The proposed deductions
64 I now consider the fairness and reasonableness of the proposed deductions from the settlement fund. The proposed deductions are set out in the table in [68] of the First Chuk Affidavit, which has been extracted at [46] above. The basis for each of these deductions is discussed in some detail in the First Chuk Affidavit.
65 It is convenient to deal first with the proposed deductions for: the funder's out of pocket expenses ($281,955.65); the applicants' legal costs ($2,131,881.18); the ATE premium ($605,030.84); the applicants' reimbursement payment ($15,500.00); and the administration costs ($265,427.15). (In other words, all of the proposed deductions apart from the funding commission.) Insofar as the quantum of each of these proposed deductions is concerned, I am satisfied that each of the proposed deductions is reasonable, having regard to the evidence in the First Chuk Affidavit and also the report of Ms Dealehr in relation to costs. In relation to the quantum of the applicants' legal costs, I note Ms Dealehr's level of expertise, her opinion that the costs are reasonable, the detailed analysis underpinning that opinion, and the absence of any objection to the amount of the costs. It is proposed that the deductions be borne by all of the registered Group Members, not only those registered Group Members who entered into a funding agreement. This is conventional and appropriate. Although the unfunded Group Members are not in a contractual relationship with the funder, and have not signed costs agreements with the applicants' solicitors, it is appropriate that they bear a proportion of the costs incurred in bringing the proceeding, in circumstances where it has produced the proposed settlement and they stand to benefit from that settlement. The proposed deductions are therefore "just" for the purposes of s 33V(2) of the Federal Court of Australia Act.
66 The proposed deduction for the funding commission is $6,108,856.50 plus applicable GST, which amounts to $6,198,254.40 including applicable GST. As with the other deductions, it is proposed that this amount be borne by all registered Group Members, not only those who entered into a funding agreement. The proposed deduction for funding commission (excluding GST) represents 17.43% of the settlement sum. That rate is 15% less than the applicable rate under the funding agreements entered into by funded registered Group Members. Under the funding agreements, the applicable contractual commission if the claim proceeds are received by 24 October 2020 is 20.5% plus GST. (A higher rate applies if the claim proceeds are received later, but that can be put to one side for present purposes.) The rate of 17.43% is 15% less than the rate of 20.5%. Of course, the rate of 17.43% is applied to the whole of the settlement sum, not only the portion of the fund referable to the claims of funded registered Group Members.
67 The applicants' alternative proposal, also addressed in the evidence and submissions, is to deduct the total contracted funding commission, that is, the total of the amounts agreed to be paid by the funded registered Group Members under their funding agreements. Under this approach, the total amount would still be borne by both funded and unfunded registered Group Members, but it would be determined by reference to the total of the amounts that the funded registered Group Members had agreed to pay. If the alternative approach is taken, there are two methods of calculating the funding commission: see the First Chuk Affidavit at [102]-[104]. The first method, which adopts a 'grossing up' mechanism, produces a funding commission of $3,897,735.37 (including GST). The second method, which adopts a 'no grossing up' mechanism, produces a funding commission of $3,473,149.93 (including GST). Clearly, the alternative approach results in a significantly lower return for Woodsford and ICP, and a significantly greater balance available for distribution to registered Group Members.
68 The parties in their written and oral submissions addressed the question whether the applicants' primary proposal in respect of funding commission is inconsistent with observations made by members of the majority in BMW Australia Ltd v Brewster (2019) 374 ALR 627; [2019] HCA 45 (BMW). The parties' counsel, quite properly, drew to my attention features of the primary proposal for funding commission that may be considered to be akin to (what may be described as) a 'common fund order' (or CFO). In contrast, the applicants' alternative proposal was said to constitute a 'funding equalisation order' (or FEO). A common fund order was described in the judgment of Kiefel CJ, Bell and Keane JJ in BMW at [1] in the following terms: "Such an order is characteristically made at an early stage in representative proceedings and provides for the quantum of a litigation funder's remuneration to be fixed as a proportion of any moneys ultimately recovered in the proceedings, for all group members to bear a proportionate share of that liability, and for that liability to be discharged as a first priority from any moneys so recovered." A funding equalisation order was described by their Honours at [45] as an order to "redistribute settlement funds from unfunded group members to all group members".
