FEDERAL COURT OF AUSTRALIA Oztech Pty Ltd v Public Trustee of Queensland [2015] FCA 1010 Citation: Oztech Pty Ltd v Public Trustee of Queensland [2015] FCA 1010 Parties: OZTECH PTY LTD v THE PUBLIC TRUSTEE OF QUEENSLAND File number(s): NSD 937 of 2014 Judge(s): YATES J Date of judgment: 14 September 2015 Catchwords: PRACTICE AND PROCEDURE – representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) – applications for approval of notice to be sent to group members – whether opt out notice should be sent to group members – whether separate question should be heard and determined before sending opt out notice to group members Legislation: Federal Court of Australia Act 1976 (Cth) Pt IVA, ss 33J, 33X and 43 Federal Court Rules 2011 r 30.01 Practice Note CM 17 Public Trustee Act 1978 (Qld) s 134 Cases cited: Close Trustees (Switzerland) SA v Vildosola [2008] EWHC 1267 (Ch) Grizonic v Suttor [2011] NSWSC 471 Kation Pty Ltd v Lamru Pty Ltd (2009) 257 ALR 336 Muswellbrook Shire Council v Royal Bank of Scotland NV [2013] FCA 616 National Trustees Executors and Agency Company of Australasia Limited v Barnes (1941) 64 CLR 268 Tucker L, Le Poidevin N and Brightwell J, Lewin on Trusts (19th ed, Sweet & Maxwell, 2014) Date of hearing: 1 September 2015 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 46 Counsel for the Applicant: Mr C Withers with Mr A Hochroth Solicitor for the Applicant: Squire Patton Boggs Counsel for the Respondent: Mr DB O'Sullivan QC with Mr MJ O'Meara Solicitor for the Respondent: Clayton Utz IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 937 of 2014 BETWEEN: OZTECH PTY LTD Applicant AND: THE PUBLIC TRUSTEE OF QUEENSLAND Respondent JUDGE: YATES J DATE OF ORDER: 14 SEPTEMBER 2015 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Leave be granted to the applicant to amend the Originating Application, filed 16 September 2014, in the form of Annexure B to the applicant's Interlocutory Application dated 11 August 2015. 2. Pursuant to s 33Y(2) of the Federal Court of Australia Act 1976 (Cth) (the Act), the notice to group members set out in the schedule to these reasons (the notice) be approved. 3. Pursuant to s 33Y(3) of the Act, and within seven days after the making of this order, the applicant give the notice to those persons appearing on the Noteholder Register as at 25 February 2008 by sending a copy thereof by ordinary pre-paid post and, where an email address is available, by sending a copy of the notice by email, to the addresses of those persons known as at 10 June 2015. 4. Pursuant to s 33J(1) of the Act, the date before which a group member may opt out of the proceeding be fixed as 4.30 pm on 16 November 2015. 5. Pursuant to s 33ZF of the Act, in the event the respondent: (a) is successful in his defence of the proceeding or otherwise intends to recoup all or part of his costs of defending the proceeding by exercising his right of indemnity against the trust assets; (b) is unable to recover the costs of his defence of the proceeding from the applicant in execution of a costs order made by the Court (costs shortfall); (c) proposes to recover the costs shortfall from the trust assets by exercising a right of indemnity against those assets; and (d) proposes to exercise his indemnity against the trust assets by first reducing distributions otherwise payable to group member noteholders and, second, to the extent of any continuing costs shortfall, by reducing distributions payable to non-group member noteholders; then, before he seeks to exercise his indemnity against trust assets in the manner described in paragraph 3(d), the respondent is to seek and obtain judicial advice as to: (e) whether he is entitled to exercise his indemnity against the trust assets in the manner described in paragraph 3(d); and (f) if so, whether it is appropriate for him to exercise his indemnity against trust assets in the manner described in paragraph 3(d). 6. By 30 October 2015, the applicant is to file and serve any interlocutory application seeking leave to file an amended statement of claim or leave to file a reply. 7. Liberty be granted to the parties to apply on 24 hours' prior notice for the purpose of implementing these orders. 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 937 of 2014 BETWEEN: OZTECH PTY LTD Applicant AND: THE PUBLIC TRUSTEE OF QUEENSLAND Respondent JUDGE: YATES J DATE: 14 SEPTEMBER 2015 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This proceeding is a representative proceeding commenced under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act). It arises out of the respondent's role as the trustee for noteholders in respect of senior unsecured notes issued by the company now called Octaviar Investment Notes Limited (in liquidation) (OIN). A company now called Octaviar Limited (receivers and managers appointed) (in liquidation) (OL) was a guarantor of OIN's obligations under the notes. The applicant alleges that, following a sharp drop in OL's share price in January 2008, and OL's sale of a business (the Stella Group) which was completed on 29 February 2008, the respondent acted too slowly to protect the interests of noteholders, in particular by failing to apply to wind-up OIN and OL, and to take other steps, by 29 February 2008, with the consequence that the respondent breached his statutory, contractual and general law duties to noteholders. 2 The group members are persons who held notes as at 25 February 2008 (whether or not they still retain those notes) and who suffered loss or damage by or resulting from the acts and omissions pleaded against the respondent. The evidence before the Court is that group members represent 90% by number and 19.44% by value of the present noteholders. Conversely, non-group members represent 10% by number and 80.56% by value of the present noteholders. 3 There are two interlocutory applications before the Court concerning the form of notice to be given to group members pursuant to s 33X of the Federal Court Act. In one interlocutory application (the applicant's interlocutory application), the applicant seeks, amongst other things, an order that the Court approve the form and content of its proposed notice to group members, which does not include an opt out notice. In the other interlocutory application (the respondent's interlocutory application), the respondent seeks, amongst other things, an order approving the form and content of his proposed notice to group members, which does include an opt out notice which specifies an opt out date of 2 November 2015. 