306 I now turn to deal with the relevant considerations regarding a fair and reasonable funding commission in the circumstances of the case, including the non-exhaustive considerations set out in Money Max.
10.6.1 The information provided to class members as to the funding commission
307 The Funder contends that the Settlement Notice foreshadowed to class members that the Funder would seek a common fund order of "20% of the amount the State pays under the settlement", and described the effect of a common fund order as being "so that everyone who benefits from the class action contributes to these costs". It argues that class members were informed of the proposed funding commission and that they had a chance to object to that commission, or to opt out of the proceeding, and they neither objected nor opted out. The Funder contends that the Settlement Notification having precipitated 39 objections (this number was in fact 46), it should be inferred that the notice process was effective in informing class members that the Funder would seek its 20% commission, and that class members do not oppose that.
308 I accept that class members were informed, both in the opt out notice and in the Settlement Notice, that the Funder intended to seek a funding commission of up to 20% of the gross settlement. I also accept that none of the objections to settlement approval specifically relate to the Funder's claim for a 20% funding commission. But the balance of the Funder's submissions on this point misstate the position:
(a) the Settlement Notice did inform class members that the Funder would seek a common fund order of 20% of the gross settlement plus ATE costs, but the next sentence of that notice told them that the State would oppose that. The Settlement Notice stated:
The Court will be asked to make an order approving the commission payment to the funder of 20% of the amount the State pays under the settlement, as well as the payment of $1,045,000 for the cost of insurance. The Western Australian Government will oppose this. …
(Emphasis added.)
In those circumstances it was unnecessary for any class members who opposed a 20% funding commission to lodge an objection to it. It is reasonable to expect that they would understand that the State would oppose any such order, effectively on their behalf; and
(b) the proposed settlement did not provide class members with a second opportunity to opt out and the Settlement Notice did not notify class members that they could opt out if they did not wish to pay the Funder's commission. It was incorrect to state otherwise.
309 Further, and more fundamentally, the Funder's contention that the Court should infer from the absence of objections that class members do not oppose the Funder's proposed commission is contrary to authority. It is established that the practical realities of class actions and the likely low level of engagement of many class members means that an absence of objection or a low level of objection to a particular proposition is often weak evidence of class members' assent and carries little weight. The Court should be careful before approaching an application on the basis that class members' silence is equivalent to their assent. It is the Court's responsibility to protect class members' interests and the absence of objections or a low level of objections does not relieve it of that task: see Money Max at [50] and the cases there cited.
10.6.2 A comparison of the funding commission with funding commissions in other Pt IVA proceedings and/or what is available or common in the market
310 The Funder submits that the market rates for class action litigation funding typically vary from 20% to 35% of the gross settlement. It provided a schedule of the funding commission rates in 25 cases (Funder's Case Schedule), which is attached as Schedule 1 to these reasons. The Funder argues that the 20% funding rate which it seeks is at the bottom of that range, and it relies upon Ms Antzoulatos' evidence that she "doubt[ed] that a better funding rate could have been achieved in the commercial funding market" than the Funder's 20%.
311 I accept that a 20% funding rate was at the low end of the range of funding rates available in the litigation funding market when funding for this proceeding was approved in 2019, and that it is doubtful that a better funding rate was available in the commercial funding market at that time. But whether a 20% funding commission is fair and reasonable depends upon the particular circumstances of the case, including the considerations set out in Money Max at [80]. In particular, the fairness of a particular percentage funding commission commonly depends upon settlement quantum. For example, had this settlement been for $300 million, a 20% funding rate would mean the Funder would receive a funding commission of $60 million, which would equal a ROI on its investment of approximately 5.2 times. That could readily be argued to be excessive. On the other hand, had this settlement been for $50 million, a 20% funding rate would mean that the Funder would receive a funding commission of $10 million, it having spent $13.358 million in legal costs and $1.045 million in ATE Costs. That could readily be said to be a very poor return for the costs and risks it took on.
