Evans v Davantage Group Pty Ltd

Fairness and reasonableness of the settlement sum 18 The key features of the main settlement deed are the following: (a) The deed provides that the settlement sum is $9.5 million. The applicant's solicitors now hold that settlement sum on trust in an interest bearing bank account to be disbursed in accordance with the terms thereof. (b) The settlement is subject to Court approval. (c) After Court approval the settlement sum is to be administered and applied by the settlement administrator in accordance with the SDS. (d) Provision is made for covenants not to sue and releases by the applicant and group members in respect of claims made or threatened in the proceeding against: (i) Davantage; (ii) Davantage's relevant holding company entities being Presidian Holdings Pty Ltd (Presidian) and McMillan Shakespeare Limited (MMS); and (iii) the directors and other officers of Davantage, Presidian and MMS during the relevant period. 19 Now the fairness and reasonableness of the settlement turns on, first, whether the settlement sum of $9.5 million falls within a range which is fair and reasonable and, second, whether the terms of the SDS are fair and reasonable. Let me deal with the first point. 20 Clearly, Davantage does not have the capacity to satisfy any judgment for any significant proportion of the applicant's and group members' claims. No insurance policy appears to be responsive. In this context, it is appropriate to proceed with an analysis of the settlement sum relative to the maximum likely sum of the face value of the claims, particularly where in light of my answer to the separate question some of the claims are strong. 21 Now as counsel for the applicant has done, I should address three matters being: (a) the estimated aggregate value of the claims of the applicant and group members; (b) the assets available to Davantage; and (c) the insurance proceeds, if any, available to the applicant and group members. 22 First, the estimated aggregate claim value of the group members' claims is substantial. Material before me suggests that the approximate and realistic claim value is $47.6 million, subject to one adjustment, comprising: (a) $32 million for the premiums paid by group members less the amounts paid to group members by Davantage by way of claim payments or remediation refunds; (b) $3 million for interest and the loss of use of premiums; and (c) $12.6 million for financing and transaction costs paid by many group members, who were recorded by Davantage as having obtained finance at the point of sale, based on the assumption that such group members obtained finance on terms similar to those of the applicant. 23 To this figure one adjustment needs to be made. The applicant has been permitted to expand the definition of "group member" to remove the requirement that a natural person purchased their vehicle for personal, domestic or household use. The effect of this amendment was to expand the number of group members by approximately 167 additional persons. Based on the data provided by Davantage in relation to the premiums paid by each group member and taking the total value of those premiums and dividing it by the number of group members who paid a premium to Davantage (approximately 27,000) to obtain an average value for the premiums paid, the total value of premiums paid by the additional assumed group members is estimated to be approximately $314,000. Accordingly, the aggregate value of the applicant's and group members' claims is $47.9 million, being $47.6 million plus $314,000. 24 Clearly, the sum of $9.5 million represents a small recovery when one has regard to the estimated aggregate value of the group members' claims, and all in the context where the applicant enjoyed success on my answer to the separate question. 25 Second, as is apparent from Davantage's financial statements, Davantage's net assets deteriorated from $26.608 million at 30 June 2018 to $956,000 at 30 June 2019, with cash and cash equivalents falling from $4.818 million to $2.707 million over the same period. Now extensive inquiries were made by the applicant concerning Davantage's financial circumstances, including whether MMS would indemnify Davantage in respect of any settlement Davantage agreed to pay or any judgment entered against it. But the responses revealed that there were no cross-guarantees in place between MMS and its subsidiaries including ultimately Davantage. Further, MMS did not propose to indemnify Davantage in respect of any settlement that it agreed to pay or any judgment entered against it. Accordingly, it is apparent that Davantage does not independently have the financial capacity to satisfy or meet any settlement or judgment sum reflecting the realistic total claim value of $47.9 million or a significant proportion thereof. 26 Third, the insurance position is problematic and unsatisfactory. Let me say something about the information requests made by the applicant in relation to Davantage's insurance position, and what was known of the insurance position at the time of the several mediations and settlement. 27 Vero had earlier made a decision that under a policy for the period 31 May 2017 to 31 May 2018, Vero would grant indemnity in relation to the unconscionable conduct claim only, but expressly denied cover for the repayment or disgorgement in restitution of premiums paid by the applicant and group members. Vero then changed course and sought to deny indemnity to Davantage in relation to all claims made in the proceeding, on the basis that the relevant policy was rather for a different period and that: (a) Davantage had failed to meet its disclosure obligations in respect of dealings with ASIC in relation to the NWC warranties; (b) such a policy expressly excluded any aspect of the claims which sought a refund, repayment or disgorgement of any warranty premium on the basis that the relief sought was not compensatory in nature; and (c) under that policy, an exclusion relating to claims for or in respect of professional fees or charges was triggered, such that the claims relating to or in respect of premiums paid were excluded from the ambit of the policy. 28 Further, Axis Specialty Europe Ltd, by way of a co-insurance endorsement, became a 50% co-insurer with Vero of one of Davantage's insurance policies. That co-insurance endorsement was transferred to Swiss Re International SE. Swiss RE's position was that it denied coverage on the basis that it was not notified of any facts or circumstance which might have given rise to a claim, and that even if notification were not an issue it would likely mirror Vero's position. 29 Further, Davantage's excess layer insurers, being CGU Insurance, Dual Australia Pty Ltd, and Berkley Insurance Australia, have denied indemnity. 30 So Davantage's insurance position was problematic to say the least. I should say that I am satisfied that relevant information has been verified as much as it can be in the circumstances. Further, the applicant's solicitor has deposed that there are no further inquiries that can be made. Moreover, for the applicant to consider litigating against the insurers is unrealistic given the time, expense and problematic nature of the issues that are involved. I accept that there is little capacity for the applicant to further test the veracity of the representations from the insurers without litigation for which there may not be a proper basis. Moreover, the commencement of proceedings to test the veracity of the insurance position would cause the applicant to incur significant costs in circumstances where the outcome in terms of the insurers' liability to provide indemnity may be no different, or of marginal difference, to the recovery now offered to the applicant and group members. 