Federal Court of Australia

Kraft v BPR Audit Pty Ltd [2025] FCA 422

ORDERS

In these orders: “Redactions to the Confidential Chapman Affidavit” means the following paragraphs of the Confidential Chapman Affidavit: 12-14, 18 (dollar figures only), 20 (dollar figures only), 22-24, 26 (second sentence only), 27-37, 39-44.

In these orders, “Enduring Redactions to the Affidavit of Louise Hird” means those redactions marked “Enduring Confidential” at Annexure LAH-3 of the Hird Affidavit.

In these orders, “Non-Enduring Redactions to the Affidavit of Louise Hird” means those redactions marked “Non-enduring Confidential” at the following paragraphs of the Hird Affidavit: 16(a) (dollar figure only), 34 (dollar figures only), 40 (percentages only) and 41 (dollar figure and part of second sentence), and at Annexure LAH-1.

THE COURT ORDERS THAT:

Confidentiality

1.    Pursuant to s 37AF and s 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice, for a period of 10 years from the date of these Orders, the annexure marked “Confidential Exhibit MRC-2” to the Confidential Affidavit of Michael Rowallan Chapman sworn 14 February 2025 (Confidential Chapman Affidavit) (being pages 13 to 32 of that affidavit) is confidential and not to be published or made available to any person other than:

(a)    the Court;

(b)    the applicants and their legal representatives; and

(c)    Therium Litigation Finance Atlas AF IC and its legal representatives.

2.    Pursuant to s 37AF and s 37AG(1)(a) of the Act, on the ground that the order is necessary to prevent prejudice to the proper administration of justice, until a date that is 21 days from the date on which the Court determines the Applicants’ Interlocutory Application dated 29 January 2025, the Redactions to the Confidential Chapman Affidavit listed in these Orders, and the annexure marked “Confidential Exhibit MRC-3” to that affidavit (at pages 33 to 147 of that affidavit), are confidential and not to be published or made available to any person other than:

(a)    the Court;

(b)    the applicants and their legal representatives; and

(c)    Therium and its legal representatives.

3.    Pursuant to s 37AF and s 37AG(1)(a) of the Act on the ground that the order is necessary to prevent prejudice to the proper administration of justice, for a period of 10 years from the date of these Orders, the Enduring Redactions to the Affidavit of Louise Hird sworn 20 February 2025 (Hird Affidavit) are confidential and not to be published or made available to any person other than:

(a)    the Court;

(b)    the applicants and their legal representatives; and

(c)    Therium and its legal representatives.

4.    Pursuant to s 37AF and s 37AG(1)(a) of the Act, on the ground that the order is necessary to prevent prejudice to the proper administration of justice, until a date that is 21 days from the date on which the Court determines the Applicants’ Interlocutory Application, the Non-Enduring Redactions to the Hird Affidavit listed in these Orders are confidential and not to be published or made available to any person other than:

(a)    the Court;

(b)    the Applicants and their legal representatives; and

(c)    Therium and its legal representatives.

Settlement approval

5.    Pursuant to s 33V of the Act, the settlement of the representative proceeding brought by the applicants against the first, second, third, fourth and fifth respondents be approved upon the terms set out in the Deed of Settlement and Release entered into between the applicants, Anne Wilson, Therium, the first respondent, the second respondent, the third respondent, the fourth respondent, the fifth respondent and Geik Kim Lim (Settlement Deed).

6.    Pursuant to s 33ZF of the Act, the applicants are authorised, nunc pro tunc, to enter into and give effect to the Settlement Deed and all transactions contemplated by it for and on behalf of all Group Members.

7.    Pursuant to s 33ZB of the Act, the persons affected and bound by judgment given in this proceeding are:

(a)    the applicants;

(b)    Ms Wilson and all other Group Members as defined in paragraph 1 of the further amended statement of claim filed 9 December 2024;

(c)    the first, second, third, fourth and fifth respondents;

(d)    Geik Kim Lim; and

(e)    Therium.

Distribution of Settlement Sums

8.    The Settlement Sums provided for in the Settlement Deed (in aggregate, the Total Settlement Sum) and held in an interest-bearing controlled monies account operated by the applicants’ solicitors, Mackay Chapman, be held on trust for the applicants, Group Members and Therium on the terms provided for in the Settlement Deed.

