FEDERAL COURT OF AUSTRALIA Wepar Nominees Pty Ltd v Schofield (No 2) [2014] FCA 225 Citation: Wepar Nominees Pty Ltd v Schofield (No 2) [2014] FCA 225 Parties: WEPAR NOMINEES PTY LTD ACN 008 108 709 and IAN MCLEOD SMITH v DONALD WAYNE SCHOFIELD, ROGER CLARKE and JAYNE ELIZABETH STEELE File number: SAD 234 of 2012 Judge: BESANKO J Date of judgment: 14 March 2014 Catchwords: PRACTICE AND PROCEDURE – representative proceeding – application for Court approval of settlement of representative proceeding under s 33V of the Federal Court Act 1976 (Cth) – whether notice of application given to group members – whether proposed settlement fair and reasonable – whether distribution of proposed settlement sum fair and reasonable – whether proposed settlement in the interests of the group members as well as interests of plaintiffs and defendants – where application not opposed by defendants – where closed group of 262 group members – where approximately 95% of group members in favour of settlement and no group members opposed settlement – where distribution to be made to litigation funder. Held: Settlement approved. Legislation: Australian Securities and Investments Commission Act 2001 (Cth) s 12DA Corporations Act 2001 (Cth) ss 710, 728, 729, 731, 733, 1041H, 1041I, 1317S, Part 5.3A Federal Court of Australia Act 1976 (Cth) ss 33V, 33X, 33ZB, 33ZF, Part IVA Cases cited: Australian Securities and Investments Commission v Richards [2013] FCAFC 89 Courtney v Medtel Pty Limited (No 5) [2004] FCA 1406 Ingot Capital Investments Pty Ltd and Others v Macquarie Equity Capital Markets Ltd and Others (2008) 73 NSWLR 653 Lopez v Star World Enterprises Pty Ltd [1999] FCA 104 P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 4) [2010] FCA 102 Richards v Macquarie Bank Limited (No 4) [2013] FCA 438 Wepar Nominees Pty Ltd v Schofield [2013] FCA 920 Williams and Another v FAI Home Security Pty Ltd and Another (No 4) (2000) 180 ALR 459 Wingecarribee Shire Council v Lehman Brothers Australia Ltd (In Liq) (No 9) [2013] FCA 1350 Date of hearing: 6 February 2014 Place: Adelaide Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 49 Counsel for the Plaintiffs: Mr F Brohier Solicitor for the Plaintiffs: Piper Alderman Counsel for the Defendants: Mr M Steele Solicitor for the First Defendant: Bartley Cohen Solicitor for the Second Defendant: McCullough Robertson Solicitor for the Third Defendant: Johnson Winter & Slattery IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 234 of 2012 BETWEEN: WEPAR NOMINEES PTY LTD ACN 008 108 709 First Plaintiff IAN MCLEOD SMITH Second Plaintiff AND: DONALD WAYNE SCHOFIELD First Defendant ROGER CLARKE Second Defendant JAYNE ELIZABETH STEELE Third Defendant JUDGE: BESANKO J DATE OF ORDER: 14 March 2014 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. Pursuant to ss 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth) ("the Act"), the settlement of the proceeding (SAD 234 of 2012) between the plaintiffs and the defendants be approved in accordance with the terms set out in the Deed of Settlement executed by the parties to the proceedings and AIG Australia on 19 December 2013, being Exhibit LML-1 to the Affidavit of Lachlan McAllister Lamont sworn on 21 January 2014 ("Affidavit"). 2. Pursuant to ss 33V and 33ZF of the Act, the Court authorises the plaintiffs nunc pro tunc on behalf of all Group Members as defined in paragraph 1 of the Amended Statement of Claim filed in the proceeding ("Group Members") to enter into and give effect to the Deed of Settlement and the transactions contemplated thereby for and on behalf of those Group Members. 3. Pursuant to ss 33V and 33ZF of the Act: (a) The plaintiffs, by their solicitors, Piper Alderman, be at liberty to distribute the Settlement Sum received under the Settlement Deed in accordance with : (i) the Litigation Funding and Management Agreement entered into by the Group Members and LCM Litigation Fund Pty Ltd ("LCM"), being Exhibit LML-6 to the Affidavit; (ii) the Client Agreement between the Group Members and Piper Alderman, being Exhibit LML-5 to the Affidavit; (iii) the Litigation Funding Agreement, between the plaintiffs and LCM, being Exhibit LML-10 to the Affidavit; and (iv) the Retainer Agreement between the plaintiffs and Piper Alderman, being Exhibit LML-11 to the Affidavit. (b) A sum of money no greater than $1,035,000 be approved as the costs for the plaintiffs to pursue and settle the proceeding, including all costs involved in the distribution of the settlement sum; (c) The remainder of the settlement sum (sum after costs and fees are taken out pursuant to the agreements referred to in paragraph 3(a) above) be distributed in accordance with the scheme of distribution set out in Exhibit LML-27 to the Affidavit of Lachlan McAllister Lamont sworn on 4 February 2014 and filed on 5 February 2014; (d) The confidential affidavit of Brooke Tegan Wilshire sworn on 22 January 2014 and the Exhibits thereto be made confidential and be sealed on the Court file in an envelope marked "Not to be opened except by leave of the Court or a Judge". 