Funding proposals
13 It was submitted for Watson that, in virtually any realistic scenario, the Shine Lawyers funding structure would involve lower costs for group members. It was submitted to be more likely that Shine's 25% uplift on costs is likely to be lower than Balance's 12.5% to 15% commission on damages. It was submitted that, in the circumstances of this case, the return to group members and potential group members ought to be the main determinative factor.
14 It was submitted for Kosen-rufu that it was not possible to assess the financial impact of the two competing funding models. Two matters were relied upon. First, it was submitted that there was significant uncertainty about recoverability which makes it difficult to perform any analysis on the possible returns to the group members. The second matter was expressed in the following way:
The possibility of Balance receiving a funding commission from unregistered group members on settlement through a common fund order cannot tip the scales because it is just that - a possibility. The Court cannot assess whether, and to what extent, it would be appropriate for Balance to receive such an order until the terms of any settlement or judgment is known. The Full Court has warned against engaging in such hypothetical analysis: Davaria Pty Limited v 7-Eleven Stores Pty Ltd [2020] FCAFC 183 at [71].
15 I will address the second matter first. Reliance on Davaria is misplaced. That case concerned the question whether the Court should answer a question, in advance of relevant events occurring, about whether it had power to make a common fund order upon settlement or determination of the proceeding. The Court ultimately held that it should not answer that question. The observations of Lee J at [71] were not directed to the question of whether a Court in determining a "carriage application" should seek to determine as best it could which of two or more funding models was likely to better serve the interests of group members. Less still was his Honour sounding a caution against engaging in such an exercise. His Honour's observations at [71] are directed to a different point. His Honour was referring to the fact that, statute aside (s 33ZF and 33V of the Federal Court of Australia Act 1976 (Cth) (FCA Act)), there might be circumstances in which a court of equity would make orders to distribute the burden of a proper and legitimate funding cost at the end of a proceeding - see: Davaria at [29], [30], [40]; see also: Lenthall v Westpac Banking Corporation (No 2) [2020] FCA 423 at [10]. His Honour was making the point in Davaria at [71] that it was inappropriate to declare in advance of the relevant events occurring that there was no possible basis on which an order, equivalent to some form of a common fund order, would not be made in the Court's equitable jurisdiction.
16 It is probable that, if the proceedings were consolidated, some form of order would ultimately be made to recognise Balance's funding of part of the cost of the consolidated proceeding. It is true that it is not presently possible to state precisely what sort of order would be made. It is equally true, however, that it is unlikely that a Court would countenance a situation in which group members could take the benefit of funding without some form or monetary recognition.
17 As to Kosen-rufu's first submission, it may be accepted that there are uncertainties concerning amounts which might be recovered. Nevertheless, insurers have confirmed that indemnity has been granted in relation to the Kosen-rufu representative class action to DASS, E&P and the directors pursuant to an identified insurance policy. Given the similarities between the two proceedings and the fact that they arise from the same events, it is likely that indemnity has been or would be granted in relation to the Watson representative class action.
18 There is nothing in the evidence to suggest that substantial recovery via insurance is unlikely.
19 I am satisfied that the funding model proposed by Shine Lawyers is, on balance, more likely to result in a greater recovery to group members and that its funding model is in the best interests of those members. In its submissions in support of its application to this Court under s 1317QF of the Corporations Act 2001 (Cth), to which I will later refer, Kosen-rufu estimated that the possible claims totalled between $278m and $463m. Assuming the claims are wholly or partly made out (or that the insurers perceive substantial risk sufficient to warrant settlement), there is nothing to suggest that substantial recovery is unlikely. If the costs of the proceeding are $4 million, a 25% uplift on costs would be $1 million. Assuming a commission of 12.5%, recovery of damages would need to be less than $8 million for group members to be better off under the Kosen-rufu model. Accepting that the task is uncertain given it is a prediction as to future events, the probabilities favour that group members will be better off under the Shine Lawyers funding structure, because Shine Lawyers' 25% uplift on costs is likely to be lower than Balance's 12.5% to 15% commission on damages.
20 It was submitted for Kosen-rufu that there was a substantial difference in the fees which would be charged by Shine Lawyers (higher) than by Piper Alderman (lower). This was said to make the analysis just undertaken inappropriate. This submission was based on the different charge out rates of the lawyers and paralegals involved. Shine Lawyers rates were as follows:
Role Standard Hourly Rates (GST exclusive) $ Plus GST ($) Hourly Rates (inclusive of GST)
National Special Counsel / Special Counsel 840.00 84.00 924.00
Senior Associate 670.00 67.00 737.00
Senior Solicitor / Associate 550.00 55.00 605.00
Solicitor 350.00 35.00 385.00
Law Clerk 290.00 29.00 319.00