FEDERAL COURT OF AUSTRALIA

HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in Liq) (No 3) [2017] FCA 650

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to sections 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth) (FCA Act), the Proposed Settlement of the proceeding be approved on the terms set out in the:

(a)    confidential Deed of Settlement executed by the Plaintiffs and the First to Seventh Defendants, being confidential Exhibit 3 tendered on 23 March 2016 (Director Deed);

(b)    confidential Deed of Settlement executed by the Plaintiffs, International Litigation Funding Pty Ltd, Maurice Blackburn and the Eighth and Ninth Defendants, being confidential annexure RG5-01 to the affidavit of Rebecca Gilsenan affirmed on 24 June 2016 (Deloitte Deed); and

(together, the Deeds)

(c)    Settlement Distribution Scheme and the Confidential Loss Assessment Formula being Tabs 3 and 4 of Confidential Exhibit JAG-B to the affidavit of Jason Andrew Geisker sworn 12 September 2016 (the Settlement Scheme).

Participating Group Members

2.    By 12:00 pm on 20 June 2017, the Plaintiffs’ solicitors must file, in a sealed envelope marked “Confidential – not to be opened without leave of the Court or a Judge”, a list of the names of all Group Members who:

(a)    by 31 August 2016, registered their claim in accordance with paragraph [11(a)] of the Orders made on 12 July 2016; or

(b)    registered their claim otherwise in accordance with paragraph [11(a)] of the Orders made on 12 July 2016, save that such notices were received after 31 August 2016 but prior to 5pm on 15 September 2016;

(together, the List of Participating Group Members).

3.    Order 13(b) made on 12 July 2016 is varied such that the Group Members identified in the List of Participating Group Members to be filed with the Court on 20 June 2017 in accordance with Order 2 above, are deemed to have registered a claim in the Proceeding by the registration date of 31 August 2016 and deemed to be eligible to pursue a claim for compensation in the proposed settlement of the Proceeding (Participating Group Members).

Settlement Distribution Scheme

4.    Pursuant to s. 33ZF of the FCA Act:

(a)    the Plaintiffs be authorised to enter into and give effect to the Deeds nunc pro tunc for and on behalf of the Group Members as defined in the Further Amended Statement of Claim filed by the Plaintiffs on 13 May 2016 other than those who have opted out of the Proceeding pursuant to s. 33J of the FCA Act;

(b)    the Settlement Scheme and the confidential Loss Assessment Formula be approved as the procedure for distributing amongst the Plaintiffs and Participating Group Members the Settlement Sum;

(c)    the Plaintiffs’ costs and disbursements in conducting the Proceedings (including obtaining settlement approval) up to 16 September 2016 of up to $3,420,978 identified as the reasonable costs and disbursements of the Plaintiffs in the affidavit of Ian Ramsay-Stewart affirmed on 12 September 2016 be approved as the amount of the Plaintiffs’ Costs for the purposes of the Settlement Scheme ;

(d)    the amount of $5,000 referred to in the affidavit of Jason Andrew Geisker sworn 12 September 2016 be approved as the amount of Plaintiffs’ Reimbursement Payment for the purposes of the Settlement Scheme, being $3,000 for the First Plaintiff and $2,000 for the Second Plaintiff;

(e)    Maurice Blackburn be appointed Administrators of the Settlement Scheme and to act in accordance with the terms of the Settlement Scheme;

(f)    the costs and disbursements of Maurice Blackburn in acting as Administrators of the Settlement Scheme be the subject of a further report of Ian Ramsey-Stewart, cost assessor;

(g)    Maurice Blackburn has liberty to apply to the Court, on 7 days’ notice, for an order approving its costs in acting as Administrators of the Settlement Scheme; and

(h)    any costs and disbursements incurred by Maurice Blackburn in the implementation of the Settlement Scheme will not be borne by the First to Ninth Defendants.

5.    Pursuant to s. 33ZB and s. 33ZF of the FCA Act, the persons affected and bound by these Orders are the Plaintiffs, the First to Ninth Defendants and the Group Members.

6.    The amounts paid by, or on behalf of the Plaintiffs, as security in the Proceeding be released to the Plaintiffs’ solicitors.

7.    Maurice Blackburn has liberty to apply for directions in connection with the Settlement Scheme on 7 days’ notice.

8.    The Plaintiffs to re-list the Proceeding as soon as practicable after the completion of distribution of the Settlement Amount within the meaning of the Settlement Scheme so that final orders can be made, including orders that:

(a)    all costs orders made to date in the Proceedings be vacated; and

(b)    the Proceeding be dismissed with no order as to costs.

Confidentiality

9.    Pursuant to s. 37AG(1)(a) of the FCA Act the following affidavits and exhibits be treated as confidential and be sealed on the Court file in envelopes marked "Not to be opened except by leave of the Court or a Judge" and not be published or made available with any electronic version thereof to be treated in an analogous fashion:

(a)    Confidential Affidavit of Jason Andrew Geisker sworn 12 September 2016;

(b)    Confidential Exhibit JAG-B to the Affidavit of Jason Geisker sworn 12 September 2016;

(c)    Confidential Exhibit JAG-C to the Affidavit of Jason Geisker sworn 12 September 2016, including the Documentary Bundle referred to in exhibit JAG-C;

(d)    Confidential Affidavit of Anna Beth Williams affirmed 12 September 2016;

(e)    Confidential Affidavit of Anna Beth Williams affirmed 15 September 2016; and

(f)    List of Participating Group Members to be filed on 20 June 2017.

10.    Pursuant to s. 37AG of the FCA Act:

(a)    the orders in paragraph 9(a) to (c) are made on the grounds that the orders are necessary in order to:

(i)    prevent prejudice to the proper administrative of justice given the documents contain material that is subject to confidentiality negotiated and agreed between the parties; and/or

(ii)    to prevent prejudice to the proper administrative of justice because the documents are subject to legal professional privilege or contain material subject to legal professional privilege, which privilege has not been waived.

(b)    the orders in paragraph 9(d) to 9(f) are made on the ground that it is necessary to prevent prejudice to the proper administrative of justice in that the document discloses the identity of Participating Group Members.

11.    The period for which the order in:

(a)    paragraph 9(a), 9(c)-9(f) shall operate, is ten years from the date these orders are entered;

(b)    paragraph 9(b) shall operate, is 42 days from the date these orders are entered, only insofar as it relates to documents other than the Confidential Loss Assessment Formula, (being tab 3 and tab 4 of Confidential Exhibit JAG-B to the Affidavit of Jason Geisker sworn 12 September 2016) (Tab 3 and 4 Documents);

(c)    paragraph 9(b) shall operate, is 10 years from the date these orders are entered, only insofar as it relates to Tab 3 and 4 Documents.

12.    For the avoidance of doubt, nothing in orders 9 and 10 prevents the publication of any information contained in the affidavits and exhibits covered by those orders which has been directly or indirectly reproduced in the reasons for judgments of Wigney J in this matter handed down on 13 June 2017.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

WIGNEY J:

1    This is potentially the final chapter in a complex and tortuous (and, for some at least, torturous) shareholder class action.

2    In May 2014, HFPS Pty Ltd (as trustee for the Hunter Facility Project Services Pty Ltd Superannuation Fund) (HFPS) and Roslyndale Nominees Pty Limited (as trustee for the Tony Fay Family Trust) (Roslyndale) (together, the Plaintiffs) commenced representative proceedings under Part IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act) against Tamaya Resources Limited (in liq) (Tamaya), six of Tamaya’s directors (the Directors), Tamaya’s auditors, Deloitte Touche Tohmatsu (Deloitte) and a Deloitte partner, Mr Timothy Biggs (together the Deloitte Parties). The proceedings were legally and factually complex. In very simple terms, the Plaintiffs alleged that Tamaya and the Directors made certain material misrepresentations to the market concerning Tamaya’s financial position, the true value of Tamaya’s shares and the purpose of two capital raisings. They also alleged that the Deloitte Parties made misrepresentations to the market arising from the 2007 audit of Tamaya’s financial statements. The Plaintiffs contended that, had the alleged misrepresentations not been made, investors, including themselves, would not have purchased Tamaya shares, or would have purchased the shares for less than they did. The group members for whom the Plaintiffs commenced the representative action were ultimately defined as being persons who purchased Tamaya shares pursuant to the capital raisings announced in May 2008 and who suffered loss or damage as a result of the alleged misrepresentations.

3    It would perhaps be an understatement to say that the proceedings did not progress smoothly. That was due in part to the fact that there were related proceedings in which Tamaya, as plaintiff, made allegations against its directors and similar Deloitte parties that were the same as, or similar to, the allegations made by the Plaintiffs in the representative proceedings. It was also in part due to the fact that the collective proceedings were plagued by interminable interlocutory fights involving, amongst other things, applications to amend the pleadings, applications concerning the use and admissibility of affidavits and reports, and applications to vacate trial dates. The Plaintiffs did not fare well in many of those fights. Indeed, it is probably fair to say that they came out second-best in most of them. Amidst the turmoil, or perhaps because of it, in March 2016 the Plaintiffs reached an in-principle settlement agreement with Tamaya and the Directors, and Tamaya reached agreement with its directors in the related proceedings. That left the Deloitte Parties. In early June 2016, on the day the trial concerning the Deloitte Parties commenced, the Plaintiffs reached a settlement agreement with the Deloitte Parties. A short time later, Tamaya and the Deloitte parties reached a settlement agreement in the related proceedings.