31 Now I discussed these matters with both the applicant's counsel and Davantage's counsel, including the possibility of having Davantage further verify information. But I am satisfied that this is not necessary in the circumstances. Moreover, the applicant did not take up my invitation to press for it. Moreover, it is to be appreciated that Davantage itself has had the incentive to and no doubt did chase down its insurers to the extent feasible. 32 In the circumstances, I cannot take the insurance question further. I must proceed to dispose of the s 33V application on the present material. 33 In summary, I accept that the $9.5 million payment offered by Davantage after commercial negotiation represents the best recovery that could be achieved. I say this in circumstances where Davantage has no capacity to satisfy a substantial judgment on the applicant's and group members' claims in the proceeding and each of the relevant insurers have denied coverage. 34 Let me note some other matters relevant to the $9.5 million payment before I get to the distribution questions. 35 First, no objections to the proposed settlement have been received. 36 Second, given the level of registration of participating group members, the settlement sum after relevant deductions that I will discuss in a moment should be more than adequate to satisfy the claims of such group members. 37 In summary, in my view it is fair and reasonable and in the interests of group members to settle the proceeding for the global sum of $9.5 million. Let me now turn to the settlement distribution scheme (SDS).

Fairness and reasonableness of the proposed SDS 38 The essential parts of the SDS make provision, inter-alia, for: (a) the appointment of FTI Consulting as the settlement administrator, which in my view is acceptable; (b) the deduction from the settlement sum of: (i) amounts payable to the litigation funder, Vannin Operations Limited (Vannin), pursuant to the litigation funding agreement in place between the funder and the applicant for: (A) reimbursement of legal costs and disbursements paid; (B) any other costs the funder has incurred associated with its funding of the proceeding; and (C) consideration for the funder funding the proceeding; (ii) a modest payment to the applicant for his time spent in providing instructions and acting on behalf of group members; (iii) administration costs; (c) distribution of the residual settlement sum to group members on a pro-rata basis of: (i) their premium claims; and (ii) their nominal interest claims; (d) interest accruing on the settlement sum to be applied first to administration costs, and the balance to be distributed to group members at the time of final distribution. 39 In money terms, the SDS (if I approve it) will lead to the following outcomes: (a) $2,384,978.63 will be deducted for the applicant's reasonable legal costs; (b) $608,287.50 will be deducted for costs incurred by Vannin; (c) $2,733,266.13 will be deducted as a funding commission and paid to Vannin; (d) $7,500 will be paid to the applicant for the time and expense incurred in representing the class, an amount that I have no difficulty with and will say nothing further about; (e) $159,500 will be deducted for the costs of the administration of the settlement; and (f) a further $55,000 will be deducted from the settlement sum referable to fees and disbursements of the applicant's solicitors post-dating the approval hearing arising from the administration of the SDS and the finalisation of the proceeding. 40 So, it is proposed that there will be a return to participating group members in aggregate and taking into account interest currently earned on the settlement sum of $3,554,035.15, being 37.4% of the settlement sum. As for the balance of 62.6%, this will go in deductions for legal costs, funder's commission, and the applicant's reimbursement payment. Now how is this all justified? Let me begin by saying something about the funder.

The funder 41 In 2016, Vannin commenced investigation of a potential proceeding against Davantage in relation to the events giving rise to this proceeding. In around April 2017, Vannin entered into a litigation funding agreement with the applicant. At that time the solicitors for the applicant were engaged. Further investigations were conducted by the solicitors, and the proceeding was commenced in August 2018. 42 The agreement provided that Vannin would fund the litigation up to a specified cap, including indemnifying the applicant against any adverse costs up to a specified cap. The agreement contemplated that Vannin would obtain insurance in respect of its potential obligations to satisfy the indemnity. The agreement also contemplated that Vannin would be entitled to charge the applicant a specific fee for obtaining the insurance. 43 Now the agreement also required the applicant to seek a common fund order (CFO), which he did and which was made by me on 23 August 2019, subject to certain undertakings and in the following terms: Subject to further order, and pursuant to sections 23 and 33ZF of the Federal Court of Australia Act 1976 (Cth) (FCAA) and rule 1.32 of the Federal Court Rules 2011 (Cth), upon Resolution (as defined in the Funding Terms in Annexure A) the Applicant and Group Members shall pay from any Resolution Sum (as defined in the Funding Terms), a sum no greater than the amounts referred to in sub-clauses 3.1(a) to (d) of the Funding Terms, prior to any distribution to Group Members, in accordance with the Funding Terms (Common Fund Order). 44 As is apparent, the CFO was "subject to further order" and provided a ceiling, not a floor. So, the CFO avoided the vice of book-building, ensured that the class remained open and put the funder's risk concerning the amount of commission to be allowed directly under my control. Further, the CFO was made 12 months in and after the answer to the separate question. 45 Now within the sub-clauses of the funding terms referred to in the CFO, the two which are principally relevant relate to: (a) reimbursement to Vannin for all Court-approved "Action Costs"; (b) a remuneration payment to Vannin to be calculated as the greater of: (i) 25% of the resolution sum; (ii) 3x the aggregate of all "Action Costs" paid by Vannin including "after the event" (ATE) insurance premiums, but not including security for costs paid as cash and restored to Vannin. 46 I will say something further regarding what I will describe as the "3x multiple" later in my reasons. 47 The phrase "Action Costs" included: (a) Vannin's payment of the costs of the applicant's solicitors; (b) the costs of Vannin conducting due diligence on the claim; and (c) the costs of obtaining adverse costs insurance, being the ATE insurance premiums. 48 Now clearly the proposed payment to Vannin under the current settlement via the SDS comprises a smaller sub-set of the full amount that the original CFO contemplated. The smaller sub-set comprises: (a) an amount reimbursing Vannin in respect of the applicant's legal costs and disbursements paid by Vannin, insofar as those costs and disbursements are assessed as reasonable; (b) an amount in respect of certain other costs associated with funding the proceeding being legal costs for conducting due diligence on the claim and in connection with the original CFO, ATE insurance premiums and adverse costs associated with the applicant's unsuccessful application concerning Davantage's insurance documents; and (c) an amount in consideration for having funded the proceeding, being approximately a 1x multiple rather than a 3x multiple. 49 Putting to one side my original CFO, in my view s 33V(2) provides me with the power to make the type of order now sought, whether labelled as a CFO, an "expense sharing order" or an "equitable remuneration order"; I do not need to linger on the triviality of labels. BMW Australia Ltd v Brewster (2019) 374 ALR 627 is not authority for the proposition that there is no power to make a CFO-type order under s 33V(2). Both its ratio and its considered majority dicta were all about the "gap-filler" s 33ZF(1).

