Federal Court of Australia

Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 3) [2020] FCA 1885

ORDERS

THE COURT ORDERS THAT:

Settlement approval

1.    Pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth) (Act):

(a)    the terms of the settlement of the proceeding (Settlement) as recorded in the Settlement Deed executed by the applicant, the respondents and Balance Legal Capital I UK Limited (Funder) and other parties on 5 October 2020 (Settlement Deed) be approved (save for any substantive provision of the Settlement Deed which relates to the release of any Claim of each of the Released Parties (as defined in the Settlement Deed) which is to be provided for by order 3 below); and

(b)    the terms of the Settlement Distribution Scheme (SDS) appearing as the annexure to the orders made on 17 December 2020 is approved.

2.    Pursuant to s 33ZB(a) of the Act, the persons affected and bound by the Settlement (including order 3 below) be the applicant, the respondents and the "Bound Group Members", being all group members other than who have (or are deemed by these orders to have) opted out.

3.    Pursuant to s 33ZF of the Act, each of the Released Parties (as defined in the Settlement Deed) is released by the applicant and each of the Bound Group Members (including the Sample Group Members (as defined in the Settlement Deed)), from each Claim (as defined in the Settlement Deed) made by or on behalf of the applicant or any Bound Group Member in this proceeding.

Opt out notices

4.    The group members who did not provide opt out notices to the Court but rather provided opt out notices to the applicant's solicitors on or before 2 September 2020 (being those opt out notices contained in annexures "PAR-3" and "PAR-5") are to be deemed as having opted out on the date fixed for opt out.

5.    Pursuant to s 33ZF of the Act, Mr Glen Wayne Lacy and Mr Nigel Haywood are to be deemed as having opted out on the date fixed for opt out.

Administration of settlement

6.    Pursuant to s 33ZF of the Act, George Georges and John Lindholm of KPMG be appointed as Administrators of the SDS (Settlement Administrators).

7.    The Settlement Administrators be granted liberty to relist upon notice to the Associate to Justice Lee.

8.    The Settlement Administrators must, within two business days of the final distribution of the Resolution Sum (as defined in the SDS), are to inform the Court and the parties in writing that this has occurred.

Dismissal

9.    The Proceeding is dismissed with such dismissal to take effect upon completion of administration of the SDS, being the date of receipt and notation by the Court of the final distribution of the Resolution Sum (as defined in the SDS) in accordance with order 8.

Return of security for costs

10.    The $30,000 security paid into the Federal Court Investment Account pursuant to order 1 made on 4 September 2019, and any interest accrued on that amount, be returned to the Funder.

Confidentiality

11.    Pursuant to ss 37AF and 37AG(1)(a) of the Act in order to prevent prejudice to the proper administration of justice, the following documents remain confidential until 21 December 2025:

(a)    Annexures PAR-1, PAR-3, PAR-4, PAR-5, PAR-6, PAR-7, PAR-8 and PAR-9 to the Confidential Affidavit of Paul Andrew Reidy sworn on 2 December 2020;

(b)    Annexure PAR-10 to the supplementary Confidential Affidavit of Paul Andrew Reidy sworn on 15 December 2020;

(c)    paragraphs 44(b), 50 to 51, 55 to 57, 67 to 68, 76 to 82, 83 to 86 of the affidavit of Simon Robert Burnett sworn 1 December 2020 (Burnett affidavit); and

(d)    pages 1 to 69, 219 to 224 and 225 to 287 of Exhibit Confidential SB-2 to the Burnett affidavit.

Costs referee fees

12.    Order 13(g) of the orders made on 5 November 2020 be vacated.

13.    Pursuant to s 54A of the Act, without affecting the power of the Court as to costs, in respect of the fees of Ms Liz Harris as Referee in the amount of $43,999.96:

(a)    Bannister Law will bear 25% of those costs, in the amount of $10,999.99; and

(b)    the balance of those costs shall become part of the Applicant's Legal Costs, as defined in the SDS.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

LEE J:

A    INTRODUCTION

1    This is a settlement approval application in relation to an open class consumer class action concerning the sale by the first respondent (Swann), through authorised representatives (Dealers), of “add on” insurance products (Products) to consumers across Australia with respect to new motor vehicles purchased from Dealers over a period spanning from 2008 to 2017. The gross settlement sum payable pursuant to the settlement is $138 million. It is a straightforward application save for the fact that the settlement contemplates the funder of the litigation being paid, by way of a “Settlement CFO” (to adopt the term used in Davaria Pty Ltd v 7-Eleven Stores Pty Ltd [2020] FCAFC 183; (2020) 384 ALR 650), remuneration of 25% of the gross settlement sum, being $34.5 million.