312 It also commonly depends upon the costs and risks assumed by the funder through the operation of the particular funding terms. In Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433 at [179] I explained as follows:
It should be kept in mind that it is not enough to consider the funding commission rate on a stand-alone basis. The funding arrangements reached may be structured in a variety of ways which can affect the costs and risk taken on by the funder and therefore affect the reasonableness of the funding commission rate. For example, a funder might agree:
(a) to provide funding to cover adverse costs but not to meet the applicant's legal costs and disbursements, with the case being conducted by the applicant's solicitors on a conditional fee basis to be paid by class members from any settlement conditional on success;
(b) to pay disbursements only, with the case being conducted by the applicant's solicitors on a conditional fee basis;
(c) to only pay costs and disbursements up to a fixed cap or to pay a fixed percentage of the costs and disbursements, with the remainder left to the applicant's solicitors to be paid by class members conditional on success; or
(d) to cover the risk of adverse costs liability through After the Event Insurance with the premium to be paid by class members from the settlement sum upon success.
313 Thus, it is simplistic to assert that a particular percentage funding rate is fair and reasonable because it falls within the range, or as in this case at the bottom of the range, of the funding rates commonly available in the litigation funding market. It is necessary to be cautious when comparing headline funding rates, as one is not always comparing apples with apples: Galactic Seven Eleven Litigation Holdings LLC v Davaria [2024] FCAFC 54; 302 FCR 493 at [89] (Murphy J, with whom Lee and Colvin JJ agreed).
314 Further, as observed in Bolitho (at [1966]), the assessment of a funder's fair and reasonable return more naturally emerges from the level of funding that was provided and promised by the funder, rather than from a percentage denominator applied to a settlement or judgment. One matter properly to be taken into account in assessing whether a proposed funding commission is fair and reasonable is whether the funder is receiving a reasonable rate of return: Augusta at [102]. A headline funding rate may appear to be reasonable, but when the particular funding terms are considered it may provide the funder with a ROI which is not fair and reasonable.
10.6.3 The operation of the funding terms in the circumstances of the case
315 Four matters about the operation of the funding terms are material to my assessment of a fair and reasonable funding commission.
316 First, the central component of the Funder's bargain (and thus its entitlement to a funding commission) was its agreement to pay the applicant's legal costs incurred in the proceeding.
317 Here, the Funder did not pay all of the applicant's legal costs. By October 2023 when the proposed settlement was reached, the total legal costs of the proceeding were approximately $18.2 million. The Funder had paid just short of $10 million of that total. From approximately one year before trial the burden of the fees and disbursements incurred in bringing the case to trial had shifted entirely to Shine. Over the course of the case the expense of the case was shared approximately 50-50 between the Funder and Shine.
318 Under the LFA, the Funder was contractually entitled to cease funding once the funding cap was reached, but it cannot have it both ways. That is, it cannot both cap its expenditure at around half of the legal costs necessary for the case to be brought to trial, and at the same time argue that it "saw the matter through to trial" in an attempt to justify a 20% funding rate. By taking the approach that it did the Funder capped its expenditure in the case at a sum which was insufficient for the case to be brought to trial, or even to be brought to mediation. In my view the Funder and Shine shared the case resourcing on an approximately 50-50 basis.
319 That did not only have adverse repercussions for Shine. Because so much of the case was undertaken by Shine on a conditional fee basis, before Costs Referee reductions Shine sought approximately $2.99 million in uplift charges in relation to its unpaid professional fees which were to be paid by class members from their recoveries.
320 That illustrates the problem with relying on the case examples set out in the Funder's Case Schedule. The Court has been told nothing about the particular funding arrangements in those cases or their operation in the circumstances of the case. But I doubt that the funding terms in those cases operated similarly to the way that they operated in this case. Here, the Funder took on only about 50% of the costs and risk of the case and yet it seeks a 20% funding rate in part by reference to a comparison to cases in which it is likely that the funder took on more of the costs and risks. That is unlikely to be an "apples with apples" comparison.
321 Second, the other main component of the Funder's bargain was its agreement to indemnify the applicant against the risk of an adverse costs order should the proceeding be unsuccessful. In some cases the quantum of an adverse costs order, and the risks faced by a funder, can be substantial.
322 Here, however, the Funder did not carry much risk in relation to adverse costs. The Funder took out ATE insurance which covered it for an adverse costs order up to $5 million, and it seeks reimbursement of the ATE Costs directly from the class members, by deduction from the Settlement Fund Amount. Mr Gorman's evidence shows that, had the applicant been unsuccessful in the initial trial, the State's party/party costs would have been approximately $8.6 million. Thus, the Funder's risk of an adverse costs order can be quantified at $3.6 million (if that risk came home to roost) which is relatively modest compared to the funding commission.