Should I make a new CFO? 50 Let me move then to the first live issue concerning the SDS. The question is whether the proposed CFO involving the 1x multiple constitutes an order that is "just" within the meaning of s 33V(2). 51 Now in my view some form of CFO is appropriate. 52 First, this proceeding was commenced and continued whilst Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd (2018) 358 ALR 382 and the justification for CFOs given by Murphy, Gleeson and Beach JJ, and the factors that they identified ought be taken into consideration, represented the law. During that period, early-stage CFOs were regularly made in similar conditional terms as the CFO earlier made by me. 53 Now whilst this proceeding was settled after Brewster, it is only by an accident of timing that Brewster was handed down in the interval between my making the original CFO and the negotiation of the settlement and hearing of the present s 33V application. Accordingly, in these circumstances it is just that Vannin should now be remunerated fairly under a CFO, although not of course under my original CFO. 54 Second, the group members in this proceeding have been given extensive notice of the proposed Vannin payment. In this respect, initially they were given notice of the intention to seek a CFO, via the opt out notices approved and sent prior to the making of the original CFO in August 2019. But more recently, the notice of proposed settlement sent to all group members quantified the amount sought at approximately $2.4 million in respect of the applicant's legal costs and disbursements, $582,000 referable to other funding costs, and $2.75 million in respect of the funding commission. I am prepared to infer that these notices were understood by group members, and that they registered to participate in the settlement on the understanding that an order of the type sought was a realistic outcome. Further, as I have said, no objections have been received. 55 Third, cases in the pre-Brewster era identify a number of relevant considerations that remain apposite in a post-Brewster environment that go to the question of whether the proposed commission is fair and reasonable. They include: (a) whether the rate avoids excessive or disproportionate charges to group members; (b) whether the rate is commercially realistic and properly reflects the costs and risks undertaken by the funder; in that regard hindsight bias is to be avoided; and (c) how the proposed commission rate compares to approved commission rates in other class actions. 56 I explained in Blairgowrie at [120] to [122] that: Whether a Court should set a commission rate and the rate to be used is largely a forensic question depending upon the material available to the judge at the time the order is sought. It is not to be determined by some value laden proposition clothed in the language that it is not a suitable issue for the exercise of judicial power. After all, judges set legal costs by scales, rates, individual amounts and total or capped amounts, whether ex ante or ex post; a commission or funding rate may be seen as a relevant analogue. Further, some judges in fixing the remuneration of external insolvency practitioners also readily engage in such exercises, including ex ante or ex post rates of remuneration. In other contexts, judges have set rates of remuneration for trustees administering trust assets. In yet other contexts, judges set discount rates on some aspects of common law damages. They may also set interest rates less than statutory interest rate entitlements. In general, the question is not whether the rate setting for a common fund order is a suitable subject matter for the exercise of judicial power. Rather, the question is whether, in a particular case, a judge is in a position to or should set a rate by the application of the appropriate judicial method tailored to the circumstances of the individual case. And once one appreciates that perspective, the answer to the question of whether a judge should set a commission rate depends upon the forensic context and the adequacy of the information provided. And as with other contexts, such as damages assessments including the value of lost opportunities, the judge has to do the best he or she can on the evidence available, albeit incomplete or imperfect. Moreover, the fact that the question may in part be evaluative and one upon which reasonable minds might differ is no bar to engaging in the task. Yet another argument suggests that the judge ought not be the market setter. But the judge is not setting a market rate, but rather a rate referable to the individual circumstances of the particular case before him or her. But the rate set may be contextually informed by an actual or putative market rate, including reference to rates in foreign jurisdictions, particularly where demand side or supply side substitutability is not necessarily confined by geographic limitations. The rate set may also be informed by the risks faced by litigation funders in investing in litigation generally, not just the case in question, which may also be affected by whether a funder has a diversified spread of litigation investments and not a small pool of such investments thereby producing overall higher risk for the undiversified funder. In other words, what is the equity beta for funders locally or globally? And consequently, what is the rate of return on equity that a funder locally or globally might reasonably expect given the level of risk for such a business, ie funding litigation? And is the funder earning disproportionate returns? If so, that may indicate that there is no true "price" competition in the litigation funding market and that the commission rates are higher than what a workably competitive market might be expected to deliver. Now these are all interesting questions. And no doubt a judge is not in a position to investigate such questions in any detail. But a review of the financial accounts of the funder and other funders, as I have done in the present case, might quickly allay concerns that standard commission rates are somehow producing rates of return on equity so outside a reasonable range such as to cast doubt on whether standard commission rates should be used as a benchmark or at least for a contextual check. But if the judge's concerns are not allayed, all that means is that the judge might put to one side standard or putative market rates as a benchmark and set a rate based only on evidence concerning the case before him. In other words, it is no argument for not setting a rate at all, but rather it may justify putting to one side putative market rates or comparable data. 57 Similar sentiments have been recently expressed by Lee J in Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 3) [2020] FCA 1885 at [22] to [25], who referred to chancery practice and maritime law, although I do not need to justify my position by delving into the depths of other analogues. I see this as largely an empirical question to be determined on the material before me, which may include material disclosing putative market rates and other material suitable for benchmarking if necessary. Objections to my embarking on such an exercise rely upon little more than empty platitudes in stained-glass attitudes to channel W.S. Gilbert. 