4    This application relates only to the representative proceedings. Representative proceedings may not be settled without the approval of the Court: s 33V of the FCA Act. The Plaintiffs have applied for an order approving the settlement of the proceedings as against Tamaya and the Directors, and as against the Deloitte Parties. The issue, in simple terms, is whether the proposed settlement is fair and reasonable and in the interests of the group members as a whole. For the reasons that follow, the settlement is fair and reasonable and in the interests of the group members. The settlement should be approved.

A brief description of the proceedings

5    As already noted, the proceedings were legally and factually complex and the procedural history was tortuous. The facts and contentions in the proceedings, and the procedural history, were set out in considerable detail in a confidential opinion of the Plaintiffs’ trial counsel which was tendered on a confidential basis in support of the approval application. It is unnecessary to rehearse much of that detail. Following is a brief summary.

Background

6    Tamaya was a mining company listed on the Australian Stock Exchange from January 2001 to August 2010. Aside from mining tenements in Queensland, its primary asset was a gold and copper mine in Chile known as Punitaqui. In May 2007, Tamaya acquired 86.2% of the issued capital in Iberian Resources Limited. Iberian, through various subsidiaries, owned a gold mine in Armenia known as the Lichkvaz Gold Project.

7    In December 2007, Deloitte was retained to audit Tamaya’s 2007 Annual Report. The Annual Report was published and lodged with the ASX on 31 March 2008. It contained a directors’ report, various financial statements for the year ending 31 December 2007 and a directors’ declaration in respect of the financial statements. The Annual Report also included Deloitte’s independent auditor’s report which was dated 31 March 2008.

8    On 1 May 2008, Tamaya announced two capital raisings to the market. The first invited existing shareholders to purchase up to 43,479 additional shares through a Share Purchase Plan (SPP). The second invited sophisticated investors to purchase Tamaya shares as part of a $20 million underwritten placement, which was called the Sophisticated Investors Placement (SIP). The SPP and SIP shares were offered at 11.5 cents, a discount to the market share price of 13 cents at close of trade on 30 April 2008. The SPP and SIP closed on 26 and 27 May 2008 respectively. Tamaya raised a total of some $28.7 million through the raisings.

9    However, all that glittered was not gold. Tamaya’s ordinary share price began to decline following a corrective disclosure on 28 May 2008, and continued to decline following two further corrective disclosures on 3 June and 30 July 2008. By 30 September 2008, when Tamaya’s shares were suspended from quotation, the shares were priced at 1.4 cents. Tamaya was placed into voluntary administration on 26 October 2008. Liquidators were appointed on 19 December 2008.

Claims against the defendants

10    The Plaintiffs and the other group members all acquired shares in Tamaya pursuant to the SPP or SIP. In summary, the Plaintiffs alleged that the defendants made express and implied representations in the 2007 Annual Report and the market announcements concerning the SPP and SIP which were misleading or deceptive, or likely to mislead or deceive, in contravention of s 1041H of the Corporations Act 2001 (Cth), s 52 of the former Trade Practices Act 1974 (Cth), s 12DA of the Australian Securities and Investment Commission Act 2001 (Cth) and s 42 of the Fair Trading Act 1987 (NSW) and interstate equivalents.

11    The Plaintiffs alleged that Tamaya’s 2007 Annual Report and its financial statements, which were endorsed by the Directors in the directors’ statement, did not give a true or fair view of Tamaya’s financial position, contained material misstatements, and were not prepared in accordance with relevant Accounting Standards and the requirements of the Corporations Act. Specifically, they alleged that the financial statements should have recognised a substantial impairment of Tamaya’s non-current assets, and should not have been prepared on the basis that Tamaya was a going concern, or should at least have recognised uncertainties regarding the going concern.

12    Further, the Plaintiffs alleged that Tamaya and the Directors made material misrepresentations to the market about the true purpose of the SPP and SIP and the value of the discount offered to shareholders. The Plaintiffs claimed that the announcements represented that the funds raised by the SPP and SIP would be used to expand production capacity at Punitaqui, accelerate other exploration projects in Chile, and for general working capital. Contrary to these representations, or so it was alleged, the money was instead used to repay debt, give cash advances to subsidiaries including Iberian, make payments to secured creditors and bond holders, and otherwise meet general expenses.

13    The Plaintiffs also claimed that the Deloitte Parties, as Tamaya’s auditor, conducted a deficient audit resulting in an unqualified audit opinion. In short, it was alleged that the Deloitte parties failed to obtain sufficient audit evidence, failed to design and perform appropriate and adequate audit procedures, failed to apply an independent and inquiring mind to the conduct of the audit, and were satisfied by management assertions alone in response to enquiries. The Plaintiffs contended that the Deloitte Parties should not have certified that Tamaya’s financial statements gave a true and fair view of the financial position and performance of Tamaya as at 31 December 2007.

14    The viability of the Lichkvaz Gold Project was at the core of the Plaintiffs’ claims. The Plaintiffs contended that between the acquisition of Iberian in May 2007 and the publication of the 2007 Annual Report, Tamaya was provided with expert reports which indicated that Lichkvaz might not be as profitable an asset as originally hoped. Information or opinions provided to Tamaya were said to include that the scale of Lichkvaz had been inflated at the time Tamaya acquired Iberian, Lichkvaz’s total resources were less than half of what Iberian reported, production from freshly mined ore could not commence for 18 months, tests had shown that existing extraction methods were not working for ore at Lichkvaz, and there was a high risk that the ore could not be processed at all. The Plaintiffs alleged that Tamaya and the Directors failed to disclose, or adequately disclose, this information to the market. Similarly, Deloitte’s failure to discover some of these reports during the audit formed a significant part of the claims against the Deloitte Parties.

15    The Plaintiffs ultimately alleged that, as a result of the misrepresentations, the price of the Tamaya shares offered through the SPP and SIP was greater than the true value of the shares, or the market price that would have prevailed but for the alleged contraventions. But for the contraventions, the Plaintiffs would have paid a lower price, or would not have purchased the shares at all. They would therefore not have suffered loss and damage.

Procedural history

16    It is necessary to say something about the procedural history of the matter. That history provides important context to the proposed settlement.

17    Between 8 February 2013 and 28 March 2014, prior to the commencement of these proceedings, Tamaya commenced three related proceedings against some of its directors and its auditor Deloitte. The present representative proceedings were commenced on 28 May 2014. The plaintiffs in the related proceedings and the Plaintiffs in these proceedings were funded by the same litigation funder, International Litigation Partners No. 2 Limited (ILP). All of the proceedings were case managed together by Foster J. On 22 October 2014, orders were made allowing the use of documents obtained in the related proceedings in the present representative proceedings.

18    The Plaintiffs filed an Amended Statement of Claim on 29 October 2014. Defences to that amended pleading were filed by the Deloitte Parties on 18 December 2014, and by the Directors on 19 December 2014 and 2 February 2015.

19    As Tamaya was in liquidation at the time proceedings were commenced, the Plaintiffs were required to seek the Court’s leave to proceed with their claim against Tamaya pursuant to s 500(2) of the Corporations Act. The Plaintiffs filed an interlocutory application seeking leave to proceed on 5 February 2015. That application was heard by Foster J on 19 May 2015. By the time leave was granted on 28 April 2016, the Plaintiffs had reached an in-principle settlement with Tamaya. Nevertheless, Foster J gave reasons for the approval of the application on the assumption that doing so had utility for the settlements and the ongoing conduct of the proceedings: HFPS Pty Limited (Trustee) v Tamaya Resources Limited (In Liq) (No 1) [2016] FCA 442.

20    The parties to these proceedings and the related proceedings attended a court-ordered mediation on 6 May 2015. That mediation evidently failed to resolve the issues in dispute. These proceedings and the related proceedings were originally listed for a five week trial to commence on 12 October 2015. That trial date was vacated in late July 2015. That was primarily due to the filing of an interlocutory application by Tamaya on 31 July 2015 in the related proceedings in which Tamaya sought leave to amend its Originating Applications and amend or further amend its Statements of Claim. The joint trial was pushed back to 30 May 2016, before it was re-scheduled again to commence 16 May 2016, with an estimate of six weeks.

21    Further delays were occasioned when, on 14 August 2015, the Plaintiffs filed an interlocutory application seeking leave to amend their Originating Application and further amend their Amended Statement of Claim. The main purpose of the proposed amendments was, in summary, to amend the definition of group members, introduce a claim for false or misleading statements under s 1041E of the Corporations Act against each of the defendants, rectify inconsistencies between the pleading and the Plaintiffs’ narrative statement of facts, bring the pleading into conformity with evidence from the related proceedings to be relied on in these proceedings, and rectify identified “audit issues” in the pleading. The amendments were apparently virtually identical to Tamaya’s proposed amendments in the related proceedings.

22    Both amendment applications were listed before Gleeson J on 21 and 22 September 2015. Her Honour heard Tamaya’s amendment application in the related proceedings and reserved judgment. Her Honour was apparently unable to hear the Plaintiffs’ application in the representative proceeding, which was adjourned to the date of delivery of judgment. Gleeson J handed down judgment on 14 October 2015, largely refusing leave to amend in the related proceedings, except for those amendments which were not opposed: Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Limited (in liq) [2015] FCA 1098. Tamaya subsequently sought leave to appeal the judgment of Gleeson J. The Full Court granted leave to appeal on 19 November 2015.

