D.3 Net Hypothetical Returns to Group Members
54 Subject to a matter to which I will return, I should preface any comparison of the net hypothetical returns to group members by noting that because the proposals in both proceedings contemplate seeking a form of settlement or judgment CFO, any differences in the rates or method of calculation under the respective arrangements may not be particularly significant at the end of the day. The reason for this is obvious: at the conclusion of the proceeding, it is contemplated the Court will fix the amount to be distributed. Those circumstances will include the net returns to group members, and what it regards as a reasonable return for the risk undertaken, assessed ex ante: see Money Max Int Pty Ltd v QBE Insurance Group Ltd [2016] FCAFC 148; (2016) 245 FCR 191 (at 210 [82] per Murphy, Gleeson and Beach JJ).
55 With that said, it seems to me tolerably clear that in the vast majority of conceivable scenarios, the likely net return to group members on the "all-in" Jennings funding model is superior to the model proposed in the Greentree proceeding.
56 The Annexure to these reasons is a copy of a document marked "AJW-5" which, in its final form, contrasts the funding terms in the Greentree proceeding against the terms in the Jennings proceeding first on the assumption that 30 per cent of the Greentree applicants' costs are deducted from the resolution sum; and secondly, on the assumption that 50 per cent of the Greentree applicants' costs are deducted.
57 Before going further, I should note that there was somewhat of a moveable feast in relation to the assumptions in AJW-5 and the appropriate discount to be applied to the professional fees and disbursements in the Greentree proceeding. The first iteration of AJW-5 annexed to the Watson Affidavit worked on the assumption that in the event of a settlement or judgment CFO, 100 per cent of the costs incurred in the Greentree proceeding would be deducted from the resolution sum. At the case management hearing, the Greentree applicants tendered a revised version of AJW-5 which, among other things, applied a 70 per cent discount to the costs to be deducted from the resolution sum. This had the effect of attenuating the differences between the net hypothetical returns to group members in both proceedings; the rationale being that a 70 per cent discount more accurately reflects the costs recoverable from the respondent on a party-party basis (whether by way of Court ordered costs or allowance in a settlement), thereby leaving the remaining 30 per cent to be deducted from the resolution sum.
58 To anyone experienced in class actions, the notion that 70 per cent represents an accurate approximation of the costs that would likely be recoverable on a party-party basis might seem bullish. I invited the Greentree applicants to provide a further revised version of AJW-5 (now the Annexure) which incorporates two models: one applying a 70 per cent discount, and the other applying a 50 per cent discount. Further, I received supplementary submissions from Greentree applicants and the Jennings applicant as to why it is appropriate that AJW-5 take into account a 70 per cent discount, as opposed to an assumption that 100 per cent of the professional fees and disbursements incurred in the Greentree proceeding would be deducted from the resolution sum.
59 The Greentree applicants' submissions may be summarised as follows. First, in the event judgment is delivered in favour of the Greentree applicants, the amount likely to be deducted from the resolution sum would not be 100 per cent of the applicants' professional fees and disbursements, but an amount equal to the difference between the costs recovered on a party-party basis and the applicants' costs assessed by a referee. Secondly, if the proceeding settles on terms which justify a CFO, even if the settlement amount is inclusive of costs, it is reasonable to expect that that amount will be influenced by the quantum of professional fees and disbursements incurred to that point. Thirdly, the Greentree applicants estimate of 70 per cent represents a fair discount on the costs to be deducted from the resolution sum in the light of the professional judgment and experience of Gilbert + Tobin in conducting the Toyota class action, a matter to which I will return below.
60 Whether or not one accepts that the discount contended for by the Greentree applicants represents a fair estimation of the costs recoverable on a party-party basis, these submissions obscure the reality that the Jennings funding model provides greater net returns to group members in most, if not all, realistic scenarios.
61 Taking the Greentree applicants' submission at its highest, if a resolution sum of $200 million is achieved after the commencement of the trial, then, on the Greentree applicants' modelling (applying a 70 per cent discount), approximately $146,336,526 (or 73.2 per cent) will be paid to group members, whereas group members would always receive $150,000,000 (or 75 per cent) on the Jennings applicant's modelling. The differences, however, become more pronounced in the lower range of resolution sums as legal costs consume a greater proportion of any settlement or judgment proceeds. On a "worst case" scenario, for example, using the modelling from the original AJW-5, a resolution sum of $80,000,000 following an appeal would leave approximately $43,716,774.40 (or 54.6 per cent) for group members in the Greentree proceeding, whereas group members would always receive $60,000,000 (or 75 per cent) in the Jennings proceeding. This demonstrates one of the important structural advantages of the Jennings funding proposal, namely that it shifts the risk of a low resolution sum that is disproportionate to the costs incurred in the proceeding from group members onto Maurice Blackburn and Vannin.
62 I cannot leave this topic without making a further comment. The Greentree applicants fastened upon a point I made earlier that to the extent the modelling indicates differences in the net hypothetical returns to group members, such differences may be "ironed out" at the settlement approval stage when the Court comes to fixing a deduction that is just in all the circumstances.
63 That may be accepted to a point, but the analysis of what is just is informed by a wide variety of matters, including what group members have been told during the proceeding.
64 If group members in the Jennings proceeding, for example, are told that the funding commission rate is a total cap of 25 per cent inclusive of costs, the fact that the group members have been apprised of that information and, in turn, have made an election whether to opt out of the proceeding is a relevant consideration for the Court in fixing a CFO rate. On the other hand, if group members in the Greentree proceeding are told that the commission rate is capped between 20 and 30 per cent, plus costs, the Court may take the view that proposed 30 per cent plus costs deductions are just because there was no ambiguity as to what had been communicated to group members. As Mr Moore SC submitted, this may contribute to disparities between the net hypothetical returns to group members which cannot be ignored simply because the Court retains a discretion under s 33V(2).
65 At the end of the day, I need not trouble myself unduly with this matter because for reasons I have explained, I find the Jennings funding proposal offers superior returns to group members in all realistic scenarios.