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The Federal Court recently handed down its reasons for approving
the settlement of the Multiplex shareholder class action in P
Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 4)
[2010] FCA 1029. This decision provides insight into the factors
the court will consider in deciding whether to approve a proposed
class action settlement.
Background
The Multiplex class action was brought on behalf of purchasers
of securities issued by the Multiplex companies between August 2004
and May 2005. The shareholders alleged that Multiplex had breached
its continuous disclosure obligations and engaged in misleading and
deceptive conduct in relation to profit forecasts in respect of
three construction projects, including the Wembley Stadium in the
UK.
Settlement was reached in July 2010, three months before the
case was scheduled for trial. Multiplex agreed to pay $110 million
in satisfaction of the claims against it and made no admissions of
liability.
Settling class actions
The Federal Court rules require court approval of a class action
settlement. Justice Finkelstein observed that the court should
encourage the settlement of class actions and other complex cases.
He said that class actions in particular lend themselves to
compromise because of the uncertainty of their results,
difficulties of proof, complexities in the assessment of damages
and the expense of long trials.
Justice Finkelstein reinforced that courts acted as a guardian,
assuming responsibility for ensuring the interests of class members
were adequately looked after by the settlement. In doing so, the
court placed considerable reliance on both the applicants and the
respondents' lawyers ensuring that the court had all the
information that objectively described the merits of the case and
brought to the court's attention any obstacles to recovery
and the benefits to be derived from the proposed settlement.
The solicitors for the applicants filed a confidential
memorandum in support of settlement. They also provided an opinion
from counsel. The memorandum and opinion expressed some confidence
in succeeding, but acknowledged that due to causation issues,
proving loss would be difficult.
In deciding whether the proposed settlement was "fair and
reasonable", the court considered the following factors:
that the terms of settlement were agreed in arms length
negotiations;
settlement was reached at a stage of the proceedings when the
applicants had sufficient information to assess the merits of the
case;
the settlement was recommended by the applicants'
solicitors and counsel;
class members would make a "significant recovery" of
62 cents in the dollar;
no class members opposed the settlement, which was of
particular significance in this action, as there were a large
number of institutional investors with in-house legal departments
able to assess the adequacy of the settlement and object if
necessary;
in litigation, particularly where there are novel points of law
in issue, there is always a risk of failure and lengthy and costly
appeals – the parties are better served by the "bird
in the hand" approach.
Other aspects of the settlement proposal
Justice Finkelstein also considered other aspects to the
proposed settlement, including the fact that payments to class
members would not be proportional. In the circumstances it was
found that these aspects did not warrant withholding approval.
Interestingly, another aspect was that the settlement agreement
purported to restrain the applicants' solicitors, Maurice
Blackburn, from acting in any future claims against Multiplex
arising out of the same facts. Justice Finkelstein suggested the
validity of that provision was an open question, but it did not
affect the settlement.
Summary
This decision provides guidance on the serious consideration the
court will give to a proposed class action settlement in order to
ensure the interests of class members are adequately protected.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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