Judge finds settlement reasonable despite being “significantly less” than estimated loss

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This was a class action on behalf of unit holders in the IPO Wealth Fund (the Fund) against the trustee of the Fund and DH Flinders Pty Ltd (for whom the investment manager of the Fund acted as an authorised representative) (the Respondents). The class action alleged that the Respondents misled investors in the marketing and promotion of the Fund, including by making misleading representations about the likely returns, investment strategy, risks associated with and sources of liquidity available to the Fund, and did not disclose key information to investors before they invested. The Fund was ultimately wound up in September 2020.

In this judgment, O’Callaghan J approved a settlement of the proceeding in the amount of $5.6 million. His Honour held that although the settlement sum was significantly less than the approximately $67 million of losses alleged to have been suffered by class members, the settlement was in their best interests for the following reasons:

• First, even if the applicant succeeded at trial, class members would likely have recovered significantly less than they stood to receive under the settlement. That was the case because the Respondents had limited assets and there was only around $8 million available under the responsive insurance policy, which would have been significantly eroded in the event the matter had proceeded to trial. Indeed, the notice of proposed settlement estimated that additional legal costs of at least $6-7 million would likely have been incurred to prosecute the matter to final determination, leaving at most around $1-2 million for class members.
• Second, the applicant had investigated recoveries that might be made in a liquidation of the Respondents, and the prospects of such recoveries were “speculative at best” and would “involve considerable delay and risk” (at [67]).
• Third, the applicant’s solicitors and senior counsel had reasonably concluded that there was little prospect of achieving a more favourable settlement before trial.
• Fourth, the settlement would provide certainty and avoid the risks and delay attendant with prosecuting the matter to trial.
• Fifth, the settlement contained unexceptional releases and preserved the ability of class members to sue third parties.
• Sixth, extensive disclosure had been made to class members and only one objection to the settlement had been filed, which related to the loss assessment formula rather than the reasonableness of the settlement itself.

His Honour also approved the following deductions from the settlement sum, which he considered were reasonable and proportionate:

• $1,028,921 in professional fees and $115,080 in disbursements (including GST) incurred from the commencement of investigations up to and including the date of the settlement deed;
• $235,720 (including GST) for professional fees and disbursements associated with settlement approval and settlement administration costs; and
• $20,000 to the applicant for reimbursement for her role as representative applicant.

Batey-Smith v Vasco Trustees Ltd [2022] FCA 1203

Federal Court of Australia, O’Callaghan J,
12 October 2022

Applicant’s Solicitors: Slater & Gordon
Respondents’ Solicitors: Johnson Winter & Slattery
Applicant’s Funder: N/A

Austlii Link: Available here

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