2    At the hearing, and after appointing and hearing from a contradictor, I made orders approving the settlement pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth) (Act) and in doing so, as a component of the settlement approval order, I made a Settlement CFO (although not on the original terms proposed). These are my reasons for making those orders.

3    The claims the subject of the class action can broadly be summarised as follows: first, it is alleged that the Products had no or no material value to the consumers who bought them and that, by reason of Swann’s and the Dealers’ conduct in selling the Products while promoting their purported benefits, Swann was under an obligation to disclose the Products’ lack of value and Swann engaged in misleading or deceptive conduct, or made false or misleading representations, in contravention of various statutory norms; secondly, that Swann engaged in statutory unconscionable conduct because of Swann’s alleged adoption of sales techniques which were said to have exploited customers’ vulnerability, and constituted an unconscionable system of conduct designed to distort customers’ understanding of the desirability or necessity of the Products; and thirdly, it is alleged that the applicant and approximately 450,000 group members (who acquired the Products in the period between 1 January 2008 and 1 August 2017), purchased them by reason of a mistake and are therefore entitled to restitution of the premium paid to Swann.

4    The proposed settlement is documented in a Settlement Deed of 5 October 2020 (Settlement Deed) to which, in addition to the parties, the funder, Balance Legal Capital I UK Ltd (Balance), as the novatee of a litigation funding agreement (LFA), is also party. This Settlement Deed incorporates a Settlement Distribution Scheme (SDS) prepared by the applicant.

5    The proposed orders sought on the application contemplate the settlement being approved on terms which involve payments to Balance as specified in the SDS. Balance has also separately filed its own interlocutory application seeking the same orders, or other alternative orders in respect of its remuneration. Either way, what is proposed would result in Balance’s reasonable costs being reimbursed to it (including various costs paid or payable associated with minimising its risks by the taking out of an “after the event” insurance policy (ATE Policy)), together with the Settlement CFO.

6    A “Commencement CFO” (in Davaria terms) was made by the docket judge in 2019 which provided for Balance to be paid at a rate of “not more than 25%” of gross recovery. The opt- out notice informed group members of its terms, but the Commencement CFO was vacated, on application, following the High Court’s judgment in BMW Australia Ltd v Brewster [2019] HCA 45; (2019) 94 ALJR 51.

B    RELEVANT FINDINGS

7    On the material in evidence on the applications, including the comprehensive and helpful confidential opinion of counsel, it is possible to make the following findings:

(1)    The class action was a complex and risky one; in particular, there were significant limitation challenges for a subset of the group, and it was commenced after the strongest claims were largely remediated by Swann by agreement with the Australian Securities and Investments Commission in late 2017;

(2)    The class action was stoutly resisted and only settled a few weeks before the initial trial;

(3)    Absent settlement, a positive outcome on claims such as these was far from certain;

(4)    The class action could not have been commenced or maintained without the litigation funding provided by Balance, and therefore the present substantial settlement of $138 million would not have come into existence were it not for that litigation funding;

(5)    The Swann class action required a large commitment by Balance, initially estimated to require reserving $5.5 million (including a contingency), but this proved insufficient and required expansion to $8.5 million in March 2020; it is likely it would have required further expansion, in the event that individual claims needed to be litigated after the initial trial;

(6)    The adverse costs exposure taken on by Balance was very significant and according to an expert opinion from Mr Roland Matters, at the time the proceeding was filed, Balance could reasonably have expected potential adverse costs exposure of approximately $6.5 million (on a party-party basis) or almost $9 million (on an indemnity basis) up to a determination of the common issues; additionally, litigation beyond the common issues was a distinct possibility, giving rise to further cost exposure;

(7)    The LFA made provision for funding to be provided on terms that Balance would be remunerated at a rate of between 20 and 30% of “[a]ny money … recovered or received by the Claimant or any Group Member in the Proceedings” on top of reimbursement of its costs paid; the percentage rate increased over time, and the applicable rate if the present settlement were approved would be 25% of the total recovery;

(8)    Another funder proffered significantly higher rates (45%) for funding the class action at around the same time;

(9)    Balance consented to the now vacated Commencement CFO at a rate of 25% of the gross amount recovered;

(10)    Although comparability has real limitations, evidence of litigation funding rates shows that the amount of remuneration sought by Balance is towards the middle of the range of rates offered or accepted by funders for class actions in Australia, both historically and in respect of those actions that were commenced at around the time this action was being funded, that being a range which includes a lot of far less complex securities class actions which have lower risk profiles.