4. All costs orders made to date in the proceeding (including orders reserving costs) be vacated. 5. Pursuant to s 33V of the Act, the plaintiffs be at liberty to discontinue the proceeding by filing with the Court a Notice of Discontinuance by consent in the form of the Draft Notice of Discontinuance, being Exhibit LML-21 to the Affidavit. 6. Pursuant to ss 33ZB and 33ZF of the Act, the persons affected and bound by orders 1 to 5 are the plaintiffs, the defendants and the Group Members. 7. There be no order as to costs of the proceedings (including any cross-claims). Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 234 of 2012 BETWEEN: WEPAR NOMINEES PTY LTD ACN 008 108 709 First Plaintiff IAN MCLEOD SMITH Second Plaintiff AND: DONALD WAYNE SCHOFIELD First Defendant ROGER CLARKE Second Defendant JAYNE ELIZABETH STEELE Third Defendant JUDGE: BESANKO J DATE: 14 march 2014 PLACE: ADELAIDE REASONS FOR JUDGMENT Introduction 1 This proceeding is a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) ("the Act"). The plaintiffs, Wepar Nominees Pty Ltd and Mr Felice Ferraro, represent a group of 262 individuals, including themselves ("the Group Members"), in a total of 283 claims against the defendants. The defendants, Mr Donald Wayne Schofield, Mr Roger Clarke and Ms Jayne Elizabeth Steele, were directors of White Sands Petroleum Limited ("White Sands") at the time of the events giving rise to the plaintiffs' claims on behalf of the Group Members. Mr Clarke and Ms Steele also had other roles, which are referred to in the pleadings (see [24] below). The plaintiffs' claims relate to an investment or investments made by each of the Group Members in White Sands, either by accepting an offer in the initial public offering ("the IPO") by White Sands or by subsequent on-market trading. The claims made against each of the defendants are based on their involvement in representations and disclosures (or non-disclosures) made in the prospectus issued for the purposes of the IPO dated 29 November 2005 ("the Prospectus") and in subsequent announcements made to the Australian Securities Exchange Ltd ("ASX"). The plaintiffs, on behalf of the Group Members, allege that the representations and disclosures (or non-disclosures) were, among other things, misleading or deceptive and in breach of the Corporations Act 2001 (Cth) ("the Corporations Act") and the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). 2 On 19 December 2013, following a mediation held on 26 November 2013, the parties and the defendants' insurer, AIG Australia Ltd, entered into a deed of settlement in relation to this proceeding ("the Settlement Agreement"). The plaintiffs entered into the Settlement Agreement on behalf of the Group Members. Pursuant to s 33V of the Act, a representative proceeding may not be settled or discontinued without the approval of the Court. The Settlement Agreement is conditional on that approval being given. 3 The plaintiffs made an application for approval by interlocutory application dated 22 January 2014. In that application they sought the following orders: 1. Pursuant to sections 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth) (Act) the settlement of the proceedings SAD 234/12 between the plaintiffs and the defendants (Proceeding) be approved in accordance with the terms set out in the Deed of Settlement executed by the parties to the Proceeding and AIG Australia on 19 December 2013 being Exhibit LML-1 to the Affidavit of Lachlan McAllister Lamont sworn on 21 January 2014 (Affidavit). 2. Pursuant to sections 33V and 33ZF of the Act the Court authorises the plaintiffs nunc pro tunc on behalf of all Group Members as defined in paragraph 1 of the Amended Statement of Claim filed in the Proceedings (Group Members) to enter into and give effect to the Deed of Settlement and the transactions contemplated thereby for and on behalf of those Group Members. 