323 Further, the Funder in this case was not required to provide security for costs, whereas I expect that in many of the cases in the Funder's Case Schedule the funder was required to put on substantial security for costs.
324 Again, that illustrates the problem with relying on the case examples set out in the Funder's Case Schedule. The Court has been told nothing about the quantum of the risk of adverse costs in those cases, nor the extent to which any such risk was defrayed by ATE insurance, nor whether the funder in those cases sought to recover its ATE Costs directly from the class members, or treated that as one of its business costs. But I doubt that the funders in those cases faced as little as $3.6 million in adverse costs risk. Again, that is unlikely to be an "apples with apples" comparison.
325 Further, as I later explain, it is likely that the Funder's "bet" in this case was centrally based in the likelihood of a reasonable settlement offer being made, rather than the Funder having an intention to fund a trial of the proceeding. In such circumstances there was little risk of any adverse costs order.
326 Third, the payment of the applicant's solicitor's invoices within normal trading terms is significant to a funder's entitlement to its funding commission. Here, the evidence shows that the Funder substantially delayed paying Shine's invoices and ultimately entered into a payment plan which required it to pay $500,000 per month until the Funder was up-to-date with its payments. Then the Funder did not comply with the payment plan. This reduced the costs and risk the Funder took on and increased Shine's burden in resourcing the case.
327 Fourth, the Funder seeks to justify its proposed 20% funding rate partly on the basis that it expended $13.358 million in funding the proceeding. But as I have said, the Funder ceased providing funding once the $10 million funding cap was reached, and it did not advance the further funding tranche of $3.5 million until five months after the proposed settlement was reached.
328 There was no real risk that the Funder would not recover that tranche of funding, and in assessing a fair and reasonable funding commission I do not treat that tranche as being "at risk". Again, that illustrates the problem with comparing the proposed 20% funding rate in this case, with the headline funding rates in the cases in the Funder's Case Schedule, which does not explain how much of the funding expenditure in those cases was genuinely "at risk".
10.6.4 The proceeding would not have occurred without funding
329 I accept the Funder's contention that the proceeding would not have occurred without litigation funding. Ms Antzoulatos deposes that the case "required litigation funding in order to be brought" and that it was "unlikely that it would have been commenced without the support of a third party litigation funder". I therefore accept that the applicant and class members are unlikely to have recovered compensation without the funding support the Funder provided. Even so, as I have explained, Shine was ultimately responsible for approximately 50% of the case resourcing and equally responsible for the class members' recoveries.
330 The Funder submits that it upheld its end of the funding bargain, because it paid the costs of the proceeding as they were incurred and indemnified the applicant against adverse costs, and it argues that it "saw the matter through to trial." I accept that the Funder upheld the contractual bargain in the LFA, which provided for a funding cap of $10.006 million. But it is quite wrong for the Funder to submit that it "saw the matter through to trial." It did not. The funding cap was reached approximately 12 months before the case was listed for trial and the only reason that the case was prepared for trial and prepared for the mediation was because Shine continued to resource the case.
10.6.5 The litigation risks of providing funding in the proceeding, assessed without hindsight bias, and recognising that the Funder took on those risks at the commencement of the proceeding
331 Mr Conrad deposes that the due diligence conducted by the Funder before it made an offer to fund the proceeding was atypical and reflected the heightened risks of the case compared to the "average" investment that the Funder makes. The Funder submits that it has assumed disproportionate risk. It contends that the proceeding is a novel one which involves a high level of risk and substantial expenditure, such that a funding rate of higher than 20% of the gross settlement would be justified, and that it voluntarily reduced its funding rate to 20% in recognition of the "social justice" nature of the proceeding.
332 I accept that the proceeding raises novel causes of action and that it has substantial and cumulative risks on liability, causation and quantum such that the proceeding faced a real risk that it would not succeed at trial.
