Endeavour River Pty Ltd v MG Responsible Entity Ltd (No 2)

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FEDERAL COURT OF AUSTRALIA

Endeavour River Pty Ltd v MG Responsible Entity Limited (No 2) [2020] FCA 968

File number: VID 1010 of 2018
Judge: MURPHY J
Date of judgment: 9 July 2020
Catchwords: REPRESENTATIVE PROCEEDINGS – application for approval of settlement under s 33V of the Federal Court of Australia Act 1976 (Cth) – where Court previously not satisfied that the proposed litigation funding commission was fair and reasonable – where litigation funder reduced the funding commission sought – settlement approved
Legislation: Federal Court of Australia Act 1976 (Cth) ss 33V, 33ZB, 33ZF, 37AE, 37AF, 37AG(1)(a)
Cases cited:

Blairgowrie Trading Ltd v Allco Finance Group Ltd (Recs & Mgrs Apptd) (In Liq) (No 3) [2017] FCA 330; (2017) 343 ALR 476

Bolitho v Banksia Securities Ltd (No 6) [2019] VSC 653

Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433

Endeavour River Pty Ltd v MG Responsible Entity Limited [2019] FCA 1719

Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651

Kuterba v Sirtex Medical Limited (No 3) [2019] FCA 1374

Liverpool City Council v McGraw-Hill Financial, Inc (now known as S&P Global Inc) [2018] FCA 1289

Mitic v OZ Minerals Limited(No 2) [2017] FCA 409

Money Max Int Pty Ltd v QBE Insurance Group Ltd [2016] FCAFC 148; (2016) 245 FCR 191

Santa Trade Concerns Pty Limited v Robinson (No 2) [2018] FCA 1491

Date of hearing: 1 November 2019, 6 December 2019, 20 December 2019
Date of last submissions: 24 January 2020
Registry: Victoria
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 51
Counsel for the Applicant: Mr B Quinn QC and Mr D Fahey
Solicitor for the Applicant: Slater & Gordon Lawyers
Counsel for the Respondents on 1 November 2019 and 6 December 2019: Ms F L Shand
Counsel for the Respondents on 20 December 2019: Mr J Kirkwood
Solicitor for the Respondents: Herbert Smith Freehills
Counsel for the Contradictor: Mr P Jopling AM QC and Ms J Collins
Counsel for the Intervener: Mr D Sulan
Solicitor for the Intervener: Arnold Bloch Leibler

ORDERS

VID 1010 of 2018
BETWEEN:

ENDEAVOUR RIVER PTY LTD

Applicant

AND:

MG RESPONSIBLE ENTITY LIMITED

First Respondent

MURRAY GOULBURN CO-OPERATIVE CO. LIMITED

Second Respondent

JUDGE:

MURPHY J

DATE OF ORDER:

9 JULY 2020

THE COURT ORDERS THAT:

1.Order 1 of the orders made on 20 December 2019 be varied so that:

(a)the affidavit of Clive Norman Bowman (#1) sworn on 2 December 2019 and each of its exhibits be treated as confidential, not be published or made available and not be disclosed to any person or entity except to the docket Judge, his or her personal staff, any officer of the Court authorised by the docket Judge, the Contradictor, the Applicants (who have received a redacted version of this affidavit), and their legal representatives (who have a received redacted version of this affidavit), and such disclosures to be upon terms that none of…

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Details
Case
[2020] FCA 968
Decision Date

CaseChat Overview and Summary

Endeavour River Pty Ltd v MG Responsible Entity Ltd (No 2) involved an application for approval of a settlement under section 33V of the Federal Court of Australia Act 1976 (Cth) in a representative proceeding. The case concerned a dispute over the fairness of a proposed litigation funding commission. The previous application for settlement approval was denied due to concerns about the reasonableness of the proposed commission rate sought by the litigation funder. Following negotiations, the funder reduced its commission rate, leading to the current application for approval of the revised settlement.

