Krieger v Colonial First State Investments Limited
[2024] FCA 1402
•3 June 2024
FEDERAL COURT OF AUSTRALIA
Krieger v Colonial First State Investments Limited [2024] FCA 1402
File number(s): VID 1141 of 2019 Judgment of: MURPHY J Date of judgment: 3 June 2024 Date of publication of reasons: 5 December 2024 Catchwords: REPRESENTATIVE PROCEEDINGS – application for Court approval of a proposed settlement under s 33V(1) of the Federal Court of Australia Act 1976 (Cth) – whether the proposed settlement is fair and reasonable in the interests of group members to be bound to it including as between group members – exercise of the discretion to make a common fund order – relevance of after the event insurance to the assessment of a reasonable litigation funding charges - whether proposed litigation funding charges are reasonable and proportionate – proposed settlement approved. Legislation: Australian Securities and Investment Commission Act 2001 (Cth) s 12CB
Corporations Act 2001 (Cth), ss 960 to 968, 1528
Federal Court of Australia Act 1976 (Cth) s 33V
Superannuation (Unclaimed Money and Lost Members) Act1999 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth)
Cases cited: Alford v AMP Superannuation Limited (No 2) [2024] FCA 423
Bellamy's Australia Ltd v Basil [2019] FCAFC 147; 372 ALR 638
Blairgowrie Trading Ltd v Allco Finance Group Ltd (in liq) (No 3) [2017] FCA 330; 343 ALR 476
BMW Australia Ltd v Brewster [2019] HCA 45; 269 CLR 574
Caason Investments Pty Ltd v Cao (No 2) [2018] FCA 527
Caason Investments Pty Ltd v International Litigation Partners No.3 Ltd [2018] FCAFC 176
Camilleri v Trust Company (Nominees) Ltd [2015] FCA 1468
Clark v National Australia Bank Limited (No 2) [2020] FCA 652
Coatman v Colonial First State Investments [2022] FCA 1611
Court v Spotless Group Holdings Limited [2020] FCA 1730
Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433
Elliott-Carde v McDonald’s Australia Ltd [2023] FCAFC 162; 301 FCR 1
Evans v Davantage Group Pty Ltd (No 3) [2021] FCA 70
Farey v National Australia Bank Ltd [2016] FCA 340
Galactic Seven Eleven Litigation Holdings LLC v Davaria [2024] FCAFC 54; 302 FCR 493
Ghee v BT Funds Management Limited [2023] FCA 1553
Hall v Slater and Gordon Ltd [2018] FCA 2071
Jenkings v Northern Territory of Australia (No 4) [2021] FCA 839
Kelly v Willmott Forests Ltd (in liq) (No 4) [2016] FCA 323; 335 ALR 439
Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group Limited [2019] FCAFC 107; 369 ALR 583
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
Lopez v Star World Enterprises [1999] FCA 104
Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd [2018] FCA 1030; 358 ALR 382
Money Max Int Pty Ltd v QBE Insurance Group Ltd [2016] FCAFC 148; 245 FCR 191
Perera v GetSwift Limited [2018] FCA 732; 263 FCR 1
Perera v GetSwift Ltd [2018] FCAFC 202; (2018) 263 FCR 92
Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd (No 3) [2018] FCA 1842; (2019) 132 ACSR 258
Prygodicz v Commonwealth of Australia (No 2) [2021] FCA 634 at [129]
Street v State of Western Australia [2024] FCA 1368
Uren v RMBL Investments Ltd & Anor (No 2) [2020] FCA 647
Webb v GetSwift Limited (No 7) [2023] FCA 90; 414 ALR 500
Webster (Trustee) v Murray Goulburn Co-Operative Co. Limited (No 4) [2020] FCA 1053
Williamsonv Sydney Olympic Park Authority [2022] NSWSC 1618
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 182 Date of hearing: 3 June 2024 Counsel for the Applicants: Mr WAD Edwards KC with Mr I Cowen Solicitor for the Applicants: Slater & Gordon Counsel for the First Respondent: Mr D Sulan SC Solicitor for the First Respondent: Herbert Smith Freehills Counsel for the Intervener: Mr A Hochroth with Mr N Lennings Solicitor for the Intervener: Morris Mennilli ORDERS
VID 1141 of 2019 BETWEEN: MARCEL EUGENE KRIEGER
First Applicant
JASON RAY BURTON
Second Applicant
AND: COLONIAL FIRST STATE INVESTMENTS LIMITED (ACN 002 348 352)
First Respondent
AVANTEOS INVESTMENTS LIMITED (ABN 20 096 259 979)
Second Respondent
AUGUSTA POOL 1 UK LIMITED (COMPANY NUMBER 11867886)
Intervener
ORDER MADE BY:
MURPHY J
DATE OF ORDER:
3 JUNE 2024
THE COURT ORDERS THAT:
Confidentiality
1.Until further order, pursuant to ss 37AF and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth) (the Act), on the ground that the order is necessary to prevent prejudice to the proper administration of justice, the material listed in Annexure A is confidential and not to be published or made available to any person other than:
(a)the Court;
(b)the Applicants and their legal representatives; and
(c)Augusta Pool 1 UK Limited (Company Number 11867886) (Augusta) and its legal representatives.