3. Pursuant to sections 33V and 33ZF of the Act: a. The plaintiffs by their solicitors Piper Alderman be at liberty to distribute the settlement sum received under the Settlement Deed in accordance with the: i. Litigation Funding and Management Agreement entered into by the Group Members and LCM Litigation Fund Pty Ltd (LCM) being exhibit LML-6 to the Affidavit and; ii. The Client Agreement between the Group Members and Piper Alderman being Exhibit LML-5 to the Affidavit; iii. The Litigation Funding Agreement between the plaintiffs and LCM being Exhibit LML-10 to the Affidavit; and iv. The Retainer Agreement between the plaintiffs and Piper Alderman being Exhibit LML-11 to the Affidavits. b. The sum of $1,051,000 be approved as fair and reasonable costs for the plaintiffs' to pursue and settle the Proceeding, including all costs involved in the distribution of the settlement funds; c. The remainder of the settlement (sum after costs and fees are taken out pursuant to the agreements referred to in paragraph 3a above) be distributed in accordance with the scheme of distribution put forward in the Affidavit; d. The confidential affidavit of Brooke Tegan Willshire sworn on 22 January 2014 and the Exhibits thereto be made confidential and be sealed on the Court file in an envelope marked "Not to be opened except by leave of the Court or a Judge". 4. All costs orders made to date in the Proceeding (including orders reserving costs) be vacated. 5. Pursuant to section 33V of the Act the plaintiffs be at liberty to discontinue the Proceeding by filing with the Court a notice of discontinuance by consent in the form of the draft Notice of Discontinuance being Exhibit LML-21 to the Affidavit. 6. Pursuant to section 33ZB and section 33ZF of the Act, the persons affected and bound by orders 1 to 5 are the plaintiffs, the defendants and the Group Members. 7. There be no order as to costs of the proceedings (including any-cross claims). 4 At the hearing, the plaintiffs proposed an amended form of order 3(b) to read: A sum of money no greater than $1,035,000 be approved as fair and reasonable costs for the plaintiffs' to pursue and settle the Proceeding, including all costs involved in the distribution of the settlement funds; 5 The defendants did not oppose the making of these orders. 6 Subject to one alteration, I will make the orders sought. Section 33x – notice requirements 7 Section 33X(4) of the Act provides that an application for approval of a settlement under s 33V must not be determined unless notice of that application has been given to group members, unless the Court is satisfied that it is just to do so. 8 On 20 December 2013, I made the following orders: 1. Pursuant to sections 33X(4) and 33Y of the Federal Court of Australia Act 1976 (Cth), the form and content of the notice required to be given to group members of the proposed settlement (Notice) be in the form of the draft Notice annexed to the Affidavit of Lachlan McAllister Lamont sworn 19 December 2013 and marked Exhibit "LML2". 2. The Notice be given to each group member by the preferred means of contact nominated by them to the plaintiffs' solicitors, Piper Alderman, by Piper Alderman within 14 days of this order. 3. Piper Alderman file and serve an affidavit regarding compliance with order 2 by 22 January 2014. 9 The notice referred to in those orders set out in summary form the details of the plaintiffs' claims and the key provisions of the Settlement Agreement. The notice also provided: If you are in favour of the proposed settlement there is nothing that you need to do at this time … If you wish to do so, you can support the proposed settlement by sending a written expression of support to [the plaintiffs' solicitors] by post or email to the address provided below by no later than 17 January 2014, or by appearing in person or through a legal representative at the hearing on 28 January 2014. … If you wish to object to the proposed settlement, you may send a written notice of your objection (outlining the reasons for your objection) to [the plaintiffs' solicitors] by post or email to the address provided below by no later than 17 January 2014, or by appearing in person or through a legal representative at the hearing on 28 January 2014. 10 On 20 December 2013, the plaintiffs' solicitors caused the notice to be sent to each of the 262 Group Members by letter. Those Group Members with multiple claims against the defendants (21 in total) were sent only one notice. The evidence establishes that, following that notice, the plaintiffs' solicitors received responses, either in writing or verbally, from 249 of the 262 Group Members, representing approximately 95% of the total group. Thirteen Group Members did not respond to the notice. No Group Members sought to appear at the hearing of the plaintiffs' application for approval of the proposed settlement. 11 I am satisfied that the Group Members have been given sufficient notice of this application to satisfy the requirements of s 33X(4) and to allow for the determination of the present application. SECTION 33V – RELEVANT PRINCIPLES 12 Section 33V of the Act is in the following terms: 33V Settlement and discontinuance–representative proceeding (1) A representative proceeding may not be settled or discontinued without the approval of the Court. (2) If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court. 