The key legal issues the court needed to address included the admissibility and necessity of expert evidence to determine the fairness of the funding commission, the implications of an open offer by the funder to reduce the commission rate, the applicant's request for an interim partial distribution to class members, and the funder's application for an interim part-payment of the funding commission. The court had to evaluate whether the reduced commission rate was fair and reasonable, considering the financial risks involved and the market rates of return for comparable investments.

The court found that the proposed reduction in the funding commission to 28% was fair and reasonable, considering the market rates of return for comparable investments. The court was initially inclined to allow expert evidence to assist in determining the reasonableness of the commission rate but was cautious about the proportionality of the costs involved. The court decided against the need for expert evidence after the funder reduced the commission rate. The court approved the settlement based on the revised terms, which included the reduced commission rate and the proposed distribution scheme. The court also authorised the applicant to act on behalf of the group members and approved the distributions from the settlement funds. The settlement was approved subject to conditions, including the dismissal of the proceeding upon completion of the distribution and the filing of an affidavit regarding the settlement distribution process.

In summary, the court approved the settlement, acknowledging the reduced funding commission as fair and reasonable, and authorised the applicant to act on behalf of the group members. The settlement distribution scheme was also approved, subject to conditions for final orders and the filing of an affidavit regarding the distribution process.

Orders

Orders of the court

Settlement Approval Orders

Confidentiality

1. Except to the extent that the Court considers it appropriate to provide reasons for judgment, and subject to further order, pursuant to ss 37AF and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth) (the Act) until further order of the Court, in order to prevent prejudice to the proper administration of justice, the confidential affidavit of Andrew Paull affirmed on 28 November 2019 and its annexures and the two confidential affidavits of Clive Norman Bowman sworn on 2 December 2019 and their exhibits be treated as confidential, not be published or made available and not be disclosed to any person or entity except to the docket Judge, his or her personal staff, any officer of the Court authorised by the docket Judge, the Applicants (who have received redacted versions of these affidavits), and their legal representatives (who have received redacted versions of these affidavits), and such disclosures to be upon terms that none of those parties or persons disclose that material or any part thereof to any person or entity.

Approval of Settlement

2. Pursuant to sections 33V(1) of the Act, settlement of the proceeding upon the terms set out in the settlement agreement executed by the Applicant, the Respondents, Slater and Gordon and IMF dated 24 June 2019 and annexed as EPC-1 to the affidavit of Emma Pelka-Caven affirmed on 28 June 2019 (Settlement Agreement) be approved.

3. Pursuant to section 33ZF of the Act or otherwise, the Court authorises the Applicant nunc pro tunc for and on behalf of the Group Members (being those persons who meet the definition of “Group Member” in the Amended Statement of Claim and who did not file an opt out notice) to enter into and give effect to the Settlement Agreement on behalf of Group Members.

4. Pursuant to section 33ZB and section 33ZF of the Act, the persons affected and bound by the settlement of the proceedings be the Applicant, the Respondents and Group Members.

Settlement Distributions

5. Pursuant to section 33ZF of the Act:

(a) the Settlement Distribution Scheme (and any annexures thereto) in the form annexed to these orders at Annexure A be approved; and

(b) Mr Benedict Tobin Hardwick be appointed Administrator of the Settlement Distribution Scheme and is to act in accordance with the rules of the Settlement Distribution Scheme.

6. Pursuant to section 33ZF and section 33V(2) of the Act, the following distributions from monies paid under the settlement be approved:

(a) $10,700,865 being 25% of the Settlement Sum plus GST to IMF as Funding Commission as referred to in clause 4.1(f) of the Settlement Distribution Scheme;

(b) $130,000 for the costs and disbursements of the administration of the Settlement Distribution Scheme from the date of the approval of the Settlement Documents to the date of completion of distribution of the Settlement Sum (as contemplated in 4.1(d) of the Settlement Distribution Scheme);

(c) $2,562,393.10 for the Applicant’s legal costs and disbursements on a solicitor and own client basis incurred in connection with the proceeding on its own behalf and on behalf of all Group Members in the proceeding (as contemplated in 4.1(a) and (b) of the Settlement Distribution Scheme);

(d) $19,310.10 for the costs of the special reference to Ms Elizabeth Harris (as contemplated by 4.1(e) of the Settlement Distribution Scheme);

(e) $5,717.94 for disbursement invoices paid directly by IMF Bentham as ‘Project Costs’ pursuant to the terms of the Funding Agreement; and

(f) $12,500 for the Applicant’s reasonable claim for compensation for time spent and/or expenses incurred in the interests of prosecuting the proceeding on behalf of Group Members as a whole.

