Mews Retirement Village on the Mews land, is in the process of being wound up. The Mews land has been sold by the liquidators of the registered proprietor, Western Retirement Village Management Pty Ltd (WRVM), one of the promoters of the Mews scheme. The fund produced by the sale is being administered by the court. As part of that process orders have been made requiring any person who claims an interest in the fund to bring proceedings to substantiate their claim. ZMB and Young Turks are two such claimants. To put ZMB and Young Turks' application into its proper context it is appropriate to explain how they came to be involved in the scheme. Young Turks and GDK Financial Solutions Pty Ltd entered into a joint venture to establish WRVM to purchase and develop the Mews land as trustee for Young Turks and GDK. WRVM and The Mews Village Nominees Pty Ltd (MVN) entered into a marketing, management and profit share agreement. WRVM sold the Mews land to MVN and lent it money to complete the purchase. WRVM (and hence Young Turks and GDK) was never paid the deposit, or the balance of the purchase price, by MVN. Thereafter, Young Turks and GDK assigned their right, title and interest in the Mews land to ZMB. Later ZMB also acquired the interest of two investors, Seachange Management Pty Ltd and Francis Street Pty Ltd, in the Mews scheme. 15 Background to the litigation was set out in the reasons for judgment of the Full Federal Court in ZMB Australia Pty Ltd v Warne [2011] FCAFC 65 ("ZMB v Warne (Full Court)") at [9]: On 28 November 2006 on ASIC's application Finkelstein J ordered the Mews Scheme be wound up and Receivers appointed: Re GDK Financial Solutions Pty Ltd (2006) 236 ALR 699. He also ordered that Mews Village Nominees Pty Ltd ("Mews Village") be wound up and he appointed the same persons as liquidators as he had appointed Receivers of the Mews Scheme. Justice Finkelstein made a number of consequential orders for the management of the Receivership. Annexed to the Court's orders was a description of the Mews Scheme which relevantly identified the investors in the Mews Scheme by reference to a partnership agreement and various sub partnership agreements. The precise investors have not yet been identified. The administration has proceeded upon the basis that the precise identification of the investors and their entitlements will occur after the Receivers have got in all the Mews Scheme assets and dealt with all claims against the Mews Scheme. 16 Subsequently, as Finkelstein J described in ASIC v GDK (No 6) at [5]: On 25 September 2007 ZMB and Touma executed a deed by which Touma agreed to purchase ZMB's entitlement in the Mews scheme. "ZMB's entitlement" was defined to "includ[e] any rights, title or interests acquired from the Investors [Seachange Management Pty Ltd and Francis Street Pty Ltd] … and any right to receive a benefit … upon the sale of any asset of the MEWS Scheme". 17 Further background is set out in ZMB v Warne (Full Court) at [10]-[16] as follows: On 19 October 2007 Finkelstein J ordered the winding up of Western Retirement Village Management Pty Ltd ("WRVM") to which he again appointed the same liquidators. The principal asset of the Mews Scheme was the Mews Land of which WRVM remained the registered proprietor. The Mews Land was sold by the Receivers on 6 December 2007 for $25.15 million. The proceeds of sale are held by the Receivers in the Mews Fund awaiting distribution to the investors in the Mews Scheme. The Mews Fund amounts to about $4 million. The appellants were at some stage investors in the Mews Scheme. They claimed to be entitled to participate in the Mews Fund. By interlocutory process filed on 23 April 2009 they brought a proceeding seeking (amongst other relief) a declaration that one or other of them was the sole beneficiary of the rights and entitlements arising from the activities of WRVM in relation to the contracts of sale, vendor mortgage and other related transactions. Another company, Touma Pty Ltd ("Touma"), brought a proceeding on 12 December 2008 claiming that it had acquired the interests of a number of investors in the Mews Scheme. The Receivers because they are also liquidators of Mews Village and WRVM have had conflicting interests from time to time, which means that they could take no part in a consideration of various claims. The Court has provided a machinery to allow an investor to act as a contradictor when it is in the interests of the Mews Scheme to protect the Mews Fund. The respondent was appointed to represent some of the investors in the separate proceedings brought by the appellants and Touma. As events transpired, Touma and the respondent entered into arrangements to compromise Touma's claims, subject to court approval. That matter is not presently before us. The issue raised by the appellants was tried separately. On 8 July 2010 Gray J found that ZMB had assigned its entire interest in the fund to Touma. On 22 July 2010 the respondent applied by way of notice of motion to dismiss both ZMB's and the Young Turks Pty Ltd's (Young Turks) claims with costs. On 7 October 2010 Finkelstein J summarily dismissed both ZMB's and Young Turks' claim. ZMB's claim was dismissed because of Gray J's decision. Young Turks' claim was dismissed because on 1 October 2003 Young Turks had transferred all its interest in the Mews Scheme to ZMB. Because ZMB could not maintain its action nor could Young Turks. Justice Finkelstein gave the appellants leave to appeal. 