23    The Plaintiffs’ amendment application was ultimately heard by Foster J on 30 November 2015. Shortly thereafter, on 15 December 2015, the Full Court heard Tamaya’s appeal from Gleeson J’s interlocutory judgment in the related proceedings. Judgment was reserved in both hearings. On 23 December 2015 the Full Court made orders dismissing Tamaya’s appeal: Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2016] FCAFC 2; (2016) 332 ALR 199. While Foster J did not hand down a judgment in relation to the Plaintiffs’ cognate amendment application until some time later, Tamaya’s unsuccessful appeal meant that the writing was very much on the wall.

24    It would seem that the failure of Tamaya’s amendment application, and the likely failure of their amendment application, had a salutary effect, or at least re-focussed the Plaintiffs’ attention on the desirability, or perhaps even necessity, of settling the proceedings. On 4 March 2016, the Plaintiffs entered into a deed of settlement with Tamaya and the Directors. At the same time, Tamaya reached an agreement to settle the related proceedings it had brought against the directors. That left the various Deloitte defendants in both proceedings.

25    The outbreak of peace in the proceedings involving Tamaya and the Directors did not end the interlocutory shenanigans in the proceedings involving the Deloitte Parties. A further skirmish occurred in February and March 2016, when the Deloitte Parties filed an interlocutory application dated 29 February 2016 seeking orders that a revised expert report of Mr Wayne Basford, which Tamaya had served in the related proceedings and sought to rely on in these proceedings, be disallowed or rejected. The focus of Mr Basford’s report was Deloitte’s conduct of the audit. At the hearing of that application on 23 and 24 March 2016, Foster J also heard Deloitte’s objection to Tamaya relying on a second affidavit of Mr Jonathan Trollip. Relevantly, Mr Trollip was a director of Meridian International Capital Limited and its related investment company MIT Nominees Pty Limited. MIT had the second largest equity holding in Tamaya after Tamaya’s Board and management. As will be seen, Mr Trollip’s evidence was important to the Plaintiffs’ case in relation to causation. His Honour reserved his decision.

26    On 31 March 2016, the remaining parties in these proceedings and the related proceedings attended an informal settlement meeting. That informal settlement meeting was unsuccessful.

27    As noted earlier, on 28 April 2016, Foster J granted the Plaintiffs leave to proceed against Tamaya under s 500(2) of the Corporations Act. On the same day, his Honour delivered judgment in the Plaintiffs’ amendment application. His Honour refused to grant the Plaintiffs leave to amend their Originating Application and Amended Statement of Claim, except for those amendments that were consented to: HFPS Pty Limited (Trustee) v Tamaya Resources Limited (In Liq) (No 2) [2016] FCA 446. Soon after, on 3 May 2016, his Honour made orders, without giving reasons, dismissing Deloitte’s 29 February 2016 interlocutory application concerning the Basford Report and Mr Trollip’s second affidavit.

28    On 3 May 2016, immediately following Foster J’s dismissal of Deloitte’s interlocutory application, the Plaintiffs made an application for the trial, which was scheduled to commence less than a fortnight later on 16 May 2016, to be vacated. Over the next few weeks, the trial date was a moveable feast. The trial was originally moved to 30 May 2016, though not as a result of the Plaintiffs’ application to vacate the trial listing. That application was heard by Foster J on 13 May 2016. His Honour refused to vacate the trial, but stood the application over generally to the start of the hearing, which was deferred again by two days to 1 June 2016.

29    On 13 May 2016, as a result of Foster J’s judgment in the Plaintiffs’ amendment application, the Plaintiffs filed an Amended Originating Application and Further Amended Statement of Claim, limited to those amendments that the remaining defendants had not opposed.

30    There was, however, no end in sight as regards interlocutory disputes. A further quarrel arose over another new affidavit served by the Plaintiffs. That affidavit, an affidavit sworn by Mr Mark Hunter, apparently sought to address difficulties thought to arise from Mr Trollip’s second affidavit. The Plaintiffs’ primary case against the Deloitte Parties in respect of causation was largely based on evidence in Mr Trollip’s first affidavit. Mr Trollip’s evidence, at least initially, was that, had the financial statements in Tamaya’s 2007 Annual Report disclosed the Lichkvaz impairment and contained a qualified going concern assumption, it would have been nearly impossible for Tamaya to raise equity finance. Mr Trollip initially asserted that in those circumstances he would have lost confidence in Tamaya’s management and would have appointed a receiver to Tamaya. This was referred to as the “no transaction” case. In short, the Plaintiffs claimed, based largely on Mr Trollip’s evidence, that, but for the misrepresentations, the SPP and SIP would not have gone ahead at all.

31    It would appear that Mr Trollip became somewhat weak in the knees, or perhaps got cold feet, in relation to the somewhat emphatic evidence in his first affidavit. In his second affidavit, he deposed that he would have worked with Tamaya’s management, rather than appoint a receiver, so long as he retained trust in Tamaya’s management and there existed potential that Tamaya could raise finance and generate sufficient cash flow to trade through its difficulties. The apparent purpose of Mr Hunter’s affidavit was to bolster the original position proffered in Mr Trollip’s first affidavit that, had accurate disclosures been made, Tamaya would not have been able to raise equity finance in May 2008, and would not have been able to proceed with the SPP and SIP.

32    On 16 May 2016 the Plaintiffs sought leave to rely on the Hunter affidavit. The Deloitte Parties promptly objected to the affidavit. On 20 May 2016 Foster J refused the Plaintiffs leave to rely on the affidavit. This was obviously a significant blow to the Plaintiffs, perhaps as big a blow as Mr Trollip’s evidentiary backflip. On 23 May 2016, the Deloitte Parties filed their Defence to the Plaintiffs’ Further Amended Statement of Claim. The trial finally commenced on 1 June 2016, but it was to be short-lived. On the first day of the trial the Plaintiffs reached an in-principle settlement agreement with the Deloitte Parties. On 2 June 2016, that agreement was formalised in a deed of settlement.

33    On 2 June 2016, the related proceedings were discontinued by consent.

34    On 24 June 2016 the Plaintiffs filed the present interlocutory application in the representative proceedings seeking approval of the proposed settlement pursuant to s 33V of the FCA Act.

Notice of the proposed settlement and opt out rights

35    On 12 July 2016, a number of orders were made to facilitate the settlement approval process.

36    First, the application for approval of the settlement was set down for hearing on 16 September 2016.

37    Second, an order was made pursuant to s 33J of the FCA Act fixing 31 August 2016 as the date by which a group member may opt out of the proceeding.

38    Third, orders were made which required group members who wished to receive compensation in the proposed settlement to register with the Plaintiffs’ solicitors by 31 August 2016.

39    Fourth, and more significantly, an order was made pursuant to s 33ZF that any group member who did not opt out or register by 31 August 2016 would remain a group member but, subject to further order, would not be entitled to receive a distribution from any amount agreed in the proposed settlement.

40    Fifth, an order was made pursuant to ss 33X(1)(a) and 33X(5) of the FCA Act requiring group members to be notified of the hearing of the approval application, the opt out date, the requirement to register by 31 August 2016 in order to participate in the settlement, and their right to oppose the settlement. The content of the notice (the Opt Out and Settlement Notice) was approved by the Court. The Opt Out and Settlement Notice also provided that group members who chose not to opt out, but who wished to oppose the proposed settlement, should send notice of their opposition to the Plaintiffs’ solicitors by 31 August 2016 and appear at the hearing on 16 September 2016.

41    Ancillary orders were made concerning the service, publication and advertisement of the Opt Out and Settlement Notice. Detailed evidence was led, in support of the approval application, concerning compliance with those orders. It is tolerably clear that little more could reasonably have been done to bring the notice to the attention of group members.

42    The Opt Out and Settlement Notice produced the following results.

43    First, 3 opt out notices were returned on behalf of 2 group members.

44    Second, 846 group members registered with the Plaintiffs’ solicitors on or before 31 August 2016. Of those 846 registered group members, 15 had previously entered into funding agreements with ILP.

45    Third, the Plaintiffs’ solicitors received 14 claim registration forms, on behalf of 17 individuals, after 31 August 2016. The Plaintiffs’ solicitors subsequently contacted those group members and sought an explanation for the late service of their registration notices. Those explanations will be considered later in the context of determining whether the late-registering group members ought to be permitted to participate in the settlement.

46    Fourth, no group member advised the Plaintiffs’ solicitors that they proposed to object to the proposed settlement. No group member appeared at the approval hearing and voiced opposition to the proposed settlement.

47    Evidence was led in support of the approval application which indicated that many group members contacted the Plaintiffs’ solicitors in response to their receipt of the Opt Out and Settlement Notice. A number of group members sought further information concerning the status of the proceeding and proposed settlement, or how to register in relation to the proposed settlement. Some group members requested information concerning costs and financial risks. A log maintained by the Plaintiffs’ solicitors in relation to the telephone calls received from group members recorded that approximately 40% of the callers indicated that they were happy with the settlement, approximately 40% were neutral in relation to the settlement and approximately 5% indicated that they were unhappy. It would appear, however, that the unhappiness of those group members did not later transform into opposition. Only one group member advised the Plaintiffs’ solicitors that they did not intend to participate in the settlement. No group members were recorded as having expressed any concern regarding the role of the litigation funder, or the amounts to be received by it pursuant to the proposed settlement.

