What happened
Earglow Pty Ltd commenced a representative proceeding in the Federal Court in 2014 alleging that Newcrest Mining Limited had engaged in misleading or deceptive conduct and breached its continuous disclosure obligations under s 674(2) of the Corporations Act 2001 (Cth). The claims centred on a series of ASX releases commencing in August 2012 that conveyed optimistic guidance about future gold production for FY14 to FY17, expected capital expenditure, and the carrying value of certain mines. Earglow contended that Newcrest's internal planning documents showed these representations were not reasonably grounded, that Newcrest became aware of material information requiring correction, and that the corrective disclosure in June 2013 caused share price falls. The proceeding was funded by Comprehensive Legal Funding LLC. Most class members who registered entered funding agreements providing for a commission of 26-30% depending on the number of shares acquired.
By consent orders made on 29 July 2015 an opt-out and registration process was ordered. Class members who neither opted out nor registered by 28 August 2015 remained group members but were barred from participating in any judgment or settlement (Order 9(b)). Only three members opted out. At settlement there were 4,442 registered class members (RCMs) and, the Court inferred, a far larger number of unregistered class members (UCMs) given that Newcrest had between 81,000 and 87,000 shareholders at relevant times.
The parties executed a deed of settlement on 21 February 2016 under which Newcrest would pay $36 million inclusive of costs and interest. The sum was to be distributed under a Settlement Distribution Scheme that first deducted legal costs, applicant expenses, approval and administration costs, and the funding commission. A blended loss assessment formula (drawing on two of the four pleaded loss methodologies) was then applied, with discounts reflecting the relative strength of claims across different parts of the ten-month claim period. A funding equalisation mechanism deducted from unfunded RCMs an amount equivalent to the commission they would have paid had they signed funding agreements, with that sum redistributed pro rata. The proceeding was dismissed on terms that the dismissal barred claims "in respect of or relating to the subject matter of the proceeding".
An application for approval under s 33V was heard on 14 April 2016. Eight UCMs objected, primarily complaining that they had not received adequate notice of the registration requirement. A question arose whether the Court could approve the settlement but reduce the funding commission if it considered the rate excessive. Murphy J delivered reasons on 28 November 2016 approving the settlement, confirming the existence of power to vary an excessive commission, holding that the commission, costs and distribution scheme were reasonable, treating the eight objectors as registered, and ordering that the preclusion order be confined to the subject matter of the proceeding so as to match the earlier notices.
Why the court decided this way
Murphy J approached the application by reference to the well-established principles summarised in his earlier decision in Kelly v Willmott Forests Ltd (in liquidation)(No 4) [2016] FCA 323 at [62]-[77]. The central task was to determine whether the settlement was fair and reasonable in the interests of class members bound by it, including as between class members, with the Court performing a protective role ([10]).
On unregistered class members, the Court held that orders such as Order 9(b) are within power under ss 33ZF(1) and 23, citing the broad construction given to s 33ZF in Money Max Int Pty Ltd v QBE Insurance Group Limited [2016] FCAFC 148 at [161]-[165] and Earglow Pty Ltd v Newcrest Mining Ltd (2015) 230 FCR 469 at [33] ([25]). While acknowledging academic criticism that registration requirements can reverse the statutory opt-out regime, the judge concluded that preclusion of UCMs was fair and reasonable because it was essential to Newcrest's willingness to settle, Earglow could not otherwise assess adequacy, and UCMs had received adequate notice of the consequences ([31]). The proposed extension of the bar to claims that "could have been the subject of the proceeding" was narrowed by consent to align with the opt-out notice so as to avoid impinging on rights about which the Court knew nothing ([37]-[38]).
The CM 17 factors pointed strongly toward approval. The solicitors and counsel were experienced and recommended the settlement. It was reached at a late stage when the parties could make an informed assessment. The case was extraordinarily complex, involving 19 lay witnesses, multiple experts on mining, accounting, materiality and event studies, and contested legal issues including market-based causation and the meaning of "awareness" under the continuous disclosure regime. Liability and quantum risks were material; some issues were "all or nothing". The $36 million sum was within the range of reasonable outcomes after discounting for risk. No RCM objected. The settlement avoided the likely appeal and further delay that would follow a trial ([41]-[71]).
The distribution scheme was fair because all claims were subjected to the same principles, the blended loss formula was consistent with the case theory, review mechanisms existed, and the appointment of an experienced Slater & Gordon solicitor as independent administrator was appropriate ([81]-[86]). The funding equalisation mechanism achieved equality between funded and unfunded RCMs and was consistent with earlier authority such as Dorajay Pty Ltd v Aristocrat Leisure Limited [2009] FCA 19 and Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 ([83]).
Legal costs were scrutinised through two reports of independent costs consultant Elizabeth Harris. The Court accepted her recommendation to reduce solicitor costs by $652,277.84 but allowed the full Ernst & Young subpoena fees, resulting in an approved deduction of $10,279,057.12. Applicant reimbursement of $57,802.50 for Mr Boorne's time and adverse-costs advice was allowed because the exposure arose solely from the representative role and had been disclosed to class members ([108]). Approval and administration costs of $429,706.25 were accepted as necessary ([111]).