13 Whilst the Act does not prescribe the test for the Court to apply in determining whether to grant an approval under s 33V, the authorities establish that the task of the Court in considering such an application is to assess whether the proposed settlement or compromise is a fair and reasonable compromise of the claims on behalf of the Group Members (Lopez v Star World Enterprises Pty Ltd [1999] FCA 104, at [15]). In Williams and Another v FAI Home Security Pty Ltd and Another (No 4) (2000) 180 ALR 459 ("Williams"), Goldberg J stated (at [19]): Ordinarily the task of a court upon an application such as this, is to determine whether the proposed settlement or compromise is fair and reasonable, having regard to the claims made on behalf of the group members who will be bound by the settlement. Ordinarily in such circumstances the Court will take into account the amount offered to each group member, the prospects of success in the proceeding, the likelihood of the group members obtaining judgment for an amount significantly in excess of the settlement offer, the terms of any advice received from counsel and from any independent expert in relation to the issues which arise in the proceeding, the likely duration and cost of the proceeding if continued to judgment, and the attitude of the group members to the settlement. 14 These principles are reflected in Practice Note CM 17, which provides guidance with respect to the matters upon which the parties should address the Court in support of an application under s 33V. In particular, the Practice Note states: 11. Court approval of settlement 11.1 When applying for Court approval of a settlement, the parties will usually need to persuade the Court that: (a) the proposed settlement is fair and reasonable having regard to the claims made on behalf of the group members who will be bound by the settlement; and (b) the proposed settlement has been undertaken in the interests of group members, as well as those of the applicant, and not just in the interests of the applicant and the respondent/s. The Practice Note also provides a non-exhaustive list of circumstances relevant to the compromise that parties should address. That list largely reflects the matters identified by Goldberg J in Williams, at [19], and other authorities which have considered the matter. 15 There are two limbs to the inquiry before the Court on an application such as the present, namely, whether the overall settlement is fair and reasonable and whether the internal distribution of the settlement sum is fair and reasonable (see Richards v Macquarie Bank Limited (No 4) [2013] FCA 438 at [28]; Australian Securities and Investments Commission v Richards [2013] FCAFC 89). 16 The plaintiffs referred to the reasons of Finkelstein J in P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 4) [2010] FCA 1029 ("Brookfield"). Whilst the determination of a particular application will depend on the particular circumstances surrounding the compromise which is the subject of the application, the reasons of Finkelstein J provide assistance in the determination of the present application. His Honour said that there were six factors which led him to conclude that the settlement he was considering in Brookfield was fair and reasonable (at [18]-[24]): (1) the terms of the settlement were agreed in arm's length negotiations; (2) when the settlement was agreed in principle, the case had reached the stage where, as a result of detailed pleadings and the provision of lengthy particulars and discovery, the plaintiffs' solicitors and their counsel had sufficient information to assess the merits of the class claims; (3) the solicitors recommending the settlement were specialists in class action litigation; (4) the class members would recover a significant sum, being 62 cents in the dollar of their solicitor's estimate of the reasonable value of their prospective claims; (5) no class member opposed the settlement; and (6) the risks of the litigation in that case suggested that the settlement was appropriate. 17 In relation to the sixth factor, Finkelstein J said (at [24]): … it is impossible to ignore the vagaries of litigation and the risk of failure in a case such as this, as well as the expense that will be incurred by protracted litigation and the likely appeals that will follow when novel points of law are at issue, whichever way the trial goes. In this type of litigation the parties are well served by a "bird in the hand" approach. CLAIMS of the Group Members 18 I summarised the plaintiffs' allegations on behalf of the Group Members in reasons I delivered in relation to an earlier application in this proceeding (Wepar Nominees Pty Ltd v Schofield [2013] FCA 920). It is convenient for me to repeat with appropriate alterations what I said in those reasons. 