9.    Pursuant to s 33V(2) of the Act, the Court makes the following orders with respect to the distribution of the Total Settlement Sum:

(a)    reimbursement be made from the Total Settlement Sum to Therium in the following amounts:

(i)    legal costs paid by Therium to date in the sum of $828,746.52; and

(ii)    after the event insurance contingent premium of $132,000;

(b)    deductions be made from the Total Settlement Sum and paid as follows:

(i)    to Mackay Chapman in respect of unpaid legal fees and uplift in the sum of $171,100.66;

(ii)    to Mackay Chapman in respect of settlement approval and distribution costs up to the sum of $127,700;

(iii)    to the lead applicants as nominal payment in recompense for the assistance provided in the sum of $10,000 each;

(iv)    to Therium in respect of its funding commission in the amount of $492,952.82;

(c)    the remaining balance of the Total Settlement Sum be administered in accordance with the proposal set out in paragraphs 40 and 45 of the open affidavit of Michael Rowallan Chapman sworn 14 February 2025.

Dismissal and costs

10.    Any extant costs orders be vacated.

11.    The Court release to Therium the $60,000 paid into Court by Therium on behalf of the applicants in accordance with Orders 5 and 6 of the Orders made on 28 February 2024.

12.    Other than as provided for in these Orders, the proceeding be dismissed with no order as to costs (to the intent and effect that each party pay their own costs).

13.    Liberty to apply on three days’ notice.

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

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 1 April 2025 I made orders, among others, pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) approving a conditional settlement of the whole of this proceeding and for the distribution of the money paid under that conditional settlement. These are my reasons for making those orders.

background

2    The applicants, Audrey Lilian Kraft and Jon-An Properties Pty Ltd ATF The Jon-An Superannuation Fund, commenced this proceeding in September 2023 against the five auditors of self-managed superannuation funds (SMSFs) as respondents on behalf of group members each of whom:

(1)    are or were trustees of SMSFs who were allegedly defrauded by Melissa Louise Caddick and/or Maliver Pty Ltd and were audited by one or more of the respondents to this proceeding; or

(2)    is or was a person associated with trustees of such SMSFs in a capacity other than the trustee capacity referred to in the preceding subparagraph who were allegedly defrauded by Ms Caddick and/or Maliver.

3    The proceeding is a closed class representative proceeding in that each member of the group has signed up to a litigation funding agreement (LFA).

4    The underlying factual matrix which has given rise to the alleged fraud in this proceeding was canvassed in Australian Securities and Investments Commission v Caddick [2021] FCA 1443. It is not necessary to set out those facts here.

5    The proceeding is at a relatively embryonic stage. Pleadings have closed and the applicants have put on some (but not all) of their lay evidence. The respondents are yet to serve any evidence, no party has adduced any expert evidence and there have been no orders for discovery.

6    Conditional settlement of the proceeding was reached following a mediation in August 2024 and subsequent informal without prejudice settlement discussions. As a result of that process the parties entered into a Deed of Settlement and Release under which, subject to the Court’s approval a combined settlement sum of $3,545,000 less deductions will be payable by the respondents to group members. The key terms of the Deed of Settlement are set out at [14] below.

7    By orders made on 6 December 2024 the applicants’ litigation funder, Therium Litigation Finance Atlas AFP IC, was granted leave to appear in relation to the settlement application. It sought orders approving distributions to it of certain amounts from the amounts to be paid pursuant to the Deed of Settlement.

Legal principles

8    Under s 33V of the Federal Court Act a representative proceeding may not be settled or discontinued without the Court’s approval. That section provides:

33V  Settlement and discontinuance—representative proceeding

(1)     A representative proceeding may not be settled or discontinued without the approval of the Court.

(2)     If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court.

9    The principles that apply to applications of this nature are well settled and have been traversed by this Court on numerous occasions: see for example Camilleri v The Trust Company (Nominees) Ltd [2015] FCA 1468 at [5]; Fowkes v Boston Scientific Corporation [2023] FCA 230 at [31]-[45]; Miciulis v Cimic Group Limited [2025] FCA 307 at [19]-[23].

10    Reflective of the bifurcation of s 33V of the Federal Court Act, there are two stages to be considered: the settlement and the distribution, although the consideration of each need not necessarily be distinct: Davis v Quintis Limited (Subject to Deed of Company Arrangement) [2022] FCA 806 at [4].