On the funding commission, the Court first determined that it possessed power to approve the settlement while reducing an excessive commission. Earglow had contended that the Court could only approve or refuse the settlement, that contractual rights could not be varied, and that s 33ZF was confined to matters in issue between the parties. Murphy J rejected these submissions. The protective role under s 33V extends to funding charges that are typically the largest deduction from class recoveries. Sections 33ZF, 33Z and 23 are to be construed liberally to address the novel problems thrown up by representative proceedings and the advent of third-party funding, which was not foreseen when Part IVA was enacted ([141]-[157]). The power is not limited to a binary choice; it is quicker, cheaper and more consistent with the overarching purpose in s 37M to approve but vary if only the commission is excessive ([149]-[157]).
Nevertheless, the 26-30% rates and $6.78 million aggregate were fair and reasonable. They were at the low end of the 15-45% market range disclosed in academic papers and Productivity Commission materials cited in the judgment. The funder had paid legal costs exceeding the $5 million contractual cap, provided $4.75 million security, and faced potential adverse costs of $12-15 million. The risks on liability and quantum had been high at commencement and remained evident at settlement. There was no hindsight bias. Institutional investors holding 96% of registered shares had agreed to the rates. No RCM objected to the commission. The aggregate was modest compared with commissions in larger settlements such as Pathway and Modtech. The commission was therefore low having regard to the expenditure and risk taken on by the funder ([159]-[198]).
Before and after state of the law
Prior to this judgment the authorities contained some tension about the extent of the Court's supervisory power over funding commissions in settlement approvals. Australian Securities and Investments Commission v Richards [2013] FCAFC 89 had set aside approval where a funder's premium was unfairly distributed and calculated by reference to commercial rates rather than the funder's actual contribution. Wigney J in City of Swan v McGraw-Hill Companies, Inc [2016] FCA 343 had accepted that a commission could be so disproportionate as to justify refusal of approval even where class members consented, but left open whether lesser disproportionality would suffice. Flick J in Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 6) [2011] FCA 277 had expressed reservations about the Court's power to approve subject to a condition limiting the commission, noting it would be regrettable if the only option were outright refusal of an otherwise satisfactory settlement.
Earglow advanced the argument that the Court was limited to a binary choice and could not interfere with contractual funding agreements. Murphy J resolved the uncertainty by holding that ss 33V(2), 33ZF(1), 33Z(1)(g) and 23, construed liberally in accordance with Money Max and McMullin v ICI Australia Operations Pty Ltd (No 6) (1998) 84 FCR 1, permit approval coupled with reduction of an excessive commission. The decision therefore clarified that the protective jurisdiction is not exhausted once the settlement sum is fair; the Court may address the largest single deduction from class recoveries without forcing parties back to mediation or trial.
After the judgment, the law is settled that funding commissions are not immune from judicial scrutiny in settlement approvals. The binary-choice contention has been rejected. Courts must now consider not only whether the overall settlement is fair but whether the commission is objectively reasonable having regard to risk, outlays, market rates, information asymmetry and the protective purpose of Part IVA. The decision also reinforced the legitimacy of funding equalisation orders and the need for careful notice to UCMs while confirming that registration processes can be used to achieve settlement finality. The emphasis on independent costs expert evidence and transparency of commission rates and quantum has become standard.
Key passages with plain-English translation
Paragraph [7]: "I consider the Court has power to approve the settlement and reduce the funding commission rate or quantum."
Plain English: The judge is saying that if everything about a settlement looks fair except that the funder's cut is too big, the Court does not have to throw the whole deal out. It can say "yes" to the settlement but "no" to the excessive percentage.
Paragraph [25] (quoting and adopting Money Max): "The requirement that a proposed order be 'necessary to ensure that justice is done in the proceeding' does not require that the Court be satisfied that unless the order is made the administration of justice will collapse..."
Plain English: The words "necessary to ensure justice" in s 33ZF are not a straightjacket. The Court does not have to wait until the whole system would fall apart before it can act. It can make orders that are reasonably adapted to achieving a just outcome in the case.
Paragraph [134]: "In my view the Court's power to make orders approving a proposed settlement but disallowing or varying the funding commission to be deducted from class members' settlement amounts under the settlement inheres in its powers [under ss 33V(2), 33ZF(1), 33Z and 23]."
Plain English: The legal authority to approve the settlement but trim the funder's share comes straight from the four key sections of the Federal Court Act. The judge is not inventing new power; he is reading the existing provisions in a practical way that matches the protective job the Court is supposed to do.
Paragraph [157]: "I conclude that, if in a settlement approval application the Court considers the proposed settlement is fair and reasonable except that the funding commission is excessive or exorbitant, the Court has power to approve the settlement and reduce the funding commission to be deducted pursuant to the terms of the settlement."