18 In February 2011, while the appeal of ZMB and Young Turks from Finkelstein J's decision was pending (and the Full Court had not yet resolved whether Touma had acquired the entirety of ZMB's interests under the deed executed in September 2007, or something less), Touma and Mr Warne sought approval of an earlier version of the present Touma compromise. 19 Although Finkelstein J had initially concluded that he had power to authorise Mr Warne to compromise claims on behalf of the investors he represented, as stated in the seventh defendant's non-confidential submissions dated 11 July 2011: The hearing of the seventh defendant's application stalled when [Finkelstein J] concluded that there had been no power to authorise the seventh defendant to compromise claims on the Mews Scheme (Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 6) [2010] FCA 1092 at [20] to [22])... That conclusion was effectively reversed by the judgment of Ryan [J] (ZMB Australia Pty Ltd & Anor v Peter Hastings Warne [2011] FCA 311…), and subsequently confirmed by the Full Court (in ZMB Australia Pty Ltd & Anor v Peter Hastings Warne [2011] FCAFC 65… ("ZMB Compromise Approval"). Finkelstein J did not raise any issues of substance as to the content or reasonableness of the Touma Compromise; rather, his concern was as to the adequacy of the seventh defendant's power to enter into any compromise agreement so as to bind the class of persons whom he represents. Accordingly, the application by the seventh defendant has now been revived for final determination by the new docket judge. The seventh defendant and Touma have reached a further revised compromise ("revised Touma Compromise") which is reflected in the Revised Deed of Settlement that refines the settlement initially reached… having regard to the passage of time and the reasons for judgment of the Full Court in the ZMB Approval. 20 Although the deed of settlement is confidential, its context and principal elements were described in the seventh defendant's non-confidential submissions as follows: 9. … There are several elements to the revised Touma Compromise: a. compromise of the Touma ZMB Claim, by which Touma's claim as assignee of the ZMB Young Turks Claim on the whole of the Mews Fund will be compromised by payment of $50.000 (see clause 5. Annexure A, para 1(b) of Old Deed and 16 March 2010 Deed; in the Revised Deed only one global payment of $225,000 will be made: see Annexure A, para 1); b. compromise of the Touma Investment Claim, whereby Touma's claim for recognition as ultimate assignee of Seachange Management Pty Limited's investment contribution of $600,000 to the Mews Scheme will be compromised by payment of $175.000 (see recital E; clause 1 and 5 and Annexure A, para 1(a) of Old Deed and 16 March 2010 Deed; pursuant to the Revised Deed only one global payment of $225,000 will be made: see Annexure A, para 1); c. an agreed non-disturbance of the Touma Recommended Claims, being those investor claims on the Mews Fund previously recommended by the Mews Receivers for Court approval, comprising the investor interests acquired by Touma of Paul Keen ($200,000), Bronak Pty Ltd ($50,000); Embridge Trial Pty Ltd ($125,000) and Francis Street Pty Ltd ($100,000) (see clause 4 of Deed); d. payment of Touma's party-party costs in the amount agreed on 23 June 2011 of $65,360 (clause 5, Annexure A, para 1(c)); e. payment of any stamp duty liable on the Touma Purchase Deed to a limit of $27,000 (clause 5, Annexure A, para 1(d)); f. mutual releases (clause 3). 21 The above contemplates payments totalling $225,000, together with amounts for costs and possibly for stamp duty, from the Mews fund, which was estimated by the Mews receivers to be about $3.96 million as at 5 May 2011 (having been reduced from about $4.5 million as at February 2010 by the continuing costs of the winding up and litigation). The deed of settlement also contemplates non-disturbance of Touma's investor claims which have already been recommended, and mutual releases. Relevant principles 22 In ZMB Australia Pty Ltd v Warne [2011] FCA 311 ("ZMB v Warne"), Ryan J held that the court had an implied power to approve a compromise so that it was binding on members of a class represented by a respondent in the position of the seventh defendant. Ryan J considered that the power could be implied on a number of independent bases, including O 6, r 13(4) and (6) of the Federal Court Rules, s 601EE(2) of the Act (which had been expansively construed) and s 37P(2) and (3) of the Federal Court Act as amended and as widely construed in accordance with s 37M of the Federal Court Act. 23 Ryan J's views were endorsed by the Full Court in ZMB v Warne (Full Court). The Full Court at [25] to [27] recognised that the sources of power identified by Ryan J did not themselves require the court to approve a settlement by a representative such as the seventh defendant. In ZMB v Warne, the court's approval was necessary because Ryan J so ordered when he appointed the seventh defendant to represent the investors in the Mews Scheme. 24 The Full Court accepted that the principles relevant to the application of s 33V of the Federal Court Act in representative proceedings provided guidance for the approval of a compromise reached by a defendant appointed to represent a class of persons having the same or similar interest pursuant to O 6 r 13 of the Federal Court Rules. 