Federal Court of Australia

J&J Richards Super Pty Ltd ATF The J&J Richards Superannuation Fund v Nielsen (No 2) [2025] FCA 431

ORDERS

THE COURT ORDERS THAT:

Settlement of outstanding claims against seventh respondent

1.    Pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act), the settlement of the applicant’s claims for interest and, to the extent necessary, costs as against the seventh respondent be approved.

2.    Pursuant to s 33ZB(a) of the FCA Act, the persons affected by the settlement of the proceeding pursuant to Order 1 in these orders are:

(a)    the applicant;

(b)    all persons who meet the definition of “Group Member” in paragraph 2 of the fourth further amended statement of claim (4FASOC) and who did not file an opt out notice in accordance with the orders made on 30 August 2022 (group members);

(c)    LCM Funding Pty Ltd (ACN 638 076 098) (LCM); and

(d)    AIG Australia Limited (ACN 004 727 753) (AIG).

3.    Pursuant to s 22, s 23 or s 33ZF of the FCA Act, r 1.32 of the Federal Court Rules 2011 (Cth) and/or the Court’s implied or inherent jurisdiction:

(a)    any previous costs orders made in the proceeding in relation to the applicant’s and any group members’ claims against AIG be vacated; and

(b)    there be no order as to the costs of the applicant’s and group members’ claims against AIG (such that each party is to bear its own costs of the proceeding).

Settlement Distribution Scheme (SDS)

4.    Pursuant to s 33V, s 33Z(1)(g), s 33Z(2), s 33Z(4) and/or s 33ZF of the FCA Act:

(a)    the amendments to the Settlement Distribution Scheme approved on 19 June 2023 (Interim SDS) (shown in mark-up in the version of the Settlement Distribution Scheme provided to the Associate to the Honourable Justice Halley on 28 April 2025 (Final SDS)) be approved; and

(b)    the Settlement Administrator under the Final SDS is to make the deductions and distributions from the Settlement Distribution Fund (as that term is defined in the Final SDS) provided for in the Final SDS.

5.    Liberty to apply pursuant to cl 14.1 of the Final SDS and/or s 33V(2) of the FCA Act be reserved for the applicant and the Settlement Administrator in relation to any matter arising under the Final SDS or its administration.

Non-publication orders

6.    Order 1 of the orders made on 29 April 2025 be vacated.

7.    Pursuant to s 37AF(1) of the FCA Act until further order of the Court, the following information is to be kept confidential and not published or otherwise disclosed to any person other than to the Court, the applicant, the solicitors and counsel engaged by the applicant for the purpose of the conduct of these proceedings, LCM and any solicitors and counsel engaged by LCM for the purpose of the conduct of these proceedings, on the ground that this order is necessary to prevent prejudice to the proper administration of justice under s 37AG of the FCA Act:

(a)    in the affidavit of Polina Kolomoitseva affirmed on 17 April 2025:

(i)    the information contained in rows 2-5 of the table in [33.3.2];

(ii)    [34.1.1]-[34.1.5];

(iii)    the information contained in rows 2-5 of the table in [45.2.2];

(iv)    the dollar figure in [47];

(v)    the dollar figure in [48];

(vi)    the dollar figure in [52];

(vii)    the dollar figure in [54.1];

(viii)    [54.2.2.1];

(ix)    words other than “A sum calculated by reference to” and “which sum is $765,000, plus stamp duty” in [54.2.2.2];

(x)    [56.3];

(b)    Tab 49 of the Court Book, being a further retainer agreement between the applicant and the applicant’s solicitors (Corrs) dated 29 April 2020;

(i)    the personal contact information on court book page 757;

(ii)    the personal contact information on court book page 758;

(c)    Tab 50 of the Court Book, being a Representative Proceeding Funding Agreement – Member between the applicant and LCM dated 21 August 2020:

(i)    the personal contact information on court book page 768;

(ii)    sch, item no. 4: paragraph B, table rows 2-5; and paragraph C on court book page 769;

(iii)    cl 21 on court book page 777;

(iv)    cl 28 and cl 29 on court book pages 779-780;

(v)    cl 35.1-cl 35.9 on court book page 782;

(vi)    cl 36 on court book page 782;

(vii)    cl 51, cl 52.1 and cl 52.2 on court book page 785;

(d)    Tab 51 of the Court Book, being a Representative Proceeding Funding Agreement – Representative between the applicant and LCM dated 21 August 2020

(i)    cl 5.3 on court book page 795;

(ii)    cl 8.2 and cl 8.3 on court book page 796;

(iii)    the personal contact information on court book page 799;

(iv)    the personal contact information and banking details on court book page 800;

(e)    Tab 52 of the Court Book, being a Tripartite Agreement between the applicant, LCM and Corrs dated 21 August 2020;

(i)    the personal contact information on court book page 804;

(ii)    cl 12 and cl 13 on court book page 807;

(iii)    cl 17 on court book page 807;

(iv)    cl 52-cl 57 on court book page 813;

(v)    cl 58 and cl 60 on court book pages 813-814;

(vi)    the information contained in Sch 2 on court book page 820;

(f)    Tab 53 of the Court Book, being a letter from Corrs to Group Members dated 6 June 2020;

(i)    the information contained in court book pages 827-836;

(g)    Tab 57 of the Court Book, being an email chain between Michelle Gordon and Julie Richards dated 14 April 2025;

(h)    Tab 58 of the Court Book, being a confidential opinion prepared by David Lloyd SC and Robert Pietriche of counsel;

(i)    Tab 61 of the Court Book being LCM’s Outline of Submissions filed on 17 April 2025;

(i)    the dollar figure in the second sentence of [14];