4 The parties are in dispute as to the appropriate form and content of the notice that should be given, including whether provision should be made for the giving of an opt out notice. Underlying this dispute is whether, before an opt out notice is given, a separate question should be determined by the Court concerning whether the respondent, when exercising his right as trustee to be indemnified out of the trust estate for his unsatisfied legal costs of the proceeding, is entitled to look first to that share of the trust estate payable to noteholders who are group members before looking to that share of the trust estate payable to noteholders who are non-group members. It is not in dispute that, as a general principle, but subject to certain exceptions, the respondent will have a right of indemnity out of the trust estate for his legal costs. The question is whether, in the context of a proceeding under Part IVA of the Federal Court Act, the respondent would be entitled to exercise his right of indemnity in the way indicated (referred to by the parties as a "selective" exercise of the right) as opposed to exercising his right rateably against all noteholders. 5 The respondent's position is that his right of indemnity must be exercised in the interests of the trust as a whole, and fairly and equitably between different groups of noteholder beneficiaries. Here there are different groups of noteholders—those who are group members; those who are non-group members; and, potentially, those who were group members who have opted out of the proceeding. The respondent submits that, in general, it will be appropriate for a trustee to recoup his proper costs first from the share of the trust estate held for those beneficiaries who caused the costs to be incurred or who stood to gain from the litigation against the trustee, and thereafter from the share of the trust estate owned by the balance of the beneficiaries: National Trustees Executors and Agency Company of Australasia Limited v Barnes (1941) 64 CLR 268; Kation Pty Ltd v Lamru Pty Ltd (2009) 257 ALR 336; Grizonic v Suttor [2011] NSWSC 471; Close Trustees (Switzerland) SA v Vildosola [2008] EWHC 1267 (Ch); Tucker L, Le Poidevin N and Brightwell J, Lewin on Trusts (19th ed, Sweet & Maxwell, 2014) at [27-183]. 6 With respect to the present proceeding, the respondent submits that the fact that noteholders who are group members have an economic interest in the prosecution of the proceeding, and noteholders who are not group members do not, would make it unfair and inequitable for the respondent's unrecovered proper costs to be charged rateably and, so, indiscriminately, and for non-group member noteholders to share equally in the costs of litigation that could only ever benefit group members. The respondent submits that this is particularly so where the interests of group members represent only about 20% of the value of the notes. 7 Although s 43(1A) of the Federal Court Act provides, subject to certain exceptions, that, in a representative proceeding commenced under Part IVA, costs cannot be awarded against a person on whose behalf the proceeding has been commenced, the respondent submits that this does not derogate from the right of a trustee to seek indemnity out of the trust estate for costs, and cannot control the manner in which that right is to be exercised. The respondent puts the matter in this way: [Section 43(1A) of the Federal Court Act] cannot prohibit or prevent the [respondent] from exercising the contractual, statutory or equitable rights of indemnity [discussed in the respondent's submissions], if those rights otherwise exist. Nor can the provision be construed as somehow controlling the way in which a trustee can properly exercise his discretion to cause any rights of indemnity (or contribution) that may exist, to fall unequally on those otherwise obliged to indemnify (or contribute). It would be highly surprising if [s 43(1A) of the Federal Court Act] were to be construed as controlling the way that a trustee discharged his duty to consider the manner in which his indemnity should be applied, and the exercise of his discretion to cause the burden to fall on the trust in a manner that the trustee considers fair and equitable. The selective application of a trustee's indemnity in relation to unrecovered legal [costs] in accordance with the principles discussed [in the respondent's submissions] is, in no sense, an "award of costs" within the meaning of [s 43(1A) of the Federal Court Act]. 8 By way of further background, on 17 November 2014, pursuant to s 134 of the Public Trustee Act 1978 (Qld), the Supreme Court of Queensland directed the respondent to send an information memorandum to noteholders, which included the following: To the extent that costs are incurred by the Public Trustee as a consequence of the options discussed above and in the event that he is successful in defending the proceedings, the Public Trustee may seek to recover those costs pursuant to his rights of indemnity from the trust assets which will include any recoveries as a consequence of the recovery actions. To the extent such a recovery from trust assets is sought, the Public Trustee may seek to first recover, as a priority, from the noteholders who are plaintiffs in the proceedings such that any distribution to those noteholders (which may otherwise be made) would be reduced by that recovery. The amount of such costs is not reasonably able to be accurately calculated at this stage, however it is expected such costs will be significant. The categories of costs that may be sought to be recovered include: (a) the difference between costs awarded to be paid by the plaintiffs to the proceedings (either on a standard or indemnity basis) and the actual costs incurred by the Public Trustee in defending the proceedings; and/or (b) the difference between the actual costs incurred by the Public Trustee in defending the proceedings and the costs actually recovered from the plaintiffs; and (c) any other costs and expenses incidental to the conduct of the defence of the proceedings by the Public Trustee which are recoverable as part of the indemnity granted to the Public Trustee under the Trust Deed. The Public Trustee seeks written feedback from the noteholders regarding the above options. A range of contact options are provided at the conclusion of this memorandum. The Public Trustee proposes to allow one calendar month for noteholders to provide feedback prior to seeking the advice of the Supreme Court of Queensland as to how to proceed. 