Plain English: This is the money quote. If the only problem is the funder's cut, the Court can fix that problem and still approve the deal. It does not have to send everyone back to square one.
Paragraph [199]: "I consider the funding commission rate and the aggregate funding commission in the present case to be fair and reasonable in the interests of class members."
Plain English: After weighing everything, the 26-30% rates and the $6.78 million total are not excessive. Class members are still getting a reasonable net recovery given the risks the funder took and the difficulty of the case.
What fact patterns trigger this precedent
This judgment is triggered whenever a funded class action settles and approval under s 33V is sought in circumstances where (a) a litigation funding commission forms a substantial deduction from the settlement sum, (b) there has been a Court-ordered registration process that leaves a cohort of unregistered class members who will be bound but receive no distribution, or (c) the reasonableness of legal costs, applicant reimbursement or administration costs is in issue.
Typical triggers include shareholder or investor claims involving continuous disclosure or misleading conduct where the evidence is technically complex (multiple mine-site witnesses, competing expert event studies, disputed loss methodologies). The precedent is engaged when the settlement is reached close to trial, when institutional investors comprise the bulk of registered shares, when no registered member objects, and when the commission is said to be at or below prevailing market rates but still represents 25-30% of recoveries. It is also engaged when a costs consultant has reviewed bills and recommended reductions, when an applicant seeks reimbursement for time spent in the representative role (especially adverse-costs advice), and when a funding equalisation mechanism is proposed. The judgment applies with particular force where the funder has paid costs exceeding any contractual cap, provided security for costs, and faced a multi-million-dollar adverse costs risk.
How later courts have treated it
The judgment itself carefully grounds its conclusions in earlier authority and demonstrates how those authorities should be applied. It follows Money Max on the liberal construction of s 33ZF and the factors relevant to funding commission reasonableness ([144], [161]-[165]). It applies the settlement approval principles it had earlier articulated in Kelly v Willmott Forests Ltd (in liquidation)(No 4) as the template for analysis under CM 17 ([10]). It cites and follows the approach to funding equalisation taken in Dorajay, P Dawson Nominees (No 4) and Modtech ([83]). It adopts the supervisory approach to legal costs seen in Modtech (No 2), Matthews v AusNet Electricity Services Pty Ltd and Rowe v AusNet Electricity Services Pty Ltd, including the utility of independent costs reports that balance detail against expense ([93]).
The decision treats Richards as confirming the Court's protective role and the relevance of equality between class members, but distinguishes it on the facts because the present commission was not calculated by reference to a sub-set of contributors and was supported by adequate risk analysis ([116]). It cites Pathway, Blairgowrie, City of Swan and Wepar to place the 26-30% rates at the low end of the market, thereby reinforcing that market comparison is one but not the only consideration ([177]). The judgment also draws on Newstart 123 Pty Ltd v Billabong International Ltd for the proposition that the effect of registration orders on class members' substantive rights should be revisited at settlement approval even if the orders were made by consent ([22]).
In short, the decision exemplifies a rigorous, evidence-based application of the protective jurisdiction while confirming and extending the principles in the authorities it cites. It does not overrule any prior decision but harmonises them into a coherent framework that emphasises transparency of commission rates and quantum, objective assessment of risk assumed at commencement, and the primacy of class member interests over strict contractual bargains.
Still-open questions
The judgment leaves several matters for future consideration. First, the precise threshold at which a commission becomes "excessive or exorbitant" remains case-specific; the Court noted that market rates are relevant but not determinative, and that structure (caps, ATE insurance, conditional fee components) can affect the assessment ([179]-[180]). Second, the desirability of notifying UCMs of proposed settlements was acknowledged but not elevated to a mandatory requirement; the judge expressed "some disquiet" that UCMs were not sent the Notice of Proposed Settlement and suggested it would be better if they had been, yet held that the earlier opt-out notice sufficed ([19], [20]). Whether future orders should routinely require notice to UCMs is therefore open.
Third, the interaction between funding agreements that contain "top-up" clauses (cl 8.3 in the present agreements) and Court orders reducing commissions was not finally resolved. The judge observed that if funders routinely sought to recover shortfalls in separate proceedings the Court could require undertakings as a condition of allowing funded proceedings to continue, but did not decide the point ([158]).
Fourth, the judgment notes that proportionality of costs can be measured against the amount in dispute rather than the settlement achieved, but does not lay down a definitive formula for when a costs-to-settlement ratio (here almost 30%) becomes disproportionate ([99]). Finally, the desirability of registration processes that effectively convert opt-out regimes into opt-in regimes for settlement purposes was acknowledged as the subject of academic criticism, yet the Court accepted their utility for achieving finality. The precise limits on such orders, particularly where they operate before any settlement is known, remain to be further explored in later cases.
These open questions illustrate that while the judgment provides a clear framework for settlement approval and funding commission scrutiny, it deliberately leaves room for nuance as different factual matrices and evolving funding structures come before the Court.