19 White Sands was a company incorporated under the Corporations Act and the plaintiffs allege that its shares were admitted to quotation on the ASX on or about 6 January 2006. The plaintiffs allege that, at the time of the listing, White Sands proposed to carry out a venture that involved the following activities: (1) the carrying on of the business of an oil and gas exploration and production company by owning and operating a drilling rig; (2) the undertaking of a drilling program, which involved drilling 15 wells in 14 months; and (3) partially carrying the drilling costs to earn equity interests in the drilled tenements. 20 The plaintiffs allege that White Sands offered to issue up to 40 million shares at an issue price of $0.20 per share ("the Offer") pursuant to the Prospectus. They allege that the Prospectus was fully underwritten by ABN Amro Morgans Corporate Limited and that the lawyers to the Offer were Nicol Robinson Halletts. They allege that the Prospectus stated that it was issued with the consent and authority of the directors of White Sands. 21 The plaintiffs allege that the shares of White Sands were placed in a trading halt by the ASX on 21 September 2006 and were suspended from official quotation from 25 September 2006. They allege that, on 20 December 2006, the directors of White Sands resolved that the company was insolvent, or likely to become insolvent, and administrators were appointed on that date. A deed of company arrangement within Part 5.3A of the Corporations Act was executed on 27 June 2007, and the deed provided for a scheme whereby shares in White Sands were consolidated on a two for three basis from 73,772,500 shares to 49,181,667 shares and for White Sands to change its name. The consolidation of shares became effective on 31 August 2007. On 19 December 2007, the deed of company arrangement was varied to provide for a recapitalisation scheme, which was subsequently implemented. The plaintiffs allege that, as a result of the above, their investments in White Sands are now effectively worthless. 22 As I have said, the proceeding was commenced by the first and then-second plaintiff as a representative proceeding under Part IVA of the Act. The plaintiffs represent both themselves and the Group Members, who are defined in the plaintiffs' Amended Statement of Claim to be persons who: (1) acquired shared in White Sands between 6 December 2005 and 21 September 2006; (2) suffered loss and damage because of the conduct pleaded in the Amended Statement of Claim; and (3) have entered into a Litigation Funding and Management Agreement with LCM Litigation Fund Pty Ltd ("LCM"). 23 The plaintiffs' Amended Statement of Claim divides the Group Members into two sub-groups, being those who acquired shares in White Sands as a result of the Prospectus issued by it for the purposes of the IPO and including the first plaintiff ("the IPO Group Members"), on the one hand, and those who acquired shares in White Sands on-market and including the second plaintiff ("the On-Market Group Members"), on the other. On 11 September 2013, the plaintiffs' solicitor advised the Court that Mr Smith (then the representative of the On-Market Group Members) had passed away on 6 September 2013. On 16 October 2013, Ms Felice Ferraro was appointed from amongst the Group Members to represent the On-Market Group Members, in the place of the late Mr Smith. 24 The plaintiffs' allegations about the status and positions occupied by the defendants are largely admitted. The first defendant admits that he was the managing director of White Sands between 9 August 2004 and 2 July 2008. The second defendant admits that he was the chairman of White Sands and the chairman of the Board of Advice of ABN Amro Morgans Corporate Limited, which was the lead manager and underwriter of the Prospectus. The third defendant admits that she was an employed partner of Nicol Robinson Halletts between 1 July 2005 and 30 June 2006, and an equity partner thereafter, which firm were the lawyers to the Offer and to White Sands. She admits that she was a director of White Sands from 30 October 2005 until 21 September 2006. 