9 On 3 June 2015, the respondent sent a further memorandum to noteholders, which included the following: Should the Public Trustee successfully defend the representative proceeding he will first seek to recover his costs from the applicant. To the extent that the Public Trustee cannot recover all of his costs from the applicant, the Public Trustee may then seek to recover any shortfall from the trust assets by exercising his right to be indemnified for proper trust expenses from the assets of the trust. The Public Trustee proposes to exercise his right to indemnity in the following manner: first, to exercise the right against the trust entitlements of noteholders who are the applicant and group members in the representative proceedings, by reducing any distribution that may otherwise be paid to them; and, second, to the extent of any continuing shortfall, as against the trust fund generally. The Public Trustee's view is that this course is appropriate and justified by the decision of the High Court of Australia in National Trustees Executors & Agency Co Ltd v Barnes (1941) 64 CLR 268. Before adopting the course set out in this paragraph, the Public Trustee may seek appropriate judicial advice. The amount of the Public Trustee's cost liability that may be sought to be recovered by The Public Trustee will not have certainty until the finalisation of the representative proceeding as to whether: (a) he will successfully defend the representative proceeding; (b) if successful, the amount of the costs he will be able to recover from the applicant; (c) the amount of any shortfall between the costs recovered from the applicant and his total costs liability; and (d) the quantum of any indemnity that he may seek from trust assets. 10 For its part, the applicant submits that, in the context of a representative proceeding under Part IVA, the selective exercise of the right of indemnity against group members who are not parties to the proceeding could never be lawful because it would amount to a circumvention of the policy behind Part IVA that group members are not, except when they are parties, to be liable for costs. 11 Each party filed detailed written submissions on this question, whilst recognising that the question did not fall for determination on the hearing of either interlocutory application. I do not intend to rehearse all those submissions in these reasons. The summary I have given above sufficiently identifies the lines of battle. 12 In its interlocutory application, the applicant also sought leave to amend its originating application to add the following prayer for relief: A declaration that in the event that the Respondent is successful in defending this proceeding and the Respondent seeks to recover adverse costs pursuant to its rights of indemnity from the trust assets, the Respondent is not entitled to seek to recover, as a priority, from those noteholders who are group members such that any distribution to those group member noteholders (which might otherwise be made) would be reduced by that recovery. 13 The applicant also sought an order that the question of whether it is entitled to declaratory relief in those terms should be heard separately and determined before any other issue in the proceeding. Further, in light of the fact that an opt out date has not yet been fixed, the applicant sought leave pursuant to s 33J(4) of the Federal Court Act, which provides: (4) Except with the leave of the Court, the hearing of a representative proceeding must not commence earlier than the date before which a group member may opt out of the proceeding. 14 Although in its written submissions, the respondent opposed the granting of leave to amend, it seems to me that leave should be granted without reflecting on the prospects of such relief ultimately being granted. The real issue is whether the question raised by the declaration that is sought should be dealt with as a separate question in the way proposed by the applicant. Once that issue is determined, it opens the path to considering the form and content of the notice that should now be approved and given to group members. 15 In its proposed notice to group members, the applicant has provided for alternatives. The first alternative proceeds on the basis that the separate question would be determined prior to any notice being given to group members under s 33X. In this alternative, the answer to the question (assumed to have been given adversely to the respondent's position) would be set out in the notice. The second alternative proceeds on the basis that a notice to group members should be given now, in which group members are informed that the Court will hear and determine the separate question before an opt out notice is issued. It is fair to say that the applicant considered the second alternative to be preferable, on the basis that notice, in some appropriate form, should be given to group members without further delay. 16 The respondent advanced a number of submissions as to why it would be inappropriate to order the applicant's claim for declaratory relief to be determined as a prior and separate question. Once again, I do not propose to rehearse those submissions in these reasons. It is sufficient for me to state my conclusion on that issue and to provide my reasons for coming to that conclusion. A separate question? 17 I am not persuaded that it would be an appropriate exercise of the Court's discretion under r 30.01(1) of the Federal Court Rules 2011, or otherwise, to order that such a question be heard separately from and before any other question in the proceeding. 18 The entitlement to the declaratory relief sought to be agitated in the separate question does not arise from the applicant's pleaded case. Rather, it concerns how, in the administration of the trust of which the respondent is trustee, the respondent might or should seek to exercise his acknowledged right of indemnity out of the trust estate for the costs he will incur in defending the proceeding. The answer to that question may well be of interest to group members, as it would be to all noteholders, because, potentially, all noteholders may well be affected financially by the consequences of the applicant bringing its claims against the respondent as trustee for noteholders. However, such interest, without more, does not justify the Court hearing and answering such a question as a separate question in advance of all the other questions or issues that will or might arise for determination in the proceeding. Indeed, as I will come to explain, the answer to the posited separate question can only be sensibly given once the outcome of the proceeding is known and in light of all the circumstances that would exist at that time. 19 The declaration that is sought is somewhat unclear in its terms. For example, its reference to "adverse costs" is unclear. Putting these difficulties to one side, the form of the declaration really conflates two questions. The first is whether a trustee in the position of the respondent can, as a matter of law, exercise its right of indemnity selectively by first reducing distributions payable to group member noteholders and then, to the extent of any continuing cost shortfall, by reducing distributions payable to non-group member noteholders. The second question is whether, as a proper exercise of power, it would be appropriate in the circumstances for the respondent to do so. Any consideration now of whether to grant such declaration (assuming it to be otherwise appropriate in form) would necessarily involve the consideration of both questions. However, at the present time, such consideration could not be properly undertaken because the state of affairs that will obtain at the conclusion of the proceeding is simply not known. 