58 Now as to the proportionality between the risk borne by Vannin and the commission now sought, the following is to be noted. 59 The commission represents approximately 28.8% of the gross settlement sum. But the Vannin payment is calculated not as a percentage commission rate but instead by reference to the applicant's legal costs and disbursements it has funded along with other costs, but excluding the portion of the ATE insurance premium that it is not required to pay until the conclusion of the proceeding. 60 Vannin's return on capital, if the payment is made in the amount sought, is approximately a 1x multiple of the "Action Costs" that it has incurred, which is lower than the commonly required return of not less than 3x the capital invested by funders. This is in the context where Vannin bore the risk of all relevant costs and disbursements. Further, Vannin bore the risk of recoverability, where it was only during the course of the proceeding that it became apparent that Davantage may not have sufficient assets to satisfy a judgment debt obtained against it, and that Davantage's insurers declined to indemnify it. Moreover and nevertheless, Vannin continued to fund the applicant. 61 Fourth, even if I were to order that the Vannin payment be made, it is estimated that on average, albeit driven by low registrations, registered group members are likely to receive more than their claimed losses. Of the approximately 27,000 group members, 1,244 have registered including those that I will allow in as late registrants. The loss for the whole group is estimated at $47.9 million, implying an average claim of approximately $1,774 per group member. But 1,244 x $1,774 = $2.2 million aggregate loss for the registered group members. This compares to the approximately $3.6 million available for distribution after deduction of the amounts sought by the applicant and Vannin. 62 Now it is convenient at this point to say something more generally on the topic of % returns to group members from a gross settlement sum. 63 In Kuterba v Sirtex Medical Limited (No 3) [2019] FCA 1374 at [17] to [19] I said: Let me deal with another matter although I do not propose to detail the arithmetic. In terms of the settlement sum paid by the respondent, group members are to receive after all deductions very close to 50% of that sum; that is very similar to the 51% in Blairgowrie (No 3). Further, such a 50% level compares favourably with other contexts. But one has to be careful with such a metric, let alone some general assertion that "in every class action, group members should get at least 50% of the gross settlement sum". Take the following situation. Assume that a litigation funder and external lawyers take on a very complex and high risk case (with a commensurably higher commission rate than normal) on behalf of say a large group of persons who have contracted cancer. Say that proving causation by the alleged carcinogen is extremely difficult. Assume that the action has been launched on the basis only of problematic epidemiology showing a heightened risk and some biology that shows only a possible biological pathway. Then assume that after extensive discovery and expensive expert reports it becomes clear that there is no viable biological pathway demonstrated, such that it is apparent that the group members have no cause of action for damages. Let it also be assumed that nevertheless the respondent is prepared to pay a modest amount to settle the matter, and let it also be assumed that legal expenses and the funding commission would soak up 90% of that modest settlement sum. Is it seriously suggested that the group members should receive at least 50% of the settlement sum for what, after forensic investigation that group members did not have to pay for and where the risk for this on their behalf was taken on and funded by others, are shown to be likely valueless claims? One can multiply such examples. No power contained in or philosophy underpinning Part IVA provides a proper basis for giving group members something for what turned out to be nothing or to give them something beyond what the true value of their claims are worth, reflecting the product of the face value times the probability of success times the probability of recovery. Moreover, to so artificially allocate is economically distortive and unnecessarily disincentivises the reasonable investment of time and expense in investigating, funding and prosecuting class actions. 64 Now in that case I was dealing with what I discussed as a 50% return. But in the present case what is being proposed is a 37.4% return. Now this may shock the conscience of the uninformed, so I should say something further about it. For that purpose, I need to begin with some arithmetic before discussing the characterisation and value of claims. 65 It is important not to confuse two types of percentages. Let me illustrate by the present case. A fund of 37.4% of the gross settlement sum of $9.5 million is to be set aside for group members. But we know that only 1,244 group members, including 97 who registered after the registration deadline, have registered to participate in the settlement. And on the current arithmetic they are likely to get close to 100% of their claims. Indeed, on one view the current form of the SDS allows them to get more. And it is for that reason that I will discuss later the potential application of the cy-prés doctrine. So the present case is a good example of the fallacious reasoning of those who take headline percentages of gross recoveries from settlement sums and seek to transmute them into the real returns of group members who have taken proper steps to protect their interests by registering their participation in any settlement. Such a class in the case before me are likely to receive close to 100% of their claims plus interest. On any view they will receive much more than 37.4% of their claims plus interest. So, you are dealing with different percentages. 66 Let me then move to the scenario that I discussed in Kuterba. There are several possibilities to consider. 67 The first scenario is the one that I focused on in Kuterba where ultimately it is perceived that the group members' claims have turned out to be hopeless or unlikely to succeed. As I discussed in Kuterba, one ought not be too troubled about low % recoveries in that scenario. 