The proposed settlement and settlement DISTRIBUTION scheme

48    The terms of the proposed settlement between the Plaintiffs and Tamaya and the Directors are set out in a Deed of Settlement dated 4 March 2016 (the Directors Deed). A confidentiality order has been made in relation to that deed, however some aspects of the settlement as recorded in the deed are not confidential and were referred to in the evidence adduced in support of the approval application. The terms of the proposed settlement between the Plaintiffs and the Deloitte Parties are set out in a Deed of Settlement dated 2 June 2016 (the Deloitte Deed). Like the Director Deed, the Deloitte Deed is confidential, though some of its terms are not confidential and were referred to in the evidence.

49    Another important aspect of the overall settlement is the proposed Settlement Distribution Scheme, which deals with the administration and distribution of the settlement sum, being the monies received pursuant to the two settlement deeds, including the calculation of the amounts to be paid to the participating group members and others, including the litigation funder.

The settlement deeds

50    Under the terms of the Directors Deed, Tamaya and the Directors have agreed, without any admission of liability and subject to the terms of the deed, to pay $3.25 million in full settlement of the claims of the Plaintiffs and group members against Tamaya and the Directors. Under the terms of the Deloitte Deed, the Deloitte Parties have agreed, without any admission of liability and subject to the terms of the deed, to pay $3.5 million in full settlement of the claims of the Plaintiffs and group members against the Deloitte Parties. The combined settlement sum is therefore $6.75 million.

51    As would be expected, both the Directors Deed and the Deloitte Deed contain various covenants and indemnities to ensure that the Plaintiffs and group members are not able to bring or pursue any further claims that arise directly or indirectly out of or in connection with the proceedings. Both deeds provide that the parties will bear their own legal costs and disbursements in connection with the proceedings.

The Settlement Distribution Scheme

52    If the settlement is approved, the Plaintiffs’ solicitors will act as administrator of the settlement scheme. The administrator will hold the settlement sum on trust to be dealt with and distributed according to the terms of the Settlement Distribution Scheme. In simple terms, the Settlement Distribution Scheme provides that a number of amounts are to be paid out of the settlement sum and the balance is then to be distributed to the participating group members in accordance with certain assessment provisions and formulae.

53    The amounts that are to be deducted from the settlement sum are: amounts payable to the Plaintiffs to reimburse them for the time and money expended by them as representative plaintiffs; the total amount payable in respect of the Plaintiffs’ legal costs and disbursements, including future costs and disbursements; the amount payable in respect of the administration costs of the administrator; and a “Project Management Fee” payable to the litigation funder, ILP.

54    After those amounts are paid out of the settlement sum, the amounts to be paid to the participating group members are then to be calculated in accordance with a “Loss Assessment Formula”. Importantly, the Loss Assessment Formula incorporates a “funding equalisation factor” which adjusts the assessment of the losses recoverable by the unfunded group members to take account of the fact that the funded group members are liable to pay a funding commission to ILP pursuant to the funding agreements.

55    It is necessary to consider each of these elements of the Settlement Distribution Scheme separately.

Reimbursement payments to the Plaintiffs

56    The Settlement Distribution Scheme provides for the payment of amounts to the Plaintiffs to compensate them in respect of the time and expense incurred by them in prosecuting the proceeding, as representative plaintiffs, for the benefit of the group members as a whole. These amounts are to be paid out of the settlement sum. As it turns out, the reimbursement payments are relatively small: $3,000 in respect of the First Plaintiff, HFPS, and $2,000 in respect of the Second Plaintiff, Roslyndale. Evidence has been adduced to explain how those amounts were arrived at. The reasonableness of these proposed payments will be briefly addressed later.

Legal Costs

57    Both the settlement deeds and the Settlement Distribution Scheme contemplate or provide for the payment of the Plaintiffs’ legal costs from the settlement sum before the distribution of the settlement monies to the participating group members. The effect of paying the legal costs out of the settlement sum in this way is to ensure that the costs are paid equally by all group members. That is despite the fact that the group members, other than the Plaintiffs, did not enter into retainer agreements with the Plaintiffs’ solicitors.

58    The approval application seeks an order, pursuant to s 33ZF of the FCA Act, that the Plaintiffs’ costs be approved in such amount as is verified as reasonable in the report of an independent costs expert filed by the Plaintiffs. More will be said later concerning the opinion of the Plaintiffs’ costs expert and the relevant legal principles relevant to the Court’s consideration of legal costs in the context of an approval application. Suffice it to say at this stage that total legal costs, including an estimate of future legal costs, of between $3,395,310.01 and $3,420,978 were assessed as reasonable. The difference between these two figures was due to a slightly different estimate of future costs. For more abundant caution, the higher estimate will be accepted for the purposes of considering the reasonableness of the settlement.

59    It should also be noted that, as the Plaintiffs’ legal costs were paid by ILP as litigation funder as the matter proceeded, ILP will receive most of this payment by way of reimbursement.

Administration Costs

60    The Settlement Distribution Scheme provides for the payment of the costs incurred by the administrator (the Plaintiffs’ solicitor) in administering the settlement scheme. The likely administration costs have been estimated as being $275,000. The costs expert retained by the Plaintiffs considered this estimate to be a reasonable estimated forecast of these costs.

The Project Management Fee payable to ILP

61    Each of the litigation funding agreements signed by the 14 participating group members provided that the funded group member would pay ILP two amounts: first, a fee, called the Project Management Fee, calculated as 12.5% of the total legal costs; and second, commission, calculated as a percentage of the group member’s recovery. The Settlement Distribution Scheme deals with these two payments in different ways.

62    The Project Management is defined as being ILP’s provision of management services. Those services include, in brief terms, advising the funded group member on strategy, coordinating service providers, including solicitors and barristers, providing “day to day instructions” to the solicitors and facilitating non-litigious means of resolving the claims.

63    Even though only funded group members are contractually obliged to pay ILP the Project Management Fee, the Settlement Distribution Scheme provides that an amount representing 12.5% of the total of the Plaintiffs’ legal costs is to be paid from the settlement sum in respect of ILP’s Project Management Fee. The effect is that, much like the Plaintiffs’ legal costs, all group members, including unfunded group members, contribute equally to the payment of the Project Management Fee. The reasonableness of that aspect of the scheme, and the reasonableness of the payment generally, is addressed later.

The Loss Assessment Formula and funding equalisation

64    The Settlement Distribution Scheme incorporates a Loss Assessment Formula which is used to calculate the amount that each group member is entitled to receive from the settlement sum, after the deduction of the Plaintiffs’ reimbursement payments, the administration costs, the Plaintiffs’ legal costs and the Project Management Fee. The calculation involves effectively three steps: first, a calculation of each group member’s loss arising from their purchase of Tamaya shares; second, the application of a “funding equalisation factor”, which has the purpose of ensuring that funded group members and unfunded group members are treated equally in relation to the payment of a funding commission to ILP; and third, the calculation of an “adjustment factor” to reflect the fact that the proceeding has been settled for an amount that is less than the aggregate claims of all participating group members.

65    In relation to the first element of the formula, the calculation of each group member’s loss is relatively straightforward. In simple terms, the methodology employed in calculating each group member’s loss reflects the Plaintiffs’ “no transaction” causation case referred to earlier. The loss suffered by a group member is calculated as being the value of the Tamaya shares purchased by the group member under the SIP or SPP, less the value of the Tamaya shares sold by the group member. That would appear to be a reasonable basis for calculating the loss.

66    The second element, the funding equalisation factor, is a critical element of the Loss Adjustment Formula. That is because its effect, in general terms, is that the unfunded group members will indirectly fund the commission payments that the funded group members are required to make to ILP pursuant to their litigation funding agreements. As noted earlier, the commission payable by the funded group members is calculated as a percentage of their recoveries. In the case of all but one funded group member, the applicable percentage was 42.5%. One funded group member managed to secure a more advantageous agreement with ILP; it agreed to a percentage of 35%. That is because that group member (Ingalls & Snyder) was the only group member who purchased 50 million or more Tamaya shares pursuant to the SIP, and was therefore the largest shareholder of the potential group members. In the circumstances, Ingalls’ bargaining power may well have been that it could have commenced its own proceedings without joining the representative proceeding.

67    The funding equalisation factor effectively reduces the assessment of the loss claimable by unfunded group members under the scheme by an amount reflecting the commission that they would have been liable to pay ILP if they had entered into funding agreements. The formula, in simple terms, is that the unfunded group member’s “equalised loss” is calculated by multiplying the unfunded group member’s assessed loss, calculated in accordance with the first element of the Loss Assessment Formula, by 0.575 (reflecting commission of 42.5% payable by all funded group members other than Ingalls & Snyder) or 0.65, if the group member (like Ingalls & Snyder) acquired 50 million or more Tamaya shares under the SIP or SPP (reflecting a commission of 35% payable by Ingalls & Snyder). Needless to say, this funding equalisation formula is not applied to calculate the equalised loss of funded group members. That is how the funding equalisation factor effectively results in the unfunded group members indirectly contributing to the funded group members’ payment of commission to ILP.

