Federal Court of Australia El-Zein v Barton Nine Pty Limited as trustee of the Barton Nine Settlement [2020] FCA 1197 File number: NSD 1555 of 2018 Judgment of: LEE J Date of judgment: 12 August 2020 Catchwords: REPRESENTATIVE PROCEEDINGS – settlement approval application pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (Act) – settlement fair and reasonable compromise of claims made on behalf of group members – orders made pursuant to s 33ZB of the Act bind all group members to the proceeding who have not opted out Legislation: Federal Court of Australia Act 1976 (Cth) ss 33V, 33ZB Cases cited: Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177; (2019) 377 ALR 234 Camilleri v The Trust Company (Nominees) Limited [2015] FCA 1468 Lifeplan Australia Friendly Society Limited v S&P Global Inc (Formerly McGraw-Hill Financial, Inc) (A Company Incorporated in New York) [2018] FCA 379 Dyczynski v Gibson [2020] FCAFC 120 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 14 Date of hearing: 12 August 2020 Counsel for the Applicants: Mr C Colquhoun Solicitor for the Applicants: Corrs Chambers Westgarth Counsel for the Respondents: Mr J Hewitt Solicitor for the Respondents: K&L Gates ORDERS NSD 1555 of 2018 BETWEEN: HASSAN EL-BANNA EL-ZEIN First Applicant DEBORAH MARGARET EL-ZEIN Second Applicant GLENN ANDREW EPPELSTUN Third Applicant ATSUKO EPPELSTUN Fourth Applicant AND: BARTON NINE PTY LIMITED ATF THE BARTON NINE SETTLEMENT ACN 143 616 693 First Respondent 13.9 BARTON PTY LIMITED ATF THE 13.9 BARTON COMMERCIAL PROPERTY TRUST ACN 143 733 706 Second Respondent order made by: LEE J DATE OF ORDER: 12 AUGUST 2020 THE COURT ORDERS THAT: In these orders: Act means the Federal Court of Australia Act 1976 (Cth). Administration Costs has the meaning given in the Settlement Deed. Final Settlement Approval has the meaning given in the Settlement Deed. Funder means Omni Bridgeway Limited (formerly known as IMF Bentham Limited). Group Member means a person who purchased the unexpired term of a lease for a unit in Unit Plan 4125 in respect of Barton, Section 9, Block 14 on Deposited Plan 11294 (known as "Governor Place", Barton ACT 2617) from the Respondents pursuant to a contract for sale, who has not opted out of the Proceeding in accordance with section 33J of the Act. Settlement Deed means the Settlement and Release Deed between the Applicants, the Respondents, and the Funder dated 25 March 2020. Settlement Distribution Scheme means the document which is behind at pages 32 to 40 of Confidential Exhibit SPD-16 to the affidavit of Samuel Peter Delaney sworn 27 May 2020. Settlement Sum has the meaning given in the Settlement Deed. 1. The Registration Deadline in Order 5 of the orders made on 20 April 2020 be extended, nunc pro tunc, to 4 August 2020. 2. Pursuant to section 33V of the Act, the settlement of the representative proceeding and the claims of the Applicants and each Group Member be approved on the terms set out in the Settlement Deed and the Settlement Distribution Scheme, including payment from the Settlement Sum in accordance with the Settlement Distribution Scheme of: (a) $1,200,000 or such other amount as determined by the Court to the Funder for historical and future legal fees and disbursements of the proceeding; (b) $655,171.16 or such other amount as determined by the Court to the Funder for funding the proceeding; (c) the following amounts or such other amounts as determined by the Court to the Applicants as compensation for their time and expenditure reasonably incurred in prosecuting the representative proceeding on behalf of all Group Members (separate to their shares of the amount to be distributed to Group Members): (i) a single payment of $9,000 to the First and Second Applicants; (ii) a single payment of $4,500 to the Third and Fourth Applicants; (d) any Administration Costs payable pursuant to the Settlement Distribution Scheme. 3. Pursuant to section 33ZB(a) of the Act, the persons affected and bound by these orders are the Applicants, the Respondents and the Group Members. 4. Pursuant to section 33ZF of the Act, Corrs Chambers Westgarth be appointed as the Administrator of the Settlement Distribution Scheme and authorised to act in accordance with the Settlement Distribution Scheme, subject to any direction of the Court. 5. All outstanding costs orders in the proceeding be vacated. 