20 In this connection, at the present time, there are a number of imponderables, not the least of which is the outcome of the proceeding. The declaration that is sought is conditioned on an assumption that the respondent will be successful in defending the case brought against it, when that might not be so. At the present time, the posited circumstance is purely hypothetical. But even assuming complete success on the part of the respondent, it does not follow necessarily that he would be permitted to seek a full indemnity from the trust estate, let alone in the manner under contemplation. There may be circumstances not yet known—such as the manner in which the respondent may choose to conduct the litigation—which may disentitle him to seek an indemnity or, at least, a full indemnity for his costs from the trust estate. At the present time, there are other imponderables, such as the amount of the respondent's unpaid costs at the conclusion of the proceeding, the size of the trust estate at that time, and the number of noteholders who have been group members and their relative share of the trust estate. No doubt there are other matters which might bear upon whether the declaration, as sought, should be made. Even at the conclusion of the proceeding, when a number of presently relevant but unknown facts are in fact known, the whole question posed by the declaration might be completely academic. For example, it might not make one jot of difference that the respondent proposes to exercise his right of indemnity selectively. Why, therefore, should there be consideration of the question now? The proposed question is not ripe for determination at the present time. 21 The applicant argues that if the question covered by the declaratory relief sought is answered now, group members will be better informed as to whether they should opt out. I am not persuaded that that would be so, given the various imponderables to which I have referred. Even if there was a modified question—limited to whether, as a matter of law, the respondent as trustee has a legal entitlement to seek indemnity against, firstly, that share of the trust estate held by noteholders who are group members—the answer to that question would really be an abstract one, without knowing whether it would be an appropriate exercise of power to so proceed in the circumstances. The concern of group members, and indeed all noteholders, is what such an exercise would mean in a practical, financial sense. These questions cannot be answered at the present time. Therefore, I am not satisfied that there would be practical utility in answering such a question in some modified or more limited form. Opt out notice now? 22 The next matter to consider is whether group members should be informed now of their right to opt out of the proceeding before a specified date. As Practice Note CM 17 states in clause 7.3, the usual practice is to send opt out notices to group members shortly after the close of pleadings. Of course, the practice is not invariable. But there would have to be good reason to delay informing group members of their right to opt out. It is convenient at this point to briefly summarise the course of the proceeding to date. 23 The originating application and statement of claim were filed on 16 September 2014 but not served until 16 October 2014. By consent, the first directions hearing was adjourned to 27 November 2014 to permit the respondent to seek judicial advice from the Supreme Court of Queensland. 24 The matter first came before the then docket judge on 27 November 2014. Orders were made for the parties to confer regarding the provision of security for costs and, if no agreement could be reached, for the determination of an application for security for costs. Conditional on security being given, directions were also made for the filing of a defence. 25 The parties were unable to agree regarding the provision of security. On 19 December 2014, the respondent filed an interlocutory application seeking security. The application was listed for hearing on 17 February 2015. 26 On 16 February 2015, consent orders were made for the provision of security and, 28 days after the provision of security, for the filing of a defence. Security was provided on 16 March 2015, with the result that the defence was due to be filed on 13 April 2015. The applicant consented to an extension of time for the filing of the defence and an order that any reply be filed within 14 days of the defence being filed. The defence was filed on 27 April 2015. 27 On 8 May 2015, the applicant sought production of certain documents referred to in the defence and sought an extension to 1 June 2015 for the filing of a reply. This was agreed to and, on 25 May 2015, the Court made orders extending the time for filing a reply to 8 June 2015. 28 On 11 June 2015, the applicant's solicitors informed the respondent's solicitors that the applicant did not propose to file a reply. 29 On 29 July 2015, the applicant was ordered to file, by 10 August 2015, any application for orders approving the form, content and manner of distribution of a notice to group members. On the same day, the respondent was ordered to file, by 7 August 2015, any application he wished to make for the approval of the form, content and manner of distribution of a notice to group members informing them of the right to opt out of the proceeding. It is not necessary for me to refer to the other orders made on that day. However, they did provide that any dispute between the parties on the question of the form and content of the competing notices would be listed for hearing on 1 September 2015. 30 An order was also made for the listing of a case management hearing on 1 September 2015. However, given the controversy to which these reasons relate, it was not possible to have the case management hearing as appointed. On the day of the hearing, I made an order that the case management hearing be adjourned to a date to be fixed. 