11    At the first stage of the assessment, the central question in determining whether to approve a settlement under s 33V of the Federal Court Act is whether the proposed settlement is a fair and reasonable compromise of the claims made on behalf of the group members who will be bound by its terms, if approved. In answering that question, the Court is making a “broad, evaluative and impressionistic decision”: Smith v Commonwealth of Australia (No 2) [2020] FCA 837 at [12] (Lee J).

12    In Camilleri Moshinsky J set out non-exhaustive factors to which the Court may have regard in undertaking that assessment at [32]:

First principles, and the cases, indicate the kinds of considerations which will be relevant in assessing whether the inter partes aspects of a proposed settlement are fair and reasonable. They include:

(a)    the risks faced by the claim group in establishing (relevantly to the present case) that any defendant owed and breached a duty of care – liability risk;

(b)    the risks faced by the claim group in proving that any and if so what compensable damage resulted from a defendant’s breach of duty – quantification risk;

(c)    the risks faced by the claim group in executing any damages award against a given defendant – recovery risk;

(d)    the proportion which the settlement payment bears to the estimated ‘best case’ outcome for the claimants;

(e)    the extent to which the ‘best case’ outcome would, even if it occurred, be devalued by reason of:

(i)    the delays of trials and appeals; and

(ii)    the unrecoverable ‘solicitor-client’ costs that would be incurred in those further proceedings.

13    At the second stage the Court must be satisfied that the proposed arrangement for the distribution of the settlement sum between group members is fair and reasonable having regard to the interests of the group as a whole. In Camilleri Moshinsky J noted the following factors which may be relevant at the second stage at [43]:

The cases indicate a number of factors relevant to the assessment whether a proposed distribution scheme is fair and reasonable having regard to the interests of the group as a whole. Some of these factors are as follows:

(a)    whether the distribution scheme subjects all claims to the same principles and procedures for assessing compensation shares;

(b)    whether the assessment methodology, to the extent that it reflects ‘judgment calls’ of the kind described above, is consistent with the case that was to be advanced at trial and supportable as a matter of legal principle;

(c)    whether the assessment methodology is likely to deliver a broadly fair assessment (where the settlement is uncapped as to total payments) or relativities (where the task is allocating shares in a fixed sum);

(d)    whether the costs of a more perfect assessment procedure would erode the notional benefit of a more exact distribution;

(e)    to the extent that the scheme involves any special treatment of the applicants or some group members, for instance via ‘reimbursement’ payments – whether the special treatment is justifiable, and whether as a matter of fairness a group member ought to be entitled to complain.

The proposed settlement

14    The key terms of the Deed of Settlement are:

(1)    the respondents have agreed to contribute varying amounts to the combined settlement sum of $3,545,000, inclusive of legal costs, interest, funding costs and settlement administration costs;

(2)    the Deed of Settlement has been entered into on a no admission of liability basis by each of the respondents;

(3)    the respondents will be released and forever discharged by the applicants and the group members from a broad range of claims arising from the subject matter of the proceeding;

(4)    the proceeding will be dismissed; and

(5)    the settlement proceeds, after deduction of legal costs, funding costs and settlement administration costs, will be distributed to group members.

15    For the following reasons I was satisfied that the proposed settlement under the Deed of Settlement is a fair and reasonable compromise of the claims made on behalf of the group members:

(1)    the evidence before me included a confidential opinion provided by senior and junior counsel for the applicants which concludes that the settlement is fair and reasonable. That opinion sets out in careful detail what counsel perceive to be the legal and evidentiary strengths and vulnerabilities of the applicants’ and group members’ case including as to the complexity and significant evidentiary contest the parties are likely to face on the question of liability, application of limitation periods, establishing loss and damage and the application of concurrent wrongdoer legislation. Relevantly, “[t]he job of the Court is not to second guess that judgment by persons who know far more about the matter than the judge approving settlement”: Compumod Investments Pty Limited as trustee for the Compumod Pty Limited Staff Superannuation Fund v Universal Equivalent Technology Limited (Settlement Approval) [2024] FCA 571 at [15] (Lee J);

(2)    the parties avoid the risks associated with what is expected to be a lengthy and expensive contested initial trial between well-resourced parties, the costs of which may conceivably surpass what the applicants may be entitled to recover, if successful;

(3)    the proposed settlement brings finality to the proceeding avoiding likely further hearings including any hearings specific to individual group members (even if the applicants are successful at the initial trial) and the potential for appeals;

(4)    the quantum of the settlement sum is such that there will be a real recovery (ie not de minimis) available to group members following deductions; and

(5)    the terms of settlement as set out in the Deed of Settlement are conventional.

