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[2018] FCA 1289
mixed. Settlements approved under ss 33V and 33ZF; costs referred to referee Ms Liz Harris for independent assessment; funding and costs equalisation orders made (excluding project management fee);...
Local councils and other institutional investors sued S&P for giving investment-grade ratings to risky financial products that later collapsed, causing them heavy losses. After a lengthy trial the cases settled for $215 million. The litigation funder stood to receive $92 million and the lawyers more than $20 million, leaving group members with roughly 43% net. The judge ruled the headline figure excellent but ordered an independent costs referee to check the lawyers' bills, spread the funder's fee and costs fairly across all group members (including those who had not signed funding agreements), and refused most secrecy orders because class actions concern public statutory standards and use of public court resources. One proceeding involving Ceramic was approved even though its group members received nothing, because exhaustive steps had been taken to notify them and none responded.
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2,640 words · generated 24/04/2026
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In 2014–2016 several local councils, a superannuation fund, an insurer and other institutional investors commenced six related representative proceedings in the Federal Court of Australia. The claims centred on ratings issued by Standard & Poor’s (S&P) for complex synthetic collateralised debt obligations (SCDOs) and, in one case, an insurance note. The applicants alleged that the A or AAA ratings were misleading or deceptive in contravention of statutory norms, causing them and group members to suffer substantial losses when the products defaulted during the global financial crisis.
Four of the proceedings (Liverpool, Coffs Harbour (S&P), Clurname and MDA) were brought against S&P entities. A fifth was brought against Australia and New Zealand Banking Group Ltd (ANZ) in respect of its role in selling the products. The sixth, brought by Ceramic Fuel Cells Ltd (in liquidation), concerned a distinct but related SCDO known as the “Duke CDO”. The first five proceedings were case-managed together and proceeded to a joint initial trial before Rares J commencing on 12 March 2018. By the 38th day—after nine days of openings, extensive lay and expert evidence, hot-tubbing, and two days of closing submissions—the parties reached a conditional settlement recorded in heads of agreement falling within the first category identified in Masters v Cameron (1954) 91 CLR 353. Formal settlement deeds were later executed.
The global settlement sum across all proceedings (including a related non-representative proceeding brought by Lifeplan) was $215 million. Notices were sent to group members disclosing an estimated total claim value (principal, interest and costs) of approximately $238 million, yielding a gross recovery of roughly 90%. However, the proposed deductions were substantial: $92,031,922.99 to the litigation funder (Litigation Capital Partners and International Litigation Partners No 5) and over $20 million in legal costs and disbursements. Schedule B to the notices set out the proposed distribution on alternative bases depending on whether the Court made equalisation orders.
Applications under s 33V of the Federal Court of Australia Act 1976 (Cth) were heard together by Lee J on 24–25 July and 9 August 2018. The funder intervened. Because of the size of the proposed deductions and the disparity with the earlier Lifeplan settlement (which had occurred without the benefit of the trial but produced a comparable net return to group members), Lee J appointed an amicus curiae. The amicus, together with counsel for the applicants and the funder, addressed questions of power to vary funding commissions, the appropriateness of equalisation orders, the need for independent costs scrutiny, and the breadth of confidentiality orders sought over virtually all settlement documents. In the Ceramic proceeding an unusual additional complication arose: the proposed settlement would extinguish group members’ claims without any distribution to them. Earlier attempts to identify group members via subpoenas to US Bank, Clearstream and Euroclear had failed. Lee J declined to make a declassing order under s 33N but required exhaustive further notification steps, including advertising in The New York Times (international edition) and The Australian Financial Review.
On 9 August 2018 Lee J delivered ex tempore reasons (revised and published as [2018] FCA 1289). His Honour approved the settlements and the distribution scheme but referred the reasonableness of all legal costs to referee Ms Liz Harris under s 54A. Funding equalisation orders and costs equalisation orders were made in the Liverpool and Clurname proceedings (excluding the funder’s project management fee). Broad confidentiality orders were refused. The proceedings were dismissed with no order as to costs, operative from the Effective Date defined in the deeds. Orders were made on 24 August 2018 after the referee’s reference had commenced. These orders expressly vacated prior costs orders, appointed the applicants’ solicitor as scheme administrator, and extended the time for any group member to seek leave to appeal.
Lee J began from the proposition that the gross settlement was “plain beyond peradventure” fair and reasonable ([1]). Counsel experienced in class actions had advised that the $215 million sum exceeded the reasonableness threshold and represented approximately 90% of the claimants’ total estimated recovery. No group member objected. The real controversy concerned the net return after deductions.
On the funding commission, the Court noted that 86% of participating group members had executed funding agreements. The commission, although large in absolute terms, reflected the size of the settlement and the significant risk the funder had assumed from the inception of the litigation when prospects were far less certain. Lee J expressed doubt whether ss 33V(2) or 33ZF conferred power to vary the contractual promises of group members in the absence of individual vitiating factors, citing the principle in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 that signed contracts are ordinarily binding. Even assuming power existed, his Honour would not exercise it. Five considerations were decisive: (1) the litigation could not have proceeded without the funder; (2) hindsight bias had to be avoided—the commission was within market rates at the time the agreements were struck; (3) other funders had declined the risk; (4) a fair assessment of returns must consider the funder’s overall portfolio, not merely successful cases; and (5) absent statutory criteria there was no reliable lodestar for judicial intervention ([53]–[57]).
A funding equalisation order was nevertheless made in two proceedings to prevent funded group members from bearing a disproportionately heavy burden compared with unfunded “free riders”. The project management fee component was excluded because its justification was unclear and it created perverse incentives relative to legal costs. Costs equalisation orders were also made.
On legal costs, Lee J was unpersuaded by evidence from the applicants’ solicitor or the funder that the sums were reasonable; such evidence was inherently self-serving. The multiplicity of proceedings had generated obvious duplication—multiple affidavits repeating the same matters, repeated interlocutory applications, and unnecessary expense. Part VB of the Act and the overarching purpose required independent verification. A reference to an experienced costs consultant was ordered despite applicant opposition. No costs could be paid from the settlement sum until the referee’s report was adopted.
Confidentiality was refused in broad terms. Lee J observed a growing and undesirable practice of seeking blanket suppression in s 33V applications. Citing Hogan v Australian Crime Commission (2010) 240 CLR 651 and s 37AE, his Honour held that the public interest in open justice, transparency of funding returns, and scrutiny of the use of Court processes outweighed the parties’ commercial preferences. Settlement of class actions is not a purely private bargain; it engages statutory norms of misleading conduct and consumes public resources ([106]–[108]).
In the Ceramic proceeding, exhaustive notification efforts (including renewed approaches to US entities and advertising) had produced no response from any group member. The settlement was approved on the basis that the representative applicant’s claim would be satisfied and all group members’ claims extinguished under s 33ZB. Lee J emphasised the fiduciary obligation of representative applicants and the Court’s protective role but was satisfied that no further practical steps could be taken.
Prior to Liverpool City Council v McGraw-Hill the law on settlement approval was settled in broad terms: the Court must be satisfied the settlement is fair and reasonable having regard to the interests of group members (Australian Competition and Consumer Commission v Air New Zealand Ltd (No 12) [2013] FCA 533; Earglow Pty Ltd v Newcrest Mining Ltd [2016] FCA 1433). Funding commissions could be refused approval if excessive (City of Swan v McGraw-Hill Companies Inc [2016] FCA 343), but the existence and scope of power to vary executed funding agreements under ss 33V(2) or 33ZF remained unsettled. Full Court authority in Money Max International Pty Ltd v QBE Insurance Group Ltd (2016) 245 FCR 191 had left the question open. Common fund orders and funding equalisation orders had become familiar, yet judicial reluctance to rewrite bargains was evident (Blairgowrie Trading Ltd v Allco Finance Group Ltd (No 3) (2017) 343 ALR 476).
Costs scrutiny was likewise evolving. While courts had appointed referees or costs assessors in some matters, it was not routine, and “independent” opinions procured by the solicitors themselves were sometimes relied upon. Confidentiality orders over settlement sums and funding rates were granted with some regularity, often by consent and without detailed s 37AG analysis.
After Lee J’s judgment the landscape shifted in several respects. First, the strong obiter that power to vary funding agreements is doubtful absent individual equitable grounds has been cited in subsequent decisions as signalling judicial caution. Secondly, the insistence on mandatory independent costs reference by a Court-appointed referee (rather than evidence from the solicitors) has become more common, particularly in large settlements. The judgment reinforced that Part VB and the overarching purpose require active judicial supervision of costs even where no group member objects. Thirdly, the emphatic rejection of “blanket” confidentiality orders has been influential; later judgments have required parties to justify each category of confidential material by reference to the stringent Hogan test. The decision also highlighted the need to avoid unnecessary multiplicity of proceedings, a theme taken up in later case management.
The judgment did not create new doctrine but crystallised and applied existing principles with greater rigour, particularly the interplay between contractual autonomy, the protective jurisdiction, and open justice.
[1]: “it is plain beyond peradventure that the gross settlement sum of $215 million … is an amount which is fair, reasonable and in the interests of group members.”
Translation: The headline figure is obviously good enough; the real debate is about how much group members actually receive after the funder and lawyers take their cuts.
[15]: “The sheer size of the amount paid to the funder, together with the relative net return to group members in these proceedings and the Lifeplan proceeding, seemed to me to raise, at least prima facie, questions…”
Translation: When the funder’s share is this big and group members end up with roughly the same net percentage as in an earlier unfunded case, alarm bells ring and extra independent scrutiny is needed.
[47]: “I very much doubt power does presently exist for the Court to interfere and vary funding agreements in the context of a settlement by altering the contractual promises of group members to pay commission, except where … there is an established legal or equitable basis…”
Translation: Judges probably cannot simply rewrite funding contracts just because the commission looks large; there must be a recognised legal reason to do so in each individual case.
[66]: “The imperative of public confidence in the settlement approval process and the requirement to protect group members requires close and appropriate scrutiny of the costs incurred…”
Translation: The Court must independently check lawyers’ bills even if the clients and the funder say they are fine, because the public needs to trust the class action system.
[102]: “It is wrong to assume that confidentiality or non-publication orders will be routinely or automatically made … the primary objective of the administration of justice is to safeguard the public interest in open justice.”
Translation: Do not expect the Court to rubber-stamp secrecy requests in class actions; openness is the default because these cases affect many people and involve public laws.
[120]: “I am not persuaded within the meaning of s 37AG(1)(a), that any of the orders sought, other than those relating to the joint opinion given by counsel, are necessary…”
Translation: Almost all the secrecy orders were refused because the parties could not show they were essential to prevent real harm to the administration of justice.
The decision is most directly engaged where a funded class action settles for a large absolute sum but the proposed funder commission and legal costs produce a net recovery that, on its face, appears modest relative to the gross or to comparable unfunded settlements. It is especially relevant when the majority (but not all) group members have executed funding agreements, prompting equalisation order applications. The judgment applies whenever broad confidentiality is sought over settlement deeds, funding rates, or costs calculations in s 33V applications. It is also triggered by settlements that would extinguish group members’ claims without payment (as in Ceramic), requiring demonstration of exhaustive notification efforts. Finally, it arises in cases involving multiple overlapping proceedings, duplication of costs, or where the representative applicant seeks reimbursement for time spent both in the representative capacity and on its own claim. The reasoning is not limited to SCDO or financial product litigation; it is of general application to any Part IVA settlement involving significant third-party funding.