31 It can be seen from this summary that pleadings have been closed for some time, and yet no notice has been given to group members pursuant to s 33X(1)(a) of the Federal Court Act. 32 The applicant's position is that while a notice under s 33X of the Federal Court Act should be given to group members now, there is no pressing need to give group members notice of their right to opt out of the proceeding. The applicant advances three main reasons for this position. The first reason is that the applicant is still considering the respondent's discovery given on 7 August 2015. The discovery given was of a large number of documents. The applicant's solicitor, Ms Banton, has given evidence that the applicant's review of these documents is likely to be completed by mid to late September 2015. The applicant submits that, in matters of this kind, it is not uncommon for pleadings to be amended following discovery and/or the close of evidence. Ms Banton has referred to one matter that might cause the applicant to seek leave to amend its pleadings. However, the applicant makes no present application to amend its pleadings. Whether it would seek to do so is really a matter of speculation. 33 The second reason is related to the first. The applicant says that, following its review of the discovered documents, it may seek leave to file a reply to the respondent's defence, even though, on an apparently informed basis, the applicant's solicitors told the respondent's solicitors on 11 June 2015 that the applicant did not propose to file a reply. 34 The third reason is that the separate question, which I have discussed above, should be determined before any opt out notice is given. I have already rejected the possibility of a separate question of the kind proposed. This consideration can, therefore, be put to one side. 35 I am not persuaded that there should be any delay in giving an opt out notice to group members simply because the applicant is still reviewing the documents produced on discovery by the respondent. The fact is, pleadings closed some months ago as a result of a deliberate decision of the applicant, and there is no formulated proposed amendment currently before the Court. Indeed, whether there will be any application to amend is, as I have stated, a matter of speculation only. The same applies to the possibility that, at some time in the future, the applicant might seek leave of the Court to file a reply. The applicant is correct to point out that the amendment of pleadings is not an uncommon course. But such applications are an incident of all proceedings, not just those under Part IVA. I do not think that the possibilities to which the applicant has referred provide a cogent reason for departing from the usual position of sending out opt out notices to group members shortly after the close of pleadings. 36 The respondent sought an order that the applicant file and serve any interlocutory application to amend its statement of claim or to seek leave to file a reply by 30 October 2015. The applicant indicated its preparedness to submit to such an order being made. But in seeking that order, the respondent did not resile from its submission that a mere speculative possibility that there might be an application to amend the statement of claim, or to seek leave to file a reply, at some future point, does not provide a sufficient basis to delay the provision of an opt out notice. Nor am I persuaded that making such an order provides a change of circumstances which materially impacts on the decision whether an opt out notice should be given now. It does not reflect upon the probability that there will be any such application. The form of the notice 37 The parties have composed competing forms of notice. Leaving aside the applicant's position that no opt out notice should be given now, the applicant's form of notice is modelled on the one approved by Bennett J in Muswellbrook Shire Council v Royal Bank of Scotland NV [2013] FCA 616 (Muswellbrook). On the other hand, the respondent has proposed a form of notice that is closely modelled on the sample notice given in Practice Note CM 17. 38 The applicant criticised the respondent's form of notice principally on the basis that it made reference to the respondent's proposal to charge his unsatisfied defence costs firstly against the share of the trust estate owned by group members. The applicant's position, once again, is that the respondent is not entitled to proceed in that manner. However, as I have also indicated, the applicant's real objection appears to be that while that question remains undetermined by the Court, no opt out notice should be given to group members. I have rejected that reason for not giving an opt out notice now. 39 The respondent's criticisms of the applicant's proposed notice related primarily to the manner in which the applicant has described the arrangements under which the proceeding is being funded by International Litigation Partners No. 9 Pte Ltd (ILP). A particular point of contention is the fact that the applicant's proposed notice states that ILP may not continue to fund the proceeding unless it is commercially viable for it to do so. This will depend on ILP attracting a sufficient number of group members to sign funding agreements to establish to ILP's satisfaction the commercial viability of the funding. Another criticism by the respondent is that the applicant's statement—that there is a real risk that ILP would decide to cease funding the proceeding if an insufficient number of the group members decide to enter into funding arrangements—assumes a contractual entitlement of ILP to terminate the funding agreement, when such an entitlement is not apparent on the redacted version of the funding agreement provided to the respondent. 