(ii)    the words between “conclusions of the proceeding” and “and in the notice” at [24(b)];

(iii)    footnote 43; and

(iv)    the adverse costs exposure figure in footnote 59;

(j)    Tab 62 of the Court Book, being a conditional funding proposal provided by LCM to Corrs dated 7 February 2020;

(i)    the information contained in [4] and rows 2-5 of the table on court book page 985;

(ii)    the information contained in [4] and rows 2-5 of the table on court book page 988;

(k)    Tab 63 of the Court Book, being an agreement between LCM Operations Pty Ltd, Corrs and John Pacholski dated 3 March 2020;

(i)    cl 20 on court book page 994;

(ii)    cl 21, cl 22 and cl 23 on court book page 994;

(iii)    the information contained in [4] and rows 2-5 of the table on court book page 999;

(l)    Tab 64 of the Court Book, being a quotation for ATE insurance from AmTrust dated 30 September 2020;

(i)    the dollar figure in the “Limit of Indemnity” section on court book page 1001;

(ii)    the line item “Paid” under the heading “Premium” on court book page 1001;

(iii)    the information contained under heading “Rebate of Contingent Premium” on court book page 1001;

(m)    Tab 65 of the Court Book, being a further quotation for ATE insurance from Amtrust dated 18 June 2021;

(i)    the dollar figure in the “Limit of Indemnity” section on court book page 1002;

(ii)    the line item “Paid” under the heading “Premium” on court book page 1002;

(iii)    the information contained under heading “Rebate of Contingent Premium” on court book page 1002;

(n)    Tab 66 of the Court Book, being an ATE Insurance Policy provided by AmTrust to LCM dated 16 July 2021;

(i)    cl 2 on court book page 1004;

(ii)    cl 4.2.1, cl 4.2.2 and cl 4.2.3 on court book page 1005;

(iii)    cl 5.1, cl 5.2 and cl 5.3 on court book page 1006;

(iv)    cl 7.3 and cl 7.4 on court book pages 1006-1007;

(v)    cl 9.1 and cl 9.2 on court book page 1008;

(vi)    all words from the beginning of the page to the end of item 5 on court book page 1014;

(vii)    the dollar figure in item 6 on court book page 1014; and

(viii)    item 7 on court book page 1014.

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

REASONS FOR JUDGMENT

HALLEY J:

A.     Introduction

1    The applicant seeks approval of a proposed settlement of outstanding claims for costs and interest against the seventh respondent, AIG Australia Limited (AIG) in this proceeding and the approval of a proposed Final Settlement Distribution Scheme (Final SDS). The approval is sought pursuant to s 33V, s 33Z and/or s 33ZF of the Federal Court of Australia Act 1976 (Cth) (FCA Act).

2    The proceeding was commenced by the applicant as a representative proceeding pursuant to s 33C of the FCA Act. The applicant brought claims on its own behalf and on behalf of group members against the first respondent (Linchpin) and the sixth respondent (Endeavour) (together, the Companies), as well as various officers and directors of both Companies (together, the Director Respondents), alleging various breaches of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth) and the Trusts Act 1973 (Qld). The alleged breaches were directed at the conduct of the Companies and the Director Respondents in relation to an unregistered managed investment scheme known as the “Investport Income Opportunity Fund”, of which Linchpin was the trustee, and a registered managed investment scheme, also known as the “Investport Income Opportunity Fund”, of which Endeavour was the responsible entity.

3    The applicant sought damages and compensation with respect to the value of its investments which have been lost by reason of the collapse of those schemes.

4    The applicant also advanced claims against the Companies’ insurers, AIG and RiverStone Managing Agency Limited for and on behalf of all the underwriting members of Lloyd’s Syndicate 2014, respectively. It brought claims directly against each under the various policies of insurance which were in place in the period during which the alleged contraventions took place including, relevantly, a directors and officers liability insurance policy underwritten by AIG.

5    LCM Funding Pty Ltd (LCM) is the litigation funder for the applicant and group members in the proceeding.

6    The proceeding has three features that are not typically found in representative proceedings. The proceeding was brought on behalf of a closed class comprising 176 members, each of whom has entered into a litigation funding agreement with LCM. Next, each group member has been legally represented at all times by the applicant’s solicitors (Corrs) pursuant to individual retainers. Further, there was a partial settlement of the proceeding against all respondents other than AIG, that included an interim settlement distribution scheme (Interim SDS) that was approved by the Court on 19 June 2023 (Interim Settlement Approval).

7    On 18 December 2024, the proceeding as against AIG was determined in favour of the applicant: J&J Richards Super Pty Ltd ATF The J&J Richards Superannuation Fund v Neilsen [2024] FCA 1472 (Liability Judgment).

8    On 7 March 2025, orders were entered giving effect to the Liability Judgment. Pursuant to those orders, AIG paid the sum of $10 million into a settlement account (Settlement Distribution Fund). The parties, however, were not able to agree on orders with respect to indemnity costs or with respect to the payment of any interest under either s 51A of the FCA Act or s 57 of the Insurance Contracts Act 1984 (Cth) (Insurance Contracts Act). Orders were made for the filing of submissions and the outstanding issues with respect to interest and costs were listed for hearing on 7 April 2025.

9    On 3 April 2025, however, the parties agreed to compromise the outstanding issues on interest and costs on the basis that AIG would pay the applicant an additional sum of $2,150,000 and there would otherwise be no order as to costs and interest in the proceeding (AIG Settlement).

10    By an interlocutory application filed on 7 April 2025, the applicant seeks orders approving the AIG Settlement and certain amendments to the Interim SDS (SDS Variation Orders).

