Group proceedings settlement update: Court of Appeal upholds binding nature of settlement on group members

by DLA Piper
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In Pekell, the Court of Appeal has provided welcome clarity around the effect of settlements in group proceedings, which should provide comfort to group proceeding defendants and their insurers. Importantly, the case affirms that an approved deed of settlement in a group proceeding is binding on all group members in respect of both common issues and defences and claims personal to group members.

Background

The Pekell decision relates to ongoing loan recovery litigation consequent upon the settlement of the Great Southern group proceedings which was approved by the Supreme Court of Victoria (Croft J) on 11 December 2014. The settlement deed contained wide releases in favour of the defendants to the group proceedings, including Bendigo and Adelaide Bank Ltd (BAB). The deed also provided for acknowledgments on behalf of group members as to the validity and enforceability of loan agreements with BAB (and other financiers). The settlement approval order (made under s 33ZF of the Supreme Court Act 1986) authorised the lead plaintiffs to execute the deed on behalf of group members and to give effect to the deed on behalf of group members.

A group member, Pekell Delaire Holdings Pty Ltd (PDH), received a statutory demand from BAB which it successfully applied to set aside under s 459G of the Corporations Act. An Associate Justice of the Supreme Court found that there was uncertainty regarding whether the terms of the settlement deed in connection with the BAB loans were binding on it. BAB appealed that decision and contended that the settlement bound PDH so as to preclude it from contesting the alleged debts. PDH argued that the statutory demand had rightly been set aside, on various grounds including that the deed was only effective to resolve the common issues litigated in the group proceeding. PDH sought to apply the reasoning of the High Court in the Timbercorp decision in defence of the appeal, contending that it was permitted to raise defences which were not the subject of the group proceedings. It argued that the lead plaintiffs could not settle the proceedings so as to bind group members in respect of the claims underlying such defences, and that the settlement approval order had to be 'read down' so that it only applied to the settlement of common issues.

The Judgment

The Court of Appeal allowed BAB's appeal and held that Pekell was precluded from advancing the disputes and claims upon which it relied. It found that:

  • To read down the settlement approval order in the manner sought by Pekell would have the effect of fundamentally altering the commercial arrangements embodied in the deed (especially having regard to the wide releases)
  • Group proceeding settlements can validly settle proceedings in a manner that affects the individual claims of group members. Nothing in Part 4A circumscribes the power of the Court to approve such a settlement
  • The settlement approval order provided the privity between the lead plaintiffs and group members which (as the High Court observed in Timbercorp) is otherwise absent in respect of individual claims of group members

The Court also endorsed its earlier decision in Byrne v Javelin Asset Management Pty Ltd [2016] VSCA 214 (which also arose out of the Great Southern group proceedings settlement), by confirming that a deed of settlement could properly go beyond matters in issue in group proceedings. Significantly, the Court stated that nothing said by the High Court in Timbercorp concerned the potential terms upon which group proceedings could be settled. That is, the observations of the High Court in Timbercorp do not apply with equal force to group proceedings which are settled.

Implications

The case confirms that there is a difference between the consequences that flow from when a group proceeding is settled, as opposed to when judgment is delivered. Parties can be confident in negotiating settlements of group proceedings that there are no constraints in dealing with other issues and claims beyond the common issues. They are free to settle group proceedings on whatever terms they have agreed and the Court has approved.

The finality of settlements reached in group proceedings (once approved) and the binding nature of those settlements on group members has been affirmed (irrespective of whether individual claims and defences were ventilated in the proceedings). The terms of settlement deeds will continue to be all important in prescribing the rights of the parties (including group members) who enter into settlements of group proceedings. It is therefore crucial to ensure that settlements are crystal clear in their terms.

Finally, there will likely be immediate implications of the decision in Great Southern related run off litigation between financiers and investors, which is ongoing.

*Disclaimer: DLA Piper acted for the liquidators of the responsible entity in the Great Southern group proceedings heard in the Supreme Court of Victoria

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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