40 There are two matters to be said of these criticisms. The first is that the description of the funding arrangements are substantially in the same terms that Bennett J considered in Muswellbrook and approved. Relevantly in that connection, her Honour said: [38] With reference to the reasons Muswellbrook advances as to why it requires access to the Register, I accept that, as the proceedings are to be stayed, there is no immediate and necessary identified expenditure of resources. However, the evidence is that IMF may not continue to fund the proceedings unless 'group members of sufficient value' sign a funding agreement with IMF. If IMF discontinues funding and no alternative funding arrangements are made, Muswellbrook says that it will discontinue the proceedings and contends that Group Members' rights may be lost because of the expiry of the limitation period. This limitation period is currently suspended by the existence of these proceedings (s 33ZE(1) of [the Federal Court Act]). [39] I am satisfied that it is appropriate and in the interests of the Group Members that the Notice be sent to them, at least to enable them to be informed about the existence of the proceedings, the necessity to retain documents and the present and potential, but not definite, future funding of the proceedings by IMF. In particular, I am satisfied that it is in the interests of justice and is in keeping with the Court's supervisory role in these proceedings for the Group Members to be informed in the Notice that there is a 'real risk that IMF will cease funding the proceedings if an insufficient number of class members enter into a funding agreement with IMF' and that Group Members' 'rights to any compensation may be lost by reason of the limitation period' if these proceedings are discontinued. (Emphasis in original.) 41 The second observation is that, on the redacted version of the funding agreement now before me, it is apparent that ILP has, at its sole discretion, the contractual right to terminate its obligations under the funding agreement (other than accrued obligations) by giving written notice. Thus, I do not accept that the applicant's proposed notice is in any way misleading as to ILP's contractual rights. 42 The respondent directed other criticisms to the applicant's proposed notice. A number of these fall away in light of other matters I have discussed. Some of the criticisms are directed to matters of detail, but these criticisms will be met by the course that I propose to adopt, which is to use the respondent's proposed notice, which should be amended in some respects and which should be supplemented by additional material included in the applicant's proposed notice to which the respondent has made no substantial objection. 43 The substantial amendment that should be made to the respondent's proposed notice concerns its description of how he proposes to exercise his indemnity for costs out of the trust estate. I discussed the way in which these amendments might be made, during the course of the respondent's oral submissions. The amendments involve some rearrangement of the currently proposed wording and an addition which makes explicit that the applicant does not accept that the respondent has a right to exercise his indemnity in the way proposed or that such an exercise would be appropriate in the circumstances. A further matter which should be included is the respondent's preparedness to submit to an order that, before he seeks to exercise his indemnity in the way proposed, he would seek and obtain judicial advice as to whether: (a) he is entitled to exercise his indemnity against the trust estate in that way; and (b) whether it is appropriate for him to exercise his indemnity in that way. Disposition 44 In light of the conclusions to which I have come, I propose to approve the draft notice which is reproduced in the schedule to these reasons. As will be apparent, Section 12 of the draft notice requires the applicant to insert the date upon which answers to the questions contained in the draft notice are requested to be given by. 45 The parties did not address me on the manner in which the notice should be given. The applicant's interlocutory application seeks a direction that the notice be sent by its solicitors by both ordinary pre-paid post and, where available, by email, to each of the persons whose names appear on the Noteholder Register as it existed on 25 February 2008, to the addresses of those persons as at 10 June 2015. In the absence of any objection by the respondent, I can see no reason why that direction should not be given. 46 The respondent's interlocutory application seeks a direction that the applicant also cause a copy of the notice to be published once in the legal notices section in one weekday edition of the Australian Financial Review and The Australian. I can see no reason why this is necessary in the circumstances. I decline to make that direction. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 14 September 2015 SCHEDULE FEDERAL COURT OF AUSTRALIA OCTAVIAR NOTEHOLDER CLASS ACTION 1. Why is this notice important? A class action has been commenced in the Federal Court of Australia by Oztech Pty Ltd against The Public Trustee of Queensland ("Public Trustee"). The action arises out of the Public Trustee's role as trustee of a trust in connection with notes ("OIN Notes") issued by Octaviar Investment Notes Limited ("OIN"). The claim alleges that the Public Trustee acted too slowly in January and February 2008 to protect the interests of noteholders by failing to apply to wind-up OIN and Octaviar Limited ("OL"), and to take other steps, by 29 February 2008. The Federal Court has ordered that this notice be published for the information of persons who might be members of the class on whose behalf the action is brought and may be affected by the action. You should read this notice carefully. Any questions you have concerning the matters contained in this notice should not be directed to the court. If there is anything in it that you do not understand, you should seek legal advice. 2. What is a class action? A class action is an action that is brought by one person ("the Applicant") on his or her own behalf and on behalf of a group of people ("class members") against another person ("the Respondent") where the Applicant and the class members have similar claims against the Respondent. Class members in a class action are not individually responsible for the legal costs associated with bringing the class action. In a class action, only the Applicant is responsible for the costs. Class members are bound by any judgment or settlement entered into in the class action unless they have opted out of the proceeding. This means that: (a) if the class action is successful, class members may be eligible for a share of any settlement monies or Court-awarded damages; (b) if the class action is unsuccessful, class members are bound by that result; and (c) regardless of the outcome of the class action, class members will not be able to pursue their claims against the Respondent in separate legal proceedings unless they have opted out. 3. What is Opt Out? The Applicant in a class action does not need to seek the consent of class members to commence a class action on their behalf or to identify a specific class member. However, class members can cease to be class members by opting out of the class action. An explanation of how class members are able to opt out is found below in the section headed "How can you opt out of the proceeding". 