B.     Evidence

11    The Court’s “Class Actions Practice Note” (GPN-CA) provides the following guidance on the factors that are generally to be addressed in an application for an approval of a representative proceeding settlement:

15.5    The material filed in support of an application for Court approval of a settlement will usually be required to address at least the following factors:

(a)    the complexity and likely duration of the litigation;

(b)    the reaction of the class to the settlement;

(c)    the stage of the proceedings;

(d)    the risks of establishing liability;

(e)    the risks of establishing loss or damage;

(f)    the risks of maintaining a class action;

(g)    the ability of the respondent to withstand a greater judgment;

(h)    the range of reasonableness of the settlement in light of the best recovery;

(i)    the range of reasonableness of the settlement in light of all the attendant risks of litigation; and

(j)    the terms of any advice received from counsel and/or from any independent expert in relation to the issues which arise in the proceeding.

12    The applicant relied on a substantive affidavit of Michael Catchpoole affirmed on 17 April 2025 and a short supplementary affidavit affirmed by him on 28 April 2025 correcting a typographical error in his substantive affidavit.

13    Mr Catchpoole gives evidence of (a) the procedural history of the matter, including the first partial settlement approval application, the delivery of judgment in favour of the applicant against AIG, and the ensuing dispute in relation to interests and costs, (b) a calculation of the costs and interest potentially payable by AIG, (c) the issuance of opt out notices, (d) notifications made to group members, (e) the proposed settlement distribution scheme, and (f) the confidential settlement opinion obtained from David Lloyd SC and Robert Pietriche of counsel (Confidential Opinion).

14    The applicant also relied on an expert report of Elizabeth Harris dated 28 April 2025. Ms Harris gives evidence that in her opinion, the applicant’s assessed legal costs in an aggregate sum of $1,092,843.00, comprising professional fees, counsel fees, expert fees and disbursements, are fair and reasonable. The only deduction from the costs claimed made by Ms Harris was an amount of $5,489.00 referrable to the preparation of the funding and engagement letters. Ms Harris concluded that these costs should be borne by LCM as it benefits from the entry by group members into the funding agreements.

15    I granted leave to the litigation funder, LCM, to intervene at the hearing of the settlement approval application. It relied on an affidavit from Polina Kolomoitseva, a senior investment manager of LCM. In her affidavit, Ms Kolomoitseva addressed (a) the confidentiality of some of the documents exhibited to her affidavit, (b) the LCM investment process, (c) the funding of the proceeding, (d) due diligence undertaken in connection with the decision to fund the proceeding, (e) the funding documents and their key terms, (f) the adverse costs risks, security for costs and After the Event (ATE) insurance, (g) the monitoring by LCM of the costs of Corrs, (h) the partial settlement of the proceeding, and (i) the remuneration now sought by LCM.

16    The respondent was notified of the application for settlement approval but chose not to file any evidence or seek to be heard on the settlement approval.

C.     Legal principles

17    The principles governing the approval of proposed settlements of representative proceedings are well-established. It is sufficient for present purposes to provide the following summary of those principles.

18    First, the overarching principle is that the settlement must be fair and reasonable having regard to the interests of the group members as a whole, including as between group members: Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [7] (Jacobson, Middleton and Gordon JJ); Kelly v Willmott Forests Ltd (in liq) (No 4) (2016) 335 ALR 439; [2016] FCA 323 at [62]-[77] (Murphy J); Webb v GetSwift Limited (No 7) (2023) 165 ACSR 560; [2023] FCA 90 at [15]-[17] (Murphy J).

19    Second, the role of the Court is to determine whether the proposed settlement falls within a range that is reasonable, and not to second guess the strategic or tactical decisions made by the applicant’s legal representatives: J & J Richards Super Pty Ltd v Linchpin Capital Group Ltd (Settlement Approval) [2023] FCA 656 at [59] (Lee J); Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (in liq) (No 3) (2017) 118 ACSR 614; [2017] FCA 330 at [83] (Beach J); Kelly at [74].

20    Third, the relevant factors set out in previous authorities and in the Class Actions Practice Note are a useful guide subject to the circumstances of any particular case but do not need to be addressed in every case: Kelly at [66]; Prygodicz v Commonwealth (No 2) (2021) 173 ALD 277; [2021] FCA 634 at [88] (Murphy J).

21    Fourth, the Court has the power to bifurcate the settlement approval process as provided for and consistently with the distinct powers given to the Court in s 33V(1) and s 33V(2) of the FCA Act: J & J Richards at [60].

D.     Reasonableness of the AIG Settlement

22    I am satisfied that the AIG Settlement is fair and reasonable having regard to the interests of group members as a whole.

23    First, the consequence of the AIG Settlement is to bring proceedings that had been commenced in August 2020 to finality and thus permit the distribution of substantial compensation to group members.

24    Relatedly, such finality is now confirmed because AIG has also agreed to forfeit its right of appeal against the Liability Judgment. Given that (a) the application of s 57 of the Insurance Contracts Act to “liability insurance” in the context of class actions and its application where relief is sought directly against an insurer under the Civil Liability (Third Party Claims against Insurers) Act 2017 (NSW) are relatively novel, and (b) the risk of an appeal, if instituted, causing further delay and imposing an additional costs burden on the applicant, the forfeiture of appeal rights should be given material weight.

25    Second, the costs of a contested hearing on the applicant’s entitlement to indemnity costs and interest, together with the risk of any delay arising from an appeal from a decision adverse to either party, has been avoided.