Subsequent decisions have treated Liverpool City Council v McGraw-Hill as persuasive authority on several fronts. In Money Max Int Pty Limited (Trustee) v QBE Insurance Group Limited [2018] FCA 1030 (a post-approval costs dispute), the Court cited the emphasis on independent costs scrutiny with approval. Judges have increasingly appointed referees or required detailed costs reports in large settlements, expressly referencing Lee J’s critique of self-serving evidence from solicitors.
On confidentiality, the judgment has been followed in Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527 and Dillon v RBS Group (Australia) Pty Limited (No 2) [2018] FCA 395. Courts now routinely require parties to justify each category of proposed confidential material rather than granting blanket orders. The ALRC’s Discussion Paper 85 (2018) quoted the decision with approval when discussing transparency of funding fees.
The cautious approach to varying funding agreements has been noted in later first-instance decisions, although the question remains formally unresolved at Full Court level. Funding equalisation orders have continued to be made where disparity would otherwise arise, often citing the Liverpool analysis that such orders prevent unjustifiable differences without increasing the total sum paid to the funder.
In relation to extinguishment of group members’ claims without distribution, the Ceramic aspect has been cited as an example of the high evidentiary threshold the Court will impose before approving such a course. Later judgments have required detailed evidence of notification campaigns, including international advertising where group members are offshore.
Overall, the decision is treated as reinforcing, rather than revolutionising, the protective jurisdiction while adding practical guidance on costs referees, the limits of confidentiality, and the need to avoid unnecessary multiplicity.
Lee J expressly left open the definitive question whether ss 33V(2) or 33ZF confer power to vary funding commission rates in the absence of individual equitable or statutory grounds. That issue continues to divide commentators and has not yet been conclusively determined by an appellate court. The ALRC’s 2018 recommendation for an express statutory power (Proposal 5-3) remains unimplemented.
The proper treatment of project management or other “add-on” fees charged by funders also remains unsettled. Lee J excluded the project management fee from the equalisation order on the basis that its justification was unclear and it risked inflating legal costs, but did not decide its reasonableness as between the funder and those who had contractually agreed to it.
The precise criteria for assessing the reasonableness of legal costs in funded class actions—particularly how to account for “head start” work done in earlier related proceedings or for duplication caused by multiple proceedings—were left to the referee and have not been the subject of detailed appellate guidance. Questions also persist about the circumstances in which a settlement that extinguishes claims without payment to group members will be approved, especially where notification efforts, while extensive, have not reached every possible group member.
Finally, the tension between encouraging settlement (which may be assisted by confidentiality) and the public interest in transparent funding returns and costs remains live. Although Liverpool City Council v McGraw-Hill tilts the balance toward transparency, the exact boundaries of “necessity” under s 37AG in complex commercial class actions continue to be tested in subsequent matters. These open questions underscore why the judgment remains a significant reference point for practitioners and funders alike.
FCA 527 Ceramic Fuel Cells Ltd (in liq) v McGraw-Hill Financial, Inc [2016] FCA 401; (2016) 245 FCR 340 Ceramic Fuel Cells (in liq) v McGraw-Hill Financial, Inc (No 2) [2016] FCA 1059; (2016) 245 FCR 362 City of Swan v McGraw-Hill Companies Inc [2016] FCA 343; (2016) 112 ACSR 65 Clarke v Sandhurst Trustees Limited (No 2) [2018] FCA 511 Dillon v RBS Group (Australia) Pty Limited (No 2) [2018] FCA 395 Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433 HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in liq) (No 3) [2017] FCA 650 Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 In re Application of Malev Hungarian Airlines 964 F2d 97, 100 (2d CIR 1992) John Fairfax & Sons Limited v Police Tribunal (NSW) (1986) 5 NSWLR 465 R v Legal Aid Board; ex parte Kaim Todner (a firm) [1999] QB 966 Rinehart v Welker [2011] NSWCA 403; (2011) 93 NSWLR 311 at 320 [29]. The Owners of the Ship "Shin Kobe Maru" v Empire Shipping Company Inc (1994) 181 CLR 404 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 Lee v New South Wales Crime Commission [2013] HCA 39; (2013) 251 CLR 196 Lifeplan Australia Friendly Society Limited v S& P Global Inc (Formerly McGraw-Hill Financial, Inc) (A Company Incorporated in New York) [2018] FCA 379 Masters v Cameron (1954) 91 CLR 353 McMullin v ICI Australia Operations Proprietary Limited (1998) 84 FCR 1 Mitic v OZ Minerals Limited (No 2) [2017] FCA 409 Modtech Engineering Ply Ltd v GPT Management Holdings Limited [2013] FCA 626 Money Max International Pty Ltd v QBE Insurance Group Limited [2016] FCAFC 148; (2016) 245 FCR 191 Money Max Int Pty Limited (Trustee) v QBE Insurance Group Limited [2018] FCA 1030 Legg, M "Class Action Settlement in Australia - the Need for Greater Scrutiny" [2014] 38 Melbourne University Law Review 590
Date of hearing: 24 and 25 July 2018, 9 August 2018
Registry: Sydney
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 130
Counsel for the Applicants: Mr NC Hutley SC with Mr CH Withers and Ms A Lyons
Solicitor for the Applicants: Squire Patton Boggs
Counsel for the Respondents in NSD1018 of 2014, NSD1020 of 2014, NSD957 of 2015, NSD1126 of 2015, and NSD 414 of 2016: Mr JC Hewitt with Ms RL Gall
Solicitor for the Respondents in NSD1018 of 2014, NSD1020 of 2014, NSD957 of 2015, NSD1126 of 2015, and NSD 414 of 2016: Clifford Chance
Counsel for the Respondents in NSD1021 of 2014: Mr JR Williams with Ms A Smith
Solicitor for the Respondents in NSD1021 of 2014: Allens
Counsel for the Amicus Curiae: Mr DFC Thomas
Counsel for the Intervener (for Litigation Capital Partners LLP Pte Ltd and International Litigation Partners No 5 Limited): Mr G Rich SC with Mr CM Tam
Solicitor for the Intervener (for Litigation Capital Partners LLP Pte Ltd and International Litigation Partners No 5 Limited): Russells
Counsel for the Intervener for Lifeplan: Mr M Hoffmann QC
Solicitor for the Intervener for Lifeplan: Johnson Winter & Slattery
BETWEEN: LIVERPOOL CITY COUNCIL ABN 84 181 182 471 Applicant
AND: MCGRAW-HILL FINANCIAL, INC (NOW KNOWN AS S&P GLOBAL INC) First Respondent
STANDARD & POOR'S INTERNATIONAL, LLC (A COMPANY INCORPORATED IN DELAWARE) Second Respondent
JUDGE: LEE J DATE OF ORDER: 24 August 2018
Approval of Settlement
BETWEEN: COFFS HARBOUR CITY COUNCIL ABN 79 126 214 487 Applicant
AND: MCGRAW-HILL FINANCIAL, INC (NOW KNOWN AS S&P GLOBAL INC) First Respondent
STANDARD & POOR'S INTERNATIONAL, LLC (A COMPANY INCORPORATED IN DELAWARE)
JUDGE: LEE J DATE OF ORDER: 24 august 2018
Approval of Settlement
BETWEEN: COFFS HARBOUR CITY COUNCIL ABN 79 126 214 487 Applicant
AND: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (TRADING AS ANZ INVESTMENT BANK) Respondent
JUDGE: lee J DATE OF ORDER: 9 august 2018
Approval of Settlement
BETWEEN: CLURNAME PTY LTD ABN 66 002 898 231 First Applicant GOULBURN MULWAREE COUNCIL Second Applicant CIRCULAR HEAD COUNCIL Third Applicant
AND: MCGRAW-HILL FINANCIAL, INC (FORMERLY MCGRAW-HILL COMPANIES INC) (A COMPANY INCORPORATED IN NEW YORK) First Respondent
STANDARD & POOR'S INTERNATIONAL, LLC (A COMPANY INCORPORATED IN DELAWARE)
S&P GLOBAL UK LTD (FORMERLY MCGRAW HILL-HILL INTERNATIONAL (UK) LTD (INCORPORATED IN ENGLAND AND WALES UNDER NO 64070 (MGH UK)
JUDGE: LEE J DATE OF ORDER: 9 AUGUST 2018
Approval of Settlement
BETWEEN: CERAMIC FUEL CELLS LIMITED (IN LIQUIDATION) ACN 055 736 671 Applicant
AND: MCGRAW-HILL FINANCIAL, INC (NOW KNOWN AS S&P GLOBAL INC) (A COMPANY INCORPORATED IN NEW YORK) First Respondent
STANDARD & POOR'S INTERNATIONAL, LLC (A COMPANY INCORPORATED IN DELAWARE)
JUDGE: lee J DATE OF ORDER: 9 AUGUST 2018
Approval of Settlement
BETWEEN: MDA NATIONAL INSURANCE PTY LTD ACN 058 271 417 Applicant
AND: MCGRAW-HILL FINANCIAL, INC (FORMERLY MCGRAW-HILL COMPANIES INC) (A COMPANY INCORPORATED IN NEW YORK) First Respondent
STANDARD & POOR'S INTERNATIONAL, LLC (A COMPANY INCORPORATED IN DELAWARE)
JUDGE: lee J DATE OF ORDER: 9 AUGUST 2018
Approval of Settlement
A. Introduction and relevant issues 1 These applications, made pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (FCAA), give rise to complexities, but in one respect, they are not attended by any doubt: it is plain beyond peradventure that the gross settlement sum of $215 million payable pursuant to the overall settlement is an amount which is fair, reasonable and in the interests of group members. In a confidential joint opinion on the reasonableness of the proposed settlement dated 6 July 2018, counsel highly experienced in class actions expressed the view that the proposed gross settlement sum satisfies, indeed, exceeds the test of reasonableness. I agree. In the circumstances of these cases, a global settlement equating to approximately 90% of the total claim value (including interest and costs) amounts to significant vindication of the group members' claims across the various proceedings. 2 The controversy on the applications relates to the net sum to be paid to group members. Of course, the ultimate evaluation of whether a settlement is fair, reasonable and in the interests of group members is not assessed by reference to the gross amount payable pursuant to a bargain reached between an applicant and a respondent. The evaluation must be carried out by reference to what all group members obtain in their hands following the resolution of their individual claims in the event that the settlement is approved. 3 In the context of the sum of $92 million being paid to Litigation Capital Partners LLP Pte Ltd and International Litigation Partners (No 5) Ltd (together, the funder) and over $20 million to lawyers out of the overall settlement, three issues have arisen. The first issue is the power of the Court to amend litigation funding agreements and, if the power exists, the principled exercise of that power (and the related question of whether a funding equalisation order should be made). The second issue that arises is whether a settlement distribution scheme should be approved, which allows legal costs to be paid without independent scrutiny of those costs. The third issue is whether, as the parties contend, it is necessary in the administration of justice, that the details of the settlement should be the subject of a cloak of confidentiality. 4 I address these and other issues below under the following headings: B Background C The settlement sum, funder's commission and Lifeplan contrast D The power to vary funding agreements and its exercise E Funding equalisation orders F Cost referees and cost equalisation orders G The proposed settlement scheme and administration H The Ceramic proceeding and the extinguishment of group members' claims I Confidentiality J Deed of release K The proposed reimbursement claim L Conclusion
B Background 5 The claims of the group members in this matter are brought in six separate proceedings, which are all the subject of separate s 33V applications heard together. The first four proceedings are brought by the representative applicants against various respondents associated with McGraw-Hill Financial Inc (together S&P) in relation to S&P's rating of certain synthetic collateralised debt obligations (SCDO), and in one case an insurance note with SCDO collateral, in which the applicants and group members invested, causing them to allegedly suffer loss when those products defaulted. The first four proceedings can be referred to as the Liverpool proceeding, the Coffs S&P proceeding, the Clurname proceeding and the MDA proceeding. The fifth proceeding is a class action brought against ANZ Banking Group Limited. These proceedings can be described collectively as the Trial Proceedings as they were the subject of a joint initial trial before Rares J early this year when, on the 38th day of the hearing (and the second day of closing oral submissions), all proceedings were conditionally settled pursuant to heads of agreement. The heads of agreement, I was later informed, fell into the first category of Masters v Cameron (1954) 91 CLR 353, being where the parties, subject to approval, had reached finality in arranging all the terms of their bargain and intended to be immediately bound to the performance of those terms, but at the same time proposed to have the terms restated in a form which was fuller or more precise but not different in effect (which came about when settlement deeds were exchanged by the relevant parties in mid-July 2018). 6 The sixth Part IVA proceeding, not the subject of the initial trial before Rares J, was brought by Ceramic Fuel Cells (in liq) (Ceramic) against S&P (Ceramic proceeding). That proceeding was being case managed by Wigney J and had not yet been listed for an initial trial and, at the time of this application, is the subject of an unresolved application for leave to amend. 7 All of the applicants in all of the representative proceedings have filed interlocutory applications together with a raft of evidentiary material seeking Court approval of the proposed settlements reflected under the deeds and various consequential orders. With the exception of the Ceramic proceeding, the interlocutory progress of those applications has been relatively standard, with notices approved by the Court being sent to group members in the usual way and a hearing taking place as soon as practicable after the service of those notices. I will come back to some bespoke complications with regard to the Ceramic proceeding below. 8 I will not tarry on the detail of the individual allegations made in each proceeding. The summary of the claims contained in Section C of Lifeplan Australia Friendly Society Limited v S&P Global Inc (Formerly McGraw-Hill Financial, Inc) (A Company Incorporated in New York) [2018] FCA 379 will suffice as outlining, in very broad terms, the nature of the case that was being maintained in the Trial Proceedings and in the Ceramic proceeding (subject to the application for leave to amend). 9 It is an exercise in understatement to observe that the relief sought in the Trial Proceedings was contested. The initial trial commenced on 12 March 2018 and, as noted above, involved 38 sitting days. This comprised of nine days of oral opening submissions; 10 days of examination and cross-examination of the applicants' nine lay witnesses; four days of examination and cross-examination of S&P's and ANZ's seven lay witnesses; four hot-tubs of nine experts over six days (and a half-day's cross-examination of S&P's expert on New York law); three days of documentary tender, several disputes as to the admissibility of evidence which required his Honour to conduct more than one voir dire; the filing of 314 pages of closing written submissions by the parties between 12 and 16 May 2018; and two days of closing submissions before, as noted above, a paction was reached. At that date, there were still five days left of oral closing submissions. In addition, S&P was to file a second tranche of written submissions (of approximately 80 pages) and the applicants were to file 50 pages in reply. 10 Although settlement came tardily, it eventually came. No doubt this involved considerable effort on behalf of both the parties and their legal advisers. Given the hard-fought nature of the litigation, it is both to their benefit and, importantly, the public benefit, that an agreement was belatedly reached. There is little doubt that irrespective of the outcome of the Trial Proceedings, an appeal was likely to be pursued by the disappointed party. Such an appeal would have inevitably involved significant further private and public cost.