68    It should be noted, in this context, that it has generally been accepted, in the context of approving settlements of representative proceedings, that fairness may require that group members who have entered into funding agreements should not end up in a worse position than group members who have not: Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (in Liq) [2015] FCA 811; (2015) 325 ALR 539 at [147]; Dorajay v Aristocrat Leisure [2009] FCA 19 at [17]; P Dawson Nominees v Brookfield Multiplex (No 4) [2010] FCA 1029 at [28]; Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626 at [58]. Different formulas may be employed, or different orders made, to achieve equality and fairness between funded and unfunded group members in this regard. The employment of formulas which produce a similar result to the funding equalisation factor employed in the Loss Assessment Formula have been considered and approved in past settlement approvals in this Court.

69    Another method of securing equality between funded and unfunded group members in this context is the so-called “common fund” approach. The terms of both the Director Deed and the Deloitte Deed appear to contemplate that the Plaintiffs would seek common fund orders. In simple terms, under the common fund approach, unfunded group members are effectively required to pay to the litigation funder, from the proceeds otherwise payable to them, an amount in respect of costs and commission which is essentially the same as the amount that would have been payable to them if they had entered into the funding agreements that had been entered into by the funded group members. In general terms, the group members as a whole are often better off, and the litigation funder often receives less, under the funding equalisation method, as opposed to the common fund approach. That is, however, not always the case: see Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers and Managers Appointed) (in Liq) (No 3) [2017] FCA 330 at [155]. As will be seen, it is the case in this matter.

70    The reasonableness of both the percentage commission payable to ILP, and the funding equalisation factor, is considered in detail later.

71    The third and final element of the Loss Assessment Formula reflects the fact that the settlement sum is less than the aggregate claims (equalised loss) of the participating group members. The “adjustment factor” is calculated by dividing the amount available in the distribution fund (after crediting any interest and after deducting the Plaintiffs’ reimbursement payments, the Plaintiffs’ costs, the administration costs and the Project Management Fee) by the equalised loss of all participating group members. Each group member’s entitlement is calculated by multiplying the group member’s equalised loss by the adjustment factor.

Estimate of amounts payable to ILP

72    On the assumption that the legal costs referred to earlier are approved as being reasonable, the Project Management Fee payable to ILP will be $427,622.25.

73    The commission to be paid to ILP by the funded group members is estimated to be $725,091.00.

74    The total amount payable to ILP, on top of the reimbursement of the Plaintiffs’ legal costs, is accordingly $1,152,713.25.

The estimated return to the participating group members

75    As has already been noted, the settlement sum totalled $6,750,000. The Settlement Distribution Scheme requires the following estimated amounts to be paid out of that sum: $3,420,978 in respect of legal fees; $427,622 payable to ILP representing the Project Management Fee; a total of $5,000 payable to the Plaintiffs in respect of reimbursement payments; and $275,000 payable to the scheme administrator (the Plaintiffs’ solicitors) in respect of administration costs.

76    Evidence was led on a confidential basis concerning the calculations made in accordance with the Loss Assessment Formula. As has already been noted, the commission to be paid by funded group members is estimated to be $725,091.00. Beyond that, it is sufficient, for present purposes, to record that the amount available for distribution to group members, after the payment of the commission to ILP by the funded group members, is estimated to be $1,896,308. That represents a recovery for participating group members of approximately 13.9% of their aggregate loss calculated in accordance with the Loss Assessment Formula.

Approval of settlements – relevant principles

77    The principles that apply in relation to the approval of the settlement of a representative proceeding under s 33V of the FCA Act are now well-settled. In Stanford v DePuy International Ltd (No 6) [2016] FCA 1452, the relevant principles were summarised in the following terms (at [113]-[121]).

First, in approving a settlement the central question is whether the proposed settlement is fair and reasonable and in the interests of group members considered as a whole: Australian Competition and Consumer Commission v Chats House Investments Pty Limited (1996) 71 FCR 250 at 258 C; Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925; (2000) 180 ALR 459 at [19]-[23]; Lopez v Star World Enterprises Pty Ltd [1999] FCA 104 at [15]; Camilleri v The Trust Company (Nominees) Limited [2015] FCA 1468 at [5].

Second, there is no definitive or exhaustive list of factors that must or may be taken into account in approving a settlement. The merits of each settlement must be considered having regard to the particular facts and circumstances of the case. Approval should not be approached in a formulaic way, as if there is a “check-list” of factors that need to be ticked-off: Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd & Ors (No 2) [2006] FCA 1388; (2006) 236 ALR 322 at 333-335 [33]-[35]. Nevertheless, the factors that are likely to be relevant include: the complexity and duration of the litigation; the stage of the proceedings; the risks and prospects of success of establishing liability and damages; the risks of an appeal; and the reasonableness of the settlement in light of the “best case” recovery and the attendant risks of litigation: see generally Williams at [19]; Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 at [11] and [13].

Third, in relation to the risks and prospects of success of establishing liability and damages, some weight, and perhaps considerable weight, should be given to the judgment and tactical and other decisions made by the parties and their legal representatives. The task of the Court is not to “second-guess” or go behind those judgments and decisions. Rather, it is to assess the reasonableness of those decisions having regard to the known and knowable facts and circumstances: Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 6) [2011] FCA 277 at [22], quoting Darwalla Milling at 339 [50]; Modtech at [12].

Where settlement is reached prior to judicial determination, the assessment of the proposed settlement must be undertaken mindful of the unpredictability of the applicant’s and group members’ fate. In those circumstances, the settlement must be viewed as a pragmatic compromise to the relevant claims. In that regard, the Court should be mindful of the fact that the parties and their legal representatives are often in a better position to appreciate the risks, and also mindful of the fact that different parties and their lawyers will have different appetites for risk: Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323 at [74].

Fourth, approval of a settlement should not be approached as if there is a single outcome that may be seen to be fair and reasonable. Reasonableness is a range, and the question is whether the proposed settlement falls within that range having regard to the known facts and circumstances, not whether it is the best outcome which the Court considers might have been achieved: Darwalla at 339 [50]; Kelly v Willmott Forests at [74].

Fifth, that principle applies both to the reasonableness of any settlement sum and the reasonableness of the structure and workings of any settlement scheme by which a settlement sum is proposed to be distributed among group members. In relation to schemes for the distribution of a settlement sum among group members, a particular concern of the Court is to ensure that the interests of one group member, or one class of group members (in particular the representative applicant or applicants) is not preferred over the interests of other group members: Chats House at 258 C; Rod Investments (Vic) Pty Ltd v Abeyratne [2010] VSC 457 at [19]. The scheme should operate to achieve a broadly fair division of the settlement sum, treating like group members alike; it should also operate as cost-effectively as possible: Mercieca v SPI Electricity Pty Ltd [2012] VSC 204 at [37]-[39].

Sixth, there is no definitive or exhaustive list of the factors that may lead the Court to refuse to approve a proposed settlement. The types of factors that may lead the Court to conclude that a proposed settlement is not fair and reasonable and in the interests of group members as a whole include: where the settlement involves group members being bound to terms that may have an adverse effect on them that go beyond the claims and defences in the representative proceedings, or where the adverse effect is not balanced by any proposed benefit under the settlement; where preparation of the proceedings has been adversely affected by funding or other difficulties not disclosed to group members; where potential conflicts of interest are not properly recognised and addressed in the course of the settlement application; where less than the whole of the costs of the proceeding have been scrutinised and are proposed to be the subject of reimbursement through the settlement fund; and where the prospects of success of the claim are not properly laid before the Court: see Kelly v Willmott Forests at [6]-[12].

Seventh, in assessing the fairness and reasonableness of the costs component of a proposed settlement, the Court takes a pragmatic approach, seeking some independent verification of the reasonableness of the costs claimed, but not imposing an onerous or exhaustive task upon an applicant: Courtney v Medtel Pty Ltd (No 5) [2004] FCA 1406; 212 ALR 311. The Court’s task is not to perform a taxation of the fees. Rather, the Court considers whether the fees and disbursements are unreasonable in any respect having regard to, amongst other things, the nature of the work performed, the time taken to perform the work, the seniority of the persons undertaking the work and the appropriateness of the charge out rates of those persons: Modtech at [32]. The Court should not approve an amount that is disproportionate, but such an assessment cannot be made on the simplistic basis that the costs claimed are high in absolute terms, or high as a percentage of the total recovery: Foley v Gay [2016] FCA 273 at [23]-[24].

Eighth, the absence of any objection or opposition to the settlement by any group member or group members is a highly relevant consideration, at least where the Court is satisfied that all group members have been given timely notice of the critical elements of the settlement: P Dawson Nominees Pty Ltd v Brookfield Multiplex Limited (No 4) [2010] FCA 1029 at [23]; Camilleri at [5(f)]. The same reasoning would most likely apply where only a very small proportion of the group members have objected.

Should the settlement be approved?

78    The main factors that are relevant in considering whether the overall settlement should be approved are: first, the reasonableness of the settlement sums having regard to the particular features of the litigation, including the risks and prospects of success; second, the reasonableness of the amounts to be paid to the litigation funder; third, the reasonableness of the legal fees; fourth, the fairness and reasonableness of the means by which the amounts payable to group members are to be calculated and assessed, as well as the reasonableness of the overall return to the group members; and fifth, the attitude of the group members to the settlement.