The proposed distribution

16    The distribution of settlement proceeds is provided for in clause 9 of the LFAs signed by each of the group members. In broad terms, that clause contemplates that distributions to group members are to take place following deduction of: litigation costs; After The Event insurance contingent premium; unpaid legal fees; settlement approval and distribution costs; payment to the applicants; and payment of Therium’s funding commission.

17    There was evidence before me of the amounts to be deducted in relation to each of those items. It is not necessary to set out those amounts. I was satisfied that the proposed deductions were appropriately contemplated under the LFAs and that they were in each case appropriate and “just” as required under s 33V(2) of the Federal Court Act. In particular, I was satisfied that:

(1)    the legal costs were appropriate and proportionate given the level of complexity of the proceeding;

(2)    the payment to the lead applicants for their time and effort as representatives is conventional and, as submitted by the applicants, is at the lower end of the usual range: see for example Zantran Pty Limited v Crown Resorts Limited (No 4) [2022] FCA 500 at [51]; Money Max Int Pty Limited (Trustee) v QBE Insurance Group Limited [2018] FCA 1030; 129 ACSR 1 at [211]-[219];

(3)    Therium obtained a level of ATE insurance that was commensurate with the quantum of claims in, and degree of complexity of, this proceeding. The policy was obtained through a negotiated modification of Therium’s “block policy” with AmTrust which enables it to automatically insure any cases in Australia funded by a Therium funding entity. The “block policy” was itself the subject of market testing and negotiations following which Therium determined that AmTrust’s pricing was best given a number of factors, including lowest price;

(4)    the proposed funding return payable to Therium on the net recoveries is in accordance with the terms of the LFA (which was established as a tiered commission structure that would increase with the passage of time). As deposed to by Louise Anne Hird, an investment manager with Therium Capital Management (Australia) Pty Ltd and an investment adviser to Therium, the proposed funding return was within the typical range of funder’s commission that had been approved in the context of Pt IVA settlements in recent years;

(5)    settlement distribution costs have been calculated having regard to the time that will be needed to undertake the three-stage process described below and are reasonable; and

(6)    following deductions, 50% of the settlement sum remains available for distribution to the group members.

18    The method for calculation of distribution to each group member was explained in the Notification of Proposed Settlement (Settlement Notice) sent to group members on 24 January 2025 in the form approved by the Court on 6 December 2024. Following deductions, the net settlement sum is to be distributed in accordance with the following method:

(1)    each group member has received a dividend as an ‘Out of Pocket Investor’ (OOP Investor Dividend) in the liquidation of Maliver and the receivership of the property of Ms Caddick following a determination of each individual claim by the liquidators and receivers of the respective process;

(2)    each OOP Investor Dividend will be used as a basis for calculating that group member’s share of the net settlement sum, by apportioning the net settlement sum to group members in the same relative proportions as were made by the liquidators and receivers; and

(3)    the net settlement sum will be distributed to group members pro rata in accordance with the calculation referred to in the preceding subparagraph.

19    As submitted by the applicants, this method broadly mirrors the process for calculating distributions adopted in the liquidation of Maliver and the receivership of the property of Ms Caddick.

20    The settlement distribution is to be undertaken by Mackay Chapman, solicitors for the applicants, in three stages:

(1)    Mackay Chapman will contact group members and verify bank account details provided by group members in their respective LFAs. If bank account details were not provided in the relevant LFA, Mackay Chapman will request those bank account details from the group member;

(2)    Mackay Chapman will review and finalise the calculation referred to at [18] above in a spreadsheet which will include the individual distributions calculated for each group member; and

(3)    Mackay Chapman will instruct the Commonwealth Bank of Australia to make payment of the calculated distribution from the interest-bearing Controlled Monies Account (which has been set up by Mackay Chapman for the purpose of receiving funds paid by the respondents in accordance with the Deed of Settlement) to the bank account advised by each group member. Once payment is made, Mackay Chapman will send each group member a statement providing details of the distribution.

21    There was evidence before me, and I accept, that Mackay Chapaman is both capable of administering the proposed distribution of settlement amounts in the manner proposed and is well placed to do so in a cost efficient manner.

Conclusion

22    For those reasons I made the orders sought by the applicants.

Associate:

Dated:    1 May 2025

SCHEDULE OF PARTIES