C settlement SUM, funder's commission & lifeplan contrast 11 The explanation of the settlement in the original documents initially filed in support of the s 33V applications was very difficult to follow because of the division of group member claims across several proceedings. Eventually, however, by the time notices were sent, there was some clarity in relation to the overall effect of the proposed settlement and also the extent of the proposed deductions from the settlement sum by way of funding and legal costs. 12 The notices sent out to group members in all the proceedings each included a document entitled "Schedule B". Schedule B provided details of the individual settlements of each proceeding. In order to provide some context, however, I ordered that the notices provide details of all the claims resolved by the global settlement (including a non-representative proceeding) and details as to total recovery. A breakdown of the total claim of all claimants and their recovery is set out in the table below: All Present Claims Against S&P Total claim of all Claimants Total principal damages claim $132,217,293.08 Total interest claim $85,222,053.98 Total costs estimated at mediation $20,783,851.15 TOTAL CLAIM as estimated at mediation, i.e. items 13 + 14 + 15 $238,223,198.21
Recovery of all Claimants Total amount payable under all Settlement Deeds $215,000,000.00 Total legal costs (incl. anticipated costs of approval) $20,363,855.75 Total amount payable to Funder $92,031,922.99 Estimated Representative Payments $140,000.00 NET RECOVERY (after deductions but before scheme costs), i.e. item 17 - (items 18 + 19 + 20) $102,464,221.26 Estimated Scheme Costs $342,281.50 NET RECOVERY (after deductions for scheme costs), i.e. item 21 - item 22) $102,121,939.76 PERCENTAGE RECOVERY OF TOTAL CLAIMS OF CLAIMANTS, i.e. item 23 / item 16 x 100 42.87%
13 In addition, Schedule A of each notice given to group members provided a preliminary estimate of the settlement payment to them. The Schedule identified the total claim of each group member, their pro rata share of the settlement sum, and their share of legal fees and funding commission. This was done on an alternative basis, depending upon whether or not the Court made one or other of the equalisation orders which I deal with below. 14 The table set out above is a slightly revised table from the version sent to all group members. I am told it accurately reflects all legal costs incurred by all claimants and the global amount being paid to the funder in relation to the global settlement. It seems to me that both the reasonableness of the legal costs and the amount of the funding fee to be paid pursuant to the settlements of the individual proceedings, must be considered in the context of the total amount recoverable pursuant to the overall settlement and total deductions from that amount. As will already be obvious, the total amount paid to the funder of $92,031,922.99 is unprecedentedly large. Also, the proposed recovery of legal costs (being an amount in excess of $20 million), while not the largest sum of costs that has ever been the subject of a s 33V approval, is close to it. 15 I have already made reference to the related Lifeplan proceeding, which was not the subject of a litigation funding agreement. The Lifeplan proceeding settled considerably earlier than the proceedings the subject of these applications. Despite this, the settlement involved a net payment to group members not substantially different from the net payment to be made pursuant to this settlement. This result is of more than passing interest. It was forcefully submitted on behalf of the applicants that the Lifeplan proceeding was only able to be conducted in the way that it was because of the work that had been done by the solicitors and the funder in the Trial Proceedings. In this sense, it was said, the Lifeplan proceeding sailed along in the slipstream of the Trial Proceedings. Even assuming that this characterisation is not exaggerated, the reality is that even though the litigation prospects for claimants very substantially increased from the time of the Lifeplan settlement (as reflected in the confidential opinion of counsel and the terms of the global settlement), the actual net recovery for individual group members in both proceedings, expressed as a percentage of their total individual claims, has ended up being roughly similar. The net result may be the same for group members but the difference is, of course, that the net result was achieved by the expenditure of very significant legal costs incurred in preparing for and conducting the initial trial, and the use of public resources of the Court in running the initial trial. 16 The sheer size of the amount paid to the funder, together with the relative net return to group members in these proceedings and the Lifeplan proceeding, seemed to me to raise, at least prima facie, questions as to whether or not the Court should approve the settlement (or, more specifically, to raise questions as to the reasonableness of the proposed deductions). For this and other reasons, I considered it appropriate that the Court appoint an amicus curiae for assistance in determining the approval applications. I invited the submissions of the amicus to be directed to the following issues: the quantum of legal costs; the proposed costs equalisation order; the power to vary funding commissions; whether the power to vary funding commissions should be exercised; the proposal for a funding equalisation order; and whether the broad confidentiality orders sought by the parties ought be made. 17 Mr D F C Thomas appeared as amicus and it is appropriate that the Court record its gratitude for his careful and comprehensive written and oral submissions which proved of considerable assistance in resolving the relevant issues. The experience reinforced my general view that there is some merit, in complex and large settlement applications, in obtaining assistance from a "friend of the Court" in addition to "friends of the deal". This is not to suggest any concern that those acting for the parties would be anything other than entirely professional in providing assistance to the Court, but simply recognises the reality that their clients have a stake in the successful outcome of the applications.
D The power to vary funding agreements & ITS exercise
D.1 Introduction 18 Having already noted the unusual size of the amount to be deducted referable to funding, it is convenient to turn to the topic that was the subject of prolonged debate, that is, the power of the Court to vary the funding commission payable pursuant to the funding agreements. 19 In Clarke v Sandhurst Trustees Limited (No 2) [2018] FCA 511, in Section B.2 at [12]-[18], I made some observations regarding the power of the Court to vary funding agreements. I identified the decisions of the Court where, in the exercise of the protective and supervisory role of the Court, observations have been made about whether the Court possesses the power to consider and then vary the funding commission paid pursuant to funding agreements: see the detailed discussion by Murphy J in Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433 at [113] to [132], by Beach J in Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed)(in liq) (No 3) [2017] FCA 330; (2017) 343 ALR 476 at [101], and Middleton J in Mitic v OZ Minerals Limited (No 2) [2017] FCA 409 at [27]-[29]. 20 In Sandhurst Trustees it was unnecessary for me to form a view on the issue of power: see [17]. Further, on the premise that power existed, it was not necessary for me to set out, the circumstances in which it would be a prudent exercise of such power to interfere with the promises given by funded group members to the funder. Any such consideration must recognise, of course, that group members were part of an integrated scheme and that this scheme involved the pooling of contributions and the provision, by group members, of their individual promises for the benefit of scheme members generally, including the funder: see Brookfield Multiplex Limited v International Litigation Funding Partners Pte Limited [2009] FCAFC 147; (2009) 180 FCR 11.