C    THE SETTLEMENT GENERALLY

8    The relevant principles attending settlement approval applications are well known and do not, yet again, require repetition.

9    The proposed settlement is in a familiar form and contains the following principal aspects:

(1)    the respondents agree to pay $138 million into an interest-bearing holding account held by Johnson Winter & Slattery (JWS), the solicitors of the applicant, to be held on trust in accordance with the SDS, and thereafter JWS are to deposit those funds into a further interest-bearing account of which the account holders are two representatives of KPMG who are to be appointed as administrators of the SDS (Settlement Administrators), to be held on trust in accordance with the SDS;

(2)    the SDS provides that prior to final distribution of the net settlement sum:

(a)    Balance be paid its reasonable legal costs as approved by the Court (said to be approximately $7.5 million) and the “Paid ATE Costs”, with respect to the ATE Policy;

(b)    a sum called “the Contingent ATE Costs” be paid to Balance, being an amount Balance is otherwise liable to pay the insurer for the ATE Policy (said to be $1,523,200);

(c)    JWS be paid its reasonable legal costs as approved by the Court and not paid by Balance;

(d)    Balance be paid the “Funder Payment”, which has two components: (1) its expenses incurred in connexion with the proceeding, other than the Paid ATE Costs and the Contingent ATE Costs, in an amount approved by the Court; and (2) funding charges or commissions “in the amount of 25% of the Resolution Sum, or such other reasonable amount as is approved or ordered by the Court”;

(e)    the applicant and sample group members be paid a small sum in reimbursement of their costs in acting in a representative capacity; and

(f)    the Administration Costs be paid to date to JWS and/or the Settlement Administrators.

10    Leaving aside a number of minor issues that were resolved during the course of argument and do not require elaboration, in general terms, the gross settlement sum is clearly one that is fair and reasonable and in the interests of group members. Indeed, when one has regard to the complexities of the class action and the prospects of success (as cogently explained in the confidential advice) there is no doubt, in my view, that it is within the range of settlement sums that are appropriate. Further, on the evidence, the legal costs are appropriate and proportionate.

11    The only issue that created a controversy at the hearing was the making of a Settlement CFO and, if so, its terms. It is to that topic I now turn.

D    THE PROPOSED SETTLEMENT CFO

D.1    The Form of the Application

12    There are several ways in which the application for the Settlement CFO was before the Court:

(1)    by prayer 1 of its interlocutory application, the applicant sought approval under s 33V(1) of the Act of the settlement contained in the Settlement Deed, incorporating the SDS which provides for the payment of certain deductions including costs and litigation funding charges in the form of specified payments to Balance;

(2)    by prayer 2 of Balance’s interlocutory application it sought an alternative order under s 33V(2) of the Act that deductions be made out of the fund either before, or after, it was paid to the Settlement Administrators;

(3)    by prayer 3 of Balance’s interlocutory application, an order was sought in the Court’s equitable jurisdiction declaring that Balance’s just and equitable remuneration for funding the proceeding is the amount of the Funder Deductions (as defined), and an order giving effect to Balance’s equitable claim by requiring payment of that amount to Balance from the fund.

13    Although the order that I made approving the payments was pursuant to s 33V(1) of the Act, I would have made the order in any event relying on s 33V(2) or in equity. It is necessary to explain why in some detail.

D.2    Power, the Principled Approach and the Evidence Generally

14    The Full Court of this Court and the New South Wales Court of Appeal have determined that no dicta of a majority of judges of the High Court can be identified in BMW v Brewster for the proposition that there is a want of power to make a Settlement CFO: Davaria (at 661 [41] per Lee J, Middleton and Moshinsky JJ agreeing); Brewster v BMW Australia Ltd [2020] NSWCA 272 (at [28], [30], [41]–[43] per Bell P, Bathurst CJ and Payne JA agreeing).