26    Third, although the applicant’s best case calculation of interest under s 57 of the Insurance Contracts Act projected an interest liability of $2,613,266.36, the proposed settlement sum of $2,150,000, in lieu of an order as to interests and costs, was significantly greater than the estimated costs incurred by the applicant referrable to the claims advanced against AIG of approximately $1,400,000. Hence the applicant could never recover more than $1,400,000 on an indemnity costs basis from AIG and therefore the proposed settlement sum can be characterised as providing at least a best case result for costs on an indemnity basis and a not insignificant contribution of $750,000 towards a relatively unchartered claim for interest under s 57.

27    Fourth, the risks inherent in establishing the applicant’s entitlement to interest and indemnity costs have been addressed in the Confidential Opinion. In particular, the significant challenges that the applicant would likely face in establishing its claimed entitlement to interest are identified in the Confidential Opinion. I am satisfied that the proposed settlement sum, given the challenges identified regarding the recovery of interest in the Confidential Opinion and the best recoveries for costs and interest otherwise achievable, falls within the range of reasonableness.

28    Fifth, Corrs have notified group members of the AIG Settlement but have not received any notice of objection and no group member sought to appear at the hearing.

29    I am also satisfied that the proposed AIG Settlement is fair and reasonable as between group members.

30    First, the Final SDS, consistently with the Interim SDS, provides that the final distribution to group members from the Settlement Distribution Fund, will be determined by reference to their pro-rata share of the residual settlement sum, after taking into account any actual recoveries that individual group members might have earlier received. This provides a mechanism that ensures that group members receive compensation for their actual losses on a proportionate level that is both fair and reasonable.

31    Second, the reductions that are proposed to be made from the Settlement Distribution Fund to pay outstanding legal fees, Funder’s Interest, other funding costs, ATE insurance liabilities and the fees for work undertaken by John Pacholski, who was appointed as the agent for group members, are payments to which each group member agreed in their funding agreements with LCM, agency agreements with Mr Pacholski and retainer agreements with Corrs.

32    Third, the only deduction in which priority is given to one group member’s interest is the payment of $25,000 as a reimbursement to the lead applicant for its role in acting as the lead in the proceeding. I address the reasonableness of this payment at [66]-[67] below.

E.     Reasonableness of the SDS Variation Orders

E.1. LCM’s funding of the proceeding

33    The funding documents included an agreement entered into between LCM and each group member and the applicant, described as a Representative Proceeding Funding Agreement – Member (Member LFA). Each Member LFA provided that LCM would (a) pay all “Action Costs”, that were defined to include legal costs and disbursements, premiums on ATE insurance and associated taxes and duties, (b) indemnify the applicant and each group member against all “Adverse Costs” that might be ordered to be paid by them in the proceeding, and (c) meet any order for security for costs in the proceeding, including, at its discretion, procuring ATE insurance.

34    In return, each Member LFA provided that in the event of any “Recovery”, as defined therein, LCM was to be (a) reimbursed the “Outstanding Funding”, which included all Action Costs and Adverse Costs, paid or payable by LCM, and (b) paid an amount described as the “Funder’s Interest”.

35    The Funder’s Interest was defined to be the greater of the “Funder’s Commission” and the “Recovery Premium”. The Funder’s Commission is defined and calculated as a percentage of the Recovery. The Recovery Premium is defined and calculated as a multiple of the Outstanding Funding (other than any deferred ATE insurance premiums) as at the date of the distribution of the Recovery.

36    Given the date of this application for approval of the AIG Settlement and the SDS Variation Orders is after 4 March 2022, the Member LFAs provide that the applicable percentage for the Funder’s Commission is 25% of the Recovery and the multiple to apply to the Outstanding Funding to calculate the Recovery Premium is 3.0.

37    By the time of the Interim Settlement Approval, LCM had funded legal costs and disbursements in the proceeding in the amount of $1,252,789.79 (including GST). A distribution to LCM for this amount from the interim settlement was approved by the Court as part of the Interim Settlement Approval and paid to LCM under the Interim SDS.

38    Following the Interim Settlement Approval, LCM agreed that the further legal costs and disbursements of Corrs in maintaining the proceeding against AIG would be paid out of the interim settlement sum and Corrs would cease providing any further invoices to LCM for payment under the Funding Documents. As a result of this decision, the costs of pursuing the claims against AIG following the Initial Settlement Approval have not increased Action Costs and in turn Outstanding Funding and thus the amount to which LCM would be entitled under the funding agreements is significantly less.

39    As at the time of the Interim Settlement Approval, the figure for Outstanding Funding was $1,466,696.90. Hence, if the Funder’s Interest was calculated on the Recovery Premium basis it would generate a figure of $4,400,090.70 (3 x $1,466,696.90). By way of contrast, had all costs and disbursements continued to be funded by LCM, the Funder’s Interest calculated on the Recovery Premium basis would have increased to $8,221,576.83 (3 x ($1,466,696.90 + $73,828.71 + $1,200,000.)

40    Relevantly, LCM did not seek distributions for its full entitlements under the funding agreements at the time of the Interim Settlement Approval. Recovery of the Funder’s Interest and ATE insurance costs was instead deferred until the finalisation of the proceeding. This was because, until the claims against AIG were resolved, the total amount of the Funder’s Interest could not be calculated, the total premiums that would become payable by LCM under the relevant ATE policy was uncertain, and the recoveries available for distribution to group members were not known. Payment of these deferred amounts is now sought as part of the Final SDS approval application.

E.2    Bifurcated payment sources

41    The Interim SDS, as approved by Lee J on 19 June 2023, provided expressly for the amendment of its terms to facilitate final distributions upon finalisation of the proceeding. The approval of the Interim SDS provided for the payment of costs already incurred and future costs to be incurred up to a capped amount and otherwise anticipated future amendments to the terms of the Interim SDS to facilitate further distributions upon the conclusion of the proceeding. As acknowledged by Lee J in approving the Interim SDS, this necessarily involved a “bifurcation” of the settlement approval process, consistent with the Court’s power under s 33V(2) of the FCA Act to make orders approving a settlement and various distributions under it at different points in time: J & J Richards at [89]-[90].