D.2 Submissions 21 On these applications Mr Hutley SC, as counsel for the applicants, reprised his submission recorded in Sandhurst Trustees at [18] that the obiter observations recognising the existence of a power to intervene to vary funding agreements were not only not authoritative because the observations were not material to the decision made in those cases but, in any event, the dicta were plainly wrong. 22 In considering this question, it is convenient to start with a proposition which cannot be in dispute. In an appropriate case the Court may refuse settlement approval because a funding commission is excessive or disproportionate: see City of Swan v McGraw-Hill Companies Inc [2016] FCA 343; (2016) 112 ACSR 65 at 71 [30]. It is the next step that is controversial. Mr Thomas submits that the Court also has the power to distribute a settlement sum as between group members in a manner that departs from an agreed funding commission if, inter alia, the Court concludes that the commission stands in the way of approving the settlement. In doing so, he adopts the reasoning in the cases identified above. 23 Because any interference with the funding commission as set out in the terms of the agreements would directly affect the interests of the funder, I gave leave for the funder to intervene in the hearing. Mr Rich SC and Mr Tan appeared and made extensive submissions, both in writing and orally. Those submissions can be summarised as follows. 24 The relevant question for the Court to consider is not whether the funding commission is fair and reasonable, but whether the proposed settlement, in its entirety, is a fair and reasonable compromise of the claims made. The funding commission is only relevant insofar as it might affect the Court's assessment of that statutory question. Whatever may be the situation in cases where there are hundreds or thousands of "unfunded" group members and consideration has been given to the making of a common fund order, in the present case, some 76 of 88 participating group members (86%), plus Ceramic, have signed funding agreements by which they are legally obliged to pay the funding commission to the funder on settlement. Further, it would be incongruent to conclude that the proposed settlement is unfair or unreasonable because those group members will be held to the promises they made, to pay a funding commission. 25 There is nothing unfair or unreasonable about upholding valid contracts, and, with some presently irrelevant exceptions, courts have consistently declined to delve into the adequacy of the consideration exchanged, or the "fairness" of the bargain agreed, by contracting parties. Such an inquiry is said to be fraught with difficulty. Leaving aside those circumstances where the funding agreements may be the subject of statutory intervention because of some proven contravening conduct or on the basis of some recognisable head of equitable relief, no vitiating factor exists in the current circumstances; rather, to the contrary: (a) none of the funded group members have alleged that the funding agreements are liable to be varied or set aside, nor has anyone applied to the Court for such orders; (b) none of the group members have objected to the funding commission or raised any issue concerning the content of the funding agreements, or the circumstances in which they were executed; (c) no objection as to the proposed settlement has been filed and, indeed, there have been a number of expressions of support of the settlement by at least 25 participating group members, including two unfunded registered group members; and (d) the evidence demonstrates that the funding commission was disclosed to group members when the funding agreement was presented to them and the group members were encouraged to seek independent legal advice; moreover, the majority of group members are institutional investors, including local councils, property trusts and development funds connected with hospitals and churches, universities, organisations associated with professional and sporting groups, industry superannuation funds and trade unions; speaking generally, these are not organisations likely to be controlled by unsophisticated individuals lacking capacity to make individual subjective judgments relating to questions of fairness or reasonableness. 26 More fundamentally, it is pointed out that the funding agreements confer substantive legal rights and obligations upon the parties and also allocate risks and rewards in a manner agreed between them. It is suggested that if a power to alter the funding commission is conferred by the FCAA, it is far from clear from the text of that statute, and if such provisions were intended to provide the Court with the power to alter substantive common law rights and fundamental legal principles, one would have expected that those provisions would have expressed such an intention with "irresistible clearness": see Bropho v Western Australia (1999) 171 CLR 1 at 18. 27 Turning to the powers themselves, two statutory powers have been identified in the relevant cases. The first is s 33V. Passing over the first subsection which provides for approval of a proposed settlement by the Court, s 33V(2) provides as follows: If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court. 28 It is submitted that three features of that provision should be noted: first, the power which it confers only arises if the court approves the settlement (it is not a power to alter a proposed settlement or related contracts, so as to render an otherwise unreasonable settlement suitable for Court approval); secondly, it is a power to make such orders as are "just", which is not a licence to alter substantive legal rights; and thirdly, the power is confined to orders "with respect to the distribution of any money paid under a settlement or paid into the court". 29 Textually and contextually it is said to be a power to facilitate the distribution of money paid under an approved settlement to group members and others in accordance with that settlement. It is not a power to alter the terms of arrangements which have all the characteristics of a managed investment scheme or to abrogate the legal rights of parties who are entitled to receive a proportion of the settlement proceeds pursuant to their pre-existing contracts. 30 The second provision which the cases identify as relevant is s 33ZF. As is well known, this section provides a plenary power to make orders that are "appropriate or necessary to ensure that justice is done in the proceeding". It was submitted that the power granted by this section does not extend to altering the rights and obligations of parties to funding agreements. 31 In response, the amicus made four points. The first related to the powers contained in s 33V(2) and s 33ZF. The point was made that they should not be construed narrowly by the making of implications or the imposing of limitations not found in their express words: see The Owners of the Ship "Shin Kobe Maru" v Empire Shipping Company Inc (1994) 181 CLR 404 at 421. Section 33V(2) confers a power on the Court, if approval is given, to make such orders as are just with respect to the distribution of any money paid under the settlement or paid into the Court. The subsection operates as a facultative provision in connexion with the approval of a settlement and expands to circumstances in which the Court may approve a settlement by modifying the amount in which monies are paid. 32 As to s 33ZF, attention was directed by the amicus to the well-established principle that this section should be seen as the "widest as possible power" to operate as a "gap filler" such that the Court can resolve the peculiar difficulties encountered, including new difficulties arising, in representative proceedings: see McMullin v ICI Australia Operations Proprietary Limited (1998) 84 FCR 1 at 4. It is said that the submissions made by the funder (and the applicants who made broadly consistent submissions), impose an unduly narrow construction on the provision. 33 Secondly, the presumption identified in Bropho is said to be misplaced. The private rights of a funder under a funding agreement falls short of the "fundamental rights" to which reference was being made in that case, being rights that arise within our system of representative and responsible government under the rule of law: see Lee v New South Wales Crime Commission [2013] HCA 39; (2013) 251 CLR 196 at 310 [313]. Even if private contractual rights were protected by the presumption, Part IVA is a statutory scheme that radically modifies the rights and interests of the applicants, group members and the respondents inter se. Expansive powers are conferred on the Court as part of that scheme to allow it to operate effectively. In that context, there is no reason for certain provisions of the FCAA to be construed narrowly with an eye to protecting the commercial interests of litigation funders. 34 Thirdly, the exercise of the power does not involve a free-standing assessment of whether the bargain struck between the funder and client was fair and reasonable at the time it was agreed. It is not a reflection of idiosyncratic views as to fairness by a judge. Rather, the Court applies the statutory criteria to the facts of the case before it and does so in the context of an application for approval. In that setting, it is said to be legitimate to consider a funding commission as part of an overall assessment of whether a settlement is fair and reasonable and make consequential orders that remedy any unfairness or unreasonableness identified as a part of that evaluative analysis (at least insofar as the issue pertains, as here, to the distribution of the settlement sum). 35 Fourthly, it is said that the submission as to the absence of power to vary a funding commission is inconsistent with the embrace, in the open class proceedings, of a funding equalisation order. The funding equalisation order sought would reduce the effective rate of the commission payable to the funder by group members (in comparison to their contractually agreed rate) and thereby change the substance of the bargain struck in any event. It would be an odd consequence, it was submitted, that the Court would have power to reduce the overall commission paid by funded group members by reducing the amounts paid to non-funded group members by an equalisation order and yet, at the same time, lack the power to reduce the commission payable by funded group members where it would leave the funder worse off. Why the funder alone should be protected is unclear. 36 Before passing from the submissions as to power, I should note that passing reference was made to other provisions of the FCAA, including s 23 of the FCAA and general provisions in the Rules of Court. Both the applicants, the funder and the amicus submitted that these provisions, outside of Part IVA, are normally to be applied against a well-established set of principles focussing on the existence of an equitable or legal right. As a result, Mr Thomas submitted that if the power to vary funding agreements is to be found, it is within the terms of Part IVA itself.
D.3 Consideration 37 Apart from the cases to which I have already mentioned, in considering power, reference should be made to the observations made in Money Max International Pty Ltd v QBE Insurance Group Limited [2016] FCAFC 148; (2016) 245 FCR 191, where the Full Court (Murphy, Gleeson and Beach JJ) said it was "unnecessary" to "express any concluded view" on the issue of whether the Court had "power to reject the funding commission rate", but added that: … there are questions as to the court's power to interfere with the terms of arms-length commercial agreements between the funder and funded class members, and also as to whether it would be appropriate to do so (at [92]). 38 In doing so, the Full Court referred to a passage from Campbells Cash & Carry Pty Limited v Fostif Pty Limited [2006] HCA 41; (2006) 229 CLR 386 at 434-435 [92]: … to ask whether the bargain struck between a funder and intended litigant is "fair" assumes that there is some ascertainable objective standard against which fairness is to be measured and that the court should exercise some (unidentified) power to relieve persons of full age and capacity from bargains otherwise untainted by infirmity. Neither assumption is well-founded. 39 The funder, perhaps not surprisingly, placed much significance on this observation in Fostif. It is important, however, not to decontextualise what was being said by the High Court in this part of the majority's reasons. The relevant discussion took place in the course of considering whether conduct which, by reason of statutory amendment abolishing champerty and maintenance, was now regarded as neither criminal nor tortious, should be considered as being contrary to public policy. 40 Two kinds of consideration were proffered as founding the rule of public policy: fears about adverse consequences on the processes of litigation and fears about the "fairness" of the bargain struck between funder and intended litigant. What their Honours were saying in the extract relied upon was that neither of these considerations whatever may be their specific application to a particular case, warrants formulation of an overarching rule of public policy: see 434 [91]. In doing so, it was said that adopting an overarching rule of public policy would be to take too broad an axe to the problems that may be seen to lie behind the fears. 41 In my view, the observations upon which the funder placed much reliance are not to be seen as meaning it would be inappropriate for the Court to prevent reliance on terms of funding agreements if, in the particular case at hand, to do so would be contrary to established legal or equitable principles. To take an example removed from the circumstances of the present case, one can imagine a circumstance might arise where a funder, whose proceeding never commenced or has been stayed, sought to enforce promises that a claimant pay a percentage of the sum recovered in relation to the claim pursuant to the terms of a funding agreement, notwithstanding that the recovery by the claimant occurred in a proceeding funded by another litigation funder. As Mr Hutley SC indicated, such a circumstance might give rise to a number of remedial responses, including application of the law relating to frustration or, perhaps, statutory intervention by reference to legislation such as unfair terms legislation. Alternatively, it may be that issues relating to public policy would arise in such a circumstance. In any event, it would be wrong to think, even if the funder's present argument as to power was correct, that the observations of the majority in Fostif somehow stand in the way of intervention by the Court in the enforcement of funding promises in all cases. 42 Before leaving the cases, for completeness, I should note a further case which I did not mention in Sandhurst Trustees, being Pharm-a-Care Laboratories v Commonwealth of Australia (No 6) [2011] FCA 277. In that case, Flick J at [42] said it "may be" that s 33ZF confers a power to "grant approval subject to a condition limiting the amount payable to the litigation funder". His Honour observed that such an order "would not itself operate as a variation of the contractual agreement reached between the funder and each group member". This observation identifies a problem: would the imposition of such a condition operate to extinguish the relevant right of the funder to sue under the contract? If not, on the assumption that the agreement is in a relatively standard form, it would just mean the funder could maintain an action afterwards against the group member for breach of contract. If so, it brings into focus that one is not just dealing with somehow imposing a condition as to the sums payable pursuant to the settlement, but also interfering with and varying contractual promises given by counterparties, in circumstances where the Court cannot assume those promises were given other than freely. Without disturbing the underlying promises, it is far from self-evident to me how the imposition of a condition would not just create a circumstance where the funder could turn around and seek to recover the amount otherwise payable by the group member in a separate action. For this reason, I will proceed on the basis that the question as to whether a condition should be imposed on the distribution of settlement funds is synonymous with the question as to whether the underlying contractual promises can be varied by the exercise of statutory power. 