The reasonableness of the settlement sum

79    The “best case” recovery for the Plaintiffs and group members appeared to be somewhere in the vicinity of $30 million. In light of that, was the total settlement sum of $6.75 million a reasonable compromise of the group members’ claims, having regard to all the known facts and circumstances? There are a number of relevant factors to consider in addressing this question.

80    First, this was unquestionably a complex and difficult case. That would be readily apparent from the summary of the Plaintiffs’ claims and the tortuous procedural history summarised earlier. The Plaintiffs encountered a number of procedural and evidentiary hurdles and setbacks throughout the course of the litigation.

81    Second, and following from the first factor, the Plaintiffs and group members faced considerable litigation risks. Those litigation risks were considered at great length in the comprehensive, thorough and well-reasoned joint opinion of counsel, which was tendered on a confidential basis on this application. Needless to say, the opinions of counsel in relation to the litigation risks are to be given considerable weight.

82    Much of what has been said in the joint opinion concerning the risks faced by the Plaintiffs and group members in establishing liability must remain confidential and cannot be referred to in these reasons. It is sufficient to say that counsel’s opinion was that, while there were good prospects of establishing liability against Tamaya and the Directors, there remained a considerable risk in actually recovering any significant award of damages from those parties. The opinion of counsel concerning the prospects of establishing liability against Deloitte was, perhaps understandably, somewhat more guarded. All that can be said, without disclosing any of the confidential aspects of counsel’s opinion, is that counsel were of the opinion that it was “open” to the Court to have found that there were some deficiencies in the Deloitte Parties’ conduct of the Tamaya audit. Counsel noted, however, that Deloitte had guarded against any adverse findings concerning the Tamaya audit by pleading proportionate liability, which could in counsel’s opinion have resulted in an amount of damages in the range of 50% to 75% being apportioned to the Directors and Tamaya. That would increase the recovery risks referred to earlier.

83    Counsel also refer to two other issues relevant to litigation risk that can be referred to without unduly transgressing the confidentiality orders made in respect of the joint opinion. First, counsel conceded that there was a significant evidentiary risk in establishing the Plaintiffs’ “no transaction” case: that, but for the contravening conduct, the SPP and SIP would not have gone ahead. This was the Plaintiffs’ primary case and, if made out, would have given rise to the largest recovery. Second, the Plaintiffs’ primary case in relation to reliance loss and damage was based on so-called “indirect reliance” or “market based causation”: cf. Caason Investments Pty Ltd v Cao (2015) 236 FCR 322; Re HIH Insurance Ltd (in Liq) [2016] NSWSC 482; (2016) 335 ALR 320 at [71]-[78]. Counsel considered that the law in relation to indirect reliance, at least at the appellate level, remained somewhat uncertain and thus any finding based on indirect causation would almost certainly have been the subject of appeal. Counsel also considered that there remained some evidentiary hurdles in establishing that the contravening conduct resulted in the Tamaya shares trading at an inflated price at the time they were purchased by the Plaintiffs and group members. Equally, if it was necessary to fall back on the pleaded direct reliance case, counsel acknowledged that there was a material risk of not establishing direct reliance on the part of all group members.

84    The third factor to consider in assessing the reasonableness of the settlement sum, which again largely flows from the nature and complexity of the proceedings, is that if the matter did not settle (or if the settlement is not approved), the contested hearing could exceed three weeks and result in the incurring of significant further legal costs.

85    Counsel ultimately expressed the opinion that the proposed settlement of $6.75 million fell within the range of fair and reasonable outcomes. It was a fair and reasonable compromise in all the circumstances, having regard in particular to the complexity of the matter, the litigation risks and likely outcomes and the costs savings inherent in the compromise. As already indicated, considerable weight should be afforded to this opinion. The careful and detailed analysis of counsel should be accepted. There is no reason to doubt it or otherwise second guess their judgement or opinion.

The amounts to be paid to ILP

86    The total amount payable to ILP under the terms of the settlement raises a significant issue concerning the reasonableness of the overall settlement. Under the terms of its funding agreements with the funded group members, ILP is entitled to a commission of 42.5% of the amount recovered, or 35% in the case of Ingalls & Snyder. The funding equalisation factor employed in the Loss Assessment Formula adjusts the assessment of the amounts claimable by the funded and unfunded group members so that the unfunded group members effectively contribute to the payment of the commission to ILP. In the end result, it is estimated that ILP will receive a commission payment of about $725,091. It will also receive a Project Management Fee payment estimated at $427,622.35. That will result in an estimated total return to ILP of $1,152,713. That may be compared with the total distribution to group members, being $1,896,308. Is that fair and reasonable?

87    That question raises a number of issues. The first concerns the reasonableness of a litigation funder’s commission calculated on the basis of 42.5% of recoveries. The second concerns the fairness of the funding equalisation factor, as part of the Loss Assessment Formula. The third concerns the reasonableness of the Project Management Fee. The fourth is whether the overall payment to be made to ILP is fair and reasonable in all the circumstances, or provides an impediment to the approval of the settlement. The fifth, which only arises if the amount to be paid to ILP is an impediment to the approval of the settlement, concerns whether the Court has the power to vary the amount payable to ILP.

88    In relation to the funding commission of 42.5%, in Earglow Pty Ltd v Newcrest Mining Ltd [2016] FCA 1433 at [166]-[177], Murphy J analysed in some detail the funding commissions in a range of other cases under Part IVA of the FCA Act and the commissions that are available and common in the litigation funding market. In Blairgowrie (No 3), Beach J referred to that analysis and added some further detail. It is unnecessary to repeat or add to what either Murphy J or Beach J said in those cases. Suffice it to say that the cases and other materials tend to show that the range of funding commission charged in past representative proceedings is roughly 30% to 40%. A funding commission of 42.5% is at the very top of, or slightly exceeds, that range. Most cases involve a commission less than 42.5%.

89    The Plaintiffs adduced affidavit evidence from Mr Jason Geisker, a principal employed by the Plaintiffs’ solicitors, who is a solicitor with considerable experience in representative proceedings. He expressed the opinion that the commission percentage contained in ILP’s funding agreements in this matter was fair and reasonable. Despite Mr Geisker’s obvious experience and qualifications as a class actions solicitor, this opinion evidence is deserving of little weight. It is true that it was essentially unchallenged as there is no contradictor. Nevertheless, it appears to be based entirely on Mr Geisker’s knowledge and experience of the usual range of commission charged by litigation funders. While the Court has approved settlements that involve commissions that fall within the general range referred to by Mr Geisker, it does not follow that the Court has necessarily or explicitly approved the percentage commission figures in those cases, let alone the range. It certainly does not follow that the Court will necessarily approve commission payable to a funder simply because the percentage charged falls within that supposed range.

90    One difficulty with relying on a range suggested by previous cases is that the litigation funders themselves set the rates and therefore effectively establish the range. It becomes self-perpetuating. It would also appear, anecdotally at least, that the top of the range appears to have been gradually ratcheted up in recent years. There may be a commercial explanation for that, but in the absence of any evidence it is difficult to see why that might be so. An appropriate case may well arise in the future where it may be necessary for the Court to require evidence to be adduced from a senior officer of a litigation funder concerning the setting of commission rates. It might also be appropriate for the Court to appoint a contradictor so the evidence can be properly examined and tested. As will be seen, however, this was and is not such a case.

91    Counsel for the Plaintiffs referred to a number of factors that, in their submission, supported ILP imposing a 42.5% commission. Mr Geisker also referred to those factors in his evidence. They included that: the proceedings were commenced shortly prior to the expiry of the limitation period and thus raised limitation issues; the proceedings involved claims against a company in liquidation and its directors, the recovery against whom was largely limited to such recoveries that could be obtained from applicable insurance policies; the proceedings involved claims against auditors who were well-funded and had a reputational interest in defending the claims vigorously; ILP was likely to be required to, and as events transpired ultimately was required to, provide substantial security for costs; the legal costs likely to be incurred and paid, in the first instance, by ILP were likely to be substantial; and ILP assumed the risk of adverse costs orders in the event that the proceedings were unsuccessful. For better or for worse, however, most of those factors are generally present in most securities related representative proceedings. They are hardly unique to this case.

92    If a consideration of the fairness and reasonableness of amounts payable to a litigation funder rested entirely on a consideration of the percentage commission charged by the funder, it would be difficult to see why, in the circumstances of this case, a commission of 42.5% would necessarily be considered to be fair and reasonable or otherwise justifiable. The fact that it might be within, or only just exceed, the range of commission charged by litigation funders in past cases is certainly not determinative, and indeed is not even particularly persuasive. While views about such matters may differ, and the issue should not turn on the possibly idiosyncratic subjective views of individual judges about such matters, a commission rate of 42.5% could be seen by some as bordering on exorbitant, if not extortionate, particularly in circumstances where the funder is also to receive an additional substantial payment by way of a Project Management Fee.

93    In any event, the appropriateness or reasonableness of amounts to be paid to a litigation funder, in the context of a s 33V approval application, ordinarily does not hinge exclusively on a consideration of the percentage commission that the funder has demanded. Much will depend on the particular facts and circumstances of the case, including the potential recoveries to which the percentage figure is likely to be applied: Blairgowrie at [156]. In the present case, there are a number of particular circumstances that need to be factored into the equation.