25 In summary, the plaintiffs, on behalf of the Group Members, allege that: (1) various representations made by the defendants in the Prospectus (it is not necessary for present purposes to set out the details of the representations) were misleading or deceptive statements and, as a result, there were contraventions of s 728 of the Corporations Act. Furthermore, they were in breach of a fiduciary duty owed by the defendants to the first plaintiff and the Group Members; (2) the Prospectus did not contain the information it was required to contain by reason of s 710 of the Corporations Act; (3) there was a failure to disclose matters at or about 6 January 2006, which constituted misleading or deceptive conduct or conduct likely to mislead or deceive contrary to s 1041H of the Corporations Act and s 12DA(1) of the ASIC Act; (4) there were announcements made to the ASX on 10 January 2006, 17 February 2006, 20 March 2006, 28 April 2006, 27 June 2006, 31 July 2006 and 14 August 2006 respectively at the direction of, or with the knowledge and authority of, each of the defendants, or both, which were misleading and deceptive or likely to mislead and deceive in contravention of s 1041H of the Corporations Act and s 12DA(1) of the ASIC Act; and (5) there were representations by silence, which were misleading and deceptive or likely to mislead or deceive in contravention of s 1041H of the Corporations Act and s 12DA(1) of the ASIC Act after 11 April 2006 and 11 May 2006 respectively. 26 The first plaintiff claims that the IPO Group Members purchased shares in White Sands pursuant to the Offer. It alleges that those Group Members would not have purchased the shares but for the misleading or deceptive conduct, representations or material omissions. The first plaintiff alleges that it was reasonable for it and the IPO Group Members to retain their shares in White Sands until the trading halt (21 September 2006), that they could not then sell their shares until the relisting (7 July 2008), and that the value of the shares was destroyed by the failure of White Sands and the venture and by the effect of the recapitalisation scheme. The second plaintiff claims that the On-Market Group Members' loss and damage flowed from the market contraventions or the representations or the announcements. He alleges that at, the time the shares were relisted, the value of the shares was destroyed by the failure of White Sands and the venture and by the effect of the recapitalisation scheme. 27 In response to these allegations, the defendants allege (in summary form) the following: (1) they deny that the Prospectus conveyed the representations alleged by the plaintiffs and, in any event, they deny that the representations were misleading or deceptive; (2) they deny that the ASX Announcements conveyed the representations alleged by the plaintiffs and, in any event, they deny that the representations were misleading or deceptive, and further, each of the defendants say that the announcements were made by White Sands and not the defendants. The second and third defendants also allege that they were entitled to rely and did rely on the first defendant's experience and expertise in making the announcements; (3) they deny that they were obliged to make any announcements to the ASX that the plaintiffs allege they were obliged to make; (4) they deny that they made any representations by silence; (5) insofar as the plaintiffs claim the Prospectus and the ASX Announcements conveyed statements as to the future, they deny that such statements were made and, in any event, they allege that there were reasonable grounds for making those statements; (6) they deny that the Group Members suffered any loss or damage; (7) they plead that they are not liable under s 729 of the Corporations Act for any breach of s 728 because they fall within the terms of each of s 731(1) and s 733(1); (8) they plead various limitation defences and delay defences; (9) they plead, further and in the alternative: (a) that they should be excused from liability under s 1317S of the Corporations Act; (b) that the Group Members were guilty of contributory negligence; and (c) that each of the other defendants, and White Sands and Mr Ronald Anderson, were concurrent wrongdoers and the proportionate liability provisions apply. Mr Anderson is alleged to have been the company secretary of White Sands from 14 October 2005 to 1 April 2008. WHETHER the proposed settlement IS FAIR AND REASONABLE? 28 The proposed settlement as between the plaintiffs and the defendants involves a payment of $3,250,000 by or on behalf of the defendants to the plaintiffs. That sum is inclusive of interest and costs. 