68 The second scenario is one that arises in the present case. Assume that the claims of the group members on both liability and quantum are strong, indeed likely to succeed. But assume that recoverability of any significant judgment against the respondent has very poor prospects. Assume that its assets are quite insufficient. Assume that its holding company has taken a calculated commercial decision not to stand behind its subsidiary. And assume that the respondent's insurers have engaged in their usual tactics. So, the proceeding has to be settled for a modest sum. Who should bear this risk of recoverability that has come to fruition? The group? The applicant's lawyers? The funder? Should they share the risk equally? Should you treat them all as in some informal joint venture for the purposes of allocating the risk, which then feeds into the % of the gross settlement sum to be allocated to the group? Or none of the above? 69 The starting point is to recognise that the value of a group member's claim is reflected not only in the prospects of success on liability and quantum but also on the prospects of recoverability. You cannot take an atomistic approach to value and hive off the last consideration. 70 The next point is to address risk. What did group members risk? On one view nothing at all in terms of capital. The scenario here is that it was the funder and possibly the applicant's lawyers who invested and therefore risked capital, and that but for that investment the action would not have proceeded. But the other view, which I take, is that group members can be treated as having invested capital in the sense of "allowing" their claims as contingent assets to be used by not opting out. 71 Who then should bear the risk on recoverability? The funder? Or the group members whose claims are being compromised? Or should they share equally after the subtraction of the applicant's legal costs and other associated costs apart from the funder's commission or remuneration? I am inclined to this latter solution. Further, I should say that the risk of recoverability should not be applied to the reasonable legal and other associated costs, which should come off the top as in essence a priority payment. 72 But on that scenario, in the present case the group are getting more than 50% of the balance once legal and other associated costs are deducted. 73 Let me conclude on this topic by making one other comment. If there are serious concerns about commercial funders and their commissions, perhaps the concept of statutorily based funds could be resurrected, which could ameliorate some of the perceived vices. A recent valuable discussion on this topic is set out in the provocatively titled "Government as Class Actions Funder" chapter in Professor Rachael Mulheron's new book (Mulheron, R, Class Actions and Government (Cambridge University Press, 2020)).

ATE premiums 74 Vannin has sought recovery of the ATE premiums as part of its reasonable costs. The initial premium was $281,250. The supplemental premium payable on the conclusion of the proceeding is $225,000. I have no difficulty allowing this directly. 75 Vannin has also sought a return on the initial ATE premium as part of the "Action Costs", such as to bring it within the 1x multiple. 76 Now I raised with Mr Lachlan Armstrong QC for Vannin as to whether this was double recovery. I also put to him that if the relevant 1x multiple was to be justified on the basis of risk, that in essence the payment of the ATE premiums reduced risk rather than left risk static or increased risk. 77 But ultimately he managed to persuade me that I should allow it. The 1x multiple return was in part based upon the risk undertaken by the investment of capital. And in that sense, writing out a cheque for the initial premium was an investment of capital as much as writing out a cheque for the applicant's lawyers' fees. It was subject to the same risk in terms of deployment of the funder's capital. Moreover, although payment of the premiums reduced risk, that was a different risk in the sense of reducing Vannin's exposure to the financial consequences of an adverse costs order. Such a different reduced risk justified the lower multiple of 1x but not excluding the initial premium from the base. 78 Further, what must also be appreciated is that the standard multiple for action costs is usually a 3x multiple, whereas I am allowing a 1x multiple. That 1x multiple is appropriate because it reflects that: (a) some risk reduction occurred as a result of my answer to the separate question; and (b) some risk reduction occurred because the adverse costs risk exposure was protected against by the ATE insurance. 79 So, the 1x multiple not only reflects the appropriate risk reduction, but to the extent of the payment of the initial premium I see no good reason why it should not also be included in the base for the 1x multiple; as I say, that amount was an investment of capital. Of course, if I did not allow the initial premium in the base upon which the 1x multiple was being applied, it was put to me by Mr Armstrong QC that he would seek a 1.3x multiple on the lower modified base, which multiple was still well south of the usual 3x multiple. And if that were permitted, Vannin would receive the same absolute amount. 80 I do not need to adopt that alternative. The initial premium should be included in the base upon which the 1x multiple applies. 81 I should make two other points. 82 First, although the base of "Action Costs" upon which the multiple operates will include one component of the ATE premium, that base does not include any security for costs paid as cash and restored to Vannin. 83 Second, as I have said, my original CFO had two "remuneration payment" options to Vannin, being the greater of: (a) 25% of the resolution sum; or (b) 3x the "Action Costs". 84 But in the result only the second option is in the frame, and only as to a 1x multiple rather than a 3x multiple. Now I have some sympathy for the view that if I was considering the first option, then allowing the ATE premiums, whether as a direct recovery or within the base, would have its difficulties. After all, the 25% first option would reflect the relevant remuneration or reward for all risks assumed by the funder. So, if it sought to enter into ATE insurance to defray or minimise risk, that would be on its own coin. It could not have both the relevant premiums and insist on the 25%. But I do not have that scenario. And in any event, even if I did under another guise, Mr Armstrong QC's move was to go from a multiple of 1x to 1.3x, which would have been justifiable in any event. 85 Let me turn now to the interesting question of a potential surplus.