43 Apart from the cases, the topic of intervention in funding agreements to reduce commission has been a topic of widespread discussion. In June 2018, the Australian Law Reform Commission (ALRC) published its Inquiry into Class Action Proceedings and Third-Party Litigation Funders: Discussion Paper 85 (DP 85). In that discussion paper, various proposals and questions were identified by the ALRC. Reflecting that debate exists as to whether the FCAA currently includes a power to vary the funding rate in the present circumstances, one proposal in DP85 was as follows (at 9): Proposal 5-3 The Federal Court should be given an express statutory power in Part IVA of the Federal Court of Australia Act 1976 (Cth) to reject, vary or set the commission rate in third-party litigation funding agreements. 44 In explaining the need for statutory intervention, the ALRC referred to Sandhurst Trustees and also the case of Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527, where the Court approved a settlement in which the solicitors received 43% of the $19.25 million total (inclusive of costs) and the funder received 30% via a common fund order - leaving group members with only 27% of the final settlement sum. In that matter, the Court had made prior orders appointing a costs referee and approved a settlement that consequently reduced the costs to solicitors by $220,000, and a percentage commission rate for funders was reduced in a common fund order. Accordingly, the final settlement yielded a better result than would have been the case in terms of the contractual obligations, yet the return to class members was low: see DP 85 at 95 [5.58]-[5.59]. 45 Also, in July 2017, the Victorian Law Reform Commission (VLRC) produced a consultation paper, Access to Justice - Litigation Funding and Group Proceedings. At [7.46]-[7.86] the VLRC dealt with topics such as assessment of funding fees, the greater scrutiny of such fees by this Court, the statutory sources of power for setting the funding fee, criteria for Court assessment of a "fair and reasonable" fee, the total amount received by a litigation funder and assessment, including assessment of the fee prior to approval of settlement. The VLRC noted that: Until recently, courts have been willing to reject settlements under section 33V where an unreasonable funding fee has been charged, but reluctant to intervene further and state what a reasonable funding fee would be in the circumstances. 46 After detailed discussion, a question was raised by the VLRC as to whether in either legislation or Court guidelines, criteria to guide the Court when assessing the reasonableness of a funding fee should be set out. The VLRC further queried whether the use of caps, limits, sliding scales or other methods when assessing funding fees should be utilised. 47 For reasons I will explain, it is unnecessary for me to decide definitively the question of power. For my part, I very much doubt power does presently exist for the Court to interfere and vary funding agreements in the context of a settlement by altering the contractual promises of group members to pay commission, except where, because of individual circumstances, there is an established legal or equitable basis to interfere with those contractual rights. 48 If, as the majority of the Full Court determined in Brookfield Multiplex, the litigation funding agreement is seen as a common enterprise with a shared economic purpose, then any interference or tinkering with such arrangements seems to me to be accurately characterised as a readjustment of the scheme to the benefit of one scheme participant and to the detriment of another. Any analogies drawn with the power of the Court to supervise costs (to which reference was made in Earglow at [148]) do not seem to me to be particularly apposite. 49 Consistently with the submissions made on behalf of the funder, it seems to me regard must be had to the foundational matter expressed in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at 182-183 [47]-[48], where Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ observed: … where a man signs a document knowing that it's a legal document relating to an interest in property, he is, in general, bound by the act of signature. Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who have not read or understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument. To undermine that assumption would cause serious mischief. In most common law jurisdictions, and throughout Australia, legislation has been enacted in recent years to confer on courts the capacity to ameliorate in individual cases hardship caused by the strict application of legal principle to contractual relations. As a result, there is no reason to depart from principle, and every reason to adhere to it, in cases where such legislation does not apply, or is not invoked. 50 This consideration points to a further one. Wielding the broad sword of intervention on a "global" basis would be inconsistent with the way both law and equity operate to alleviate the rigours of bargains sought to be enforced in contravention of a statutory norm or against conscience. Leaving aside s 23 of the Australian Consumer Law, generally both in statute and in equity, an individual assessment is undertaken by reference to the statutory or equitable requirement to have regard to all the circumstances of the case. Rewriting bargains with a broad brush does not sit easily with these principles. Neither does the notion of upsetting contractual relations freely arrived at in the absence of any complaint by a party to the contract. 51 It seems to me that if the legislature, cognisant of the developments in Part IVA proceedings following the rise of a sophisticated market for litigation funding, wishes the Court to have an express power to vary funding agreements to prevent excessive returns and abuses, then express statutory power should be provided and detailed criteria should be set out which identifies the basis or bases upon which that power should be exercised. 52 The reason why I have not found it necessary to definitively determine the issue of power is that even if, contrary to what I think is the better view, such power existed, I would not exercise it in the circumstances of this case, notwithstanding the extraordinarily large amount of money that is proposed to be paid to the funder. This is broadly for five reasons. 53 First, although the sum proposed to be paid is large in absolute terms, this is a function of the size of the dispute and the large settlement achieved. This litigation could never have proceeded without funding and, I strongly suspect, the Lifeplan settlement would not have been achievable without the other funded cases setting the course of the litigation. But for the funder accepting a significant risk, the group members' claims would never have been vindicated. 54 Secondly, it seems to me that there is a real danger of hindsight bias. By the 38th day of the hearing, the applicants and group members were entitled to feel some real confidence about ultimate success, at least at first instance. One would certainly hope that by the 38th day of a trial, the likely prospects of success are brought into relatively sharp focus through the crucible of a trial. To look back from where we are now and determine whether the common enterprise was likely to yield success when it was first conceived, creates real challenges. The percentage amount charged by the funder, although at the higher end of prevailing funding rates (particularly as it is augmented by what is described as a "management fee"), is not outside the bounds of what would be expected to be a percentage rate in complex litigation at the time the present funding agreements were executed. Indeed, the level of funding commission charged (leaving to one side the "management fee") was a not at a rate markedly different to that charged in what might be described as the usual form of securities class action. Certainly, when these cases were commenced, they raised complex issues as to liability, including difficult questions as to limitations, which meant it was a more hazardous endeavour than many other large-scale funded cases, including most securities class actions. Indeed, the limitations issues were especially complex, and at the genesis of the cases, no one could have known that those acting for the applicants would later form the view that they had a reasonable basis to bring, conscientiously, a deceit claim. Having said this, recent developments suggest that the market for funding has become more mature and competitive since these funding agreements were agreed. Although the apparent significant downward trend in funding rates might be thought to provide at least some empirical evidence that funders may have historically been enjoying excessive returns on risk, any such conclusion would require a far more sophisticated analysis than I can do on the basis of the material before me. It suffices for present purposes to note that each case is different and it would be somewhat unfair for me to judge a bargain struck at a different time by reference to post contractual market developments. 55 Thirdly, connected to the last point, the evidence read on these applications on behalf of the funder indicates that there is no reason to suggest that the funding rate was greater than what would have been demanded by any other experienced litigation funder at the time the litigation funding agreements were struck. Indeed, the evidence establishes, without going into the details, that other funders were not interested in taking on these cases, nor were they interested in taking on a proportionate share of the funding risk in exchange for part of the consideration provided by group members. Just because the funder's ship has come in, it does not seem to me to be a principled basis for changing the bounty, the terms of which were struck when the voyage commenced. 56 Fourthly, and connected to the first point, the perceived problem with the amount paid to the funder in this case is not its proportion to the overall settlement sum, but its sheer size. It may be thought by some that the proposed settlement results in an excessive amount being paid to a private commercial concern generated, as it is, by the commercialisation of public resources. Having made this point, there is a distinct question as to whether it represents an excessive return having regard to the risks undertaken; not only in relation to the circumstances of these cases, but across the entire business of the funder. Just because these cases have been successful, and the return has been handsome, it does not mean that the funder's business has been successful in other cases where the risks inherent in litigation funding have materialised. It is all very well focussing on the successful cases, but any fair assessment of reasonable returns must be seen in the context that the risks of litigation funding sometimes come home to roost. 57 Fifthly, if I was to interfere with the funding agreements and the amount paid to the funder, in the absence of identified statutory criteria, I would be left adrift searching for a lodestar. Although this may not be an insuperable difficulty and the Court is often required to make broad evaluative assessments (and is required to do so on the ultimate question arising on these applications), it is not a straightforward task. What I regard as a "fair" return may be quite different from somebody else sitting in my position, and without some statutory guideposts and detailed economic evidence, it presents real challenges. 58 It follows for the above reasons that I do not propose to interfere with the amounts paid pursuant to the funding agreements.
E Funding Equalisation Orders 59 The issue of funding equalisation orders only arises in relation to two of the proceedings: the Clurname proceeding and the Liverpool proceeding. As is well-known, a funding equalisation order provides that the funding commission (and in this case the management fee) be paid not only by the funded group members but be "spread" across all participating group members. It works by ensuring that the funder does not receive more than the total commission it would have received from the funded group members and hence the funded group members are not disadvantaged by having signed a funding agreement. In circumstances where the quantum of the funding commission could not be said to be "unfair, unreasonable or excessive", the applicants suggest that such an order is necessary to address what is described as the "free rider" problem posed by having a combination of both funded and unfunded group members. 60 It is also said that a funding equalisation order is particularly necessary in the Liverpool proceeding in circumstances where there are only six funded, against four unfunded, group members. If a funding equalisation order is not made, given the 45% funding commission in the Liverpool proceeding, the unfunded group members will recoup almost double that of the funded group members. This is in circumstances where the funded group members, and particularly the applicant, have gone to considerable effort and expense to litigate claims on their behalf. This, it is submitted, will occasion an injustice to those funded group members. Finally, it is noted that the participating unfunded group members had been given specific notice and all information necessary to assess the impact of the funding equalisation order and object, but no objections have been received. 61 Given that the amount does not result in the augmentation of additional amounts to the funder, I am inclined to make a funding equalisation order. This is not because I now consider there is any merit at all in the funder invoking the so-called "free rider" problem, to which I give little weight given the advent of common fund orders. Rather, it is because to do otherwise would lead to an unjustifiable disparity between the net amounts paid to the two different types of participating group members. Having said this, I do not propose to allow the project management fee to be visited on unfunded group members. It is open to people pursuant to their contract to agree to the imposition of such a fee, although what services are performed to justify the fee is not immediately apparent to me on the evidence. Additionally, the project management fee in this case is struck by reference to a percentage of legal costs charged. Apart from anything else, such a fee, to my mind, creates real hazards. Although there is reason to be sceptical (given the close relationship spanning multiple projects between funders and solicitors), it is often said that funders have an interest congruent with group members in reducing the legal fees charged in individual cases. Given the complex relationships between some funders and solicitors, the extent of this discipline on the amount of legal fees charged may vary significantly from case to case. Notwithstanding this, a fee which increases in proportion to any increases in the legal costs, does not seem to me to be a particularly welcome development in the way in which funders are remunerated absent ongoing and independent protections in assessing the reasonableness of legal costs. Again, it is open for people, as a matter of contract, to agree to such fees, but I do not consider I should visit them on the persons who have not agreed to them.