29 The claims of the Group Members, should they be completely successful, are as follows: IPO Claimants $1,783,944.70 On-Market Claimants $1,450,808.92 Estimated On-Market Claimants $2,662.00 Total $3,237,415.62 Interest (as at the date of settlement) $2,026,156.52 Party and Party Costs incurred at date of settlement being 60% of approximately $945,000 $567,000.00 Total Claim $5,830,572.14 30 The proposed settlement involves a settlement sum which represents approximately 56% of the claims of the Group Members were they to be completely successful. 31 The proposed distribution of the settlement sum is as follows: (1) Legal costs and disbursements of the plaintiffs' solicitors $1,035,000 (2) The funders fee to be paid to LCM, being 33.3% of the settlement sum $1,082,250 (3) The balance to be paid to the Group Members $1,132,750 approximately 32 The proposed distribution means that the Group Members will receive approximately 35% of the settlement sum. In terms of a return of their flawed investments in White Sands, they will receive approximately $0.35 in the dollar. 33 I turn now to address the relevant matters and it is convenient to do so by reference to the matters listed in paragraph 11.2 of Practice Note CM 17. 34 The proceeding is complex involving, as it does, complex issues of fact and law. It is listed for hearing for three weeks and there is no reason to think that it would not occupy a period of that order. 35 The reaction of the Group Members to the proposed settlement is overwhelmingly in favour of the settlement. All who have responded to the notice of the proposed settlement are in favour of it and that represents approximately 95% of the Group Members. The group is a closed one in that it is confined to persons who have entered into funding agreements with LCM and who are clients of the plaintiffs' solicitors. The problems or difficulties were it otherwise do not arise (Williams at [21] and following per Goldberg J; Wingecarribee Shire Council v Lehman Brothers Australia Ltd (In Liq) (No 9) [2013] FCA 1350 ("Wingecarribee") at [58]-[59] per Jacobson J). 36 The stage of the proceeding is that, subject to the plaintiffs' right to file evidence in reply, the proceeding is ready for trial. Relatively speaking, the parties are in a good position to assess their risks in proceeding to trial and the advantages and disadvantages of the proposed settlement. 37 In terms of the risks of establishing liability, I have had regard primarily to the issues which are identified in the pleadings and to counsel's opinion. Counsel's opinion is confidential and it has not been seen by the defendants. I will make an order which ensures that its confidentiality is preserved. In the opinion, counsel expresses the view that the settlement is fair and reasonable and he sets out his reasons for reaching that conclusion. 38 There are varying degrees of risk associated with almost all of the major issues in the case. I will not mention them all because it is not necessary to do so and because I risk disclosing the contents of the confidential opinion. 39 There are risks associated with the following issues: (1) whether the plaintiffs can establish that the representations are misleading or deceptive or likely to mislead or deceive; (2) whether one or more of the defendants can make out the defences in the Corporations Act, and in particular, s 731(1) (the due diligence defence), s 733(1) (reasonable reliance on information provided by others) in relation to the Prospectus, and s 1317S (honest action which ought fairly to be excused in all the circumstances) in relation to on-market purchases. The prospects of success may well vary as between the defendants; (3) contribution and proportionate liability in relation to the on-market purchases. The risk here is that the responsibility of a particular defendant will be reduced because of the responsibility of a non-party for the loss and damage suffered by the plaintiffs; (4) the requirement that the Group Members prove that their loss or damage was caused by the defendants. There is a risk that some of the Group Members may not prove actual reliance. Certainly the exercise could be a costly one. Establishing reliance by reference to the notion of indirect causation is fraught with difficulties and complexities, including the prospect of appeals (Brookfield; Ingot Capital Investments Pty Ltd and Others v Macquarie Equity Capital Markets Ltd and Others (2008) 73 NSWLR 653); and (5) the limitation defence raised by the defendants, which is that there is a six year time limit in relation to the statutory contraventions (ss 729(3) and 1041I(2) of the Corporations Act) and, by analogy, to the equitable claims, and that all of the IPO Group Members, and all but two of the On-Market Group Members, purchased their shares outside the six year time period. The issue is whether the causes of action arose on the purchase of the shares or at some later time. This is a significant issue because, if the plaintiffs are unsuccessful with respect to it, their claims fail. 40 In terms of the risk of establishing loss or damage, the risk in this case seems fairly slight. The loss or damage of those Group Members who have sold their shares can be established without difficulty and the value of the shares is de minimis, thereby alleviating any difficulty in establishing loss or damage for those Groups Members who still retain their shares. 