42    The SDS Variation Orders sought on this Application facilitate not only the distributions of amounts paid into the Settlement Distribution Fund from amounts paid pursuant to the various settlements reached in the proceeding, but also to distribute part of the $10 million judgment sum paid by AIG pursuant to the Court’s final orders of 7 March 2025. These distributions would typically be approved pursuant to s 33Z of the FCA Act and more specifically, pursuant to s 33Z(1)(g), insofar as distributions for costs, expenses and funding commissions are concerned. As a consequence, the proposed distributions under the Final SDS will likely involve funds obtained through two different processes in the proceeding (that is, pursuant to earlier settlements and the final judgment), the approval of which would be governed by different provisions of Pt IVA of the FCA Act.

43    Although such a circumstance (and the attendant question of power) has not yet been addressed in the authorities, the applicant submits that it does not present any impediment to the SDS Variation Orders sought, which may be authorised under both s 33V(2) and s 33Z(1)(g) of the FCA Act. It submits, and I accept, that the two sections call for the same inquiry given (a) the inquiry under s 33V(2) is to make such orders as are “just”, which inquiry is informed by the usual principles of reasonableness and fairness applicable to a conventional settlement approval application and (b) the task under s 33Z(1)(g) is to make “such other order as the Court thinks just”,. Although, the authorities do not elucidate the meaning of the word “just” in the context of s 33Z(1)(g), there is no textual, contextual or purposive basis to construe its meaning any differently to the same term used in s 33V.

44    Moreover, s 33Z(1)(g) confers upon the Court broad powers which enable the Court to give effect to a judgment or other determination of a “matter”, including by providing for the distribution of any damages awarded to the group members (by s 33Z(2)) and putting in place mechanisms to ascertain each group member’s entitlement to share in such an award pursuant to s 33Z(4): Newstart 123 Pty Ltd v Billabong International Ltd (2016) 343 ALR 662: [2016] FCA 1194 at [55]-[62] (Beach J); Tour v Australia and New Zealand Banking Group Ltd [2024] FCA 1513 at [70] (Beach J). In that regard, the applicant submits, and I accept, that its function is analogous to that served by s 33V(2), the only relevant difference being the stage of the proceedings at which it applies.

E.3.    Payments to be made pursuant to Final SDS

45    As outlined above, the Interim SDS was approved at the Interim Settlement Approval and established the mechanics by which group members’ proportionate entitlements to the Settlement Distribution Fund are to be determined. The Final SDS, while proposing a number of amendments designed to “update” the Interim SDS and reflect the fact that many of the steps anticipated in it have now been completed, provides for the distribution of certain amounts for costs, expenses and other entitlements before any distribution is made to group members.

46    The total Recovery that has been achieved in the proceeding is $16,917,778. This is comprised of the interim settlement sum of $4,400,000, the amount of $10,000,000 paid pursuant to the orders made on 7 March 2025, a further $2,150,000 that AIG has agreed to pay to settle the applicant’s outstanding claims for indemnity costs and interest (subject to the Court’s approval) and residual amounts held in the “Escrow Amount” and interest earned on the balances in the Settlement Distribution Fund.

47    The Final SDS provides for the following further distributions to be made to LCM:

(a)    payment of the Funder’s Interest in the amount of $4,445,535.21, calculated as 3.0 x the aggregate Outstanding Funding of $1,481,845.07, pursuant to cl 57.2.3 of each Member LFA, being a sum that represents approximately 26.28% of the approximate $16,910,000 total gross recovery in the proceedings;

(b)    payment of the contingent ATE insurance premiums of $765,000 and associated stamp duty of $68,850 pursuant to cl 57.2.1 of each Member LFA; and

(c)    payment of Outstanding Funding, in addition to the legal costs and disbursements paid by LCM prior to the Interim Settlement Approval, comprising the upfront ATE premium of $191,250 and stamp duty of $17,368.53 and further outstanding out-of-pocket costs of $20,436.75, pursuant to cl 57.2.3 of each Member LFA.

48    The Funder’s Interest has been calculated by reference to the Recovery Premium because as at the time of the application for approval of the Final SDS the figure is higher than the Funder’s Commission. The Recovery Premium, as noted above, is $4,445,535.21 (3.0 x Outstanding Funding of $1,481,845.07) in contrast to the Funder’s Commission of $4,229,444.50 (25% of the Recovery of $16,917,778.00).

49    The Final SDS also provides for the following payments to be made from the Settlement Distribution Fund before any distribution is made to group members:

(a)    the payment of the costs of David Kennedy of EY (Settlement Administrator) capped at a maximum amount of $350,000 (including GST and disbursements);

(b)    payments to Corrs of deferred legal costs comprising an amount of $527,586.55 (including GST) for fees not previously billed and an amount of $287,253.90 (including GST) referrable to a 15% deferred amount on all fees that had previously been invoiced in the period from 31 March 2021 to 30 August 2023 and paid (deferred legal costs);

(c)    the payment to Corrs of an amount of $183,596.99 (including GST) as a 25% uplift on the deferred legal costs;

(d)    the payment to Corrs of its costs of obtaining the SDS Variation Orders in an anticipated amount of $99,394.56 (including GST), but if those costs ultimately exceed that amount the Settlement Administrator must first obtain the approval of the Court before making any payment in excess of that amount;

(e)    the payment to the applicant of an amount of $25,000 by way of reimbursement for its time and costs incurred in acting as the lead applicant; and

(f)    the payment to Mr Pacholski of an amount of $196,755.25 (including GST) for his “success fee” being the sum of $230,077.73 less the amounts paid to date to Mr Pacholski of $33,322.49.