69 The issue before the High Court in BMW was whether the Federal Court under s 33ZF of the Federal Court of Australia Act has power to make a common fund order at an early stage of a proceeding. The High Court, by a majority (Kiefel CJ, Bell, Keane, Nettle and Gordon JJ; Gageler and Edelman JJ dissenting), held that the power in s 33ZF does not extend to the making of such an order.
70 The issue before the Court on the present application is different. No order is sought under s 33ZF; the relevant orders are sought under s 33V. Further, the application is made at the conclusion, rather than at an early stage, of the proceeding. In these circumstances, many of the concerns expressed by the High Court majority in relation to common fund orders have no or little application in the present case. For example, Kiefel CJ, Bell and Keane JJ expressed a concern that an application for a common fund order "invites the court to order the establishment of a complex relationship between group members and a litigation funder with whom the group members would otherwise have no relationship at all" (at [66]). Their Honours also indicated a concern that "[t]he court, in attempting to fix, even provisionally, a rate of remuneration at the outset of the proceeding must necessarily engage in a speculative exercise" (at [67]). These concerns have little or no application at the conclusion of the proceeding. In the following passage, at [68], Kiefel CJ, Bell and Keane JJ contrasted the powers available at the conclusion of a proceeding with the making of a common fund order at an early stage of a proceeding:
The provisions of Pt IVA of the FCA and Pt 10 of the CPA expressly provide for the making of orders distributing any proceeds of a representative proceeding. As will be seen, the occasion for the making of such an order is the conclusion of the proceeding. At that stage, if the group members happen to be indebted to a litigation funder for its support of their claims, the value of the litigation funder's support to the group members will be capable of assessment and due recognition. That stage is the appropriate occasion for orders for meeting and sharing the cost burden of the litigation because the value of the litigation and the extent of the burden will have been rendered certain. In contrast, an application for a CFO at an early stage of a proceeding necessarily involves speculation on the part of the parties and the court in respect of these matters; and attention to matters of concern to the litigation funder which may not be shared by, and may well be contrary to the interests of, group members.
71 In the course of their judgment, Kiefel CJ, Bell and Keane JJ discussed the difference between common fund orders and funding equalisation orders at [85]-[90]:
85 To the extent that one aspect of the motivation for seeking a CFO is said to be to facilitate the equitable sharing of the costs of a representative proceeding, Pt IVA of the FCA and Pt 10 of the CPA recognise that the representative party ought not (necessarily) bear the entire costs of the proceeding. These provisions allow the courts to prevent the practice of "free riding" by unfunded group members who might seek to take the benefit of the costs and risks assumed by the representative party and funded group members.
86 It may be accepted that the concern to prevent "free riding" is relevant to doing justice as between group members who are parties to the proceeding. But the equitable sharing of the expense of the proceeding may be achieved by the making of a FEO that reduces unfunded group members' awards by an amount equivalent to that paid by funded group members to the litigation funder. The cost of litigation is thus borne equitably between all group members. Group members necessarily stand in a relationship to one another as a result of the statutory scheme; the claims in the proceeding are litigated on behalf of all of them, and orders in the proceeding bind all of them. Subject to the creation of sub-groups and the determination of individual questions, the statutory scheme treats them as one group. It is, therefore, just that the costs of the proceeding be spread amongst the members of that group.
87 In contrast, there is no reason why the amount taken from unfunded group members' awards should be directed to the litigation funder, much less that an order to that effect should be made at the outset of the proceeding rather than on the occasion contemplated by s 33ZJ(2) of the FCA and s 184(2) of the CPA. Unfunded group members have no contractual or other relationship with the funder. Nor have they any liability to the funder. The funder has no right to that money under contract or under equitable principles.
88 A CFO is thus not the obvious solution to the problem of "free riding". A CFO is apt to impose an additional cost on the group by requiring more money to be paid to the litigation funder than would otherwise be the case. The equitable spreading of the cost is, in fact, better achieved by the making of a FEO, which takes, as its starting point, the actual cost incurred in funding the litigation. While it must be accepted that the burden of the amounts that funded group members have agreed to pay to the funder under their agreements with the funder must be distributed fairly, a FEO is apt equitably to distribute those amounts whereas a CFO seeks to impose an additional cost by imposing new obligations on the unfunded group members.
89 A FEO is clearly available where a settlement is reached. A settlement must be approved by the court, and, in approving a settlement, the court must be satisfied that it is "fair and reasonable to all group members". A settlement that allows some group members to ride for free would not be fair and reasonable to the other group members.