F Cost referees and cost equalisation orders 62 In DP 85, a further proposal was made along the following lines: Proposal 7-1 Part 15 of the Federal Court of Australia's Class Action Practice Note (GPN-CA) should include a clause that the Court may appoint a referee to assess the reasonableness of costs charged in a class action prior to settlement approval and that the referee is to explicitly examine whether the work completed was done in the most efficient manner. 63 The VLRC also (at [7.45]) referred to: A preferred situation may be one in which the costs expert is appointed by the court. However, the Commission has been told that only a limited number of costs experts are experienced in class actions. This means that, in practice, court appointment would not necessarily increase the size of the pool from which the costs expert is appointed. 64 In doing so, reference is made by the VLRC to an article by Michael Legg, "Class Action Settlement in Australia - the Need for Greater Scrutiny" [2014] 38 Melbourne University Law Review 590 at 603, where Professor Legg observed the risk in allowing the reasonableness of lawyers' costs to be the subject of evidence selected by the client and/or solicitor who has incurred the costs. I have previously expressed, in blunt terms, my view that "independent" costs experts, retained by solicitors, providing evidence of reasonableness of legal costs, is next to useless. Sensibly, in these cases, no such expert was retained. However, evidence was filed whereby Ms Banton, the solicitor for the applicants, gave evidence that her costs were reasonable and Mr Lindholm, from the funder, gave evidence that he exercised a degree of oversight and also regarded the fees as reasonable. 65 Again, it does not seem to me that I should afford any weight at all to the evidence of Ms Banton or Mr Lindholm when deciding the question of reasonableness. This is no criticism of the solicitor or Mr Lindholm, who no doubt subjectively believe their evidence to be correct. But it would be a very odd thing for a solicitor to give evidence that the costs they charged were unreasonable; to do so would amount to an implicit admission of conduct which was contrary to the norms regulating the legal profession. 66 The imperative of public confidence in the settlement approval process and the requirement to protect group members requires close and appropriate scrutiny of the costs incurred in achieving settlements. The result in this case was a highly favourable one to group members. Although this is a very powerful factor in assessing the reasonableness of the overall settlement, this does not alleviate the necessity for the Court to satisfy itself of the reasonableness of the amounts charged by the lawyers, which are proposed to be deducted from the settlement sum. 67 Again, it is not to the point that group members had agreed to pay the costs. The whole point of provisions such as those enshrined in Part VB of the FCAA, is to ensure that litigation is conducted in accordance with the overarching purpose of civil litigation, being the just resolution of disputes, including the claims of group members, according to law and as quickly, inexpensively and efficiently as possible. The civil practice and procedure provisions, including the settlement power, must be interpreted and applied in a way which best promotes this overarching purpose of the inexpensive and efficient resolution of disputes. 68 Section 37M not only requires the parties to act consistently with this overarching purpose, but ensures that the Court maintains close supervision over legal costs charged, including in appropriate circumstances, requiring the party's lawyer to give the party estimates of costs and making it a mandatory requirement that in exercising the discretion to award costs in a civil proceeding, the Court may take account of the failure to comply with the duty to resolve disputes, inter alia, as inexpensively and efficiently as possible. 69 I intend to make orders facilitating a reference that is to be conducted by an experienced cost consultant. I do so over the opposition of the applicants. I confess I am a little perplexed as to why the applicants would take an adversarial role in relation to the independent scrutiny of the costs charged to group members. Although it is correct for the applicants to point to the fact that neither the applicants nor the group members have raised any objection to the proposed legal costs, this is not an answer to scrutiny. The applicants have a fiduciary duty not to act contrary to the interests of group members. In the present case, it is not apparent to me why there should be resistance by the applicants to the Court taking steps to ensure that only reasonable costs are deducted from the sum otherwise available to group members. This is particularly the case when determining what is reasonable in the present cases presents some unique issues and is far from a straightforward exercise. This is for three reasons. 70 First, there is the fact that there has been other, earlier litigation in which both counsel and solicitors currently appearing for the applicants were involved and which related to the same broad subject matter. The question arises as to whether any "head start" obtained by reference to work performed in prior proceedings (and which, one assumes, has already been the subject of payment), is adequately reflected in the suggested overall reasonableness of the fees proposed to be deducted. 71 Secondly, here there was a bewildering mixture of both class actions and inter partes proceedings advocating, essentially, the same issues. Costs were allocated to individual proceedings and will be charged separately to the group members in each proceeding or to the applicant in the non-Part IVA proceeding. The appropriate amount to charge to the group members in each individual proceeding raises some difficult questions. 72 Thirdly, the duplication of the representative proceedings has apparently caused, at least in the course of these s 33V approval applications, unnecessary costs and expense. A very large number of affidavits were filed, repeating the same matters, but in different proceedings. A large number of interlocutory applications were filed and the whole process was made considerably more cumbrous because of the duplication. No submission was put to me that it was necessary as a matter of law for there to be duplicate proceedings in relation to the claims (other than the Lifeplan proceeding run by different solicitors). This was in circumstances where, at least prima facie, it seems to me that at least some of the claims made in different proceedings were by persons whose claims arose out of similar circumstances and gave rise to at least one substantial common issue of law or fact. Worse still, it appears some persons had the one "claim" (as that concept is properly understood) which may have spanned two proceedings. Absent further explanation which is not presently apparent, there is reason to think that the division of the claims of group members between multiple proceedings meant that some unnecessary costs may have been incurred. Additionally, it gave rise to a complication seen during the course of the Lifeplan settlement approval, where it became evident, for the first time, that at least one group member was involved in more than one class action. No material is presently before me to allow me to draw any definitive conclusions as to the extent of this duplication and the extent of unnecessary costs occasioned by such duplication. 73 Although freedom of contract allows people to choose either a Rolls-Royce or a Ford Falcon to get from point A to point B, and the same applies for the amount an individual is prepared to pay to reach a litigation destination, the Court always has an independent role when it comes to scrutiny of the use of its processes in general; and as to legal costs in particular. It has an abiding interest in ensuring litigation is conducted consistently with the overarching purpose. I have no view one way or the other as to whether a referee conducting an independent review of the costs will conclude that any significant amount of the legal costs claimed were unreasonable, but that does not mean that independent scrutiny should not occur. 74 As noted above, the reference is likely to be complex and it may be necessary for the referee to obtain further directions from the Court, including receiving material relevant to assessing the extent of unnecessary duplication of proceedings or for the court to receive further submissions and make determinations as to the extent of such duplication. At present, I will leave this issue to the referee to consider in the course of assessing what steps should be undertaken to complete the reference. It suffices to note that I am conscious that the question of duplication may involve further assistance of the Court and, in this regard, the referee will have leave to approach the Court for directions. 75 Notwithstanding the complexity of the referee's task, I do not wish to delay the distribution of the settlement proceeds. To this end, it seems appropriate that the settlement distribution occur in two tranches. This would involve the payment of an initial sum to group members, and then a second payment when the costs reference process and other administration costs have been finalised. I will hear from interested parties as to the mechanics of this process if directions are needed by the administrator in this regard. 76 For reasons similar to those expressed in relation to the funding equalisation orders, I would propose that there be orders equalising the reasonable costs charged across all participating group members.
G the proposed settlement Scheme and Administration 77 I have reviewed the settlement scheme. It is in a not unfamiliar form, but it may need to be slightly amended to reflect the matters to which I have just referred. It contains an ongoing role for the solicitors as administrators of the scheme. Again, the ALRC has noted the need to ensure that costs incurred in relation to the settlement of representative proceedings do not inappropriately escalate. It might be thought, given the sheer size of the settlement in these cases, that that problem is not as acute as it may be in other circumstances, but that is no reason to abdicate responsibility for ensuring that administration costs are controlled. At an early case management hearing I raised the prospect of tenders being sought from third parties to administer the settlement scheme, but given the relatively complex nature of the proceedings, and the fact that the vast bulk of participating group members are clients of Squire Patton Boggs, this does seem to me to be a situation where it is appropriate that the applicants' solicitors be appointed the scheme administrator. The orders that I will make, however, will ensure that the costs incurred in relation to the administration of the settlement are also the subject of scrutiny by the referee before payment.
H the Ceramic proceeding & the Extinguishment of Group Members' Claims 78 The Ceramic proceeding presents bespoke complications. Because Ceramic seeks a result which will have the effect of satisfying its claim but, at the same time, extinguishing the claims of group members, special care needs to be taken in relation to this aspect of the proposed settlement. 79 Ceramic initially sought an order in the following terms: "(l)eave be granted pursuant to section 33N(1)(c) and/or (d) and/or s 33ZF of the [FCAA], for the proceeding not to continue as a representative proceeding". In order to understand the context in which this application was made, it is necessary to recount the unusual procedural history of this proceeding. 80 It was alleged that in or about September 2009 Ceramic sold its holdings in what was described as the "Duke CDO" and suffered substantial losses. Ceramic alleged that it acquired that investment in reliance upon the A-rating assigned to it by S&P. In the amended statement of claim, the group members are defined as persons who: (a) during the period between 2006 and 2008 acquired interests in the [Duke CDO], which was assigned a credit rating issued by or on behalf of S&P; and (b) acquired the interest pleaded in the proceeding, in reliance upon that credit rating and have suffered loss as a result. 81 The proceedings were commenced in September 2015. Prior to the defence being filed (which occurred in April 2016) Ms Sundar, a senior associate at Squire Patton Boggs, who had day-to-day carriage of the proceedings, swore an affidavit. That affidavit was in support of a request made by Ceramic for orders seeking: (a) leave to issue a subpoena to US Bank National Association (US Bank); and (b) approval of a notice to be sent to the group members in the proceedings. 82 In that affidavit, Ms Sundar indicated the reasons why Ceramic wished to issue the notice, including: (a) to provide information about the proceedings; (b) to caution the preservation of documents; (c) to obtain information about the number of group members and the amount of their losses; and (d) to provide information concerning funding. It was said that information about the magnitude of group member losses was of great importance to Ceramic, so that it might inform S&P of the value of the claims made, prepare for and participate meaningfully in any mediation or other form of alternative dispute resolution, and enable the Court to case manage the proceeding. 83 The interlocutory application seeking an issue of the subpoena to the US Bank came before the Court in March 2016, and written submissions were filed on behalf of Ceramic. Those submissions referred to the evidence in the Sundar affidavit and to the fact that the US Bank had confirmed that the current trustee of the Duke CDO, a representative of the US Bank, Mr Kenneth Sliwa, had confirmed that the US Bank holds the register of note holders, but that it could not be released without a subpoena. Given that the US Bank was located in the United States, leave was sought to serve the US Bank pursuant to the Hague Convention rules. 84 When the matter came before the Court, oral submissions were made in support of the application. Reference was made to obtaining the information by reason of an application made under United States Code 1782, that is, the provision pursuant to s 1782(a) of Title 28 (Judiciary and Judicial Procedure) of the US Code (28C). This is a provision of United States law which can assist foreign litigants in obtaining discovery from persons located in the United States. Section 1782(a) has the aim of providing an efficient means of assistance for participants in international litigation and encouraging foreign countries to provide similar means of assistance to courts of the United States: see In re Application of Malev Hungarian Airlines, 964 F2d 97, 100 (2d CIR 1992). The procedure operates such that litigants can apply to a Federal District Court for an order directing a person found within the Court's district to provide evidentiary material for use in litigation occurring outside of the United States. 85 In any event, the Court ordered that leave be granted to Ceramic to issue the subpoena on the US Bank for production of a list of noteholders and/or beneficiaries of the Duke CDO: see Ceramic Fuel Cells Ltd (in liq) v McGraw-Hill Financial, Inc [2016] FCA 401; (2016) 245 FCR 340. Wigney J's reasons for granting leave to issue the subpoena need not be set out, but essentially involved an acceptance of the evidence and submissions put before his Honour as to the utility of the exercise. 