41 In terms of the ability of the defendants to withstand a greater judgment, the defendants themselves have no apparent ability or capacity to do so. The limit of the indemnity under the Directors and Officers Liability Insurance Policy is $10 million. 42 In one way or another, I have already addressed the range of reasonableness of the settlement in light of the best recovery, the range of reasonableness of the settlement in light of the attendant risks of litigation, and counsel's opinion. 43 In considering whether the proposed settlement is fair and reasonable, it is also necessary to consider the proposed arrangements for the distribution of the settlement sum. 44 First, the legal costs and disbursements are $1,035,000. An amount of this order, which is clearly a substantial sum, was referred to in the notices to Group Members and the Group Members were overwhelmingly in favour of the proposed settlement. That is one consideration. Another is that I have evidence from the managing director of LCM about his careful scrutiny of the costs and disbursements of the plaintiffs' solicitors (Wingecarribee at [67]-[70] per Jacobson J). Finally, and importantly, a legal practitioner with expertise in the assessment of costs has carried out the type of exercise with respect to the costs of the plaintiffs' solicitors identified by Sackville J in Courtney v Medtel Pty Limited (No 5) [2004] FCA 1406. That is not an assessment which involves a taxation of costs or even an exhaustive review of the files maintained by the plaintiffs' solicitors. I will not set out all of the expert's conclusions, which are set out in her affidavit. I have read the affidavit carefully and I am satisfied that there is nothing in the plaintiffs' legal costs and disbursements which should lead me to withhold approval of the proposed settlement and the proposed distribution of the settlement sum. 45 Nevertheless, consistent with authority, rather than the order proposed by the plaintiffs, I think that the appropriate order is as follows: (b) A sum of money no greater than $1,035,000 be approved as the costs for the plaintiffs to pursue and settle the proceeding, including all costs involved in the distribution of the settlement sum. 46 Secondly, there is the funder's fee to be paid to LCM of 33.3% of the settlement sum, or $1,082,250. That is paid in return for LCM's promise to bear all legal costs and disbursements, including legal costs and disbursements payable as a result of adverse costs orders. I say that subject to the qualification that the plaintiffs appeared to have paid or become liable to pay an amount by way of premium for insurance against adverse costs orders. The quantum of costs in this case, should the plaintiffs fail, could be very significant in light of the complexity of the case and the fact that each defendant is separately represented. Each Group Member entered into an agreement whereby that member transferred their interest in 33.3% of the proceeds of a successful award or settlement to LCM. That is a commercial arrangement. I think it is reasonable to assume that none of the Group Members, or at least a substantial proportion of them, would have had the resources or the disposition to bring a proceeding without some form of funding arrangement with a third party. Finally, notice was given to Group Members of the proposed distribution of the proposed settlement sum and the response to the settlement from Group Members is overwhelmingly in favour of the proposed settlement. 47 I am satisfied that the proposed settlement is fair and reasonable having regard to the claims made on behalf of the Group Members. WHETHER the proposed settlement is in the interests of group members, as well as those of the applicant, and not just in the interests of the applicant and the respondent/s? 48 I am satisfied that the proposed settlement is in the interests of the Group Members, and that the plaintiffs gain no benefit or avoid no detriment that is not equally shared by the other Group Members. conclusion 49 Subject to the alteration I have identified, I will make the orders sought by the plaintiffs. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate: Dated: 14 March 2014