90 Secondly, where a matter runs to judgment (rather than being settled), a FEO may be made under s 33ZF or s 183. That is because justice would not be done in the proceeding if it resulted in unfunded group members gaining a windfall by avoiding costs which others bore for their benefit. A FEO prevents that outcome by redistributing those costs. It falls squarely within the terms of ss 33ZF and 183. The same cannot be said of a CFO.
(Footnotes omitted.)
72 These observations clearly favour the making of a funding equalisation order over a common fund order (implicitly, at the conclusion of a proceeding). However, after careful consideration, I do not consider these observations to express a concluded view that there is no power under s 33V to make a common fund order. First, their Honours in this passage contrasted the making of a common fund order at an early stage of the proceeding with the powers available at the conclusion of a proceeding (e.g. at [87], [90]), indicating that their focus remained on the issue of whether a common fund order could be made at an early stage of the proceeding. Secondly, while their Honours stated in terms, at [89], that a funding equalisation order is "clearly available" where a settlement is reached, they did not state that a common fund order is not available. Had their Honours intended to express a concluded view on this point, it is likely that it would have been stated in this passage. Thus, on balance, I do not take their Honours to be expressing a concluded view on the question whether there is power under s 33V to make a common fund order. I note also the observations of Gordon J at [141], [147], [149] and [152]. These may, at least on one view, go further, and express an opinion that s 33V would not support the making of a common fund order. The other member of the majority, Nettle J, did not directly address the point. Having regard to these matters, I do not consider there to be a clear majority view expressed to the effect that there is no power under s 33V to make a common fund order. See also Lenthall v Westpac Banking Corporation (No 2) [2020] FCA 423 at [6]-[21] per Lee J and McKay Super Solutions Pty Ltd (Trustee) v Bellamy's Australia Ltd (No 3) [2020] FCA 461 at [15]-[22] and [31] per Beach J.
73 While the observations of the majority may not represent a concluded view on the question of power, they nevertheless express strong reasons for favouring a funding equalisation order over a common fund order. When the observations of Gordon J are added to those of the plurality, a majority of the High Court have indicated strong reasons favouring the making of a funding equalisation order over a common fund order.
74 In the circumstances of the present case, I do not consider it appropriate to approve the applicants' primary proposal as regards funding commission ($6,198,254.40 including applicable GST). Instead, I consider it appropriate to approve the applicants' alternative proposal (adopting the first method of calculation), namely $3,897,735.37 (including GST). My reasons are as follows. First, the applicants' primary proposal imposes an additional cost on the group by requiring more money to be paid to the litigation funder than would otherwise be the case. In contrast, the applicants' alternative proposal takes, as its starting point, the actual cost incurred in funding the litigation: see the observations of the plurality in BMW at [88]. Secondly, the applicants' primary proposal goes further than is necessary to address the problem of 'free riding'. The applicants' alternative proposal sufficiently ensures that unfunded Group Members who obtain the benefit of the litigation contribute to the cost of the proceeding: see the observations of the plurality in BMW at [89]. Thirdly, while Woodsford and ICP played important roles in funding the litigation (and exposing themselves to risk) for the benefit of registered Group Members, this is sufficiently recognised by the applicants' alternative proposal, by which Woodsford and ICP receive the funding commission to which they are entitled under the contracts with funded Group Members.
75 In reaching this view, I have had regard to the considerations discussed in the Counsel Opinion at [8.117], which support the applicants' primary proposal for funding commission. In particular, I have had regard to the fact that the February 2020 Notice set out in clear terms that the applicants proposed to apply for approval of a funding commission of $6.1 million, and no Group Member has objected to that proposed order. I also note that the February 2020 Notice referred to the applicants' alternative proposal and indicated that this would likely result in a lesser amount being deducted from the settlement sum. Given these statements, it is significant that no Group Member has objected to the applicants' primary proposal. While these matters weigh in favour of the approval of the applicants' primary proposal, they are, in my view, outweighed by the considerations referred to in the preceding paragraph.
76 The applicants have put forward cogent reasons to support the adoption of the first method of calculation of their alternative proposal. I consider that method of calculation to be appropriate in the circumstances.
77 For these reasons, I consider the applicants' alternative proposal as regards funding commission (adopting the first method of calculation) to be fair and reasonable. I consider the deduction of this amount from the settlement sum to be "just" for the purposes of s 33V(2).