25 The Full Court stated at [29] to [32]: This court has repeatedly stated in applications under s 33V that the task of a court in order to determine whether a settlement ought to be approved is to determine whether the proposed settlement is "fair and reasonable": Pharm-A-Care Laboratories Pty Ltd v Commonwealth (No 6) [2011] FCA 277. This court would approve the compromise if it thought that the compromise was fair and reasonable and in the best interests of the investors that the Respondent represents. The court will have regard to a number of factors in determining that issue; the prospects of the parties success in this case on the appeal; the further costs occasioned by the appeal any further proceedings including the costs occasioned by these proceedings if the appeal were successful; any further delay in the winding up if the proceedings continue; the terms of the compromise; the attitude of the respective interested parties; and the financial effect of the settlement on the persons who are represented. The court would ordinarily require that the party seeking the court's approval provide counsel's opinion as to why the proposed compromise is fair and reasonable and in the investor's best interests. The court would need evidence that the compromise was as a result of arms length negotiations and arrived at with the assistance of solicitors and barristers who had significant experience and expertise to give advice on the issues on the appeal. The court would need to be satisfied that the investors' interests have been preferred to the lawyer's interests. The court would also need to be sure that the investors' interests have been treated equally and especially that the representative's interests have not been preferred. 26 The Full Court also recognised that while ordinarily members of the represented group should receive notice prior to their representatives entering the settlement, in some circumstances, as in the case before them, such notice was unnecessary to the approval of the compromise. The Full Court stated at [40] to [42]: In doing so we have not overlooked the fact that in this case no notice has been given to the investors of the kind which is required under s 33X(4) of the Federal Court Act. Although s 33X has no application because it only applies to representative proceedings ordinarily the court would expect that the members of the group who are represented would be given notice prior to their representative entering into a deed of settlement. However in this case there are two reasons why we think as Counsel has submitted it is appropriate to make the orders notwithstanding notice has not been given. First because as we have explained earlier the identity of all the investors has not yet been finally ascertained. Secondly and more importantly the compromise agreement does not diminish the fund which is available for the investors but seeks to preserve it. We are therefore of the opinion that this is not a case where approval cannot be given because notice has not been given to the members of the group. DISCUSSION Whether compromise fair and reasonable or justifiable commercial decision 27 In the present case, while the seventh defendant submitted that the compromise was fair and reasonable and in the best interests of the investors, the written submissions filed and served on behalf of Touma in support of the application for approval characterised the compromise as "a legitimate commercial decision", thus appearing to invoke the principles relevant to approval of a liquidator's entry into a compromise pursuant to s 477(2A) of the Act or of an agreement which could operate for more than three months pursuant to s 477(2B) of the Act. In those contexts, courts typically have regard to the interests of creditors and, where appropriate, contributories. As Giles J stated in Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-86, "the court pays regard to the commercial judgment of the liquidator", and while not rubber stamping the liquidator's proposal, "generally will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct". 28 Giles J recognised at 86 that the liquidator would be expected to obtain appropriate advice as to the nature and value of the claims, but that, as commercial considerations were characteristically significant in determining whether a compromise were in the best interests of creditors, the attitudes of creditors acting on sufficient information and honestly was important. That was because they were, as Lindley LJ recognised in Re English Scottish & Australian Chartered Bank [1893] 3 Ch 385 at 409, "much better judges of what is to their commercial advantage than the court can be". 29 In the present case, counsel for the seventh defendant acknowledged that some elements of the proposed compromise, if viewed separately, might, although compromised by receivers, be analogous to a liquidator's compromise, subject to various qualifications and reservations arising from the complex nature of the ZMB claim assigned to Touma, which comprised many different, shifting and uncertain aspects. 30 Ultimately, it was, in my opinion, unnecessary to determine whether any aspects of the compromise could or should be separately extracted and assessed in accordance with a different test applicable to a liquidator's compromise, rather than whether the compromise as a whole was fair and reasonable and in the best interests of the represented investors, because in the circumstance of this case, neither approach would lead to a different outcome. 31 I was satisfied that, given the terms of the compromise and its financial effects; the confidential opinions of counsel; the assessment of prospects of success and risks posed by the various claims; the costs, potential delays and uncertainties of further litigation which the compromise averted; and other circumstances referred to below, the compromise was fair and reasonable and in the best interests of the persons represented. Further, there was no indication of bad faith, error of law or principle, or other grounds to doubt the Mews receivers' commercial judgment in favour of the compromise. 