Principles that govern an application for approval of a settlement of a group proceeding

In Johnston v Endeavour Energy [2016] NSWSC 1132 Hoeben CJ carefully identified the principles that govern an application for approval of a settlement of a group proceeding.

Confidential opinions of counsel are required to address each of the principles below.

These opinions are usually sealed and handed up to the judge.

The principles are summarised as follows:

1. The central question for the Court is whether the proposed settlement is fair and reasonable in the interests of the group members as a whole (Rowe v AusNet Electricity Services Pty Ltd and Ors [2015] VSC 232 at [49] – [51]; Matthews v SPI Electricity and SPI Electricity Pty Ltd v Utility Services Corporation Ltd (Ruling No 16)[2013] VSC 74 (Matthews) at [34]; Wheelahan & Anor v City of Casey & Ors [2011] VSC 215 (Wheelahan) at [57] (EmertonJ) citing ACCC v Chats House Investments Pty Ltd & Ors [1996] 71 FCR 250; FCA 1119 at 258 (Branson J) (Chats House).
2. There will rarely be one single or obvious way in which a settlement should be framed, either between group members and the defendants (inter partes aspects) or in relation to sharing the compensation among group members (inter se aspects) – reasonableness is a range and the question is whether the proposed settlement is within that range (Darwalla Milling Co Pty Ltd v F Hoffman-La Roche& Ors Ltd (No 2) [2006] FCA 1388; 236 ALR 322 at 336 [40] (Jessup J) (Darwalla).
3. It is not the task of the Court to “second-guess” or go behind the tactical or other decisions made by the plaintiff’s legal representatives, but rather to satisfy itself that the decisions are within the range of reasonable decisions according to the known circumstances and the reasonably perceived risks of the litigation (Matthews, Darwalla, see also Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 6) [2011] FCA 277 at [22] (Flick J) (Pharma); Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 at [12] (Modtech) (Gordon J).
4. In assessing the fairness and reasonableness of a proposed settlement the court relies heavily upon the candid, frank and confidential opinions provided to it by the plaintiff’s legal representatives requiring them to disclose the factors which were material to the decision to accept the settlement (Thomas v Powercor Australia Limited [2011] VSC 614 at [18] (Beach J) (Powercor); Wheelahan at [75]; Rod Investments (Vic) Pty Ltd v Abeyratne & Ors [2010] VSC 457 at [11] and [18] (Almond J) (Abeyratne); Lopez v Star World Enterprises Pty [1999] ATPR 41 – 678 at 42 – 670; [1999] FCA 104 (Finkelstein J) (Lopez).
5. The factors adopted in Williams v FAI Home Security Pty Ltd (No 4) [2000] 180 ALR 459; [2000] FCA 1925 (Williams) indicate some of the considerations typically relevant to an assessment of an application for approval. As Goldberg J pointed out in Williams, this is a useful but not exhaustive guide. Those considerations are:
6. (A)    The complexity and duration of the litigation.
7. (B)   The reaction of the class to the settlement.
8. (C)   The stage of the proceedings.
9. (D)   The risks of establishing liability.
10. (E)   The risks of establishing damages.
11. (F)   The risks of maintaining a class action.
12. (G)   The ability of the defendants to withstand a greater judgment.
13. (H)   The range of reasonableness of the settlement in light of the best recovery; and
14. (I)   The range of reasonableness of the settlement in light of all of the attendant risks of litigation.
15. The factors in Williams are largely directed to the reasonableness of a compromise inter partes. They are, however, also relevant to a consideration of the agreements reached with the insurance intervenors. The procedure should likewise be fair and reasonable “inter se”.
16. An important consideration is whether group members were given timely notice of the critical elements so that they had an opportunity to take steps to protect their own position if they wished. Once appropriate notice is given, the absence of objections or other response action from group members is a relevant consideration in support of the settlement and all its elements (Dorajay Pty Ltd v Aristocrat Leisure Ltd [2009] FCA 19 (Stone J) (Aristocrat); Abeyratne at [22]; Horshamat [15], [25).
17. Where a group member objects to the settlement, an important question is whether the objector is prepared to assume the role and risks of being lead plaintiff. It is easy for group members who face no adverse costs risk to want a plaintiff to fight to the very end. The weight to be given to objections will diminish where the objector is unwilling or unable to take on all of the economic and other burdens which the plaintiff otherwise bears (Wong v Silkfield [2000] FCA 1421 at[24] – [30] (Spender J)).

23. The effect of those considerations is that the proposed settlement must be fair and reasonable and in the interests of all group members who will be bound by the settlement. In this context group members, who are not clients of Maddens, are not directly represented. It is their interests in particular which the Court, in an application of the present kind, is concerned to ensure are addressed fairly, vis-a-vis the plaintiff and other group members and having regard to the overall merits of the claims made on their behalf in the action.
24. Notwithstanding the reservations expressed by Jessup J in Darwalla regarding lists of criteria, the factors identified by Goldberg J in Williams as typically bearing on an assessment of a proposed settlement provide a useful framework. Those factors are:

1. The amount offered to each group member.
2. The prospects of success in the proceeding.
3. The likelihood of the group members obtaining judgment for an amount significantly in excess of the settlement offer.
4. The terms of advice received from counsel and from any independent expert in relation to the issues which arise in the proceeding.
5. The likely duration and cost of the proceeding if continued to judgment.
6. The attitude of group members to the settlement.