94    First, because the Settlement Distribution Scheme utilises a funding equalisation factor or formula, rather than a common fund approach, the unfunded group members do not directly pay ILP a commission of 42.5%. As indicated earlier, in simple terms the funding equalisation formula operates by “equalising” the unfunded group members’ claimable losses by effectively deducting from the loss otherwise claimable an amount referable to a commission of 42.5% (or in some cases 35%). The formula does not produce a result whereby the overall commission payable to ILP is 42.5% of the aggregate amount recoverable by all group members, as would be generally be the case, for example, where a common fund order is made. The result, in the present case, is that the commission in fact payable to ILP (estimated at $725,091) works out at just under 28% of the amount available for distribution to group members after the deductions provided for in the Settlement Distribution Scheme ($2,621,400). If a common fund type order was made with a commission of 42.5% applied across recoveries by all group members, the commission payable to ILP would have been $1,114,095.

95    Second, as it turns out, the amount of commission ultimately payable to ILP in dollar terms is not a particularly large amount given the commercial risk it was exposed to in funding the litigation. The reason that the amount payable to ILP is not particularly large is because, relatively speaking, the settlement sum is not particularly large. It is certainly significantly less than the best case recovery scenario that was no doubt envisaged at the commencement of the proceedings. The reasons that the settlement sum is not particularly large are addressed earlier in the context of a consideration of the reasonableness of the settlement sum. Different considerations may have applied if the settlement sum had been significantly larger, because in those circumstances the commission payable to ILP would of course have been a much larger amount.

96    Third, if the percentage commission had been 35%, which is a figure well within the range revealed by past cases, the difference, in dollar terms, in the amount of commission payable to ILP is not significant. If ILP’s funding agreements in this matter had charged a commission rate of 35%, the commission payable to ILP, after the application of the funding equalisation formula, would have been approximately $659,806 – only about $65,000 less than the amount actually payable at a rate of 42.5%. This again is, in large part, a product of the fact that the settlement sum is not particularly large. Had the settlement sum been larger, the position would no doubt have been different.

97    Finally, some weight should be given to the fact that no group member has objected to the settlement. It follows that no group member has taken exception to the amount of commission that ILP will receive from the settlement. That is significant, though as noted later, there are some reasons why the absence of any objections should perhaps be given less weight in this matter than might sometimes be the case.

98    On balance, and having regard to those four considerations, while the percentage commission payable to ILP under the funding agreements is very high, and possible exceeds the general range of commissions that have been paid to litigation funders in past cases, the commission ultimately payable to ILP in dollar terms is not unfair or unreasonable.

99    It also follows from what has already been said that the utilisation of the funding equalisation factor, as part of the Loss Assessment Formula, is fair and reasonable. It would, of course, be quite inequitable and unfair for the funded group members to bear the entire cost of securing litigation funding from ILP. There could be little doubt that if a number of group members had not signed funding agreements with ILP, and ILP had not agreed to fund the litigation, the claims against Tamaya, the Directors and the Deloitte parties would most likely have remained unlitigated. There would have been no settlement sum to distribute between group members. It would be inequitable for the unfunded group members to be permitted to share in the fruits of the settlement of the litigation without adjusting their recoveries to take into account the commission and fees payable to ILP by the Plaintiffs and funded group members.

100    As indicated earlier, two different ways of achieving equality as between funded and unfunded group members are frequently employed in the settlement of funded representative proceedings. The first approach is the common fund approach. The second is the utilisation of a funding equalisation formula. The basic differences between these approaches were addressed earlier. The approach chosen in the settlement of this matter was the funding equalisation approach. Confidential evidence was adduced on the Plaintiffs’ behalf which established that the utilisation of the fund equalisation approach in this settlement was beneficial to the group members: it resulted in a lower overall commission payment to ILP and a larger amount available for distribution to the group members. That may not always be the case with funding equalisation formulae, but it is in this matter.

101    As for the reasonableness of the Project Management Fee. It appears to now be standard practice for litigation funders to include in their funding agreements a fee for managing the litigation, in addition to their commission. That fee is generally charged as a percentage of the legal fees. Mr Geisker’s evidence was that, in his experience, such project management fees generally ranged from 10% to 25%. In the present case, the Project Management Fee is 12.5% and, based on the estimated legal fees, is expected to total $427,622.35.

102    At first blush, the addition of a fee calculated on the basis of 12.5% of the legal fees, on top of a commission of 42.5% of recoveries, would seem exorbitant. For the reasons given earlier in the context of the funding commission, the mere fact that the fee may be within a range set by litigation funders in past cases is not, by itself, a particularly compelling circumstance. While it may have become commonplace for litigation funders to charge both a substantial commission and a substantial fee based on legal costs, it does not follow that this is necessarily justifiable or reasonable. In the particular circumstances of this case, however, and given in particular the somewhat turbulent, if not tumultuous, course of the litigation, a management fee of $427,622.35 could not necessarily be considered to be unreasonable or excessive: at least not to the point of providing a reason not to approve the settlement. The reasonableness of the legal fees, which provide the basis for the calculation of the Project Management Fee, is addressed later.

103    A final point to note concerning the Project Management Fee is that, unlike the commission payable to ILP, the project management fee is directly deducted from the settlement sum. It is not included in the funding equalisation calculations. That is not unreasonable in the particular circumstances of this case. It is fair and reasonable that the Project Management Fee is treated much like the Plaintiffs’ legal fees, with each group member paying a share, despite the fact that the unfunded group members did not enter into funding agreements with ILP. Given the size of the fee, it would have been unnecessarily complex to include the Project Management Fee in the funding equalisation calculations.

104    As for the total amount to be paid to ILP, it has been accepted that, separately considered, both the commission and the Project Management Fee payable to ILP are not unfair or unreasonable in all the circumstances. Does it necessarily follow that the total amount payable to ILP is fair and reasonable? As already indicated, the total amount payable to ILP is $1,152,713, whereas the amount available for distribution to the group members is $1,896,308. It can readily be seen that ILP’s overall return from funding the litigation is only a little less than half the amount that will ultimately be distributed between the group members. That is a matter of some concern.

105    If the amount to be paid to ILP was found to be unfair, unreasonable or excessive, it would appear that the Court would have power under s 33V(2) to make orders which had the effect of adjusting or reducing the amounts to be distributed to a litigation funder under a settlement. Section 33V(2) empowers the Court to make “such orders as are just with respect to the distribution of any money paid under a settlement”. Obiter observations in Earglow Pty at [134] (Murphy J), Blairgowrie (No 3) at [101] (Beach J) and Mitic v OZ Minerals Limited (No 2) [2017] FCA 409 at [29]-[31] (Middleton J) provide some support for the proposition that the power in s 33V(2) is wide enough to enable the Court, in a case such as the present, to order that a lesser sum be distributed to the funder under the terms of the settlement than would otherwise have been the case if the commission rate provided in the funding agreements was strictly applied.

106    Ultimately, however, this is not an appropriate case to utilise s 33V(2) to reduce the amount that would otherwise be distributed to the litigation funder under the terms of the settlement. While the total amount to be paid to ILP in this matter is large, and comprises a relatively large proportion of the settlement sum, it is nevertheless not unreasonable or unfair in all the circumstances. The Court should be reluctant to intervene and vary payments to a litigation funder in such circumstances, particularly in the absence of any objection from any group member. The amount payable to ILP is not, on balance and in all the circumstances, unjust, unfair or unreasonable. It does not provide any impediment to the approval of the settlement on the agreed terms.

Legal fees and disbursements

107    Some concern was expressed earlier about the amount that is to be distributed to the litigation funder under the terms of the agreement. The quantum of the legal fees payable to the Plaintiffs’ solicitors is also a matter of some concern. As indicated earlier, the legal fees payable out of the settlement sum, if found to be reasonable, are likely to amount to $3,420,978. The legal fees will therefore represent just over 50% of the settlement sum. At first blush, the legal costs would appear to be disproportionate to the amount recovered under the settlement.

108    While the Court should not approve an amount in respect of legal costs which is disproportionate, such an assessment cannot or should not be made on the simplistic basis that the costs claimed are high in absolute terms, or high as a percentage of the total recovery. As Beach J pointed out in Foley v Gay [2016] FCA 273, proportionality looks to the expected realistic return at the time the work being charged for was performed, not the known return at a time remote from when the work was performed. Hindsight bias must be avoided.

109    There is nothing to suggest that the costs ultimately incurred are disproportionate to the expected realistic return at the time that the legal work was performed. The expected return from the litigation appears to have been $30 million. At least that was the best case recovery scenario. That expected return significantly exceeded the amount for which the proceeding was ultimately agreed to be settled. The litigation was complex, difficult and hard fought. As has already been said, the proceedings did not run particularly smoothly or according to plan insofar as the Plaintiffs were concerned. They encountered some significant procedural and evidentiary problems. Those problems, or at least some of them, were likely to have played a role in the settlement of the matters for less than was initially thought or expected to be the realistic outcome. That is not entirely unheard of or unusual in difficult and complex commercial litigation.

110    The Plaintiffs’ solicitors retained an independent costs assessor, Mr Ramsey-Stewart, to consider, amongst other things, the reasonableness of the fees and disbursements incurred by the Plaintiffs. Mr Ramsey-Stewart’s report was tendered in support of the approval application. He expressed the ultimate opinion that total legal costs, inclusive of professional costs and disbursements, together with future estimated legal costs, inclusive of GST, in the range of $3,395,310.01 to $3,420,978 were reasonable.