15    Thus, as the contradictor submitted, the prevailing orthodoxy is that the Court has power to make a Settlement CFO on the basis that: (a) it is fair, reasonable and in the interests of all group members (s 33V(1)); or (b) within the conception of a just order “with respect to the distribution of any money” (s 33V(2)). It follows that at this time and in the light of the clear statements by the Full Court and the New South Wales Court of Appeal as to the effect and extent of Brewster, it cannot be that the prevailing orthodoxy is plainly wrong so as to preclude the principled application of s 33V in making a Settlement CFO. Indeed, I am of the view that there is ample power to make a Settlement CFO, the question is rather one of discretion as to the whether a proposed form of order should be made in all the circumstances of the case.

16    Before proceeding further, it is worth saying something about the way in which the Court should approach this assessment of fairness or justness.

17    At a minimum it must extend to the Court’s role in recognizing existing legal and equitable rights and obligations, but is not properly to be regarded as confined to merely recognising and adjudicating on legal rights and equities. This must be right because contextually the discretion is exercised at a stage when there are no adjudged legal and equitable rights. A settlement of a class action is a compromise of what may well be quite disparate underlying claims, where some claimants could (if litigation persisted to finality) win, and some might lose. Upon approval of a settlement the underlying claims of group members generally merge in the settlement, and they receive substituted rights to receive that for which the settlement approved under s 33V(1) provides, or which the Court otherwise provides.

18    In a similar way, when the s 33V discretion is exercised, the Court is unable to adjudge the legal and equitable rights as they arise between group members in any precise way, as those rights would depend upon, or may be informed by, the prior determination of their individual rights. As Mr Edwards, counsel for Balance, put it, the very purpose of the settlement is to avoid the need for these rights to be adjudged, and to save the cost of doing so (which, for small consumer claims in particular, are likely to be entirely disproportionate). Such an exercise would be not only impossible, but self-defeating. Some rough justice in settlements is not only permissible; it is desirable.

19    So when it comes to approving a settlement under s 33V(1), if the settlement provides for deductions from a gross settlement sum (including allowances in favour of persons other than the applicant and group members), the role of the Court is to ask itself whether the totality of what is before it can be described as fair and reasonable regardless of whether it includes any adjustments to, or approximations of, pure legal and equitable rights or obligations, or whether instead the Court should proceed to refuse the application (which will have the effect of requiring the Court to determine the rights, or would require the parties to come up with a different settlement that can be described as fair and reasonable).

20    Whether looked at through the prism of s 33V(1) or (2), the Court will be guided by analogy with recognised categories of legal or equitable rights and obligations, but is not limited by them, and the further something falls from such categories the less likely it is to be evident that the settlement can be regarded as fair and reasonable or just.

21    But how does one approach the question of the quantum of remuneration (either as part of a broader analysis for the purposes of s 33V(1), or in considering the exercise of an ancillary power, under s 33V(2))? In the context of an application under s 33ZF, in Money Max Int Pty Ltd (Trustee) v QBE Insurance Ltd [2016] FCAFC 148; (2016) 245 FCR 191 (at 209–10 [80]), the Full Court (Murphy, Gleeson and Beach JJ) set out the factors which, depending upon the circumstances, are relevant in the fixing of a commission rate for a litigation funder at the end of a class action:

(a)     the funding commission rate agreed by sophisticated class members and the number of such class members who agreed. That can be said to show acceptance of a particular rate by astute class members;

(b)     the information provided to class members as to the funding commission. That may be important to understand the extent to which class members were informed when agreeing to the funding commission rate;

(c)     a comparison of the funding commission with funding commissions in other Part IVA proceedings and/or what is available or common in the market. It will be relevant to know the broad parameters of the funding commission rates available in the market;

(d)     the litigation risks of providing funding in the proceeding. This is a critical factor and the assessment must avoid the risk of hindsight bias and recognise that the funder took on those risks at the commencement of the proceeding;

(e)     the quantum of adverse costs exposure that the funder assumed. This is another important factor and the assessment must recognise that the funder assumed that risk at the commencement of the proceeding;

(f)     the legal costs expended and to be expended, and the security for costs provided, by the funder;

(g)     the amount of any settlement or judgment. This could be of particular significance when a very large or very small settlement or judgment is obtained. The aggregate commission received will be a product of the commission rate and the amount of settlement or judgment. It will be important to ensure that the aggregate commission received is proportionate to the amount sought and recovered in the proceeding and the risks assumed by the funder;

(h)     any substantial objections made by class members in relation to any litigation funding charges. This may reveal concerns not otherwise apparent to the Court; and

(i)     class members’ likely recovery “in hand” under any pre-existing funding arrangements.

