Case: Lopez v Star World Enterprises Pty Ltd [1999] FCA 104
Outcome: referred to
at the time of the mediation, the company appeared to have limited financial capacity. As I have said, it was uninsured. Its last trading price was $0.01, which is the lowest price that can be quoted on the ASX. This is a matter of considerable importance in determining whether to exercise the power. I will refer later to the similar circumstances that arose in Lopez v Star World Enterprises Pty Ltd [1999] FCA 104. The terms of settlement provide that the parties to the agreement are the applicants in each proceeding, the respondents and the group members referred to in each of the proceedings. Clause 2 of the agreement provides the essential terms of the settlement, which are that there is to be a verdict for the respondents, and the respondents are to pay to the applicants the sum of $3 million in full and final settlement of both sets of proceedings. In Lopez , Finkelstein J referred at [16] to the onerous task involved in the consideration of an application. As I mentioned earlier, the application in Lopez has some striking similarities to the situation which arises in the present matter. That is because, in Lopez , there was a very real likelihood that if the case went to a final hearing, the group members would not receive anything like the amount they will receive upon the approval of the compromise. The reason for this was that the company was hopelessly insolvent and success in the proceeding would have left group members in a position where their claim would be reduced to the ability to prove in a winding up. As his Honour remarked at [19], "that is hardly an enticing position". A further similarity in Lopez was that there was an insurance fund which was available. His Honour referred at [23] to the effect of s 562 of the then Corporations Law which had the effect that the approval of the settlement and the application of the insurance funds would not, in any way, adversely affect the interests of unsecured creditors of the company. Whilst Village Life is conceded to have limited assets, what I have said about Lopez is not to suggest in any way that the company is insolvent. In this case, as Mr Abadee submitted, the stark consequences of the Court withholding its approval to the settlement would be that any successful judgment that may be obtained by the applicants and subsequently by group members would be wiped out by the legal costs which would be incurred in pursuing the proceedings to final judgment. The estimate of those costs provided in Mr Moulis's affidavit, is in an amount of approximately $4.8 million. Mr Moulis is an experienced practitioner in this field, and I accept his estimate as being within the range in this type of matter. It seems to me to be likely that the individual respondents, who would be entitled to indemnity from the insurer, would incur costs of that order in defending the proceedings. Accordingly, if the matter were to proceed to a final hearing, the entire amount of the insurance fund would be eaten up by legal fees. That is, of course, an unfortunate consequence of the complexity of this type of proceeding. Nevertheless, it is a fact which informs the fairness and reasonableness of the settlement which has been reached. Although the letter from the individual respondents' solicitors suggests that two of the respondents may have some funds at present, it is, in my view, reasonable to infer that were the matter to proceed to final judgment, all of the personal respondents would have to eat into their own assets to such an extent that there would be nothing left for the applicant and group members. That is to say there would be no financial return from success in the proceeding.