E.4.    Fairness and reasonableness of Final SDS payments

E.4.1.     Overview

50    The fairness and reasonableness of the proposed Final SDS is addressed in detail in the Confidential Opinion. Notwithstanding the considerable quantum of the above proposed distributions, I am satisfied that the proposed distributions to be made under the Final SDS are appropriate and reasonable in the circumstances of this case and consistent with the principles of fairness governing the Court’s supervisory function.

51    The funds available for distribution to group members, after the deductions outlined at [49] above have been made and the payment of “Administration Costs” (which are capped at $350,000), is $7,213,170.26. Given the aggregate of all “Settlement Entitlements” of group members is $16,851,641, based on Corrs’ most recent calculation of the total investments made by group members in the Unregistered Fund and the Registered Fund, each group member will receive 42.8 cents on the dollar on their investments after the payments pursuant to the Final SDS have been made ($1.00/$16,851,641 x $7,212,649.75 = $0.428). The distributions payable to group members may subsequently be greater after any prior recoveries or other recoveries from third parties that have been received by group members are taken into account. Such recoveries would have the effect of reducing the aggregate figure for “Settlement Entitlements” and thus increase the cents in the dollar calculation.

E.4.2.     Payments to LCM

52    I am satisfied that the proposed payments to LCM are fair and reasonable.

53    First, in the absence of litigation funding it is unlikely that any of the group members would have had the financial resources to be able to embark on the proceeding against AIG and the other respondents given the inherent complexity of the claims advanced and the expense of pursuing them.

54    Second, the successful outcome achieved in the proceeding was only accomplished after LCM had incurred significant costs over several years and had assumed the risk of both losing its investment and facing adverse costs orders. Those risks were assumed from the commencement of the proceeding and an ultimately successful outcome could never have been taken for granted.

55    Third, as explained at [38] above, the decision by LCM to pay Corrs’ further costs and disbursements out of the interim settlement sum significantly reduced the Funder’s Interest payable to LCM and thereby had the effect of increasing the distribution to the applicant and group members by an aggregate amount of approximately $3.83 million.

56    Fourth, the Funder’s Interest of $4,445,535.21, calculated as the higher of the Funder’s Commission and the Recovery Premium, represents a payment that is approximately 26.28% of total gross recoveries. This is a percentage recovery that can fairly be characterised as in the middle or towards the middle of the range of rates presently offered or accepted by funders for representative proceedings in Australia. As Horan J concluded in assessing the reasonableness of a funder’s commission in similar circumstances to the present application, in Kyle-Sailor v Heinke (No 2) [2025] FCA 33 at [58] (Horan J):

The commission rate of 28% of the gross aggregate amount received by Funded Group Members appears to be “towards the middle range of rates offered or accepted by Funders for class actions in Australia”: see Galactic Seven Eleven Litigation Holdings LLC v Davaria (2024) 302 FCR 493 at [89] (Murphy J, with whom Lee and Colvin JJ agreed), referring to Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 3) [2020] FCA 1885; 385 ALR 625 at [25] (Lee J); cf. Street v Western Australia [2024] FCA 1368 at [310] –[314] (Murphy J). To the extent that it is relevant, I consider that the proposed payment to the Funder under the Deed of Settlement and the Scheme is commercially realistic and properly reflects the costs and risks taken on by the Funder, and the deduction of that payment from the Settlement Sum is appropriate.

57    Fifth, the calculation of the Funder’s Interest as a multiple of costs incurred provides a proportionate relationship between the effort and potential unrecoverable liability expended in pursuing the proceeding and the level of remuneration payable. As Lee J observed in the context of a general discussion of funding models for representative proceedings in Perera v GetSwift Ltd (2018) 263 FCR 1; [2018] FCA 732 at [285]:

First, a significant attraction is that by aligning the reward of the funder with a multiple of legal costs, it recognises the reality that the risk of a funder increases incrementally as legal costs increase. Moreover, the increase in the legal costs expended by the applicant is likely to reflect, at least in some rough proportion, the increasing exposure to any adverse costs order. In this sense there is a real and demonstrable proportionality between risk and reward which is not directly reflected in ‘headline’ funding percentages.

58    Further, as explained above at [6], unlike in many representative proceedings where only the applicant, or a subset of the group members, are party to a funding agreement and have retained the applicant’s solicitors, each group member has executed a Member LFA and a retainer with Corrs in these proceedings. In such circumstances, each of the costs to be deducted is authorised by an express contractual entitlement conferred by each group member upon the beneficiaries of those payments. As Lee J acknowledged in J & J Richards at [84]:

Usually, I would provide a mechanism for the close scrutiny of the costs to be deducted from an approved settlement fund because of the impost it places on absent group members. Ordinarily, this is part of the Court’s protective role. But it will be recalled that the group members have each separately retained the solicitors charging the fees and incurring the disbursements. If one or more group members have a complaint about the costs or disbursements incurred (or to be incurred), such complaints are better addressed, in the unusual circumstances of this case, within the legal mechanisms in place by challenging such amounts charged pursuant to the retainer.

59    Relatedly, in similar circumstances where the Court was considering the reasonableness of commission arrangements and where a small, closed class of investors had each entered into funding agreements specifically providing for proposed deductions for management fees and the funder’s commission, Button J stated in Ewok Pty Ltd as trustee for the E & E Magee Superannuation Fund v Wellard Limited [2024] FCA 296 at [64]:

In other circumstances, it might be necessary to consider whether such commission arrangements were significantly “over the odds” relative to the market at the time — noting that class action funding rates have become much more competitive in recent years — and to undertake that assessment also having regard to the risk taken on by the funder. However, here, the funder’s commission and the management fee were agreed to by contract by each and every group member and it is, in my view, just that the contractual arrangements entered into by the 23 group members be respected.

60    Her Honour then acknowledged at [65] that there was an unresolved question as to whether the Court had the power pursuant to s 33V(2) of the FCA Act to disregard or adjust contractual arrangements entered into between group members and funders but then at [66] found it unnecessary to venture into that question as her Honour was otherwise satisfied that it was just in the circumstances of the case to approve the deductions of the funder’s commission and management fees in accordance with the contractual terms.

61    Given my conclusion that the deductions proposed to be made from the Settlement Distribution Fund are fair and reasonable, it is also not necessary for me to express any view as to whether the Court has the power to disregard contractual arrangements pursuant to s 33V(2) if it were not satisfied that the commission arrangements were fair and reasonable.

E.4.3.     Payment of legal fees

62    I am satisfied that the proposed payments to Corrs are fair and reasonable.

63    The applicant submits, and I accept, that the fact that each group member is party to a retainer of Corrs tempers but does not displace the Court’s protective function. Although it is important that costs are sought consistently with the terms of client retainers, the more significant issue in the present case is the objective fairness and reasonableness of the legal costs to be paid from the Settlement Distribution Fund. Further, the absence of any complaint from group members and the alternative avenues open to clients to pursue concerns about legal costs under retainer agreements are relevant, but not determinative or decisive considerations.

64    The degree of scrutiny of the fairness and reasonableness of costs and disbursements may be somewhat attenuated in circumstances where each group member has entered into a funding agreement with the litigation funder and a retainer with the solicitors maintaining the proceedings, but the Court retains an important supervisory and protective role. In my view, other than in exceptional circumstances, in order to perform that role the Court requires the assistance of a report from an independent costs expert.

65    The applicant relies on the expert report of Elizabeth Harris. Although her opinions are expressed at a high degree of generality, she is an experienced legal costs consultant and Court appointed costs’ referee. Ms Harris has concluded that (a) the time entries in the invoices and spreadsheets with which she has been provided are sufficiently descriptive to enable her to form an opinion as to whether the costs are fair and reasonable, (b) the composition of the Corrs team, allocation of work and work undertaken by each team member was appropriate and proportionate to the proceeding and the matters in issue, (c) having regard to the nature of the work undertaken the professional costs of $1,092,843, comprising unbilled fees of $527,586.55, deferred fees of $287,253.90, the uplift on deferred fees of $183,596.99 and future costs of settlement approval of the Final SDS of $99,894.56, are fair and reasonable. Ms Harris also confirms that the hourly rates charged by Corrs conform with the rates agreed in the client retainer agreements and that the deferred fee uplift was claimed pursuant to the terms of the client retainer agreements.

E.4.4.     Payment to the applicant

66    Further, I am satisfied that the payment of $25,000 to the applicant is a fair and reasonable reimbursement for acting as the lead applicant in the proceeding. Payments of this nature are commonly approved in representative proceedings to provide a measure of compensation for the time and effort expended by a lead applicant: Kyle-Sailor at [80] and the authorities cited therein. I am satisfied that on a broad brush basis the payment of $25,000 provides a proportionate reimbursement to the lead applicant for the contribution that Julie Richards made, as a director of the applicant, to the conduct of the representative proceeding in (a) providing instructions to Corrs, (b) attending conferences and exchanging communications with Corrs, (c) reviewing materials provided to her by Corrs, and (d) preparing to give evidence in circumstances in which AIG only advised that she would not be required for cross examination shortly prior to the commencement of the substantive hearing. Mr Catchpoole gives evidence that Ms Richards estimates that she expended approximately 96 hours in connection with the proceedings and that is an estimate consistent with a retrospective review that he has performed of the emails, meeting invitations and materials provided to her during the proceeding. I accept that this provides some, but only limited empirical support for the determination of an appropriate reimbursement amount. I note, however, that it would suggest an hourly figure of approximately $260 ($25,000 ÷ 96). I consider an hourly rate in this amount to be within, but at the higher end, of a reasonable range for the work undertaken by Ms Richards.

67    Contrary to the submissions advanced by the applicant, however, I do not accept that any inability of Ms Richards to derive income by reason of her involvement in the proceeding is a relevant consideration. In my view, it does not provide a useful or relevant benchmark to determine an appropriate reimbursement figure. A reimbursement allowance should be determined having regard to the scope and extent of the contribution made by a lead applicant to the representative proceeding, not by reference to any lost opportunity of the applicant to derive income from alternative employment.

E.4.5.     Payments to the agent

68    I am satisfied that the payments provided for in the Final SDS to be made to Mr Pacholski for his service fees in acting as an agent for all 176 group members, together with his agreed “success fee”, that in substance reflected the contingent nature of his remuneration for the services that he provided, was fair and reasonable. The services that Mr Pacholski provided pursuant to the service agreements he entered into with group members, included instructing Corrs, communicating with group members and receiving and acting on instructions received from group members. Mr Catchpole gave evidence, that I accept, that the involvement of Mr Pacholski significantly reduced the legal costs for work that would otherwise have been performed by Corrs because it (a) streamlined the process of communicating material updates to group members, (b) provided a central person to whom group members could communicate queries that they might have about the updates they had received, and (c) enabled the process of maintaining an updated list of contact details for group members to be streamlined.