How should any surplus be dealt with? 86 It seems to me likely that there will be a surplus. 87 Now in that context I have given consideration as to whether I should re-open the deadline of 4.00 pm on 15 January 2021 for the registration of participating group members. I should note that as at the deadline, 1,147 group members had registered. But after the deadline, another 97 group members have sought to register. 88 I will permit a re-opening to allow these further group members to participate. But I will not allow a re-opening generally. 89 The material before me indicates that the group members have had adequate notice of this proceeding including their right to opt out. More recently and after settlement, I put in place a rigorous regime for each group member to be personally notified of the fact of settlement, the settlement sum and the necessity for them to register to participate in the settlement by the deadline; see my orders of 10 and 20 November 2020, which the evidence before me establishes were properly implemented. The fact is that each group member was sent a personal notice of some 12 pages in length to an address sourced from Davantage's records. And such a notice explained in significant detail the terms of the settlement and what was required of them. 90 I see no further need to engage in such an expensive process again or to require more general and diffuse newspaper advertisements. I considered such a mode when making the November 2020 orders. Indeed I used such a mode in my original 12 March 2019 opt out orders, but its efficacy was quite doubtful as explained in the evidence before me when I made the November 2020 orders. The costs of such an additional mode are likely to outweigh the likely benefits. 91 Let me also make an associated point. 92 The group members have been properly informed that if they have neither opted out nor registered to participate in the settlement, then their claims may be barred. This will occur not by the operation of an express barring order but rather by my ultimate order which will be to dismiss the proceeding. That order will bind all group members under s 33ZB and will create the relevant res judicata. I need not linger on the anxieties of others concerning barring orders, which concerns I do not share. In any event, the dismissal will achieve the same outcome and the group members have been properly notified of that potential outcome. 93 So, it seems in these circumstances that there will be a surplus. How should I proceed? 94 I have little doubt that I have power to make what has been described by others as a cy-prés type order under Pt IVA, but I would not call it that. 95 Professor Rachael Mulheron described the cy-prés doctrine in her well known work on the topic (Mulheron, R, The Modern Cy-près Doctrine: Applications & Implications (UCL Press, 2006) 1) in the following terms: Traditionally, and stated in its simplest of terms, the cy-prés doctrine is the vehicle by which the intentions of a donor (settlor or testator) may be given effect 'as nearly as possible' in circumstances where literal compliance with the donor's stated intentions cannot be effectuated. Accordingly, in the law of charitable trusts, the cy-prés doctrine states that where a donor has directed a gift of money or properly to a charitable object (purpose), but has expressed a general charitable intention that is impossible or impractical to effect, the courts will allow the intention to be carried out in an approximate fashion. 96 But in addressing the question under s 33V(2) I am addressing what is "just" in terms of a potential further application of s 33V(2). I am unconstrained by old chancery notions or constraints. Further, the respondent's intentions (as a "donor" or "settlor" if you like) are not directly relevant. Further, I am not dealing with any analogue to the failure or frustration of any charitable intention. 97 Let me then deal with two scenarios where a surplus may arise. 98 First, say there has been a fund set up for group members by reason of either a settlement under s 33V or a judgment under s 33Z. But say that after group members have, in effect, proved against the fund, there is a surplus. Where does the surplus go? Does it get returned to the respondent? Does it get re-distributed to the proving group members, who may then get a windfall? Or does the Court then get the opportunity to make a cy-prés type order? 99 Second, take the case where a fund has been set up but it is impractical or uneconomic to directly make payments to many group members directly, although assume for the moment that if one is talking about a fund created after a judgment, ss 33Z(1)(f) and 33Z(3) are able to be and have been triggered. Who is the money to be paid to? Back to the respondent? Or can a cy-prés type order be made? 100 Now realistically, in the case before me the first scenario is likely to arise. Let me discuss some potential solutions to that scenario. 101 One solution is to apply the mechanical device of ensuring that the settlement distribution scheme deals with such an eventuality, so that there can never theoretically arise an unallocated surplus. All that is then necessary is to make an order under s 33V(2) at the time of the approval of the settlement to the effect that all funds be allocated and paid out under the settlement distribution scheme. This is the easy way out. No cy-prés type order need ever be made. 102 Professor Vince Morabito briefly discussed this scenario in his fifth report concerning the empirical study of Australia's class action regimes (Morabito, V, The First Twenty-Five Years of Class Actions in Australia (An Empirical Study of Australia's Class Action Regimes, Fifth Report, July 2017)). He said (at 14): … the GIO shareholder class action was the country's first successful shareholder class action. It was also the first class action settlement where a contradictor was appointed to assist the Court. The GIO settlement was also, to my knowledge, the first class action settlement to authorise a cy-pres measure. It provided that some of the undistributed residue of the settlement fund could be paid to the Australian Shareholders' Association or the Australian Institute of Management (for the purposes of training its corporate officers and directors). I am only in the early stages of an empirical study of provisions in class action settlement distribution schemes, or orders made after the judicial approval of class action settlements, that deal with the "destination" of the residue of settlement funds. But I have already discovered that in at least 18% of all settled class actions, the relevant agreements or orders envisaged the payment of the residue of the settlement fund to persons or entities other than the defendants/respondents including (in addition to the two organisations mentioned above) the class members, the Salvation Army, the Exodus Foundation, the Australian Thyroid Foundation, the Public Interest Advocacy Centre and the class representative's solicitors (for unpaid legal costs). 103 But he was being descriptive rather than extolling its virtues. 104 Now in essence this is the solution urged on me by the parties and the funder in the present case. They assert that the SDS is so drafted such as to avoid the possibility of an unallocated surplus. But I would reject this solution as it could lead to a windfall by the participating group members. I will require the terms of the SDS to be modified to ensure that such a windfall does not occur. 