333 The Funder also submits that, in addition to the case specific risks facing the proceeding, it also faced risks of "an environment of heightened regulatory risk associated with the former Federal government's introduction of MIS compliance requirements, what was then a significant post-Brewster risk associated with the question about whether [common fund orders] could be made at all, and calls for a minimum rate of return to class members to be legislated." I do not accept those contentions, when:
(a) the proceeding was commenced before the Federal government introduced MIS compliance requirements. The case was not caught by those requirements;
(b) the High Court decision in BMW Australia Ltd v Brewster [2019] HCA 45; 269 CLR 574 was handed down on 4 December 2019, which post-dated the Funder's October 2019 decision to fund this proceeding. It was not a risk in play at the time the funding decision was made. Further, and importantly, I do not accept that there was a significant post-Brewster risk associated with the question about whether a common fund order could be made at all. Brewster concerned the power to make a common fund order at an early stage of a class action under s 33ZF of the FCA Act. Shortly following the decision in Brewster the Chief Justice amended the Class Actions Practice Note (GPN-CA) to state that at the settlement approval stage under s 33V of the FCA Act, the parties, class members and litigation funders may expect the Court to make a common fund order in relation to reasonable litigation funding charges or commission; and
(c) the calls for a minimum rate of return to class members to be legislated arose in the course of the Parliamentary Joint Committee Enquiry into Litigation Funding and the Regulation of the Class Action Industry, the referral for which was made on 13 May 2020. Those calls arose after the decision to fund this proceeding, and no such requirements were ever legislated.
334 Although I accept that the proceeding relies on some novel causes of action and that it has substantial and cumulative risks on liability, causation and quantum such that it was impossible for the applicant's lawyers (or the Funder) to be confident of success at trial, that does not reflect the true risk position in the case.
335 The Funder entered into LFA to fund this proceeding on 31 October 2019, following the settlement of the Queensland Stolen Wages Class Action, Pearson. That case, which was funded by the Funder under a common fund order providing a 20% funding rate, was brought on behalf of Aboriginal and Torres Strait Islander people who worked in Queensland between 1939 and 1972 who alleged that they were paid little or no wages. The case settled for $190 million, and the Funder received a funding commission of $38 million, plus reimbursement of the monies it expended. I accept Mr Conrad's evidence that the 20% funding rate in this proceeding was based on the funding rate in Pearson.
336 Both the Funder and the State made submissions which seek to compare the risks facing this proceeding with the risks that faced the Pearson proceeding, which was funded pursuant to a 20% common fund order. The State submits that this proceeding has a substantially lower risk profile than that which faced the Funder in Pearson which justifies a substantially lower funding commission than allowed in that case. The Funder contends that there are risks affecting the present matter which were not at play in Pearson, and notes that the legal basis of the claims in Pearson are different to the legal basis of the claims in the present case.
337 In my view, while the cases are different, they have more similarities than differences. Not much turns on this, because the reasonableness of the proposed funding commission in this case is not to be assessed by comparison with Pearson; it must be assessed based on the particular circumstances of the case. Even so, when the two cases are compared, I consider Pearson had a substantially higher risk profile for the Funder than this case.
338 I have drawn the following largely from the settlement approval judgment in Pearson, but in part derived from my knowledge as the docket judge in that case:
(a) Pearson was the first Indigenous stolen wages class action in Australia and it showed that an Australian state government was prepared to offer a substantial settlement to redress the well-recognised historic wrongs of non-payment and underpayment of Aboriginal workers from the 1930s to the 1970s, notwithstanding that the class action brought on behalf of those workers faced substantial risks and difficulties, including serious limitations problems. It is likely that following its success in Pearson the Funder thought there was a reasonable prospect that other Australian governments would be prepared to settle similar proceedings in relation to Aboriginal workers living in other states and territories.
(b) many of the members of the counsel team in Pearson were members of the counsel team in this case and they brought an understanding of the litigation approaches most likely to generate pressure for a settlement;
(c) in Pearson the Funder had paid $12.65 million in legal costs at the point settlement was reached (Pearson at [22(b)(i)]), whereas in this case the Funder imposed a funding cap of $10 million. Mr Conrad deposes that there was a $12.4 million funding cap in Pearson but there is no evidence that the Funder ever ceased funding in that case;
(d) in Pearson the Funder faced $4.35 million in further costs to the completion of the trial (Pearson at [22(b)(i)]), whereas in this case the Funder had ceased to fund the case approximately a year before trial, and five days before trial when the case settled the Funder had not agreed to pay for the trial. Thus, in Pearson the Funder faced substantial trial costs, whereas in this case it did not; and
(e) in Pearson the Funder faced the risk of an adverse costs order of $15 million (Pearson at [22(b)(i)]), whereas in this case the risk of adverse costs above the ATE insurance was just $3.6 million.