4. What is this class action? This class action, the Octaviar Noteholder class action, is brought by a noteholder called Oztech Pty Ltd ("the Applicant" or "Oztech") on its own behalf and on behalf of all persons who are "class members" as defined in the proceeding. The Applicant alleges in the statement of claim in Federal Court proceeding Oztech Pty Ltd v The Public Trustee of Queensland NSD937 of 2014 that the Public Trustee acted too slowly in the period 18 January 2008 to 29 February 2008 to protect the interests of noteholders and that by 29 February 2008, at the latest, the Public Trustee should have declared all OIN Notes to be due and payable, made an application to wind-up OIN, OL and other companies in the Octaviar Group and obtained orders "freezing" their assets. It is alleged that the Public Trustee's failure to do this caused loss to the noteholders. The Public Trustee denies the allegations and is defending the claim. The Public Trustee's defence is available to be viewed in the manner described in Section 13 below. 5. Are you a class member? You are a class member if: (a) you held OIN Notes as at 25 February 2008; and (b) you suffered loss or damage by or resulting from the acts and omissions of the Public Trustee of Queensland as alleged in the statement of claim. If you are unsure whether or not you are a class member, you should contact Amanda Banton of Squire Patton Boggs on (02) 8248 7850 or email amanda.banton@squirepb.com or seek your own legal advice without delay. Amanda Banton is the solicitor for the Applicant, Oztech. 6. Will you be liable for legal costs? You will not become liable for any legal costs simply by remaining as a class member for the determination of the common questions. However: (a) if the preparation or finalisation of your personal claim requires work to be done in relation to issues that are specific to your claim, you can engage Squire Patton Boggs or other lawyers to do that work for you. A copy of the terms on which Squire Patton Boggs are acting in the class action may be obtained from them on the number/s shown below; (b) if any compensation becomes payable to you as a result of any order, judgment or settlement in the class action, the Court may make an order that some of that compensation be used to help pay a share of the costs which are incurred by the Applicant in running the class action but which are not able to be recovered from the Respondent; (c) class actions are often settled out of court. If this occurs in the class action, you may be able to claim from the settlement amount without retaining a lawyer. 7. What will happen if you choose to remain a class member? Unless you opt out, you will be bound by the outcome of the class action. If the class action is successful, you will be entitled to share in the benefit of any order, judgment or settlement in favour of the Applicant and class members. (In some cases you may have to satisfy certain conditions before your entitlement arises.) If the action is unsuccessful or is not as successful as you might have wished, you will not be able to sue on the same claim in any other proceedings. In addition, to the extent that you are a current noteholder, your share of any trust assets may be reduced in order to satisfy the Public Trustee's indemnity for his costs. It is common for a trustee who has been sued to exercise a right of indemnity against the trust assets if he is successful in the litigation (and, provided he has acted reasonably in defending the litigation, even if he is unsuccessful). The Public Trustee has advised that, should he successfully defend the class action, he will first seek to recover his costs of defending the action from the Applicant, and to the extent that he cannot recover all of his costs from the Applicant, he will seek to recover any shortfall from the trust assets, by exercising a right of indemnity against those assets. However, the Public Trustee considers that noteholders who acquired their OIN Notes after 25 February 2008 are not class members, cannot be part of this class action, and have no interest in it. The Public Trustee considers that noteholders who held OIN Notes at 25 February 2008 but who elect to opt out of these proceedings also will have no interest in these proceedings. In order to ensure that the burden of his indemnity is shared equitably having regard to the different interests of noteholders in the class action, in the event he is successful in defending the class action, the Public Trustee proposes to charge his unsatisfied defence costs first to the share of the trust estate owned by class members, and after that, charging any remaining cost liability to non-class member noteholders (and which include those noteholders who are eligible to be class members but who elect to opt-out: see sections 9 and 10 below). The Public Trustee proposes to do this by reducing any distribution from the trust that may otherwise have been payable to class members; and, second, to the extent of any continuing shortfall, to reduce the distribution payable to non-class member noteholders. The Applicant does not accept that the Public Trustee is entitled to exercise his right of indemnity in the manner set out above or, if he is, that it would be appropriate for the Public Trustee to do so. The Public Trustee has submitted to an order that, before he seeks to exercise his indemnity against trust assets in the manner set out above, he will seek and obtain judicial advice as to: (a) whether he is entitled to exercise his indemnity against the trust assets in that manner; and (b) if so, whether it is appropriate for him to do so. The amount of the cost liability that may be sought to be recovered by the Public Trustee from the trust assets will not be certain until the finalisation of the Octaviar Noteholder Class Action. 