86 According to an affidavit filed on 22 June 2016, Ms Banton caused an email to be sent to the US Bank on 30 March 2016 attaching an electronic copy of the subpoena. Mr Sliwa confirmed receipt of the email, but contrary to previous indications that electronic service would be sufficient, advised that the US Bank could not accept service of the subpoena in electronic format. Apparently later that day Ms Banton caused an email to be sent to Ms Sliwa noting that the documents for service abroad on the US Bank had been sent to the central authority for the United States and that a "hard copy" would be served on the officers of the US Bank in due course. Following this chain of events, Ms Banton eventually received an email confirming receipt of the subpoena. 87 A period of time then elapsed and on 12 May 2016 Ms Banton was copied into an email attaching a letter that stated the US Bank was not aware of any rule or regulation that compels a company operating under the laws of the United States, to produce records, and noting that it refused to comply with a subpoena. 88 According to another affidavit sworn by Ms Banton on 21 June 2018 in support of this application, it was following the determination of the application for a subpoena and subsequent communications from the US Bank indicating that they would not comply with a subpoena, that she "considered making an application under section 1782(a)". This may be true, but is somewhat beside the point, given that this was the precise application that counsel for Ceramic had considered much earlier. Ms Banton then gives evidence that she conferred with a colleague within Squire Patton Boggs in Ohio about bringing an application and a subsequent attempt was made to contact Mr Tim Cheeseborough, the vice president and assistant general counsel of the US Bank. It is then said that on or about 19 July 2017, Mr Cheeseborough left a voicemail message for a solicitor within Squire Patton Boggs. That communication was said, by Ms Banton, to be consistent with earlier advice provided by Mr Sliwa in December 2015. Ms Banton further deposes the fact that after she considered both the December 2015 email and the July 2016 voicemail, she thought the US Bank would not likely have the requisite information necessary to identify group members in the proceeding. 89 Enquiries were then made of two "clearing house" entities known as "Clearstream" and "Euroclear". In June 2016, Ceramic filed interlocutory applications seeking leave to issue subpoenas on these clearing houses. An explanation was given of the fact that the subpoena to the US Bank had failed to accomplish its purpose. The reasons submitted for the issue of the subpoenas to the clearing houses reflected what had previously been submitted in relation to the earlier subpoena, that is, among other things, it was necessary to obtain the material to prepare for and participate meaningfully in any mediation. 90 The application for the issue of the clearing house subpoenas was again dealt with in a judgment of Wigney J being Ceramic Fuel Cells (in liq) v McGraw-Hill Financial, Inc (No 2) [2016] FCA 1059; (2016) 245 FCR 362. In that ex tempore judgment, reference was made to the fact that in relation to the US subpoena "a weighty factor in deciding whether to issue the subpoena to [the US Bank was] the assurance that had apparently been given in relation to compliance with the subpoena": at [6]. In circumstances where the clearing houses had not provided any similar assurance, his Honour found, at [33], that the unenforceability of the subpoena militated against issue. During the course of oral submissions on that application, counsel for Ceramic had said, in response to a remark by Wigney J, that the US Bank did not live up to its assurances and his solicitors were "surprised about that, but these things happen so we have to take a different course now", noting: … this is an important claim and it's a highly valuable claim and my instructing solicitors have, we submit, a fiduciary obligation to the group members to make sure that we do whatever is necessary to get this information to them because they could feel justifiably aggrieved if they later find out about it at some later date. 91 Counsel was correct to emphasise the importance of fulfilling Ceramic's duties to group members. 92 In any event, Ms Banton deposes to the fact that following receipt of this judgment, she considered that the only other entities from which Ceramic could obtain the information to identify group members were those entities through which non-participants in the clearing houses held their indirect interests in the Duke CDO, being the nominees of the clearing houses. However, due to the likelihood that those nominees would be European entities and may also be subject to similar bankruptcy secrecy rules that govern the clearing houses, she did not consider taking steps to require production of the materials requested. 93 To complete this narrative, reference should also be made to the fact that on 16 May 2017, Ms Banton caused an email to be sent to the US Bank attaching an information sheet about the proceeding and requested that it be circulated to note holders. A follow-up email was sent in September 2017 which, it appears, elicited no response. Further contact was made in June 2018. It is also worth noting that Squire Patton Boggs had received emails from a law firm in Florida and a law firm in New York requesting information about the proceeding. After the relevant information was provided, no further contact took place with those law firms. Further, there were several attempts to make contact with a number of class action aggregators in the United States and in Europe in October 2017, but no confirmation was provided from any such aggregator that they were aware of a client that fell within the group definition. 94 This matter, together with the other proceedings, came before me for the first time on 6 June 2018. At that time, I was informed by counsel then appearing on behalf of Ceramic that a declassing order would be sought instead of settlement approval. The following exchange occurred: HIS HONOUR: So they're going to be proceeding with their case, are they? MS LYONS: No, your Honour. As part of the settlement, and the settlement agreement, the claims of Ceramic in that proceeding will be settled, but to facilitate that there will be a - the applicants will be seeking a declassing order and then that proceeding will be settled. HIS HONOUR: Why would it be declassed and then settled, rather than being the subject of section 33V orders? It's a representative proceeding - a closed class representative proceeding, is it? MS LYONS: It's an open class, your Honour. HIS HONOUR: It's an open class. *** HIS HONOUR: …it would be highly unfortunate to have a 33V application involving the settlement of such complex litigation in [six] cases and it founder on the basis that a section 33N application which could have been fixed up, or there could have been some other steps taken if I was against the making of a 33N order. That's all. I'm just trying to think of the convenience of the parties and making sure that this doesn't go off on a misapprehension of how section 33N would operate. 95 I gave leave for a 33N application to be returnable and to be heard the following week. I indicated that if I was persuaded to make an order, I would make its operation conditional upon approval of the settlement of the balance of the proceedings. The matter then came before me on 13 June 2018. Prior to that listing (but after the time that the orders had required the s 33N application be filed), an email was sent by Squire Patton Boggs that settlement documentation had not been finally resolved although a binding settlement was already in place. I indicated when the matter came before me that I wished to deal with the s 33N application and raised the prospect of standing the matter down, including after-hours, but the dates proposed were unsuitable. Accordingly, after a short adjournment in which information was provided to the Court, the application was pressed, and I was provided with a draft affidavit of Ms Banton which was to be formalised and sent through to the Court later that day. At the conclusion of brief submissions, I indicated that I would reserve my decision on the application. 96 The following Friday, 15 June 2018, I directed my Associate to send the following communication to the parties: Dear Practitioners, I have drawn the filed interlocutory application and affidavit of Ms Banton sworn 13 June 2018 to the attention of his Honour. The provisional view of his Honour is that a s 33N order ought not be made, but his Honour notes what is set out at [25] of the affidavit of Ms Banton (which is inconsistent with his recollection of what was submitted by Mr Withers last Wednesday). In circumstances where the applicant, because of the commitments of counsel, did not have sufficient time to develop an argument as to why an order should be made, his Honour is prepared to relist the proceedings to receive further evidence and submissions, should the application for the order be pressed. If such evidence is to be filed it should address what steps, if any, have been taken since 12 May 2016 to pursue options in the United States (such as obtaining an order for discovery in aid of a foreign proceeding or other United States compulsory process) to obtain the material referred to in [1] of the schedule of documents referred to in the subpoena that was issued to the US Bank National Association by the Court. If there is a request to provide further evidence and submissions, please let me know by 4.15 pm on Monday, in which case his Honour will relist the proceedings to hear further argument and submissions. If not, his Honour will proceed to determine the matter on the material already before the Court. 97 In response, communication was made that the application was pressed and further evidence would be filed. In due course, this led to the filing of additional affidavit material by Ms Banton on 21 June 2018. In any event, when the matter ultimately came before me, I indicated that I did not consider that it was appropriate that a s 33N order be made. Neither pre-condition in s 33N(c) or (d) was satisfied. 98 I indicated that the appropriate course was to ensure that all steps that could be taken to bring the proposed settlement of the Ceramic proceeding to the attention of group members should be taken and be taken with celerity. To this end, I made a number of orders which provided for further inquiries to be made to try to locate a list of noteholders and also arrange for advertising in both the international edition of The New York Times and The Australian Financial Review. Further requests were made for Euroclear to circulate details of the proposed settlement to group members. 99 The evidence filed in Court today establishes, for the first time, that every possible effort has been made to bring the proposed settlement to the attention of group members. The narrative I have set out shows the measures that have been taken in order to bring the fact of the proceeding to the attention of group members and the extent of the protective steps taken by the Court to ensure that these steps have been taken. As it turned out, contrary to the evidence before Wigney J, it was not necessary for the material to be obtained in order to allow for there to be meaningful participation in the mediation. Given that there has been no response by any group member willing to participate, despite all reasonable efforts being made to contact them, I am prepared to take the highly unusual step of approving a settlement which involves no return to group members. 100 I am also satisfied that appropriate notification has been given to group members to opt out. It follows that the s 33V application in the Ceramic proceeding will operate in such a way as to quell the controversy of all group members pursuant to the joint operation of s 33V and s 33ZB of the FCAA.
I Confidentiality 101 I have already made reference to the fact that extensive confidentiality orders were sought in these proceedings. 102 The Court has recently observed a trend in Part IVA approval hearings for wide-ranging confidentiality orders to be sought. That trend should be discouraged. In Caason Investments v Cao (No 2) at [8], Murphy J noted that the applicants before him had made "blanket claims of confidentiality and sought blanket confidentiality or non-publication orders". His Honour went on to note at [8]-[9]: It is wrong to assume that confidentiality or non-publication orders will be routinely or automatically made. Part VAA of the Act provides that the starting point for consideration of such orders, and it is mandatory under s 37AE for the Court to take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice. The Court must be satisfied that the order is necessary "to prevent prejudice to the proper administration of justice" (s 37AG(1)(a)), and "necessary" is a "strong word": Hogan v Australian Crime Commission (2010) 240 CLR 651; [2010] HCA 21 at [30]. There is a basis for treating some of the applicants' material as confidential (at least until settlement approval orders made) but the application for confidentiality orders was far too broad and wasted the time of the parties and the Court. There is a public interest in not making overly broad confidentiality orders in approving settlements in class actions, particularly the interests of class members in having a proper understanding of a settlement which affects their interests. 103 I made similar observations in Dillon v RBS Group (Australia) Pty Limited (No 2) [2018] FCA 395 at [79] and Lifeplan v S&P Global at [68]. 104 This practice has also not gone unremarked outside the Court. The ALRC in DP 85 (at 127) asked the following question: Question 7-2 In the interests of transparency and open justice, should the terms of class action settlements be made public? If so, what, if any, limits on the disclosure should be permitted to protect the interests of the parties? 105 In answering this question, the ALRC made reference to the fact that in civil litigation, protecting the terms of settlement under the veil of confidentiality often has some value to one or more parties and can "incentivise settlements". The ALRC recognised, however, that class action settlements are different from other settlements, principally because the law requires the Court to approve any settlement. That approval is designed to protect the interests of class members who have not been active participants. Moreover, court orders and judgments are ordinarily public, reflecting the fundamental notion that the Court is an arm of government and that "the primary objective of the administration of justice is to safeguard the public interest in open justice": see s 37AE of the FCAA. 106 In the article to which I have made reference above, (Legg, M, Class Action Settlements in Australia) Professor Legg observes as follows (at 619): Class actions also frequently perform a public function by being employed to vindicate broader statutory policies such as disclosure to the securities market, prohibiting cartels or fostering safe pharmaceuticals. Class actions are not simply disputes between private parties about private rights. A reasoned judgment is necessary to protect absent group members and to provide the community with confidence as to the operation of class actions and the underlying laws that are the subject of the proceedings. (Footnotes omitted) 107 I agree with these observations. These are not just private bargains between parties resolving the disputes between them. The settlement of a class action has an important public dimension. Not only is it appropriate that the community have access to relevant information about the operation of class actions and how public resources are being used by private commercial enterprises but also, as Professor Legg explains, there is a legitimate interest in the community having access to information as to the operation of the "underlying laws" relevant to the present cases, being the statutory norms prohibiting misleading and deceptive conduct which constituted the primary basis upon which relief was sought in these proceedings. 