22    I accept the submission made on behalf of Balance that what the Court was doing in Money Max was seeking to develop criteria which may be relevant to assessing a reasonable return for providing litigation funding. There has been some criticism that that task involves the Court trespassing into areas in respect of which it has limited expertise and embarking upon an unusual judicial task without sufficient guideposts. But I think the concerns underlying these criticisms are exaggerated. This is for at least two reasons.

23    First, as to the nature of the task, in determining reasonable remuneration, the Court is undertaking a task similar to that undertaken in the fixing of reasonable remuneration in a number of different contexts, but doing so in a new context where the form of provision of the service — the advancement of capital to enable claims to be litigated (and protect against adverse costs) — is one of recent development.

24    Some examples pointed out in submissions and otherwise include:

(1)    where the Court fixes rates of remuneration for professional persons who take on the role of trustee, which has been done by reference to the market rate for such services. As was explained in Lewin on Trusts (16th ed, 1964), at pp 2-1-202 citing Re Masters [1953] 1 WLR 81, in connexion with the Court’s jurisdiction to order remuneration to a trustee who stipulates he is not willing to accept appointment without the same, “[w]hen the court does order remuneration it is the usual practice to provide for remuneration by way of a fixed salary or, occasionally, by a fixed percentage and not by way of professional charges”;

(2)    although we are now used to standardised time-based rates or scales of fees of insolvency practitioners, historically, when Chancery appointed receivers, the practice was for the appointee to ask for remuneration for care and pains at the time of appointment, but its amount was not in general fixed until the first passing of account, upon which the receiver would be allowed either a percentage of receipts, or a gross sum by way of salary: see Daniell’s Chancery Practice (1901) Chap XXVII, Sect 5, p 1441; as Daniell explains, there was no general rule which universally prevails with respect to the principles on which the allowance was to be fixed, but the degree of difficulty in collecting the receipts was relevant – under some circumstances, an order was made that the receiver should be allowed such salary as the judge might think, on the passing of each account, was reasonable; the receiver could also apply for allowances beyond salary for any extraordinary trouble or expenses incurred, if it would be inequitable for the parties to take the benefit of the exertions of the receiver without defraying his expenses;

(3)    the Court is engaged in a similar task when fixing the remuneration of liquidators and trustees in bankruptcy; such persons, acting to the benefit of all creditors, will be allowed the expenses of bringing in a fund including reasonably incurred litigation funding expenses (IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) [2009] FCAFC 9; (2009) 253 ALR 240 (at 254 per North, Emmett and Rares JJ)), but they are also entitled to remuneration and this too can be charged against the fund: In Re Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171 (at 174–5 per Dixon J);

(4)    as the Full Court pointed out in Westpac Banking Corporation v Lenthall [2019] FCAFC 34; (2019) 265 FCR 21 (at 42 [74], 48–9 [102] per Allsop CJ, Middleton and Robertson JJ), a salvor was allowed a reward, and courts developed principles for calculating the same by reference to factors developed in the law of maritime concerning the nature and extent of the risk undertaken and the nature and extent of the benefit conferred (value of property salvaged);

(5)    sheriffs could not at common law take a reward for doing their duty, but fees came to be allowed by custom regulated by reasonableness: see Allen O, The Duties and Liabilities of Sherriffs, In Their Various Relations to the Public and to Individuals, as Governed by the Principles of Common Law, and Regulated by the Statutes of New York (1845), Chap XIII, p 347ff; while sheriffs’ poundage came to be regulated by statute (Statute of Elizabeth (29 Eliz c4)), the basis of the award was that the sheriff had recovered money for the creditor and was entitled to reasonable remuneration for the risk and expense of levying execution; and

(6)    in the absence of a payment clause and consent, an executor or administrator may seek the Court to exercise an inherent power to award commission for their “pain” and “troubles”, with “pains” being the responsibility, anxiety and worry of the executor, “troubles” being the work carried out by the executor, meaning the Court is to take numerous factors into account including the size and complexity of the estate, the work that was done, the length of time taken and the amount of work delegated by the executor: see Nissen v Grunden (1912) 14 CLR 297; Re Moore [1956] VLR 132.