8. ILP Funding Arrangements The Applicant in this class action is presently being funded by International Litigation Partners No.9 Pte Ltd ("ILP"). ILP pays the Applicant's costs of bringing and running the class action. If the class action is unsuccessful, ILP will pay any order made against the Applicant to pay the Trustees' costs. At the request of the Applicant, ILP funded the commencement of the class action in order to protect the claims of class members from expiry of the limitation period and to give class members the opportunity to consider ILP's funding. The Applicant understands that ILP may not continue to fund the class action unless it is commercially viable to do so. In considering whether the class action is commercially viable and whether to continue to fund the proceeding, ILP will take into account whether any further class members enter into a funding agreement with ILP and the value of the claims of those class members. There is a real risk that ILP will decide to cease funding the proceeding if an insufficient number of class members enter into a funding agreement with ILP. If ILP does not continue to fund the class action, and the Applicant does not secure an alternative way of funding the class action, then the Applicant will not continue the class action and rights which may be valuable (including your rights to any compensation) may be lost by reason of the limitation period. You would be given notice of any such application. If you wish to obtain information regarding ILP's funding, you can do so by contacting ILP. Contact details for ILP: Squire Patton Boggs Level 10, 1 Macquarie Place Sydney NSW 2000 9. How can you remain a class member? If you wish to remain a class member there is nothing you need to do at the present time. The Applicant will continue to bring the proceeding on your behalf up to the point where the Court determines those questions that are common to the claims of the Applicant and the class members. However, you are invited to contact the Applicant's lawyers, Squire Patton Boggs, on the number below and register as a group member so that future notices about the class action can be sent to your preferred address. 10. How can you opt out of the class action? If you do not wish to remain a class member you must opt out of the class action. If you opt out you will not be bound by or entitled to share in the benefit of any order, judgment or settlement in the class action, but you will be at liberty to bring your own claim against the Respondent, provided that you issue Court proceedings within the time limit applicable to your claim. If you wish to bring your own claim against the Respondent, you should seek your own legal advice about your claim and the applicable time limit prior to opting out. If you wish to opt out of the class action you must do so by completing a "Notice of opting out by class member" in the form shown below (Form 21 of the Court's approved forms), then returning it to the Registrar of the Federal Court of Australia at the address on the form. IMPORTANT: the Notice must reach the Registrar by no later than 4.30 pm on 16 November 2015, otherwise it will not be effective. You should submit the Notice of opting out by class member if: (a) you qualify as a class member and you wish to opt out of the class action; or (b) you believe that you have been incorrectly identified as a class member, because you do not meet the criteria set out in the section headed "Are you a class member?" above. Each class member should fill out a separate form. If you are opting out on behalf of a company or business please provide your name, the name of the company or business and your position within the company or business (e.g. director or partner). 11. Preservation of documents At present, you should take steps to ensure that you retain all documents relating to your investment in the OIN Notes, including but not limited to all documents relating to your acquisition of the OIN Notes and any subsequent dealings you may have had in relation to them. If you do not retain your documents relating to the OIN Notes you could prejudice any claim that you may have. 12. Information from you In order to understand important matters about the nature and size of claims that may be made by class members, the Applicant wishes to obtain some information from you as to your potential claim and ensure that you do not take any step to prejudice any claim you may have. If you do wish to provide information, the Applicant asks that you answer the following questions in the attached copy of this Notice and send it to the Applicant's solicitors (details of which appear below) by no later than [to be inserted]. The information will also be provided to the Trustee. This information, but not your identity or contact details, will also be provided to ILP, unless you indicate in your response that you do not wish this it to be communicated to ILP. Subject to what is said in Section 8 above about ILP's funding of the proceedings, if you choose not to provide any information at this stage, your status and rights as a class member in the class action will not be affected. You are not under any obligation to provide any information at this stage. When did you acquire the OIN Notes? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ What was purchase price of the OIN Notes upon acquisition? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ If you have disposed of the OIN Notes, how did you dispose of the OIN Notes (please include the date that you disposed of them and the amount of money or value of the consideration you received upon disposal)? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 13. Where can you obtain copies of relevant documents? Copies of relevant documents, including the originating application, the statement of claim, and the defence, may be obtained by: (a) downloading them from www.squirepattonboggs.com/; (b) inspecting them between 9am and 5pm at one of the offices of Squire Patton Boggs, contact details for which are available from www.squirepattonboggs.com/ or by calling (02) 8248 7850; (c) inspecting them on the Federal Court website: www.fedcourt.gov.au or by visiting a District Registry of the Federal Court in Sydney, Canberra, Melbourne, Brisbane, Adelaide, Perth, Hobart or Darwin: the addresses for these registries are available at www.fedcourt.gov.au or by calling the New South Wales District Registry on (02) 9230 1381. Please consider the above matters carefully. If there is anything of which you are unsure, you should contact Squire Patton Boggs on (02) 8248 7850 or email amanda.banton@squirepb.com or seek your own legal advice. You should not delay in making your decision. Form 21 Rule 9.34 Opt out notice Federal Court of Australia No. NSD 937/2014 District Registry: New South Wales Division: General OZTECH PTY LTD (ACN 005 907 871) Applicant THE PUBLIC TRUSTEE OF QUEENSLAND Respondent To: Federal Court New South Wales District Registry Level 17, Law Courts Building Queens Square, Sydney NSW 2000 [Name of group member], a group member in this representative proceeding, gives notice under section 33J of the Federal Court of Australia Act 1976, that [Name of group member] is opting out of the representative proceeding. Date: ....................................................................................... Signed by [insert] [insert capacity i.e. group member, lawyer for group member] Filed on behalf of: Prepared by: Law firm: Address for service: Contact details: Tel: Fax: Contact: Email: Ref: