Asirifi-Otchere v Swann Insurance

Federal Court of Australia|2019-09-13|Before: Kirk J, Gleeson J

The parties file an agreed short minute of orders giving effect to these reasons by 20 September 2019.
The costs of the applicant's interlocutory application dated 5 July 2019 be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GLEESON J: 1 This case concerns the sale, in alleged contravention of various laws, of "add on insurance products" said to be of little or no financial value, by the first respondent (Swann). The proceeding is a class action brought pursuant to Part IVA of the Federal Court of Australia Act 1976 (Cth) (Act), on behalf of the applicant and on behalf of all persons (group members) who: (1) during the period 1 January 2008 to 1 August 2017 inclusive (relevant period) purchased add on insurance products at or around the time they purchased a motor vehicle or motor cycle; (2) were policyholders under one or more contracts of insurance with the first respondent; (3) are alleged to have suffered loss and damage by reason of the contravening conduct of the respondents as pleaded in the statement of claim filed in the proceeding; and (4) were not during the relevant period, and were not at the time of filing the proceeding: (a) a director, officer, or close associate of any of the respondents; or (b) a judge or Chief Justice of the Federal Court of Australia or a Justice or the Chief Justice of the High Court of Australia. 2 The proceeding is being funded by a global litigation funder, Balance REV Ltd (funder). 3 The exact number of group members is unknown but estimated to be in the hundreds of thousands. The evidence includes the following relevant statistics: (1) between 2008 and 2017, 846,369 "add on insurance products" were issued by Swann; (2) between 2013 and 2017, 446,360 "add on insurance products" were issued by Swann; (3) between 2008 and 2017, the total value of premiums received was $1,076,484,019.62; and (4) between 2013 and 2017, the total value of premiums received was $609,377,319. 4 On the basis of these figures, senior counsel for the respondents, Mr Kirk SC, submitted that the possible sums involved in this class action are in the order of $600 million to $1 billion. Needless to say, the respondents do not concede for a moment that the potential liability is this high. 5 A mediation of the proceeding is scheduled to occur in November 2019, in advance of the trial which has been listed for hearing in July 2020. 6 In advance of the mediation, the applicant seeks two sets of orders, being: (1) a "common fund" order pursuant to s 23 and s 33ZF of the Act, r 1.32 of the Federal Court Rules 2011 and/or the Court's implied power, and associated relief; and (2) orders relating to a process by which group members may be required to opt out of the proceeding. 7 In summary, the proposed common fund order provides for all group members to bear equally the reasonable costs of the proceeding and a funding commission for the funder to be determined by the Court at a future date, but not to exceed 25% of any total recovery. The other orders are designed to give group members an opportunity to opt out of the proceeding prior to the mediation. 8 The application was supported by an affidavit of Paul Reidy, solicitor, sworn on 5 July 2019.

Opt out orders 9 The applicant provided the respondents with an opportunity to comment on draft opt out notice documents. Consequently, the form of those documents was agreed (subject to references to the disputed common fund order, addressed below) and the respondents did not oppose the proposed orders: (1) pursuant to s 33J(1) of the Act, fixing a date by which group members may opt out of the proceeding; (2) providing for the Court's approval of various documents and their publication and distribution; and (3) ancillary orders. 10 Subject to fixing a date for the s 33J(1) order and some minor amendments to the orders to reflect the fact that the applicant is the single group member to have entered into a funding agreement, I am satisfied that it is appropriate to make the proposed opt out orders. 11 As noted in the proposed orders, the form of the notices that are the subject of those orders must also be revised to reflect the final form of any common fund order.

Common fund order 12 The applicant submitted that the proposed common fund order would serve the purposes of ensuring that the group members will understand the following two matters in deciding whether to opt out of the proceeding: (1) unless they opt out of the proceeding, they will pay their proportionate share of the legal costs, deducted from any recovery to which they become entitled; and (2) a funding commission will be payable from their recovery up to a maximum amount of 25% of the gross recovery, with the precise amount to be determined if and when a resolution occurs resulting in money becoming payable to group members. 13 The respondents submitted that: (1) It is premature to make a common fund order. (2) The Court does not have sufficient information to justify a common fund order in the proposed terms. In particular, the Court cannot be satisfied on the available evidence that the proposed "Funding Terms" have a real prospect of being necessary, reasonable and appropriate. (3) Alternatively, any common fund order should make no reference to any percentage or even the word "percentage", and the method of calculation of the funder's commission should be left entirely neutral and for the future. (4) As a formal submission, the proposed order is beyond power. 14 As notice of the application was not given to the group members, there was no opposition from any of them. 15 For the reasons which follow, I am persuaded that it is appropriate to make a common fund order substantially in the form sought to ensure that justice is done in this proceeding. It is similarly appropriate to make the proposed orders for the appointment of an independent costs referee to monitor the legal costs and disbursements incurred in the litigation. 16 As the applicant noted, the current position is that group members who do not opt out benefit from the commercial arrangements under which the funder pays the legal costs and disbursements, takes on the burden of adverse costs and provides security for costs, without any requirement to pay a proportionate share of legal costs out of any recovery they obtain as a result of the proceeding. 17 Fairness plainly dictates that the costs of prosecuting the proceeding should be borne equally across the applicant and the group members. The precise terms of an appropriate order to achieve fairness in this proceeding are discussed below.

Funding agreement 18 Only the applicant has signed a litigation funding agreement with the funder (funding agreement). This is not a matter telling against the proposed common fund order. Courts have expressed concerns about the waste of costs that may be associated with "book builds", by which a funder seeks to enter into funding agreements with multiple group members of an open class, in cases where common fund orders will be sought: see, for example, Perera v GetSwift Limited [2018] FCA 732; (2018) 127 ACSR 1 (Get Swift) at [213]. 19 The evidence included a redacted version of the funding agreement dated 16 May 2019. The commission payable under the funding agreement is an amount equivalent to: (a) 20% of the Total Recovery if there is a Resolution prior to 9 April 2020; or (b) 25% of the Total Recovery if there is a Resolution on or after 9 April 2010 but prior to the commencement of the trial of the common issues in the Proceedings; or (c) 30% of the Total Recovery if there is a Resolution following commencement of the trial of the common issues in the Proceedings. 20 "Total Recovery" is defined to mean "any Recovery including any Interim Recovery in the Proceedings". "Resolution" is defined to mean "the successful resolution of the Proceedings on receipt of Court orders approving a settlement under clause 7 and/or receipt of judgment, verdict or award of money in favour of the Claimant in the Proceedings".

Proposed form of "common fund" order 21 In substance, the order sought is that, in the event judgment is given in favour of the applicant and group members, or a monetary settlement is reached, the applicant and group members who do not opt out of the proceeding would each pay from the common fund of any settlement or judgment in their favour a pro rata share of the legal costs and expenses incurred by the applicant in prosecuting the case as well as the funding commission payable to the funder. As noted above, the proposed commission is to be determined by the Court at a future date but would be capped at 25% of the gross recovery. 22 The precise order sought is as follows: Upon the undertaking by each of the Applicant, Lawyers and Funders to each other and to the Court in the terms of Schedule 1 (Undertaking), pursuant to sections 23 and 33ZF of the Federal Court of Australia Act 1976 (Cth) (Act) and r 1.32 of the Federal Court Rules 2011 (Cth) and the implied power of the Court (or any of them) order that, subject to further order: (a) the Funding Terms attached to the Undertaking as Annexure A (Funding Terms) be approved and shall be binding upon the Applicant, the Group Members (together and severally, Claimants) who do not opt out of the proceedings by the date to be set by the Court and notified to Group Members, the Funders and the Lawyers; (b) any Recovery and/or Interim Recoveries (as defined in the Funding Terms) be paid to, and receivable by, the Lawyers to be paid forthwith into a Trust Account pending distribution in accordance with the Funding Terms; and (c) each Claimant shall pay from any Recovery: (i) a rateable proportion of the costs and expenses of the proceeding, to be approved by the Court; and (ii) a percentage proportion of the Total Recovery, to be paid to the Funders in remuneration for the Funders' funding of the proceeding, to be determined by the Court at a future date, but such percentage will be and Group Members shall be informed that it will be not more than 25% of the Total Recovery; in accordance with the Funding Terms; and (d) the payments from Claimants referred to in (c) shall be paid to the Lawyers and the Funders, and the Lawyers and the Funders shall be entitled to receive the same, pursuant to and in accordance with order 1(a) above and the Funding Terms.

Legal framework 23 Section 33ZF(1) of the Act provides: In any proceeding (including an appeal) conducted under this Part, the Court may, of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding. 24 The Court's power to make a common fund order has been considered and determined at an appellate level in Money Max Int Pty Ltd v QBE Insurance Group Ltd [2016] FCAFC 148; (2016) 245 FCR 191 (Money Max) at [160]-[175], Brewster v BMW Australia Ltd [2019] NSWCA 35; (2019) 366 ALR 171 (BMW) at [82] and Westpac Banking Corporation v Lenthall [2019] FCAFC 34; (2019) 366 ALR 136 at [85]-[96]. 25 On 13 and 14 August 2019, the High Court of Australia heard and reserved judgment in a challenge to the power of this Court to make common fund orders: BMW Australia Ltd v Brewster & Anor; Westpac Banking Corporation & Anor v Lenthall & Ors [2019] HCATrans 158. If the Court determines there is no such power, then any such order will not take effect. The respondents submitted that the fact that the question is currently under consideration by the High Court may be a further reason why the Court might consider it appropriate, in the circumstances of the present case and given other reasons which weigh against the making of the order, to defer the question of whether an order should be made to a later date. 26 In my view, given that the mediation and trial in the proceeding are both reasonably imminent, it is preferable to address the application for a common fund order without delay. Accepting the Court's power to make the proposed order, the issue is whether that order is appropriate or necessary to ensure that justice is done in the proceeding: Lenthall v Westpac Life Insurance Services Limited [2018] FCA 1422; (2018) 130 ACSR 456 (Lenthall) at [26]; Money Max at [66]. 27 In Caason Investments Pty Ltd v Cao (No 2) [2018] FCA 527 at [161], Murphy J said: It is uncontentious that unfunded class members in a class action should not receive more in the hand from a settlement or judgment than funded class members, who effectively financed the proceeding by pooling their promises to pay a funding commission to the Funder. Equality of treatment between class members in this regard is usually achieved by way of: (a) a funding equalisation order…; or (b) a common fund order…. 28 Similarly, in Pearson v State of Queensland [2017] FCA 1096 at [22], Murphy J said: …the common fund order means that all class members will pay the same pro rata share of legal costs and funding commission from the common fund of any amounts they receive in settlement or judgment. It is in the interests of justice in the proceeding that the burden of the legal costs and litigation funding commission charges incurred in achieving any favourable result falls equally upon all class members who stand to benefit from the proceeding. 29 The exercise of the power conferred by s 33ZF necessarily involves a consideration of the interests of group members: Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433 at [145] and Impiombato v BHP Billiton Limited [2018] FCA 1272 at [24]. It is necessary to ensure that the protective and supervisory role of the Court in respect of group members is discharged properly and carefully, noting that a common fund order involves visiting obligations on group members: Bartlett v Commonwealth of Australia (No 2) [2019] FCA 800 at [5]. 30 Although there is not universal acceptance of the desirability of common fund orders (as opposed to other techniques for ensuring equality of treatment between class members), their benefits have been identified in several recent cases. Thus, in Bartlett v Commonwealth of Australia [2019] FCA 571 at [9], Lee J said: …a common fund order provides an effective means of funding open class proceedings, which carries with it the benefit of ensuring that all claims are brought before the Court, hence facilitating an important component of Part IVA litigation, which is access to justice for numerous persons who may have relatively modest claims compared to the cost of the litigation. 31 In Get Swift at [244]-[246], Lee J identified the following advantages in making a common fund "sooner rather than later": To my mind, provided the potential 'windfall' problem is minimised, there are significant advantages of making a common fund order and putting in place a funding regime sooner rather than later. First, it has the advantage of there being some certainty (subject to later variation) prior to the time being fixed for opt out. At the time of opt out, group members can make an informed decision, including as to whether they consider that the proposed funding regime is appropriate in all the circumstances. Secondly, it is already inherent in setting funding rates for different actions that there needs to be an assessment of risk by the funder. In this case the differing common fund proposals presumably reflect that assessment of risk. An assessment as to whether it is likely that the funder will have to pay adverse costs orders (an eventuality, it will be recalled, that has not, as yet, occurred) which would include a subjective assessment of the prospects of success of the case and the likelihood of settlement, should be an ex ante rather than an ex post analysis. The risk of hindsight bias is real when one is dealing with a common fund application at the conclusion of a case. It is notable that Murphy J in Pearson made orders early on during the course of proceedings in circumstances where group members would be informed of the requirement to pay the commission before they decided whether to opt out and which would allow members to opt out if they were unhappy with the order. Making the order at this time also avoided wasted costs associated with book building which would ultimately have been deducted from the possible recoveries, and the waste of time and effort that would have been needed to explain the details of funding arrangements against a backdrop of uncertainty as to what the Court would eventually do. 32 The "windfall problem" to which Lee J referred is the problem of approving in advance a funding commission which may turn out to be excessive. In a case such as this, there may be a potential windfall problem if the proposed funding commission were to be fixed at 25%. However, that problem is avoided if the proposed funding commission is not fixed but only capped and subject to determination by the Court in due course, because the Court will not set a commission that it considers will confer a windfall. Both parties acknowledged that, when the Court is asked to approve a specific funding commission, it should receive submissions from a contradictor as to the appropriate commission: Tredea v KPMG Financial Advisory Services (Australia) Pty Ltd (No 3) [2019] NSWSC 871 at [104]-[106] and Botsman v Bolitho [2018] VSCA 278 at [329]. See also Kirk J, "The Case for Contradictors in Approving Class Action Settlements" (2018) 92 ALJ 716. 33 In Get Swift at [285]-[291], Lee J set out various arguments in favour of a funding commission linked to a multiple of expenses or a percentage of net litigation proceeds, if such percentage resulted in a lesser sum. Both parties contemplated that, in due course, the Court might receive submissions that the funding commission in this case should be determined by reference to a multiple of expenses. Mr Kirk SC noted that a potential disadvantage of this form of common fund order, if made early, is that it might create an incentive (presumably on the funder) to seek to delay settlement. It is not necessary to consider this potential problem because the applicant does not seek this form of order. 34 In Lenthall at [11], Lee J expressed concern that a common fund order which proposed a percentage cap on the funder's commission may "lead a spurious air of authority to the figure, in the sense [of] communicating a default position". Subsequently, the common fund order proposed in that case was amended to include a funding rate of the lesser of three times the total spend on legal costs and disbursements and adverse costs orders, or 25% of the gross recovery in any resolution. 35 There is a distinct possibility that a common fund order which includes a 25% cap is reasonably likely to lead to an application for approval of a 25% funding commission. However, ultimately it would be for the Court, assisted by a contradictor and with the benefit of detailed information of the kinds mentioned in Money Max at [80], to determine what is an appropriate level of remuneration for the funder in all of the circumstances including, importantly, the amount of the group members' recovery. Accordingly, whatever the cap might communicate, I do not anticipate that it will operate to the detriment of group members in the event of an application to the Court for approval of an appropriate funding commission. 36 In BMW at [111]-[115], the New South Wales Court of Appeal made several general observations concerning the determination of applications for common fund orders, including about the evidence that would assist a judge hearing such an application. There, the proposed order presumptively provided that the funder would be entitled to 25% of any amounts received by group members by way of judgment or compromise. Thus, the views expressed by their Honours at [113] as to relevant considerations must be understood in that different context. 37 At [114], their Honours expressed support for a further order capping the funder's share of the proceeds of litigation to an amount based upon a multiple of the total amount paid by the funder (being the cost of the provision of security, and the costs and disbursements paid) so as to prevent the order from yielding a benefit which is out of all proportion to the capital deployed and the risk assumed by the funder. Their Honours doubted that an interlocutory order "whereby a funder becomes contingently entitled to a return which might be out of all proportion to the capital deployed and put at risk, is one which is appropriate or necessary to ensure that justice is done." Such a legitimate concern does not arise in this case because the proposed order contemplates that the funder's entitlement will be determined by the Court on a future occasion.

Objections to capped funding commission 38 The applicant contended that it is beneficial to the group members to know what the maximum funding commission could be, and also to know that the actual commission will be determined at the conclusion of the proceeding with the benefit of evidence concerning the risks of the litigation assumed by the funder, the costs incurred and the amount recovered. As the applicant put it, if the proposed orders are made and any unfunded group members are unhappy with the obligation to pay a reasonable Court-approved funding commission, then it will be open to them to decide to opt out and bring separate proceedings, either individually or in another class action: Money Max at [142]. 39 The applicant said that the 25% figure has been chosen for the following two reasons: (1) It is within the parameters of funding commissions set in other cases: see Morabito V, "An Evidence-Based Approach to Class Action Reform in Australia: Common Fund Orders, Funding Fees and Reimbursement Payments" (Monash University, January 2019). The applicant also referred to common fund orders not identified in Professor Morabito's article that have recently been made in the following proceedings in this Court: (a) In McKay Super Solutions Pty Limited v Bellamy's Australia Limited (proceedings VID 163 of 2017), Beach J made orders on 3 April 2018 that the commission be "an amount equal to 30% of the aggregate Resolution Sums or such lower percentage as the Court considers reasonable at the time the claims are settled or judgment is given in respect of them". (b) In Kuterba v Sirtex Medical Limited (proceedings VID 1375 of 2017), Murphy J made orders on 30 April 2018 that the commission fee be equal to "a percentage proportion, to be determined by the Court at a future date, of the amount for which the claims are settled or judgment is given, but group members shall be informed such percentage will be no more than 28%". (c) In Clime Capital Limited v UGL Pty Limited (proceedings VID 1390 of 2017), Murphy J made orders on 4 October 2018 that the commission would be equal to "an amount which shall not exceed 30% of the aggregate Resolution Sums, and which percentage the Court considers reasonable at the time the Claims are settled or judgment is given in respect of them". (d) In Smith v Sandhurst Trustees Limited (proceedings NSD 1488 of 2017), Lee J made orders on 26 July 2018 approving a commission which constituted 25% of the gross settlement sum. (e) In Blairgowrie Trading Limited v Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) [2017] FCA 330; (2017) 118 ACSR 614, Beach J noted at [125] that a commission rate of 30% of net recoveries (which was equal to 22.1% of gross recoveries) compared favourably with the usual range of commission rates in Australian funded proceedings. (f) In Lenthall, Lee J held at [59] that the proposed commission of the lesser of three times the legal costs or 25% of the gross recoveries (plus 5% extra for each appeal) was within the range of reasonable funding commissions. (g) In Carpenders Park Pty Ltd (as trustee of the Carpenders Park Pty Ltd Staff Superannuation Fund) v Sims Metal Management Limited [2019] FCA 1040, Rares ACJ made a common fund order with a cap on the funder's commission of a maximum of 25% of net proceeds after deducting the costs paid by the funder in funding the proceeding. (2) The 25% figure is the applicant's best estimate, at this stage, of a reasonable measure of compensation for the funder, having regard to the applicant's expectation that these proceedings will be hard fought, complicated and expensive. According to the applicant, the respondents' defence "suggests that nearly everything will be in issue". On this basis, the applicant submitted that "the legal costs in these proceedings are likely to be considerable and litigation funding is critical to its successful prosecution". 40 On the current paucity of information, neither of the reasons identified for the choice of 25% is compelling if that percentage figure were to be fixed at this point as the funding commission. 41 In this regard, I note the observations of Lee J in Lenthall at [18]-[20] concerning significant extant changes in the litigation funding market characterised by an apparent downward pressure on funding rates and the need to take into account the particular circumstances of the litigation, including the particular risks taken by the funder in those circumstances, in preference to reliance on historical funding commission rates. In particular, the validity of the applicant's reasons must surely depend upon the quantum of any recovery. As Mr Kirk SC's submissions emphasised, at this stage the maximum total claim may be as high as $1 billion. 42 However, a cap provides an integer as to the funder's possible return which group members may consider to be relevant in making a decision whether to opt out of the proceeding. It provides a significant constraint upon the funder's potential return in the event of a recovery at the lower end of the range, in addition to the constraint imposed by the Court's future assessment of an appropriate return having regard to all relevant considerations. 43 The respondents' submissions were substantially directed to the issue of the reasonableness of the potential return to the funder. They did not suggest that the proposed cap would be disadvantageous to group members in the event of a very small settlement or judgment. However, the respondents observed that, if there is ultimately a finding of liability in the order of $600 million to $1 billion, and the funder's remuneration is determined to be 25% of recoveries, the funder would receive in the order of $125 to $250 million. The respondents also submitted that there is a "lot of attraction" in applying a three times multiple of legal expenses in a case which is hard fought and where otherwise there would be an excessive return based on a previously approved percentage of recoveries. In my view, these submissions are misdirected because the proposed order does not involve setting a rate of return, but only setting a cap on the return. There is no reason to think that a Court would approve the funder's remuneration in the order of magnitude suggested by the respondents unless the Court is satisfied that it is reasonable to do so. 44 The respondents argued that an important consideration is whether there is a mechanism in place that might reasonably be considered to ensure some relativity between the costs incurred and the value of the funder's commission. The respondents suggested that a cap is one means which may, in an appropriate case and so long as the cap itself is set at an appropriate level, perform the function of ensuring reasonable risk-reward relativities. 45 In my view, a cap on the funder's commission does not perform this function, except in conjunction with some other provision such as a subsequent Court approval of a commission not exceeding the cap. Accordingly, it is not a valid criticism of the proposed order to note that a 25% commission would be excessive in the event that the applicant and group members achieve a very large recovery. The proposed order requires the funder's remuneration to be determined by the Court, including by reference to authorities directed to ensuring reasonable risk-reward relativities. Amongst the relevant guidance includes the following statement in Money Max at [82]: We expect that the courts will approve funding commission rates that avoid excessive or disproportionate charges to class members but which recognise the important role of litigation funding in providing access to justice, are commercially realistic and properly reflect the costs and risks taken by the funder, and which avoid hindsight bias. 46 The respondents submitted that an inappropriately high cap has little to recommend it and is apt to misleading group members making a decision on opt-out. This submission was not explained and I do not accept that the 25% is self-evidently inappropriately high or that the proposed order is apt to mislead. 47 Mr Kirk SC submitted that, having regard to the commissions in the funding agreement, there is no apparent reason why the fund should get anything more than 20%. This may be so but I do not consider that it is necessary or appropriate to impose a reduced cap on the funder at this stage. This submission can be considered, if made, at the eventual application for approval of the funding commission. 48 The respondents contended that the applicant's evidence was deficient in that it did not address the following matters said to be critical: (1) the applicant's legal fees and disbursements to date; (2) the basis on which fees are to be calculated; (3) an estimate of likely costs, including by reference to the range of possible means by which these proceedings might resolve (early settlement, later settlement, contested hearing, any appeal(s)); (4) the estimate of costs given to the applicant as part of the retainer; (5) any estimate of costs given to the funder, and any more recent updates of those estimates; (6) the quantum of security for costs likely to be advanced; and (7) any estimate of the quantum of adverse costs exposures that the funder has in fact assumed in agreeing to fund these proceedings having regard to relevant "ATE" (after the event) insurance coverage. 49 It is true that the evidence before the Court does not enable the Court to make an assessment of the likely reasonableness of the applicant's fees incurred to date, or likely future fees. The evidence does not disclose the costs expended to date, nor does it disclose the basis on which fees are to be charged by the applicant's legal representatives and any experts or third parties. 50 I accept that these matters are relevant to the final determination of the amounts payable in due course to both the funder and the applicant's lawyers. However, I am not persuaded that it is necessary, or even particularly useful, to have evidence about these matters for the purpose of considering the proposed common fund order. 51 Mr Kirk SC referred to Mr Reidy's opinion evidence that it is appropriate to make funding terms allowing for reimbursement of the applicant's legal costs as defined in the Funding Terms and for the payment of a funder's commission of 25% of the Total Recovery. I accept that this evidence does not support the proposed 25% cap as opposed to any other simple and easy to understand form of order. I also accept that a cap is arguably less certain than a flat percentage.

Objections to Funding Terms 52 The applicant submitted that the proposed orders provide for funding terms that are typical in these kinds of proceedings. They include the following protections for group members: (1) Any Recovery and/or Interim Recoveries (as defined in the Funding Terms) be paid to, and receivable by, the Lawyers to be paid into a Trust Account pending distribution in accordance with the Funding Terms: proposed order 1(b). (2) The Lawyers' professional duties are owed to the applicant and not to the funder: cl 5.1 of Funding Terms. (3) The applicant, as the representative party, may override any instructions given by the funder (with the exception of clause 7 of the Funding Terms) and may give binding instructions to the Lawyers and make binding decisions on behalf of the group members in relation to the proceeding up to the time of any court approval of settlement of the proceeding or the delivery of judgment in respect of the common issues in the proceeding (save where separate instructions are required from group members in the reasonable professional opinion of the Lawyers): cl 5.3 of Funding Terms. (4) If there is a dispute between the funder and the applicant as to a Settlement Decision that the Lawyers have advised is reasonable, the funder has the right to seek review of the Lawyers' advice by a settlement assessor. Any Settlement Determination made by the settlement assessor will be final and binding on both the applicant and the funder: cll 7.3-7.7 of Funding Terms. (5) The Funding Terms can only be terminated by Court order on application by the applicant or the funder and upon notice given to the applicant, the funder and such other persons as ordered by the Court: cl 9.1 of Funding Terms. 53 The respondents submitted that proposed order 1(a) is probably beyond power insofar as it is directed to imposing obligations upon the Funders and the Lawyers. They argued that the proposed order is "full of superfluity" because all that is required is an undertaking from the Lawyers and Funders together with funding terms that are binding upon the applicant and the group members. Neither of these points was developed, however, I accept that there is a degree of ambiguity in the proposed order. 54 Senior counsel for the applicant, Mr Dick SC, submitted that proposed order 1(a) is intended to provide for the approval of funding terms that will bind the applicant and group members who do not opt out of the proceeding by notifying group members, the Funders and the Lawyers. If this is what is intended, then the order should be expressed in terms that make this clear. If this is not the intention, the reference to notification to group members, funder and lawyers should be removed. In its current form, proposed order 1(a) appears to provide for the approval of funding terms that will bind the applicant, the applicant's lawyers, group members who do not opt out of the proceedings through group member notification, and the funder. 55 As already noted, the respondents emphasised that the form of the order presumes that the funder's remuneration will be a "percentage" when, it is at least a significant possibility that the ultimately approved remuneration will be a multiple of legal fees. As I understand the objection, it is that the group members are liable to be misled by the proposed form of order where the funder's remuneration might be determined by reference to some comparator apart from recoveries. I do not accept that this is a significant concern. The clear effect of the order is that the funder's remuneration will be determined by the Court in due course. As cl 4.2 of the Funding Terms puts it, the funder will be entitled to "a funding commission in an amount to be determined by the Court as fair and reasonable (but not more than 25% of the Total Recovery)". That is, the Court will make an assessment of what is reasonable at a later stage and there is no restriction upon the matters that the Court may consider in making that assessment apart from the stated cap. 56 Next, the respondents referred to cl 2.1 of the Funding Terms which provides: For the duration of the Funding Period, these Funding Terms will prevail over: (a) Any inconsistent provision in the Funding Agreement which, subject to these Funding Terms, shall continue in full force and effect; and (b) Any inconsistent terms of the Retainer which, subject to these Funding Terms, shall continue in full force and effect. 57 The respondents submitted that the Court could not approve funding terms containing this clause where the relevant retainer is not in evidence. The "Retainer" is defined by the Funding Terms to mean "the agreement between the Applicant and the Lawyers for the provision of legal services in relation to the Proceedings". I do not accept that the proposed orders seek to "give effect" to the Retainer. Rather, cl 2.1 states the effect of the Funding Terms in relation to the Retainer, including that the Retainer "shall continue in full force and effect" (whatever that effect may be) apart from the Funding Terms prevailing to the extent of any inconsistency. 58 The respondents submitted that cl 7 of the Funding Terms, concerning settlement, restricts the right of the applicant vis-à-vis the funder by a "binding determination sought from the funder". In fact, cl 7.3 provides as follows: If the Funder disagrees with a Settlement Decision by the Applicant which the Lawyers have advised is reasonable in all the circumstances, the Funder shall have the right to seek review of the Lawyers' advice by a settlement assessor… 59 Clause 7.4 provides for the appointment of a settlement assessor. In the event of dispute as to the appointment, the applicant or the funder may apply to the President of the Australian Bar Association to nominate a settlement assessor and the funder and the applicant may agree to appoint the settlement assessor nominated as a result of that application. 60 I do not accept that these terms confer an unacceptable degree of power on the funder. Mr Kirk SC submitted that no justification has been proffered as to why this restriction should be imposed but, in my view, it is obvious and reasonable that the Funding Terms should allow for the funder to have a reasonable opportunity to dispute a "Settlement Decision" through the mechanism of review by an independent third party.

Costs reimbursement and independent costs referee 61 Proposed order 1(c) provides for the reimbursement of the legal costs and expenses incurred by the applicant in prosecuting the case from any settlement or judgment in favour of the group members. The applicant also proposes that an independent costs expert, Ms Liz Harris, be appointed to review and assess the reasonableness of the costs incurred by the applicant on an ongoing basis. 62 Evidence is not required for the general proposition, which the respondents did not dispute, that the funder should be entitled to reimbursement of legal costs it incurs in funding the proceeding to be paid by all group members equally, on a pro rata basis, as a deduction from any recovery the applicant and group members are entitled to receive at the conclusion of the proceeding. 63 The respondents questioned whether the legal fees sought to be covered by the proposed Funding Terms are reasonable. Clause 1.1 of the Funding Terms defines the "Applicant's Legal Costs" to mean, in relation to the "Proceedings", all or any of the following: a) The reasonable costs incurred by the Applicant in the conduct of the Proceedings, including: (i) the fees of the Lawyers or any barristers retained on behalf of the Applicant in the Proceedings pursuant to the Funding Agreement and Retainer; (ii) any other costs, barrister fees, disbursements or expenses which are expressly stated to form part of the "Claimant's Legal Costs" pursuant to the Funding Agreement; and (iii) GST where applicable. b) Any Adverse Costs Order made against the Applicant which is paid or payable by the Funder; c) Any costs incurred by the Funder in satisfaction of any Security for Costs order made against the Applicant; and d) ATE Insurance Costs. 64 "ATE Insurance Costs" is defined to mean "any sum paid by any Funder to purchase insurance that provides cover for costs incurred in the Proceedings that may be the subject of an Adverse Costs Order". 65 The respondents suggested that, as a matter of construction, the definition of "Applicant's Legal Costs" in the Funding Terms appears to define "reasonable costs" to include all legal fees incurred irrespective of separate assessment. The respondents acknowledged that this interpretation is inconsistent with the proposed appointment of Ms Harris and the proposal that her reports be filed with the Court for any order made pursuant to s 33V or s 33ZJ. However, I accept that the Funding Terms should be clarified to address the respondents' observation. 66 The evidence also does not indicate Ms Harris's fees, or the costs that might be incurred through that process. The respondents noted that the proposed orders include that Ms Harris's fees will become part of the costs of the applicant. This is true, but only to the extent that they form part of the "reasonable fees" for which the funder would be liable by the proposed orders. 67 I do not accept that these matters identified by the respondents tell against the applicant's proposed orders, except to the limited extent that I have noted.

Other contentions 68 Mr Kirk SC noted that there is no evidence that the funder will cease funding this class action if the common fund order is not made. Mr Kirk SC also noted that there is: (1) no evidence of exploration of funding options with other funders; (2) no evidence that the class action will not be able to proceed without a common fund order; (3) no evidence directed to how it is appropriate or necessary to ensure justice is done in this proceeding; and (4) no evidence of any attempt by the applicant of the lawyers to engage in negotiations with the funder. 69 Mr Kirk SC contested the applicant's proposition that legal costs in this proceeding are likely to be considerable and that litigation funding is critical to its successful prosecution, as unsupported by evidence. In my view, the nature of the case, the current state of the pleadings and the extent of interlocutory disputes to date provide adequate foundation for an assumption that the legal costs of the proceeding are already considerable, reflecting the scale of the litigation and the issues in the proceeding. Further, although I accept the possibility that the litigation might possibly be conducted without litigation funding if the proposed common fund order is not made, that seems fairly unlikely given that it has been commenced with litigation funding and that it is inherently unlikely that it would be funded by group members. 70 Given that the Funding Terms provide for a Court approved funding commission, the absence of evidence of efforts to obtain funding on better terms does not, in my view, suggest that group members are likely to be significantly disadvantaged by the proposed orders. 71 Taking all of the matters set out above into account, I am satisfied that a common fund order to the effect proposed and modified in the respects identified above, is appropriate to ensure that justice is done in the proceeding because it will achieve equality of treatment between class members; it will avoid a windfall to the funder; conversely, it will ensure that the funder is appropriately and reasonably remunerated in due course; and it will facilitate the group members in making reasonably informed decisions on the question of whether to opt out of the proceeding.

Conclusion 72 The parties should file an agreed short minute of orders in accordance with the reasons above, to be made in chambers. In the event that the parties are unable to agree on the form of orders, I grant liberty to apply on 48 hours' notice to relist the matter to hear submissions on any matters which remain in dispute. I certify that the preceding seventy-two (72) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.

At a glance

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Judgment (12 paragraphs)

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Legislation Cited (2)

Cases Cited (19)