339 I accept that there was no guarantee that the State would make a substantial offer in this proceeding, and that there was a risk that there would be a trial in the case. And I accept that if the case went to trial there was a real risk that the applicant's and class members' claims would fail, or would succeed on claims which do not relate to all class members or in relation to which the quantum is relatively low compared to the proposed settlement. Even so, it is likely that the Funder's "bet" in this case was centrally, perhaps entirely, based in the likelihood of a reasonable settlement offer being made, rather than it having an intention to fund a trial of the proceeding.
340 My view that that the Funder was centrally, perhaps entirely, focussed on settlement (and did not intend to fund a trial) finds support in:
(a) aspects of the confidential material in Mr Conrad's first affidavit, which I cannot set out;
(b) the fact that the Funder set a funding cap well below the costs that would have been incurred in Pearson had that matter proceeded to trial, and well below the costs likely to be incurred in bringing this proceeding to judgment; and
(c) the fact that the proposed settlement was reached five days before trial and the Funder had not agreed to revisit the funding cap.
That is not to criticise the Funder's focus on settlement; instead it is to recognise that the Funder's risk was not as high as it is now seeks to portray.
341 I appreciate that this is hindsight, and thus not relevant to assessing the Funder's risk at the commencement of the case, but it is perhaps worth noting that that is what eventuated. The Funder funded this "stolen wages" class action in relation to Aboriginal workers in Western Australia which has settled subject to Court approval for up to $180.4 million, and another "stolen wages" class action in relation to Aboriginal workers in Northern Territory, Minnie McDonald v Commonwealth of Australia VID 312/2021, which has settled for up to $202 million.
10.6.6 The quantum of adverse costs exposure that the Funder assumed, again recognising that assumption of risk was done at the commencement of the proceeding
342 As I have said, the Funder took on an adverse costs risk in a modest quantum having regard to the funding commission it seeks. The Funder took out ATE insurance which covered it for an adverse costs order up to $5 million (and it seeks reimbursement of that cost from the class members' recoveries), and the Funder's risk of an adverse costs order beyond the insured amount can be quantified at $3.6 million. Further, the Funder was centrally, perhaps entirely, focused on settlement rather than trial, and thus there was little risk of an adverse costs order.
10.6.7 The legal costs expended and to be expended by the Funder
343 Under the LFA the Funder's liability to pay the applicant's legal costs was capped at $10 million, and it paid close to that amount. I accept that amount was "at risk" and should be taken into account in deciding what is a fair and reasonable funding commission.
344 It was open to the Funder to continue to fund the proceeding after the funding cap was reached, but it chose not to do so. And it was open to the Funder to reinstate funding when the case was approaching trial, but it again chose not to do so.
345 The Funder paid a further $3.5 million in legal costs, after the proposed settlement was reached. It argues that while that further tranche of funding was provided post-settlement, it was not "de-risked" as it could not assume that the settlement would be approved on the terms sought, nor did it have any assurance on whether the projections as to the number of OECs who would register would be reached.
346 I do not accept those contentions. In my view there was no real risk that the Funder would not recover that tranche of funding upon approval of the proposed settlement, and given the risks and difficulties the proceeding faces there was little or no risk that the proposed settlement would not be approved in some form or another.
347 Mr Conrad acknowledges that the Funder was incentivised to fund the outreach program to drive up registration rates (and therefore the amount available for its percentage-based commission), but the Funder argues that the same investment expanded the reach of the settlement to more class members than would have otherwise been the case. I accept that, but that does not change the fact that the $3.5 million it provided was not genuinely "at risk" and therefore carries less weight in the assessment of a fair and reasonable funding commission.
348 The Funder also notes that because the settlement amount will be paid in tranches as OECs register, the Funder will be paid in tranches. It argues that that exposes it to loss associated with the time value of money up until the last tranche is paid. I accept that but the time cost of money for the Funder is unlikely to be substantial given: (a) the approval orders provide for it to be reimbursed all of its Project Costs from the $15.4 million Agreed Cost Component which is paid up-front; and (b) the Court has been informed that the distribution of the Settlement Fund Amount is expected to be complete within approximately 12 months. Having regard to the distribution schedule, it seems likely that the Funder will have been substantially paid within approximately 6 months.