105 The next solution makes the assumption that there is an unallocable surplus which has not been defined away. In that eventuality, it would be necessary for the applicant and scheme administrator to return to the Court for directions. But in that eventuality, the Court could make a further order under s 33V(2). The issue then in terms of the further distribution would be what is "just" in the circumstances. 106 Now in that context and as I have said, one would not be making a cy-prés order as such. One would be considering and applying the statutory framework and determining what was "just" (see Simpson v Thorn Australia Pty Ltd (t/a Radio Rentals) and Others (No 5) (2019) 141 ACSR 424 at [26] per Lee J). But I should flag that academic commentary suggests that it would be preferable not to rely upon any current powers under Pt IVA and that specific legislative change is desirable and perhaps even necessary (see Cashman, P and Simpson, A, Research Paper 6 - Class Action Remedies: Cy-prés; 'An Imperfect Solution to an Impossible Problem' (2020) UNSWLRS 67, 40 and Mulheron, The Modern Cy-prés Doctrine: Applications and Implications, 232). I do not agree. In my view, s 33V(2) is fit for the purpose. 107 Returning then to s 33V(2), however broadly "just" was read, it hardly justifies giving the group members a windfall. Moreover, in terms of relative "justness", the return to the respondent of any overpayment as opposed to the alternative of giving the group members a windfall would be more just. And here I am assuming that the respondent's interest could be taken into account. But is there a third possibility, namely, giving the surplus over to an appropriate charity or other body? That avoids a windfall to group members. Moreover, the availability of that other option makes it less unjust to the respondent that the surplus is not being returned to it, particularly where the amount paid by the respondent was by way of satisfaction of restitutionary claims. 108 Now there are overseas examples. As Professor Mulheron points out in her most recent work (Mulheron, Class Actions and Government, 338 to 340), any unallocated residual of an award of damages by the Competition Appeal Tribunal in a UK competition law class action is required to flow to a charity prescribed by the Lord Chancellor. But contrastingly, if there is a settlement, the unallocated residual can be the subject of a reversionary provision in favour of the respondent. 109 There are yet further possibilities deriving from feudal principles such as an escheat to the Crown. I am not here talking about a "general" escheat but rather a "specific" or "earmarked" escheat (Mulheron, Class Actions and Government, 321). 110 I will not dwell on these matters further. At this stage I will simply require that the SDS be amended to remove the possibility of any windfall distribution to any group member in the sense of any amount beyond 100% of that group member's claim including interest, and that it also be provided that any surplus is to be identified as such to the Court with directions then to be sought concerning the further exercise of power under s 33V(2). Deduction of legal costs and disbursements 111 I have been provided with a report from a costs consultant, Ms Elizabeth Harris, who was appointed by the applicant as an independent costs expert to opine on the reasonableness of the legal costs and disbursements incurred by the applicants in the conduct of the proceedings. Ms Harris has expressed the view that the reasonable legal costs and disbursements to the conclusion of the settlement approval is $2,439,978.63, which includes $2,311,278.63 for the costs incurred to date, $60,500 for future costs to settlement approval, $55,000 for anticipated costs associated with distribution of the settlement sum but excluding the proposed administrator's costs, and $13,200 for the costs of her special reference. Now whilst the amount of legal costs is large, I consider the sum to be on the smaller end of the scale relative to other class actions and the duration of this proceeding. This is particularly so given that the applicant has expended significant legal costs on the hearing of the separate question on which it was successful.

Fairness and reasonableness of the settlement distribution formula 112 Subject to amending the SDS to avoid the potential for windfall, the SDS appears to me to adopt an arithmetically appropriate means of dividing the settlement sum among group members in what I consider to be a reasonably efficient fashion: Following the payment of deductions, the SDS contemplates the distribution of the amount remaining from the settlement sum between all group members who have registered to participate in the settlement using the loss assessment formula set out in the SDS. 113 In my view the settlement distribution formula is fair and reasonable. 114 First, I consider that it appropriately approximates the group members' relative assessed losses by calculating separately each registered group members' claim in respect of the premium they paid for their NWC warranties, and the interest losses they incurred in financing the payment of the premiums. 115 The assessed loss in respect of a group members' premium claim is calculated by taking the value of the actual premium paid by that group member, and subtracting the value of any refunds on the premium paid to them by Davantage and/or the value of any claim payments made to them by Davantage. This is the most appropriate method to calculate each group member's premium claim. 116 With respect to those group members who have interest claims, being those group members who had obtained finance to purchase their NWC warranties, a nominal (rather than actual) value for the claims is attributed by applying an interest rate of 11.6635% and a repayment duration of 5.45 years to the premium paid by the group member less the value of any claim payments received by the group member and less the value of any refunds of premium the group member has received. 117 I accept that in the circumstances it is not practically feasible and cost effective to individually calculate each group members' interest claim by reference to their individual documentation. As explained to me, the applicant's solicitors conducted a sampling exercise whereby approximately 100 group members were contacted to ascertain the rate of interest on any loan finance they obtained to finance the purchase of their vehicle and warranty, and the duration of any such loan. As a result of this sampling exercise, the applicant's solicitors received data from 15 group members, with the average interest rate being 11.6635% per annum over a period of 5.45 years. It seems to me that the use of the averages of the data obtained through this sampling exercise is a fair and reasonable method to assess group members' interest claims given the difficulties and costs associated with achieving a greater level of precision. 