Other

7. The Applicant has liberty to apply to re-list the proceeding as soon as practicable after completion of the distribution of the Settlement Sum (and must in any event do so no later than thirty days after such completion) so that final orders can be made, including orders that:

(a) the proceeding be dismissed on the basis that the dismissal is a defence and absolute bar to any claim (either directly or indirectly) or proceeding by the Applicant or any Group Member in respect of, or relating to, the subject matter of the proceeding, without prejudice to:

(i) the right of any party to the Settlement Agreement to make an application to enforce the Settlement Agreement in a new proceeding; or

(ii) the right of any Registered Group Member to make application to the Court in accordance with the terms of the Settlement Distribution Scheme; or

(iii) the right of the Administrator of the Settlement Distribution Scheme to refer any issues relating to the Settlement Distribution Scheme to the Court for direction or determination in accordance with the terms of the Settlement Distribution Scheme.

(b) there be no order as to costs as between the Applicant and the Respondents.

8. As soon as practicable after completion of the distribution of the Settlement Sum, the Applicant file an affidavit regarding the steps undertaken and outcomes of the settlement distribution process.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Annexure A

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Four issues arose for consideration at the case management hearing: (a) a dispute regarding the Contradictor’s proposal to engage an expert witness; (b) an open offer made by IMF to reduce the funding rate it sought to 28%; (c) an application by the applicant for an interim partial distribution to class members; (d) an application by IMF for an interim part-payment of the funding commission.The dispute regarding expert evidence The Contradictor proposed to engage an expert to provide an opinion and to give evidence on the Funding Commission Issues, which proposal IMF strenuously opposed. While I doubted that I would be assisted by expert evidence regarding the appropriate pricing of “litigation risk”, which is the main risk taken on by a litigation funder, I considered that it was possible the Court would be assisted by evidence from an expert in the capital market or finance regarding the rates of return available for other types of investment, including those that are comparable with litigation funding in terms of risk, security, liquidity and other relevant matters, to assist in assessing whether the proposed rate of return by IMF is fair and reasonable. However, in circumstances where if the Contradictor adduced expert evidence then IMF might also wish to do so, I was concerned to ensure that the costs of allowing expert evidence to be adduced were reasonable and proportionate to the amount in dispute. In light of those concerns I directed the Contradictor to file and serve proposed questions for the expert, and obtain a quote from the proposed expert for the provision of an opinion in respect to those questions. On 14 December 2019 the Contradictor provided to the Court the proposed brief to the expert and a relatively modest quote for the cost of the report. The Contradictor subsequently identified the expert witness as a Professor Emeritus at the University of Melbourne and chairman of a publicly listed financial advisory and investment company. On 16 December 2019 IMF strenuously objected to the proposed questions. One of the proposed questions was as follows:If you were advising a litigation funder in the position of IMF in March 2018 in connection with a proposed investment in funding the Proceeding, how would you model the expected returns from their investment, and how would you determine what expected rate of return was sufficient to justify the investment?IMF contended that the Court could not be assisted by the views of an expert witness on that question, as the issue for the Court in a settlement approval application is whether the proposed commission rate is fair and reasonable or in the range of what is fair and reasonable in all the circumstances. It argued that the proper question is not whether IMF’s return on investment is “sufficient” to justify the investment, and further that the “sufficiency” of the return on investment is not one of the factors listed in Money Max Int Pty Ltd v QBE Insurance Group Ltd [2016] FCAFC 148; (2016) 245 FCR 191 (Money Max) at [80] (Murphy, Beach and Gleeson JJ) as being relevant to the Courts’ determination of whether a funding commission is fair and reasonable.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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