6. The proceeding be dismissed, with such dismissal to have effect upon an order being made following receipt of a communication from the Administrator to the Associate to Justice Lee that distribution has occurred to Group Members pursuant to the Settlement Distribution Scheme. 7. There be no order as to costs of the proceeding or the application for settlement approval. 8. Pursuant to sections 37AF and 37AG(1)(a) of the Act, in order to prevent prejudice to the proper administration of justice, "Confidential Exhibit SPD-16" to the affidavit of Samuel Peter Delaney sworn 27 May 2020 (with the exception of the Settlement Deed at pages 1-25 of Confidential Exhibit SPD-16) is to remain confidential and its publication is prohibited until further order. 9. The undertaking given by Jure Domazet on 21 March 2019 and the undertaking given by Barry James Morris on 22 March 2019 be dissolved upon both: (a) payment of the Settlement Sum by the Respondents; and (b) Final Settlement Approval. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised from Transcript) LEE J: A INTRODUCTION 1 This is a settlement approval application in respect of a class action that was the subject of a liability hearing, being Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177; (2019) 377 ALR 234 (Principal Judgment). These reasons assume a familiarity with that judgment, in which the relevant proceeding was referred to as the "Governor Place proceeding": see Principal Judgment (at [9]–[12] and [21]). For simplicity, all defined terms are as set out in the Principal Judgment. As to the factual background, it suffices to note that the Governor Place proceeding was commenced in August 2018 by the applicants on behalf of themselves and group members who purchased flats in the Governor Place development from the Barton Developers in 2015 and 2016. 2 There is no utility in me detailing, in yet another judgment, the principles that inform the determination of a settlement approval application pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (Act). This has been done repeatedly in a number of judgments: see, for example, Camilleri v The Trust Company (Nominees) Limited [2015] FCA 1468 (at [40]–[44] per Moshinsky J); Lifeplan Australia Friendly Society Limited v S&P Global Inc (Formerly McGraw-Hill Financial, Inc) (A Company Incorporated in New York) [2018] FCA 379 (at [12]–[15] per Lee J). It is trite that the fundamental question to be addressed is: whether the settlement is a fair and reasonable compromise of the claims made on behalf of the group members. B CONSIDERATION OF THE SETTLEMENT 3 Following delivery of the Principal Judgment and a court ordered mediation conducted by a highly experienced mediator, the parties entered into a settlement deed that provides that the Barton Developers will pay $2,571,492 (Settlement Sum) by way of settlement of the claims of both the applicants and group members. Pursuant to the terms of a settlement distribution scheme, it is proposed that prior to any distribution to the applicants or group members, the following amounts will be paid out of the Settlement Sum: (a) $1,200,000 to the funder for reimbursement of legal fees and disbursements in the proceeding, including all costs up to the conclusion of the proceeding; (b) $655,161.16 to the funder for funding fees; (c) modest payments to the representative applicants ($9,000 to Mr and Mrs El-Zein and $4,500 to Mr and Mrs Eppelstun); and (d) a sum to the scheme administrator for other miscellaneous administration costs. 4 Unlike most class actions, the parties have reached an agreement to resolve the case after delivery of judgment. Accordingly, the delivery of the Principal Judgment has meant I have far more familiarity with the underlying merits of the claims than is usually the case on settlement approval applications. 5 It is useful to commence by turning to the claims and summarising the position the applicants and group members find themselves in after delivery of the Principal Judgment. 6 First, Mr and Mrs El-Zein and those group members who were in a similar position to them sought a variety of relief, but only succeeded in their claim for money had and received, and then only to the extent of the difference between the GST component of their purchase price and the input tax credits repaid by the Barton Developers. For reasons explained in a comprehensive and with respect, useful opinion prepared by counsel for the applicants, it appears that the maximum that the group members in this position could recover given the reasoning in the Principal Judgment was approximately $2,000,000 (and it may well have been less than this sum). 