108 Similarly, the VLRC referred specifically to the issue of the transparency of funding fees. It noted that (at [7.84]-[7.86]): As part of settlement approval, orders may be sought requesting that the legal costs and/or the amount received by the litigation funder remain confidential. Accordingly, most settlement approval judgments do not reveal the funding fee. It is therefore difficult for the court, or any other party, to assess the fees typically charged by litigation funders. As noted by Justice Murphy in Earglow: It is difficult to see why the funding commission rate and quantum should be treated as confidential when the funding commission is a standard cost and in funded class proceedings it is usually the single largest deduction from the settlement. Justice Murphy observed that while class members may be aware of the different funding fee rates in a proceeding, they will have limited insight into the aggregate amount charged. He expressed the view that disclosure would assist the Court in deciding whether the funding fee is fair and reasonable, including by allowing comparison with rates charged in other cases. 109 It should be unnecessary to remark that a confidentiality order is not necessary simply because it may be "convenient, reasonable or sensible"; nor is it sufficient that a confidentiality order may be viewed as serving "some notion of public interest": see Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 at 664 [31]. Mere embarrassment is also not enough: see Australian Competition and Consumer Commission v Air New Zealand Limited (No 12) [2013] FCA 533 at [7]. The regime in Part VAA does not permit some "balancing exercise" pursuant to which the Court weighs competing considerations: see Hogan at 664 [31]. 110 Before the Court makes the confidentiality order pursuant to s 37AF, there must be some material before the court upon which it can reasonably reach the conclusion that it is necessary to make an order prohibiting publication. Mere belief that the order is necessary is insufficient: see John Fairfax & Sons Limited v Police Tribunal (NSW) (1986) 5 NSWLR 465 at 477, applied in Rinehart v Welker [2011] NSWCA 403; (2011) 93 NSWLR 311 at 320 [29]. 111 Importantly, in the circumstances of this case, the mere fact that the parties to the proceeding have agreed between themselves that certain documents are to be kept confidential is not determinative. The dispute transcends those parties as does the binding nature of the settlement. In any event, it is when both sides agree that information should be kept from the public that the Court will be "most vigilant": see R v Legal Aid Board; ex parte Kaim Todner (a firm) [1999] QB 966 at 977. The need for vigilance also arises "from the natural tendency for the general principle to be eroded and for exceptions to grow by accretion as the exceptions are applied by analogy to existing cases". This accretion can be seen by the common sight of class action applicants agreeing to broad confidentiality clauses and then seeking to have the Court give them curial sanction. 112 The first category of documents over which confidentiality was sought was the heads of agreement, deeds and the settlement distribution scheme. There are three reasons suggested as to why the Court should make such confidentiality orders in broad terms. The first is that the parties have agreed between themselves to keep the documents confidential. The second is that the applicants "understand" that the respondent seeks such an order because they are concerned about the precedent which may be set if the settlement sum is publicly disclosed. The third is that other Judges in previous s 33V hearings have ordered that the terms of settlement, including the settlement sum, be kept confidential. None of these reasons have substance. 113 The agreement between the parties, as I have explained, may be relevant but not determinative. The concern of S&P about the precedent which may be set if the settlement sum is publicly disclosed, does not establish necessity. The third reason is based, in my view, on a false premise. The practice said to exist is far from uniform, and there are a number of cases where the total value of the settlement sum has been referred to in judgments approving settlements pursuant to s 33V: see, for example, Clarke v Sandhurst Trustees Limited (No 2) [2018] FCA 511 at [2]; Money Max Int Pty Limited (Trustee) v QBE Insurance Group Limited [2018] FCA 1030 at [9]; Earglow at [2]; Caason at [3]; HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in liq) (No 3) [2017] FCA 650 at [50]; Mitic v OZ Minerals Limited (No 2) [2017] FCA 409 at [21]; Modtech Engineering Ply Ltd v GPT Management Holdings Limited [2013] FCA 626 at [5]. 114 Moreover, it appears that in those cases where very broad confidentiality orders have been made, there have not been contradictors, with the Court only receiving submissions from persons who have an interest in the confidentiality orders being made and apparently without any assistance being given to the Court as to the requirement to demonstrate necessity for the purpose of a confidentiality order pursuant to s 37AF. 115 The second category of documents over which confidentiality is sought consists of a series of affidavits concerning costs and the calculation of the settlement sum. Some of these orders, at least as initially sought, were wholly excessive. For example, confidentiality orders were sought over funding agreements and engagement letters, the approach adopted to incurring legal costs, and also to the total legal costs incurred. 116 The submissions by the applicants, at least initially, rested upon the premise that this material is "private" or "not normally disclosed in litigation". There are two things to say about this. First, current practice in this regard is sufficiently uneven so that to describe any approach as normal is an over-generalisation. Secondly, and more importantly, the argument is insufficient to engage the operation of s 37AG(1)(a) of the FCAA. Indeed, a number of the applicants' submissions effectively reverse the onus by asserting that public disclosure of the information "is not necessary in order to enable the group members to assess the reasonableness of the settlement". Many submissions proceeded on the misconceived basis that the burden rested on the party resisting the confidentiality order, as demonstrating that non-disclosure is necessary for the proper administration of justice. 117 The only substantive points advanced in defence of a confidentiality order being made over the total sum of the settlement were made, with some force, by Mr Hewitt on behalf of S&P. He contended that there was an important public interest in encouraging the settlement of litigation (although he made it clear that S&P understood that irrespective of the terms of the contractual obligations of confidentiality, it was ultimately for the Court to be satisfied of the statutory test). Mr Hewitt submitted that settlement of Part IVA cases is more likely to occur when the parties have confidence the Court will protect the confidentiality of any settlement deal. Mr Hewitt also pointed to the fact that, at least on one view, it could be argued that limitation periods for the deceit claims advanced in the Trial Proceedings may not yet have expired and it would be contrary to the administration of justice for the sum paid to resolve these proceedings to be disclosed in circumstances where there was at least a possibility (however remote) of further litigation. 118 I was persuaded to accept a version of this latter submission in the Lifeplan proceeding. That was, however, a very different set of circumstances. At that time, I was persuaded to make confidentiality orders because pending in the Court and listed for determination were proceedings where the disclosure of information on an open basis may have occasioned a considerable disadvantage to S&P, particularly in the context of ongoing settlement discussions. In that sense, it seemed to me that it was necessary for confidentiality orders to be made in relation to that earlier settlement. The situation is qualitatively different in circumstances where there is now only a mere theoretical possibility of further proceedings. 119 More fundamentally, these matters, notwithstanding their relevance in assessing necessity, are outweighed by countervailing considerations. They are important considerations but, as I have explained, do not operate so as to outweigh the countervailing consideration, being the public nature of this type of litigation which transcends the rights of the parties. 120 Moreover, it seems to me necessary that I fully explain my decision to approve the settlement, notwithstanding the unusual size of the funder's fee. This is not only an important matter which was the subject of contention on the applications, but raises real issues of public policy including matters which are the subject of intense ongoing policy debate. The Court is a public resource, and the fact that very significant funds are being paid to a third party for funding litigation and using the Court's processes is a matter which, in my view, brings into sharp focus the need for me to give primacy to the objective of the administration of justice which is to safeguard the public interest in open justice. Accordingly, apart from the material which is properly the subject of claims for legal professional privilege, I am not persuaded within the meaning of s 37AG(1)(a), that any of the orders sought, other than those relating to the joint opinion given by counsel, are necessary to make in order to prevent prejudice to the proper administration of justice. The high standard for the section is not met, notwithstanding that it may not be convenient for one or other of the parties or the funder for the information to be disclosed.
J Deed of Release 121 I asked the amicus to make submissions, if relevant, on whether a settlement should be approved when it requires, as a condition of participation, that a group member provides a deed of release. Ultimately it was unnecessary to receive submissions on this topic because, in the events that happened, no such deeds were required by the proposed settlement. 122 Rather, the proposed settlement was embodied in deeds which contemplate that the applicants provide the required releases and covenants not to sue on behalf of themselves and also on behalf of group members, and further, that the making of the Court order approving a settlement will itself extinguish the group members' claims. 123 I have remarked elsewhere about the inappropriateness of releases being expressed in terms which go beyond group member claims that were the subject of the proceedings. Applicants have a limited authority. They advance in a representative capacity the claims of group members for the purposes of Part IVA. They are not given a broad agency to deal with other causes of action which a group member might have against a respondent which is not a claim for the purposes of s 33C of the FCAA. The releases in these cases are appropriately expressed. 124 A related issue regarding the proposed deed is that they provide for an indemnity to be given by group members to S&P: see cl 9. More particularly, the relevant provisions provide that each group member is to indemnify S&P severally and each of their related entities in relation to any loss or damage arising from, connected with, or relating to, various matters including any matter which is, or ever has been, the subject of the proceedings or the circumstances or allegations giving rise to, or is referred to, in the proceedings. 125 The indemnities are expressed in broad terms and at least, on one view, go beyond what would be considered an indemnity given in relation to the claims the subject of the proceedings. Mr Williams, who appeared on behalf of ANZ made the valid point, however, that in a case such as this, the indemnities are a necessary element of settling litigation. Speaking generally, it will often be very difficult to settle a claim against a respondent where there exists the possibility of other proceedings being commenced against another respondent who may then seek contribution from the party who had settled the litigation. 126 An indemnity which is restricted to resolving the claims of group members by ensuring that litigation is settled on a basis that allows the settling respondent the comfort that the damage which is the subject of the claim cannot be sought against it by other means, seems to me to be sufficiently adapted to the purpose of settling group members' claims under s 33V as to be unexceptionable. Accordingly, I propose to make an order under s 33ZF making it clear that the indemnities given in the deed extend to group members as part of the settlement.
k The proposed Reimbursement Claim 127 An affidavit was read by Andrew Fraser-Gillard, the Chief Financial Officer of MDA National Insurance Pty Ltd (MDA), in support of a reimbursement claim. An order was sought for reimbursement of MDA's costs of providing instructions and acting as a witness in the proceedings under s 33ZF of the FCAA, in the amount of $37,521.31. 128 Although the Courts have made orders approving reimbursement for the time and expense incurred by applicants in a number of cases, as far as I am aware, such an order has not been made for the purposes of an applicant "acting as a witness" in proceedings, nor are such orders appropriately made where a lead applicant is seeking to advance its own individual claim. It is presently unclear to me as to what amount out of the $37,527.31 claimed is properly directed to MDA performing duties which arose from acting in its representative capacity. 129 The amount claimed is clearly within the range of reimbursement amounts previously approved in similar circumstances and will not materially affect the ultimate amount paid to each group member. I propose to approve a reimbursement claim, but I direct that the solicitors for MDA provide to me, prior to the formalisation of orders, an affidavit which identifies with precision what of the amount claimed is unrelated to MDA progressing its individual claim or acting as a witness. Provided I am satisfied with that material, then I will make an appropriate order. Representative applicants perform an important function, and it is appropriate that they be reimbursed for the time that they have spent in performing that role to the benefit of others.
L Conclusion 130 These are lengthy reasons which I have delivered ex tempore because of my concern to resolve the issue of settlement, given the amount of time these proceedings have already taken before a judge of the Court. There is also a desire in cases of this type for orders to be made as quickly as possible, consistent with the obligation to inform group members of the proposed settlement, allow time for objection and to scrutinise the proposed settlement in a careful way, consistent with the protective and supervisory role of the Court. I certify that the preceding one hundred and thirty (130) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.
Liverpool City Council
McGraw-Hill Financial, Inc
(2017) 343 ALR 476
(2009) 180 FCR 11
(1990) 171 CLR 1
(2006) 229 CLR 386
(2016) 245 FCR 340
(2016) 245 FCR 362
(2010) 240 CLR 651
(1986) 5 NSWLR 465
(2011) 93 NSWLR 311
(1994) 181 CLR 404
(2004) 219 CLR 165
(2013) 251 CLR 196
(1954) 91 CLR 353
(1998) 84 FCR 1
(2016) 245 FCR 191
(1999) 171 CLR 1
[2004] HCA 52
Settlements approved under ss 33V and 33ZF; costs referred to referee Ms Liz Harris for independent assessment; funding and costs equalisation orders made (excluding project management fee); proceedings dismissed with no order as to costs after the Effective Date; broad confidentiality refused; reimbursement to MDA approved subject to refinement; time for appeal extended.