Mid-Coast Council v Fitch Ratings, Inc

• Jurisdiction: Australia Federal only
• Judge: LEE J
• Judgment Date: 25 July 2019
• Neutral Citation: [2019] FCA 1261
• Date: 25 July 2019
• Court: Federal Court

FEDERAL COURT OF AUSTRALIA

Mid-Coast Council v Fitch Ratings, Inc [2019] FCA 1261

File number:	NSD 995 of 2014
Judge:	LEE J
Date of judgment:	25 July 2019
Catchwords:	REPRESENTATIVE PROCEEDINGS – settlement approval pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) – whether the proposed settlement is fair and reasonable – where confidentiality orders are sought – where not all group members are represented – preclusion of class members who failed to engage with the proceeding – settlement approved
Legislation:	Constitution Ch III Federal Court of Australia Act 1976 (Cth) ss 33V, 33ZB, 37AG(1)(a), 37AI, 53A
Cases cited:	Australian Securities and Investments Commission v Richards [2013] FCAFC 89 Clurname Pty Ltd v Commonwealth Bank of Australia (No 1) [2015] FCA 153 Foley v Gay [2016] FCA 273 Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 Lifeplan Australia Friendly Society Limited v S&P Global Inc (Formerly McGraw-Hill Financial, Inc) (A Company Incorporated in New York) [2018] FCA 379 Liverpool City Council v McGraw-Hill Financial, Inc (now known as S&P Global Inc) [2018] FCA 1289 Lopez v Star World Enterprises Pty Ltd [1999] FCA 104; (1999) ATPR 41-678 Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925; (2000) 180 ALR 459
Date of hearing:	25 July 2019
Registry:	New South Wales
Division:	General Division
National Practice Area:	Commercial and Corporations
Sub-area:	Regulator and Consumer Protection
Category:	Catchwords
Number of paragraphs:	25
Counsel for the Applicant:	Mr C Withers with Ms K Lindeman
Solicitor for the Applicant:	Squire Patton Boggs
Counsel for the Respondent:	Mr J Stoljar SC
Solicitor for the Respondent:	Maddocks Lawyers

ORDERS

		NSD 995 of 2014
BETWEEN:	MID-COAST COUNCIL ABN 44 961 208 161 Applicant
AND:	FITCH RATINGS, INC (A COMPANY INCORPORATED IN DELAWARE, USA) Respondent
AND:
BETWEEN: AND:	FITCH RATINGS, INC (A COMPANY INCORPORATED IN DELAWARE, USA) Cross-Claimant ; COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 Cross-Respondent

JUDGE:	LEE J
DATE OF ORDER:	25 JULY 2019

THE COURT ORDERS THAT:

1. Pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (Act) the settlement of this proceeding on the terms set out in Exhibit B on the application be approved.

2. Pursuant to s 33ZB of the Act, the approval order in order 1 bind the group members who have not opted out of the proceeding pursuant to s 33J of the Act.

3. Solicitor for the plaintiffs, Amanda Banton of Squire Patton Boggs, is appointed the administrator of the settlement distribution scheme referred to in Exhibit B and is to act in accordance with the term of that scheme, subject to the unanimous consent of those affected by the scheme to vary the terms of that scheme, consistent with arranging for the distribution of the settlement moneys in accordance with the overarching purpose.

4. The proceeding be dismissed with no order as to costs of the proceeding and all costs orders made in the proceeding be vacated.

5. The hearing listed to commence on 2 September 2019 be vacated.

6. The scheme administrator and the parties have 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

Revised from the transcript

LEE J:

1. This proceeding pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) (Act) was set down for a lengthy hearing scheduled to commence on 2 September 2019. Approximately a fortnight ago, my Associate was contacted by the parties and informed that an ‘in principle’ settlement had been agreed. I arranged for the proceeding to be relisted as soon as practicable, which was on 19 July 2019. In circumstances where I was expressly informed that there were only 20 group members, all of whom were funded and all of whom were represented by the solicitors on the record (and hence could provide their informed instructions as to the settlement: T2.25), I dispensed with the need to file an interlocutory application and the usual affidavit evidence filed on a s 33V application relating to prospects. The matter was adjourned until today for the hearing of the s 33V application.

2. The fundamental question arising from a s 33V application is whether the proposed settlement is “a fair and reasonable compromise of the claims made on behalf of the group members”. This formulation derives from the judgment of Finkelstein J in Lopez v Star World Enterprises Pty Ltd [1999] FCA 104; (1999) ATPR 41-678 at 42 [15], which cited the requisite elements of a fair and reasonable compromise identified by Goldberg J in Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925; (2000) 180 ALR 459 at 465-466 [19]; see also Lifeplan Australia Friendly Society Limited v S&P Global Inc (Formerly McGraw-Hill Financial, Inc) (A Company Incorporated in New York) [2018] FCA 379 at [13] per Lee J.

3. In my view, there is a distinction between the way in which the Court fulfils its role on a s 33V application in cases where all group members are legally represented, and in cases where some group members are unrepresented. The point of distinction is that in the former case, the Court can usually work on the assumption that group members have apparently given informed instructions in relation to the proposed settlement. This does not mean that the Court does not have a role in cases where all parties to the settlement agreement are represented, however, the extent of the protective role reflects the relevant context.

4. Unfortunately, in the present case, the issue was somewhat more complicated than what was indicated to me on 19 July 2019. This is because I have just been informed at the hearing today that in fact not all group members were both funded and represented.

5. In its current iteration, the class action captures persons who: (a) acquired interests during the period between 2007 and 2008 in one or more synthetic collateralised debt obligations known as Palladin AA and Palladin AAA (Palladin SCDOs) which were assigned credit ratings issued on behalf of the first respondent (Fitch); (b) acquired those interests in reliance upon those credit ratings; and (c) suffered loss and/or damage as a result of their investment in the Palladin SCDOs.

6. Turning to the issue of representation of group members, in an affidavit sworn on 24 July 2019, Ms Shaan Palmer, solicitor for the applicant, deposed that solicitors employed by the applicant came to know the identity of the group members in this proceeding by having dealings with them in connexion with related proceedings, or otherwise upon review of information provided by the Commonwealth Bank of Australia pursuant to a confidentiality regime. Relevantly, Ms Palmer provided evidence concerning the number of entities to have acquired Palladin SCDOs. Ms Palmer confirmed that 22 entities were recorded as having acquired one of the Palladin SCDOs. Of those 22, 17 are represented by the solicitors for the applicant and are funded group members. Of the remaining five group members, Ms Palmer provided evidence of a variety of communications with each of them.

7. In the light of this information, which only became apparent to me upon receipt of the affidavit evidence this morning, I indicated to the parties that while it was my preference to resolve the matter at the hearing today, I was in two minds as to whether or not I should proceed.

8. Despite my initial reservations, I have decided to proceed with the application for broadly two reasons.

9. First, a registration order was made by Wigney J on 12 October 2018. This registration regime...