32 As counsel for the seventh defendant submitted: Compromise of the ZMB Young Turks Claim is the most significant aspect of the Touma Compromise, for the reason that, if successful, the Touma ZMB Claim would exhaust the entirety of the Mews Fund to the exclusion of every investor. The assessment of the risk associated with the Touma ZMB Claim remains unchanged, that is, it poses a substantial and real risk to Investors receiving any return from the winding up of the Mews Scheme. The Revised Deed brings the position into line with the releases obtained in relation to the ZMB Young Turks Claim in respect of the scheme companies, WRVM and Mews Village Nominees, of which ZMB and Young Turks (and their predecessors, GDK Financial Solutions Pty Lid, now also in liquidation) were shareholders. Touma will be restricted to its remaining investor claims (the Touma Recommended Claims described in clause 4) in participating in any uplift in the Mews Fund as may result from any further proceedings by the Mews Receivers. The finality engendered by approval of the Touma Compromise will mean that there are no further adverse claims on the Mews Fund. The Court will then be able to: a. finally determine the respective investor interests, and b. order a partial distribution of the monies to investors (leaving a reserve fund to meet the anticipated costs of any separate proceedings). 33 Further, other relevant criteria identified by the Full Court in ZMB v Warne (Full Court) were satisfied in that: (a) the court was provided with a detailed and cogent opinion of counsel setting out why counsel concluded that the proposed compromise was fair and reasonable and in the investors' best interests; and (b) the evidence indicated that: (i) the compromise was a result of arms' length negotiations and was arrived at with the assistance of solicitors and barristers who had significant experience and expertise to give advice on the relevant issues; (ii) the investors' interests had been preferred to the lawyers' interests; and (iii) the investors' interests had been treated equally and the representative's interests had not been preferred. 34 As the seventh defendant submitted, no aspect of the compromise provided for any special payment to, or conferral of advantage upon, either the seventh defendant himself, or his lawyers. Notice to investors 35 In ZMB v Warne (Full Court), the Full Court dispensed with the requirement (which would usually apply) to notify the investors of the application because the compromise involved no payments which would diminish the fund (but rather sought to preserve it) and the investors were not precisely identified. 36 The Full Court considered the fact that there would be no payments from the fund to be the more important justification for dispensing with notice. 37 At the date of the present application, the identity of the investors represented by the seventh defendant had still not yet been finally ascertained. In contrast to the compromise approved by the Full Court in ZMB v Warne (Full Court), however, the present compromise agreement involved the payment of moneys from the Mews fund. Touma submitted that it sufficed, in dispensing with notice, that the compromise sought to preserve the Mews fund, particularly by eliminating the risk of its total depletion in satisfaction of the Touma and ZMB claims, and by eliminating the Touma investment claim, including its potential to share in any increase to the Mews fund. 38 The Full Court in ZMB v Warne (Full Court) did not, in my view, seek exhaustively to define the circumstances which might eliminate the need to give notice to the investors on an application to approve a compromise by a representative such as the seventh defendant. Rather, in my opinion, it recognised that, in some circumstances, the usual need for notice would not apply, and the factors it identified in that case were illustrative, rather than prescriptive. 39 In the present case, Simon Dollard, the partner with the care and conduct of the proceeding on behalf of the seventh defendant, in his second affidavit, deposed to additional circumstances asserted to render notice unnecessary in this case. 40 Mr Dollard referred to various reports of the receivers, setting out the steps they had taken to identify and contact parties with a claim to the Mews land or assets, including writing to known persons, placing advertisements and attempting telephone contact. 41 Mr Dollard exhibited lists identifying claimants on the Mews Scheme assets from time to time and estimated the costs of notifying those investors who were currently identified at $1,500 to $3,000. 42 Mr Dollard also deposed: … it is not intended that any notice to the Investors would annexe, or refer to the matters dealt with in, Counsels' Confidential Opinions. By reason of the absence of a declaration identifying any particular claimant as a member of the class whom the Seventh Defendant represents, as well as the potential risks associated with any disclosure of the matters set out in paragraphs 38 to 42 of Confidential Exhibit SJD-38, I do not propose to advise the Seventh Defendant to give instructions to provide the information in Counsels' Confidential Opinions, on a 'common interest' basis, to any persons identifying themselves as investors. Accordingly, the recipients of any notice would not be fully informed of all matters relevant to the Court's consideration, and thus the process of notification for the purpose of enabling an objection to be made may be futile. Further, the time that would be taken in the Court determining the standing of any objector would cause further delay in the due administration of the winding up, and in particular, in the taking of any steps to further enlarge the pool for the benefit of the class as a whole. 