25    Secondly, in this case detailed evidence and other materials have been made available to the Court. As touched upon above, expert material has been adduced showing that the amount of remuneration sought by Balance (25% of the gross settlement sum) is towards the middle of the range of rates offered or accepted by funders for class actions in Australia, The relevant data concerning rates is in evidence from 1997 to present, and is collected in the Expert Report of Greg Houston dated 1 December 2020 (at [16], [20], Appendix A1). Further in evidence is a study authored by Professor Vince Morabito entitled “An Evidence-Based Approach to Class Action Reform in Australia: Common Fund Orders, Funding Fees and Reimbursement Payment” (January 2019) and a further study by Professor Morabito entitled “Remuneration to Litigation Funders in the Post-Money Max Era (14 October 2020). It is unnecessary to wade into the specifics which can be seen from this helpful material, but speaking very generally, it shows a generally consistent pattern of CFOs being made at around this level.

D.3    Consideration

26    The contradictor, Mr R G Craig QC (whose submissions were, with respect, both helpful and balanced), accepted that having regard to the principles explained in Money Max, the making of a Settlement CFO was appropriate, particularly in circumstances where only the applicant entered into a funding agreement and no group members did so, hence a funding equalisation order would neither be just nor fair

27    The contradictor further submitted, however, that the proposed commission sought by Balance (being 25% of the gross settlement sum or approximately 27.57% of the net settlement sum) is too high and that the following matters militate in favour of a lower commission rate of, say, 21%: (a) Balance only executed one funding agreement and there is accordingly no cost attributable to the conducting of a book build to be factored into the commission rate; (b) the commission was not accepted or agreed to by a sophisticated class of investors and hence 25% is, without more, an arbitrary starting point; (c) the current “tariff” (albeit in the securities class actions context) includes funding commission percentages in the low 20s; in other areas, this sort of figure accords with the 20% funding commission awarded in the stolen wages litigation (see Pearson v State of Queensland (No 2) [2020] FCA 619) and, while the funding commission in the toxic foam litigation (see Smith v Commonwealth of Australia (No 2) [2020] FCA 837) was in the 24–25% range, the figures recorded reveal a return on investment to the funder of between 1.07 and 2.37 (which is to be contrasted with the figure of 3.6 if a 25% commission was applied); (d) there was a reasonable basis to conclude that the level of risk undertaken by Balance was towards the lower end of the spectrum in the present proceeding; and (e) there was a relatively quick return on investment achieved in this proceeding.

28    All of these points, although well made, can be dealt with relatively shortly. I am satisfied this was a relatively risky case when compared to a “run of the mill” securities class action. Even assuming liability issues broadly in favour of the applicant at an initial trial (and that outcome was not assured by any means), there were real difficulties in identifying common issues which would form the basis of s 33ZB orders (and hence avoid the necessity for a large number of individual cases). I am satisfied for a case of this type, a percentage return of 25% is fair given the comparables (such as they are) and particularly given this is a “legacy case” where a judge of the Court, looking at the matter from an ex ante perspective, was content to make a Commencement CFO of “not more than 25%” of gross recovery. Although the error of making such orders has now been corrected, at least the preliminary indication of a cap in such an order was done without any hindsight bias. The return is one which although a good result for the funder, is not a windfall.

29    A further point made by the contradictor does, however, have real substance, and reflects a view I have expressed before. Balance seeks reimbursement or payment of the costs it has incurred connected to the taking out of an ATE Policy, the so-called “Paid ATE Costs” and “the Contingent ATE Costs”.