118 Now whilst the data provided by Davantage to the applicant records a finance provider(s) in respect of group members who purchased their NWC warranties and obtained finance through the same point of sale, although not recording the precise terms on which finance was obtained, it does not record instances where group members may have obtained finance through a channel independent of the issue of their NWC warranties. Accordingly, some group members may have a claim for interest and transaction costs which cannot be verified by Davantage's records. But for group members who obtained finance through an independent channel, they have been required to declare so upon registering to participate in the settlement online, and upload documents evidencing the independent finance. I consider this approach to be the fairest and most reasonable manner in which group members who obtained independent finance and who have interest claims can be identified. 119 Second, it seems to me that the pro rata allocation of the residual settlement sum to the assessed claims of the participating group members is the fairest way to distribute the settlement sum. Following the calculation of each participating group members' claims for premium and interest (where applicable), the proposed SDS contemplates: (a) the calculation of the aggregate of the assessed values of all participating group members' premium claims; (b) the calculation of the aggregate of the assessed values for interest of all participating group members who have interest claims; (c) next, the division of the residual settlement sum proportionately between the total premium claims (premium settlement fund) and the total interest claims (interest settlement fund); (d) next, the division of the premium settlement fund in the proportion that the amount of each group members' assessed premium claim bears to the total premium claims; and (e) next, the division of the interest settlement fund in the proportion that the amount of each group members' assessed interest claim bears to the total interest claims. 120 In my view, such a calculation methodology is appropriate. It ensures equality of treatment among the participating group members.

The releases 121 Finally, let me deal with the question of releases. 122 The non-party releases concern Presidian (Davantage's immediate parent company) together with any individual who was an officer or director of Presidian at any stage during the claim period and MMS, together with any individual who was an officer or director of MMS at any stage during the period from 27 February 2015, being the date on which MMS acquired Presidian, to the date of execution of the main settlement deed. These non-party releases are a condition of settlement. 123 In my view, the inclusion of releases for claims made or threatened in the proceeding for the benefit of these entities and persons, in addition to Davantage, is in the circumstances reasonable. In this respect the releases are limited in the sense that they only release the relevant entities from all "Claims", being only claims "made or threatened in the Proceeding". Further, given that there are no claims made in the proceeding against the related entities, the releases against those related entities have negligible practical import or value as the provision of those releases does not amount to a compromise of any real claims on behalf of group members. Furthermore, the applicant has not made any substantive threats to Davantage, Presidian or MMS of any specific claims or causes of action, such that the inclusion of the word "threatened" also has no practical effect. 124 Let me then say something about the question of authority. 125 In Newstart 123 Pty Ltd v Billabong International Ltd (2016) 343 ALR 662 I said at [56] to [60]: First, in my view I have clear statutory power to make proposed orders dealing with the authority question covering the breadth of the releases against Billabong, putting to one side the related party releases for the moment. Sections 33ZF and 33Z(1)(g) are sufficiently broad. Moreover, in terms of s 33ZB, any order made under s 33Z(1)(g) can bind accordingly. Such powers are not limited to the pleaded claims. Second, there is little doubting the statutory authority of an applicant in a representative capacity under Part IVA taking action which binds group members. If it be accepted that an applicant has statutory authority on behalf of group members to negotiate and enter into a settlement agreement subject to Court approval, then such an applicant has implied statutory authority to negotiate and agree to ancillary and reasonably tailored and proportionate terms and conditions, such as broader releases, to achieve the primary aim. Third, there may be doubt as to how far any such releases could extend beyond the pleaded case but still be within such authority. But there are several practical answers that can be given. If the releases deal with non-pleaded claims which if brought within separate later proceedings could be the subject of an issue estoppel or Anshun estoppel if the first proceeding had been litigated to judgment, then there would be such authority. It would be counterintuitive to suggest otherwise. Not to permit of the authority to give such a broader release would condone of a situation (the bringing of a later proceeding) which by definition would be an exercise in futility. But more fundamentally, if an applicant had authority to apply to amend the proceeding to bring such a new claim on behalf of group members, why would not the applicant have the authority to release the new claim without going through unnecessary formalities in the context of a s 33V process? Fourth, in those cases where a group member has opted in to or registered in respect of a settlement (or at the least has chosen not to opt out) with notice of its terms including broader releases, such conduct in a particular case may separately constitute implied authority. Fifth, in any event if there is a doubt or authority needs to be extended beyond any express or implied statutory authority, the statutory powers referred to above can be exercised. Having viewed the settlement agreement and the releases in the present case, I am satisfied that I should make the order sought on this aspect insofar as the releases concerning Billabong. 126 I then went on to say (at [61]) in relation to the releases against related parties, that: … (a) First, releases of this type are a common feature of settlements of commercial litigation. (b) Second, the settlement with Billabong would have been unlikely to have been obtained absent such broader releases. (c) Third, there is no suggestion in the material that claims against related entities had any significant value that was being given away. … 127 Given that the releases have been tied to claims "made or threatened in the Proceeding", the releases do not stray beyond the applicant's authority to provide releases on behalf of group members. 128 In summary, I have no difficulty with the question of authority here nor with the reasonableness of the releases given their limited compass in terms of "Claims".

General 129 For all the above reasons I will in general terms approve the settlement subject to amendments being made to the SDS. 130 I will give the parties the opportunity to submit orders to reflect my reasons. I certify that the preceding one hundred and thirty (130) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Beach.