43 The principles relevant to an order for confidentiality of materials adduced by a liquidator when seeking directions in relation to the commencement, funding, defence or conduct of litigation are well recognised. As Templeman J stated in Re Bell Group Ltd (in liq); Ex parte West Australian Newspapers Ltd [2000] WASC 94 at [9] to [13]: Any person who is appointed by the Court or is subject to the supervision of the Court, such as a trustee or liquidator, is entitled to seek directions from the Court at any time so as to ensure that that person discharges his or her duty in a proper manner. Quite frequently a liquidator or trustee who is involved in litigation, as Mr Totterdell is in that capacity, will apply to the Court for directions as to the manner in which the litigation should be conducted. Such applications may often require the liquidator or trustee to disclose to the Court matters relating to the conduct of the litigation which should not be disclosed to the other party to that litigation. In those circumstances, and for those reasons, what passes between the liquidator or trustee and the Court is confidential. The other party to the litigation is not present. To give another example, a liquidator or trustee may want to obtain the guidance of the court as to whether he should commence litigation, or defend litigation which has been commenced against him. In those circumstances one of the matters to which the Court will frequently have regard is an opinion of counsel as to the merits of the litigation and the liquidator's prospects of success or otherwise. Clearly those matters are confidential between the liquidator and the court. If they were made public, then they might come to the attention of the other party or potential party. This, of course, would not be in the interests of the administration of justice. 44 In HIH Insurance Ltd [2007] NSWSC 498, liquidators submitted that if the evidence adduced in support of their application for directions and other relief in relation to the progress of and steps to be taken in litigation were made available to any of the defendants, it would probably significantly prejudice their ability advantageously to pursue or conclude the claims for the benefit of creditors. Barrett J stated at [4] to [6]: Again, as there, the liquidators accept that there is a strong and clear public interest in open justice and that except in exceptional circumstances, proceedings should take place in public. Today, as on the previous occasions, there are two other public interests competing with the public interest in open justice. The first is the public interest in the due and beneficial administration of the estates of insolvent companies by liquidators appointed by and answerable to the court, that administration being for the benefit of creditors. I previously observed that the public interest in the due administration of the insolvent estates of the HIH companies is particularly pronounced when there are many thousands of creditors from all walks of life. The second competing or countervailing public interest arises from the fact that applications before me relate to the pursuit of litigation. There is a clear public interest in the due administration of justice, in that in litigation in the normal course an ordinary litigant would keep close to the chest, as it were, the matters that the liquidators, because of their position, see fit to bring to court. The liquidators, because of their position, should not be set aside from other litigants and be placed to a disadvantage when, as I say, they are acting for the benefit of many thousands of creditors whose interests are very much to the fore. 45 In the present case, given the content of the confidential opinions of counsel, their dissemination to the entire body of persons currently identified as investors would be contrary to the interests of the administration of justice, as the opinions could come to the attention of potential defendants and otherwise prejudice the advantageous pursuit of claims for the benefit of the investors. Nevertheless, in the absence of access to the relevant information, investors could neither properly assess the merits or otherwise of the compromise, nor formulate cogent and informed objection. 46 In such circumstances, it would be futile or ineffective to notify those investors who were currently identified of the application for approval of the compromise, as particular investors' standing may be doubtful, the investors could not be fully informed, and objections based on only part of the relevant information might occasion fruitless cost and delay. Conclusion 47 In all the circumstances, where the identity of the investors was not, in any event, finally ascertained; the total amount to be paid out represented only a modest proportion of the existing fund, yet averted an appreciable risk of its total depletion; the relevant compromise was otherwise fair and reasonable on the basis set out in the confidential opinions of counsel; the confidential opinions would not be made available to investors; and the other criteria for approval identified by the Full Court in ZMB v Warne (Full Court) were satisfied, I considered that the absence of notification to investors did not constitute an impediment to approval of the compromise. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-Streeton. Associate: Dated: 21 July 2011