10.6.8 The amount of the settlement, and the proportionality of the commission bearing in mind the risks assumed by the Funder
349 After deduction of a 20% funding commission and the reimbursement to the Funder of the amounts that it paid (which total $46.398 million) 70% of the proposed settlement would remain for distribution. After deduction of all litigation funding charges and legal costs class members would receive in the order of 60% of the settlement.
350 The proportion of the Settlement Sum remaining for class members is roughly in line with the median proportions received by class members in funded class actions, which has been assessed as between 51% to 58%: Court v Spotless Group Holdings Ltd [2020] FCA 1730 at [106] (Murphy J) and the references cited therein; Slade B, "Outcome of Settlements of Australian Class Actions" (Paper presented to the Law Council of Australia Class Actions: Commonwealth Law Conference, Melbourne, 24 February 2023).
351 I consider the Funder's proposed commission to be proportionate having regard to the size of the settlement.
10.6.9 The ATE Costs
352 I accept that class members were informed in the Settlement Notice that the Funder intended to seek reimbursement of its ATE Costs of $1.045 million, and that none of the objections to settlement approval specifically relate to the Funder's claim in that regard. But for the same reasons as in respect to the funding commission I do not accept that the Court should infer from the absence of specific objections to the Funder's separate recovery of ATE Costs that class members do not oppose such recovery.
353 First, that is because the Settlement Notice specifically told class members that the State would oppose reimbursement of ATE Costs. In those circumstances it was unnecessary for any class members who objected to the Funder being reimbursed the ATE insurance costs to lodge an objection. Second, the practical realities of class actions and the likely low level of engagement of many class members means that an absence of objection or a low level of objection to a particular proposition is often weak evidence of class members' assent and carries little weight: see Money Max at [50] and the cases there cited.
354 The State submits that the Funder should not recover its ATE Costs from the class members' recoveries as that was a cost of the Funder doing business, taken out because of the Funder's internal policy requirements. It argues that taking out ATE cover advantaged the Funder by reducing its risk in relation to any adverse costs order by $5 million and it did not operate to benefit the class members.
355 In Spotless at [96] I explained that if a funder has the protection of ATE insurance cover (the cost of which it seeks to recover from class members) the funder might receive a lower funding rate as its risks are lower. In Ghee v BT Funds Management Ltd [2023] FCA 1553 at [147]-[152] I summarised the authorities and said (at [150]) that "[t]he question can be boiled down to whether the combined amount of the proposed funding commission and ATE costs is reasonable and proportionate."
356 Here, the class members obtained a benefit from the ATE cover the Funder took out, as it operated to reduce the Funder's exposure to adverse costs, which operated to reduce the amount the Funder had at risk, and thus the quantum of the funding commission to which the Funder is entitled. It is appropriate for the class members to separately meet the ATE Costs.
10.6.10 The State's approach
357 I do not accept the State's contention that it is appropriate to approve a funding commission of 15% of the settlement net of all deductions (including legal costs, settlement administration costs and the reimbursement payment to the applicants and class members). As the Funder submits:
(a) the 15% net funding rate is arbitrary. There is nothing in the State's submissions explaining how the figure has been arrived at. The Court has warned against a "race to the bottom" in approving funding commission rates, and setting a rate on such an arbitrary basis would have that tendency: Kuterba at [12]; Endeavour River at [29];
(b) the task of setting a commission rate is a "forensic question … not to be determined by some value laden proposition": Blairgowrie Trading Ltd v Allco Finance Group Ltd (Recs & Mgrs Apptd) (In Liq) (No 3) [2017] FCA 330; 343 ALR 476 at [120] (Beach J). The best the State offers for its 15% net figure is the broad assertion that a 20% commission "is unreasonable and unjust" which involves value judgments;
(c) the State did not provide a cogent basis as to why its proposed 15% funding rate should be taken off a 'net' base. Percentage funding rates are sometimes arrived at net of legal costs, but here the State takes the unusual approach that it also be net of settlement administration costs and reimbursement payments; and
(d) the Funder did not agree to fund the proceeding on the basis of a calculation net of all deductions, nor is it a basis upon which, at least to my knowledge, a funder has ever offered to fund an Australian class action. To approve a funding commission on a basis not available in the funding market has a tendency to discourage funding and reduce access to justice.