7 Secondly, in relation to Mr and Mrs Eppelstun and those group members who were in a similar position to them, their claims for an account or statutory compensation failed and they did not succeed in their claim for restitutionary relief. Although it was possible that other group members may have had an individualised claim for misleading and deceptive conduct, there is little reason for any particular confidence in relation to the successful agitation of such a claim, for the reasons set out extensively in the Principal Judgment. Moreover, even if these individual claims could be made, it is difficult to see how they could be economically advanced. 8 Moreover, because of this mixed success, the applicants would have only been entitled a proportion of their costs. In a related class action where there was similar partial success, only 50 per cent of the costs could be recovered against the respondents: see Lloyd v Belconnen Lakeview Pty Ltd (No 2) [2020] FCA 698. Added to this, of course, is the possibility of an appeal against the Principal Judgment. There is an artificiality in me speculating as to the prospects of a successful appeal, but apart from any appeal involving a costs risk, there was, of course, the prospect that the appeal could have succeeded and in the event of such success, the orders made being reversed or a new trial being ordered. 9 In the light of these relatively unusual circumstances, I think there is little doubt that the Settlement Sum is within the range of likely amounts that could be regarded as an adequate compromise of the claims of the applicants and group members as they are now understood. 10 As to the amounts to be deducted from the Settlement Sum, the payment to the funder of a funding fee is around 25 per cent of the Settlement Sum, which is significantly less than the contractual entitlement of the funder under the litigation funding agreement. Although the legal fees and disbursements of $1,200,000 are significant, on my impressionistic assessment of the complexity and scale of the case, they do not seem to be in any way disproportionate. Further, the payments to Mr and Mrs El-Zein and Mr and Mrs Eppelstun seem to be fair and reasonable in circumstances where they clearly expended time and effort in advancing the claims made by group members in addition to advancing their own claims. C THE FUNCTION OF SECTION 33ZB ORDERS 11 I am informed that out of the 133 potential group members, approximately 88 per cent of those persons will participate in the settlement as either funded or unfunded registered group members. Although there will be 16 group members who will not participate in the settlement, and have their claims extinguished by reason of the settlement, I am satisfied on the evidence that every available effort has been made to contact them and advise them of their opportunity to participate in the class action, and it is necessary that orders be made binding them to the settlement in order for the respondents to obtain certainty. 12 The way in which such certainty is achieved is by virtue of orders made pursuant to s 33ZB of the Act. Indeed, as I recently noted in Dyczynski v Gibson [2020] FCAFC 120 (at [391] with Murphy and Colvin JJ agreeing at [249]): [p]roperly analysed, the way that the statutory scheme works to bind non-parties to an order made by the Court, is by operation of s 33ZB. Orders made settling a class action under s 33V should, in order to bind group members in relation to the individual claims, be accompanied by s 33ZB orders: see Courtney v Medtel Pty Limited (No 5) [2004] FCA 1406; (2004) 212 ALR 311 (at 321 [54] per Sackville J); Dillon v RBS Group (Australia) Pty Limited (No 2) [2018] FCA 395 (at [48]–[49] per Lee J). 13 In my reasons for judgment on that appeal, I also went on to address any residual concern that currently subsists regarding the operation of s 33ZB orders in binding group members to a settlement: see Dyczynski (at [392]–[399]). Hence, an order will be made pursuant to s 33ZB of the Act, meaning the settlement will bind all of the group members, including those group members who have not registered, with the consequence that their claims the subject of the class action will be quelled. D CONCLUSION AND ORDERS 14 It follows from the above that I am persuaded that I should give settlement approval, and I will make orders accordingly. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee. Associate: Dated: 12 August 2020