111    The Court’s role in approving a settlement does not include performing an assessment or taxation of legal costs. Since no group member objected to the settlement, and there was no contradictor, Mr Ramsey-Stewart’s opinion and the reasoning and analysis that lay behind it was not tested in the adversarial sense. Nevertheless, careful attention was given to the report. It would appear that the questions asked of Mr Ramsey-Stewart were reasonable and apposite, the materials provided to him were sufficient, and the methodology adopted and applied by him was, in general terms, commercial and reasonable. His reasoning was transparent, comprehensive and logical. There is, in short, no apparent reason to reject his opinions and conclusions. Nor is there any basis to substitute the Court’s own subjective assessment of a reasonable amount for legal costs for the amounts verified as reasonable by Mr Ramsey-Stewart.

112    In all the circumstances, the legal costs of $3,420,978 are fair and reasonable and should be approved.

The return to participating group members

113    The fairness of the return has already been largely addressed in the context of the consideration of the reasonableness of the settlement sum. Only a few additional points need be made.

114    First, it will be apparent from what has already been said that the amount that will be available for distribution to participating group members, as determined by the Settlement Distribution Scheme, is low in both percentage and absolute terms. Group members will recover approximately only 13.9% of their aggregate losses, representing $0.016 per Tamaya share purchased. It will be recalled that the Tamaya shares were offered at $0.115 under the terms of the SPP and SIP. On just about any view, that represents a low return to the group members from the litigation.

115    The low return to shareholders is in part due to the size of the legal fees and payments to ILP. The primary reason, however, would appear to be that the Plaintiffs’ case did not fare particularly well and the settlement sum was therefore less than the recovery that may have been reasonably expected when the proceedings were commenced. For the reasons already given, the settlement sum was reasonable in all the circumstances. As also discussed in detail earlier, the legal fees and the payments to ILP are also fair and reasonable.

116    Second, again for the reasons already given, the manner in which the settlement sum is to be distributed to the group members under the Settlement Distribution Scheme is fair and reasonable. Most importantly, it does not in any way unfairly or unreasonably discriminate between different group members, or classes of group members.

117    Third, despite the relatively low return to group members, no group member has registered any objection to the settlement on that basis.

Late-registering group members

118    It is also necessary, in the context of considering the return to the group members, to consider whether the Court should permit the late-registering group members to participate in the settlement and receive a distribution pursuant to the Settlement Distribution Scheme. The orders made on 12 July 2016 envisaged that later-registering members would not be permitted to participate unless the Court so ordered.

119    At the time of the hearing, 14 registration forms had been received after the 31 August 2016 cut-off date. The forms represented 17 potential group members. Most of those late registration forms were received within days, or at least a fortnight, of the cut-off date. The Plaintiffs’ solicitor contacted each of those group members and asked them for an explanation of their late registration. With the possible exception of one group member (identified as X41954), each of the group members subsequently provided an explanation. Those explanations appeared to be reasonable. It is unnecessary to discuss them in detail. Suffice it to say that most of the explanations revolved around the fact that, for one reason or another, the Opt Out and Settlement Notice did not come to the group member’s attention until shortly before, or just after, the cut-off date. The one group member who had not provided an explanation had only been contacted shortly prior to the hearing. It may be that they have since provided an explanation. The Plaintiffs did not oppose the late-registering group members being allowed to participate in the settlement.

120    The addition of the 17 late registering group members will, of course, affect the amount that each group member will receive by way of distribution. The evidence suggests, however that the impact of permitting these group members to participate is relatively insignificant. In those circumstances, and having regard to the fact that the relevant delay was not great and, with one exception, reasonable explanations were forthcoming, each of the 17 late-registering group members whose registration forms had been received by the Plaintiffs’ solicitors prior to the hearing of the approval application should be permitted to participate in the settlement.

Objections

121    As has already been adverted to, despite having been given reasonable notice of the terms of the proposed settlement, and the various options available to them, no group member lodged any objection to the proposed settlement. No group member appeared at the hearing of the approval application to register any objection to the approval of the settlement. The absence of any objection or opposition to the proposed settlement is a relevant consideration and, in the circumstances of this matter, should be afforded considerable weight.

122    Only one note of caution need be expressed in relation to the fact that there were no objections to the proposed settlement. By the time group members received notice of the proposed settlement in mid-2016, about 8 years had passed since the time the group members had suffered losses arising from their acquisition of shares in Tamaya. Putting the funded group members to one side, it is likely that many, if not most, of the group members were either largely unaware of the proceedings, or at the very least were not engaged in any way with the proceedings. It is a fair inference that many of them had not turned their mind to the prospect of seeking or obtaining redress, or had simply given up any hope or expectation of ever receiving recompense in respect of their losses. That inference is supported by the evidence concerning some of the responses to the notice of the proposed settlement received by the Plaintiffs’ solicitors. The evidence was that many group members expressed surprise in being notified of the settlement and in the prospect of recovering any of their losses given the time that had passed since Tamaya went into liquidation.

123    It is perhaps not surprising, in those circumstances, that there were no objections. Some group members may well have simply reasoned that it was acceptable to receive anything given that they had perhaps all but given up hope of receiving any recompense for the losses incurred from their failed investment in Tamaya. Others may have simply reasoned that there was little point in objecting to the settlement, or that the expense and effort in lodging an objection and appearing at the approval hearing was simply not justified. Either way, the fact that there were no objections cannot necessarily be taken to amount to active approval of the settlement. It may partly be explained by disinterest or apathy.

Other matters

124    As noted earlier, the terms of the proposed settlement include reimbursing the Plaintiffs for their time spent in prosecuting the representative proceeding on behalf of all the group members. The reimbursement payments sought are very modest: $3,000 for the First Plaintiff and $2,000 for the Second Plaintiff. Evidence has been adduced to explain how those amounts were quantified. That evidence confirms that representatives of the Plaintiffs have spent considerable time conferring with or attending upon the Plaintiffs’ solicitors, drafting, reviewing and finalising affidavits, providing information and instructions and otherwise corresponding with the solicitors, gathering information in response to requests, and otherwise performing tasks requested of them in relation to the conduct of the proceedings.

125    The reimbursement payments are in all the circumstances fair and reasonable and should be approved.

Conclusion as to the fairness and reasonableness of the settlement

126    Some aspects of the proposed settlement of this matter may give rise to the perception, at least at a superficial level, that the only real “winners” in this litigation were the lawyers and the litigation funders. The lawyers claimed legal costs that exceeded 50% of the settlement sum. The litigation funder funded the litigation on the basis that it would obtain not only a commission of 42.5% from the settlement proceeds, but would also receive a significant project management fee calculated as a percentage of the sizeable legal fees. The amounts paid to the lawyers and litigation funder in this case, when compared with the amounts to be distributed to group members, may cause some to wonder whether securities class actions like this matter are anything more than essentially entrepreneurial exercises that are generated by class action lawyers and litigation funders so as to earn fees and, in the case of litigation funders, a return on investment. That is particularly so where there are only a handful of funded group members and there are some indications that a significant proportion of the group members had little interest in, or perhaps even knowledge of, the action until they received a notice advising them of the settlement.

127    Ultimately, however, the evidence led in support of the approval of the proposed settlement has demonstrated, on balance, that the settlement, including the Settlement Distribution Scheme, is fair and reasonable and in the interests of group members as a whole. It represents a reasonable compromise of difficult and complex commercial litigation. It does not unfairly or arbitrarily discriminate against or prefer the interests of one class of group members over the interests of others. The group members will receive a reasonable amount in satisfaction of their claims in circumstances where, but for the intervention of the class action lawyers and a litigation funder, they would have been unlikely to recover anything. The settlement should be approved.

Confidentiality orders

128    As has been noted throughout the course of these reasons, orders were made pursuant to ss 37AF and 37AG of the FCA Act to preserve the confidentiality of some of the affidavit evidence and exhibits tendered in support of the approval application. Some of the information in the affidavits and exhibits was the subject of claims of legal professional privilege that had not been waived. Some of the information in the affidavits and exhibits concerned confidential information concerning the parties and the group members which was only disclosed to the Court for the purposes of the approval application. It is appropriate for those confidentiality orders to continue for a period of time. It should be emphasised, however, that where necessary some of the information contained in the confidential affidavits and exhibits has been reproduced directly or indirectly in these reasons. As s 37AE of the FCA Act makes explicit, a primary objective of the administration of justice is to safeguard the public interest in open justice. It is important that the reasons for approving the scheme fully expose all of the important aspects of the settlement, including such matters as the payments to be made to the lawyers and litigation funders and the return to group members.

Conclusion and Orders

129    An order will be made approving the proposed settlement as recorded in the Director Deed, the Deloitte Deed and the Settlement Distribution Scheme. The group members who are entitled to participate in the scheme are all the group members who registered their claims by 31 August 2016, together with the group members who registered their claims between 31 August 2016 and the hearing of the approval application on 16 September 2016. The Plaintiffs’ costs and disbursements totalling $3,420,978 are approved as fair and reasonable for the purposes of the settlement scheme. Reimbursement payments of $3,000 and $2,000 to the First and Second Plaintiffs respectively are approved as reasonable. A number of associated or ancillary orders broadly consistent with draft orders prepared by the Plaintiffs will also be made.

Associate:

Dated:    13 June 2017

SCHEDULE OF PARTIES