E.4.6.     Payments to Settlement Administrator

69    Finally, I am satisfied that the proposed payments to the Settlement Administrator, Mr Kennedy, capped at $350,000, are fair and reasonable. Mr Kennedy was appointed as the Settlement Administrator pursuant to orders made by Lee J on 26 June 2023. A settlement administrator has an important and essential role in the conduct of a representative proceeding. The Final SDS provides for Mr Kennedy’s professional fees and disbursements incurred by him in connection with the “Settlement Deed”, the Final SDS, and the application for approval of the Final SDS to be deducted from the Settlement Distribution Fund at the hourly rates set out in Schedule A to the Final SDS. As at 16 April 2025, Mr Kennedy had incurred costs and disbursements in an aggregate amount of $131,234.

F.     Suppression Orders

70    Both the applicant and LCM sought suppression orders under s 37AF and s 37AG of the FCA Act over some of the documents admitted into evidence at the hearing (s 37AF Orders). At the time those documents were tendered, I made interim suppression orders under s 37AI of the FCA Act and asked counsel to explain with more precision the basis upon which the s 37AF Orders were sought. In the course of that exchange, counsel variously withdrew some of the documents from the proposed s 37AF Orders and indicated that the scope of the s 37AF Orders sought over at least some of the other documents may be reduced.

71    As Button J observed in Ewok at [96] in addressing claims for s 37AF Orders in a class action settlement hearing, which observations I respectfully embrace:

I refer to, and echo, the observations that have been made by judges of this Court, particularly Murphy J and Lee J, concerning the wasteful and unwelcome practice of overly broad confidentiality and suppression claims being made in settlement approval applications: see, eg, Liverpool City Council v McGraw-Hill Financial, Inc (now known as S&P Global Inc) [2018] FCA 1289 at [102] (Lee J) and Coatman v Colonial First State Investments Ltd [2022] FCA 1611 at [8]–[9] (Murphy J). Given the public nature of, and interest in, applications of this kind, the “need to keep a tight rein on confidentiality orders is heightened”: Aveo at [159] (Murphy J). The making of overly broad applications for suppression orders out of an abundance of caution is to be discouraged. The making of such claims wastes significant, and limited, Court resources.

72    Following the hearing of the settlement approval application, both LCM and the applicant provided substantially revised and narrowed schedules of the s 37AF Orders that they sought.

73    LCM now only seeks targeted s 37AF Orders over specific information in Ms Kolomoitseva’s affidavit, LCM funding agreements, a letter from Corrs to group members describing the structure of the funding terms offered by LCM, a conditional funding proposal provided by LCM to Corrs, an agreement with the agent, Mr Pacholski, quotations for ATE insurance from AmTrust, an ATE Insurance Policy provided by AmTrust to LCM and the personal contact details of the applicant.

74    I am satisfied that the information is commercially sensitive and its disclosure would be contrary to the administration of justice. Its disclosure would, or would be likely, to (a) confer significant tactical advantages on respondents in future or other representative proceedings in which Corrs and LCM are involved, including in settlement discussions, and (b) confer significant tactical and other advantages in other representative proceedings in which AmTrust has provided an ATE insurance policy, including in settlement discussions. It is not in the interests of justice that the settlement approval process, which benefits from and depends upon fulsome disclosure by the litigation funder, creates a tactical advantage or prejudices parties in other representative proceedings, has the consequence of altering the “dynamics” of other representative proceedings and future settlement discussions, or discloses the personal contact information of the applicant: Clime Capital Limited v UGL Pty Limited (No 2) [2020] FCA 257 at [18]-[24] (Anastassiou J), Ewok at [110].

75    The applicant now only seeks s 37AF Orders over the confidential opinion of counsel, an email chain and a letter from Corrs providing legal advice to the applicant and group members and the personal contact details of the applicant. I am satisfied that it is necessary for s 37AF orders to be made over these documents in order to prevent prejudice to the proper administration of justice. It is well established that the making of such orders is necessary to prevent prejudice to the proper administration of justice: Halifax Investment Services Pty Ltd (in liq) v Loo [2024] FCA 323 at [27] (Markovic J); Ewok at [103]; Clime Capital at [22]-[24].

76    The rationale for the making of orders to suppress legal advice in connection with representative proceedings was stated by Button J in Ewok at [103]:

In settlement approval proceedings, the Court is much assisted by the responsible counsel and solicitors expressing their views on the proceeding in frank and candid terms. It would be inimical to the interests of the administration of justice for counsel and solicitors providing those opinions to be reticent in what they say, lest their opinions be disseminated to the world at large. In addition, orders in respect of the confidential opinions are warranted on the basis that they disclose information that is the subject of legal professional privilege claims. I do not consider that any time limit needs to be imposed on orders in respect of these two categories of information in order to ensure that the orders only go as far as is necessary to prevent prejudice to the proper administration of justice.

77    Although her Honour’s remarks were specifically directed at settlement approval proceedings, in my view similar considerations arise with respect to the provision of legal advice to applicants and group members in connection with representative proceedings. It is important that counsel and solicitors acting for applicants and group members in representative proceedings provide candid and comprehensive legal advice on the prospects and risks of the proceedings unrestrained by any concern that their advice might subsequently be disclosed to the world at large.

78    I do not consider any time limit needs to be imposed on the focused and limited s 37AF Orders now sought by LCM and the applicant in order to ensure that the orders only suppress information to the extent that is necessary to prevent prejudice to the administration of justice.

G.     Disposition

79    For the foregoing reasons, orders approving the AIG Settlement and the Final SDS and for orders under s 37AF and s 37AG, substantially in the form sought by the applicant and LCM, are to be made.

Associate:

Dated:    2 May 2025

SCHEDULE OF PARTIES