10.6.11 Conclusion regarding proposed litigation funding charges
358 Assuming there are 8,750 OECs the gross settlement amount is $159,775,000 million (8,750 OECs x $16,500 plus the ACC), and the Funder seeks a 20% funding commission being $31,955,000.
359 That funding commission, combined with reimbursement of the legal costs and ATE Costs the Funder paid ($14,403,868), would mean that the Funder would receive $46,358,868 million from the proposed settlement, based on an investment of $14.403 million (treating all of that as "at risk"). That would give the Funder an ROI of approximately 3.22 times (not taking adverse costs risk into account).
360 In fact the Funder's ROI could be said to be better that that because the final $3.5 million tranche of the funding was made after the proposed settlement was reached when, in my view, there was no real risk that the Funder would not recover those monies. I consider the Funder's "at risk" investment in the case was approximately $11 million (being approximately $10 million in legal costs plus ATE Costs).
361 In the circumstances of the case, particularly the quantum of the settlement and the way the funding terms operated in practice, I do not consider a funding rate of 20% representing a commission of almost $32 million and at a 3.22 times ROI to be fair and reasonable. I consider a funding rate of 16%, which (on the assumption of 8,750 OECs) represents a commission of $25,564,000 to be commercially realistic and to properly reflect the costs and risks taken on by the Funder: Money Max at [82].
362 I accept that a 20% headline funding rate is toward the bottom of the range of the rates available on the market and, intuitively, a funding rate of 16% seems too low. However, having regard to the quantum of the settlement, the costs and risks the Funder took on, and the operation of the funding terms in the circumstances of the case I consider that funding rate of 16% to be "just". In particular:
(a) the risks of the case were not as great as the Funder now seeks to portray. The Funder was centrally, perhaps entirely, focused on settlement rather than trial, and did not intend there to be a trial;
(b) the rate is just 4 percentage points lower than the Funder seeks, in circumstances where by October 2023 when the proposed settlement was reached, the total legal costs of the proceeding were approximately $18.2 million, and the Funder had paid just short of $10 million of that total. If its ATE Costs are included the Funder advanced approximately $11 million prior to the proposed settlement being reached, and for the case overall it provided only approximately 50% of the case resourcing. It would not be "just" for the Funder to be paid the 20% funding commission provided for under the LFA, when it provided only approximately half of the funding necessary for the case to reach fruition;
(c) the last $3.5 million tranche of the Funder's investment in the case was not "at risk" as there was no real chance that the Funder would not recover those monies. Thus the Funder's rate of return is better than it appears;
(d) Shine met all of the costs and disbursements incurred in the 12 month run up to trial, and it rather than the Funder was on the hook for the trial costs had the case run. Shine was approximately 50% responsible for the case resourcing, and that came at a cost to class members through increased uplift fees;
(e) the Funder's adverse costs risk can be quantified at just $3.6 million, and given the Funder's focus on settlement there was only a very low chance of an adverse costs order;
(f) the Funder did not comply with its obligations under the LFA. It was substantially late in paying Shine's invoices, and then did not comply with the payment plan it entered into to get up-to-date with its obligations. It should not be permitted to have it both ways. That is, be granted the 20% funding commission provided for under the LFA but not meet its side of the bargain; and
(g) that funding rate provides the Funder an ROI of 2.77. That is not a niggardly return. Recently, in Allen & Anor v G8 Education Ltd (No 4) [2024] VSC 487 at [110] Watson J noted the following:
Omni Bridgeway, an ASX listed litigation funder, publishes data regarding its MOIC which is the total amount it receives (including any return of its investment amount) divided by the amount invested (but not including finance costs). In other words, the MOIC is the ROI plus one if finance costs are excluded. The evidence shows that Omni Bridgeway's ROI on all completed cases (including those on which it loses some or all of its capital) is 1.2 and approximately 1.9 on those cases which did not produce a negative return. Approximately 15% of its cases have an ROI exceeding 4.0, with some cases having an ROI exceeding 9.0.
363 A 16% funding rate means (on the assumption of 8,750 OECs) that the Funder will receive a total of $39,967,868 (representing a funding commission of $25,564,000 and the reimbursement of its investment of $14,403,868).