30    It should not have them.

31    In Perera v GetSwift Limited [2018] FCA 732; (2018) 263 FCR 1, I observed (at 54 [193]) that the costs of providing security in cases which settle or are otherwise resolved favourably to the group members will ultimately be borne by them, in most cases, indirectly through payments to the funder of an amount pursuant to an approved settlement scheme. I further observed as follows (at 54 [194]–[195]):

I say in most cases this occurs indirectly, because the cost of security is usually “absorbed” as a cost of doing business by the funder and is, in this sense, incorporated in the consideration ultimately paid to the funder (or more accurately, absorbed in the value of the promises extracted from group members to pay an amount to a funder upon any successful resolution). That cost may be incurred in a number of ways, including the deprivation of the use of funds placed on a cash deposit or the cost associated with a funder taking out an ATE policy to cover its liability for adverse costs under the indemnity the funder has provided. Although I am aware of cases where the premium for an ATE policy is “absorbed” in the sense explained, there have been cases where the funder has attempted to recover the ATE premium in addition to obtaining a funding commission: see Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323; (2016) 335 ALR 439 at 461 [105] per Murphy J and Hardy v Reckitt Benckiser (Australia) Pty Limited (No 3) [2017] FCA 1165 at [13]-[15] per Nicholas J.

I pause to remark that this is an illustration of the superficiality of comparing “headline” funding rates; it all depends on whether expenses (such as an ATE premium) are separately identified and passed on directly to group members or “absorbed” and passed on indirectly. Certainly for the process of any comparative analysis (or incidentally in considering the reasonableness of the total amount to be paid to a funder in the context of a s 33V application), it is the aggregate amount to be paid to the funder, including miscellaneous items such as “management fees”, that is relevant.

(Emphasis in original).

32    If the Court is going to build up an accumulated experience of making Settlement CFOs and be able to compare them, it is highly desirable that Settlement CFOs are made on identical bases by reference to gross settlement sums and stripping away “sundries” such as miscellaneous fees and, importantly, the costs of the funder performing its central obligation to provide an indemnity against adverse costs. If a funder wishes to defray their risk of performing that obligation it is matter for the funder but, in my view, it is not a cost that ought be passed on separately to group members when the Court controls the remuneration.

33    I am content to make the Settlement CFO in the amount of 25% but partly because it will not be augmented by the costs associated with ATE insurance.

D.4    Equity

34    What is said above is sufficient to explain my reasons for making the order under s 33V(1), but as I have indicated I would have been prepared to make an order to a similar effect in equity. For completeness, I should briefly explain my reasons.

35    In Klemweb Nominees Pty Ltd v BHP Group Ltd [2019] FCAFC 107; (2019) 369 ALR 583 I observed (at 610 [128]–[129]) that:

a series of cases in the United States stand for the … proposition … that the foundation for the historic practice of granting reimbursement for the costs of litigation “is part of the original authority of the [C]hancellor to do equity in a particular situation”: Sprague v Ticonic National Bank 307 US 161 (1939) at 166 (Sprague). Indeed, after making reference to observations in the second edition of Daniell’s Chancery Practice at 1381–1410, Frankfurter J in Sprague referred to the “power of equity in doing justice as between a party and the beneficiaries of his litigation”: at 167. Relying upon equitable principles, it is well established in the United States that a court may order that the financial burden of legal fees is to be spread “proportionately among those benefited by the suit”: Boeing Company v Van Gemert 444 US 472 (1980) at 478 (Boeing). Thus, as was said by Powell J, in delivering the opinion in the leading case of Boeing, the common fund doctrine reflects the traditional equitable practice, which rests on the perception that persons who obtain the benefit of an action without contributing to its cost are unjustly enriched: at 478.

The common fund doctrine as developed in the United States allows lawyers to approach the court for a fee from a fund in addition to the fee contracted: Central Railroad & Banking Co v Pettus 113 US 116 (1885) at 127, and, consistently with its equitable roots, the fund concept was “employed to realize the broadly defined purpose of recapturing unjust enrichment”: Dawson, J P, “Lawyers and Involuntary Clients: Attorney Fees From Funds” (1974) 87 Harvard Law Review 1597 at 1597; see also Bercaw, J D, “The Common Fund Doctrine: An Overview” (1989) 14 Journal of the Legal Profession 203 at 204; Legg, M, “Reconciling the Goals of Minimising Cost and Delay with the Principle of a Fair Trial in the Australian Civil Justice System” (2014) 33(2) Civil Justice Quarterly 157 at 157. …

36    I pointed out that as Professor Silver explained in “A Restitutionary Theory of Attorneys’ Fees in Class Actions” (1991) 76 Cornell Law Review 656 (at 657), a coherent theory explaining why class action lawyers are entitled to be paid for getting in a fund has been somewhat controversial. Unjust enrichment held sway until relatively recently. The concept of unjust enrichment as called in aid by Americans needs to be approached with caution in this country because of obstacles that arise by reason of the Australian conception of unjust enrichment, but as Edelman J (the only judge of the High Court to deal with the Full Court’s discussion of equitable principle at any length) explained in BMW v Brewster (at 90 [193]):

Justice in a proceeding is not confined by issues of taxonomy or classification. Indeed, even awards of restitution are not limited to actions that form part of the category of unjust enrichment. Shorn of any such rigidity, the broad concept of justice being “done in the proceeding” can extend beyond the category of unjust enrichment and beyond awards that fit the recognised category of restitution. It can extend to some circumstances (i) where the calculation of reasonable remuneration includes a share of profits in the market value of work done and the risk incurred, particularly where that is the basis for such remuneration in the relevant industry and (ii) where work has not been requested. This is particularly so where services are not conferred gratuitously and remuneration will only be recovered from a fund obtained upon success.

(Citations omitted).

37    As I went on to remark in Klemweb Nominees (at 610–11 [130]), a Settlement CFO might be thought to be consistent with general equitable principles that a person who benefits from another’s efforts in producing a fund is obliged to provide appropriate value in return, as is reflected in the underlying principle that it would be inequitable for the person who has created or realised a valuable asset, in which others claim an interest, “not to have his or her costs, expenses and fees incurred in producing the asset paid out of the fund or property created”: Thackray (in their personal capacity and as receivers and managers of Great Southern Managers Australia Ltd (recs and mgrs apptd) (in liq)) v Gunns Plantations Ltd [2011] VSC 380; (2011) 85 ACSR 144 (at 154–5 [41], where Davies J described the principle in the context of an assertion of an equitable lien); see also IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) [2009] FCAFC 9; (2009) 253 ALR 240 (at 254–7 [63]–[78] per North, Emmett and Rares JJ).  Put another way, he who seeks equity must do equity (a maxim which can be seen operating, in analogous circumstances, in Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15; (2014) 252 CLR 307, where Crennan, Kiefel, Bell, Gageler and Keane JJ noted (at 320 [22]) that “a secured creditor may not have the benefit of a fund created by a liquidator’s efforts in the winding up without the liquidator’s costs and expenses, including remuneration, of creating that fund being first met”).

38    In the context of class actions, a representative party’s ability to recover its own costs and expenses out of the fund was observed by the Full Court in Westpac Banking Corporation v Lenthall [2019] FCAFC 34; (2019) 265 FCR 21 (at 49 [103] per Allsop CJ, Middleton and Robertson JJ), referring to National Bolivian Navigation Company v William Millar Wilson (1880) 5 App Cas 176. A litigation funder was also able to rely on the principle. In In Re Timbercorp Securities Ltd (applications for the approval of compromises) [2012] VSC 590, not only were the funder’s costs and expenses recoverable out of the fund (see at [119] per Judd J), but so too was the funder’s premium, given that the liability was incurred for the benefit of the absent persons (whom the representative parties represented) and was fair and reasonable (see at [125]–[133] per Judd J).

39    As Balance submitted, it is consistent with equitable principle to recognise that the applicant and group members seek equity because they claim on a fund in which none of them has an ascertained interest, and accordingly require the aid of the Court to distribute that fund. Therefore they must do equity by allowing payment of the just expenses and remuneration of persons without whom the fund would not have, and could not have, come into existence, such as the litigation funder. Moreover, based on the almost total absence of objection, group members are quite prepared to do equity in this way.

40    This Court, as a court of equity (s 5(2) of the Act), has power to make any appropriate order in a matter within its jurisdiction that a court of equity could make in similar or like circumstances, including the power to grant all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim (s 22 of the Act). Although in BMW v Brewster in the joint judgment, the statement was made (at 72 [87] per Kiefel CJ, Bell and Keane JJ) that “[t]he funder has no right to that money under contract or under equitable principles”, this obiter statement was made in the abstract and in the context of a Commencement CFO (when no relevant equity existed given the funding had not actually been advanced and, unlike here, there was no realised fund).

Associate:

Dated:    28 January 2021