2.Pursuant to ss 37AF and 37AG(1)(a) of the Act, on the ground that the order is necessary to prevent prejudice to the proper administration of justice, until 24 September 2024, or if an appeal or application for leave to appeal has been filed in respect of these orders by that date then until further order, the material listed in Annexure B is confidential and not to be published or made available to any person other than:
(a)the Court;
(b)the Applicants and their legal representatives; and
(c)Augusta and its legal representatives.
Approval of Settlement
3.Pursuant to ss 33V of the Act, settlement of the proceeding on the terms set out in the settlement deed executed by the Applicants, Respondents and Slater and Gordon dated 10 July 2023 (Settlement Deed) a copy of which is exhibited as Exhibit KMM-01 to the affidavit of Kirsten Marie Morrison dated 12 December 2023 and the Settlement Distribution Scheme (SDS) a copy of which is at Annexure C (together, the Settlement) be approved.
4.Pursuant to ss 33V and 33ZF of the Act:
(a)Slater and Gordon Limited be appointed as Settlement Administrator (as defined in clause 2 of the SDS);
(b)the Respondents are each appointed as Settlement Distributor (as defined in clause 2 of the SDS); and
(c)Ernst & Young is appointed as Expert Consultant (as defined in clause 2 of the SDS).
5.Pursuant to s 33ZF of the Act, the Applicants are authorised nunc pro tunc for and on behalf of group members as defined in paragraph 2 of the Amended Statement of Claim dated 25 March 2022, and for the avoidance of doubt, excluding any person who opted out in accordance with order 2 of the orders dated 15 February 2022 (Group Members) to enter into and give effect to the Settlement and the transactions contemplated for and on behalf of Group Members.
6.Pursuant to s 33ZB of the Act, the persons affected and bound by the settlement of the proceeding are the parties to the Settlement Deed and Group Members.
7.The Settlement Administrator has liberty to apply in relation to any matter arising under the SDS.
Deductions from the Settlement Fund
8.Pursuant to s 33V of the Act, the following distributions from the Settlement Sum (as defined in the SDS) are approved for the purposes of the SDS (inclusive of GST if applicable):
(a)The Applicants’ legal costs, being professional fees and disbursements on a solicitor and own client basis, including incurred in connection with the proceeding on their own behalf and on behalf of all Group Members in the proceeding payable to:
(i)Slater and Gordon in its capacity as solicitor for the Applicants and as Settlement Administrator in the amount of $4,183,492.89 (being $2,906,463.62 in its capacity as solicitor for the Applicants and $1,277,029.27 in its capacity as Settlement Administrator); and
(ii)Augusta as reimbursement for professional fees and disbursements paid for by Augusta in the amount of $4,560,960.80.
(b)the fees, commission, After the Event insurance and costs related to the provision of security for the Respondent’s costs payable to Augusta to fund the proceeding in the amount of $23,111,979.87;
(c)the Applicants’ reimbursement payment, being the reasonable claim for compensation for the time and expenditure reasonably incurred by the Applicants in the interests of prosecuting the proceeding on their own behalf and on behalf of all Gorup Members, in the amount of $40,000, with $20,000 to be paid to each Applicant.
9.The Settlement Administrator is granted liberty to apply for additional amounts of costs relating to settlement administration.
Late registrants
10.Pursuant to section 33ZF of the Act, the Group Members listed in Annexure D who failed to register by the date in Order 7 of the orders made 20 December 2023 but who have subsequently sought to register in the proceeding are deemed to have registered for the purposes of the Settlement.
11.Pursuant to section 33ZF of the Act, the Settlement Administrator shall make enquiries with the Respondents to confirm whether the Group Members listed in Annexure E, being Group Members who objected to the Settlement on the basis of their categorisation as Notice Type C, were correctly so categorised. If, as a result of those enquiries or any information provided by the Group Members listed in Annexure E, any of those Group Members are found to be Notice Type A or B, those Group Members will be deemed to have registered for the purposes of the Settlement.
Final Orders
12.The Settlement Administrator shall within 30 business days of the conclusion of distribution of the Settlement Sum, as defined in the SDS, apply to the Court for orders dismissing the proceeding with no order as to costs and all costs orders vacated.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A
AFFIDAVIT OF KIRSTEN MARIE MORRISON DATED 14 MAY 2024 # AFFIDAVIT CONFIDENTIAL PART (INCLUSIVE) 1. Paragraph 67 Entire table # BUNDLE EXHIBIT KMM-8 CONFIDENTIAL PART (INCLUSIVE) 2. Executed Conditional Legal Costs Agreements entered into by the Applicants, pages 69 – 92 of KMM-8. Partial:
· Addresses of Applicants
3. Executed Litigation Funding Agreements entered into by the Applicants, pages 93 – 194 of KMM-8. Partial:
· Addresses, email addresses and telephone numbers of Applicants
· Figures in Table 1 – Budget for Proceedings Work
· Details for Claims Trust Account and Augusta bank account in Schedule 2
4. Funding variation agreements dated 12 April 2021, 31 August 2022, and 5 October 2022, pages 200 – 223 of KMM-8. Partial:
· Addresses of the Applicants
· Budget figures
5. Notices of Objection and emails expressing intention to object to proposed settlement, pages 246 – 298 of KMM-8. Partial:
· Telephone numbers, email addresses and postal addresses of objectors
# CONFIDENTIAL EXHIBIT KMM-9 CONFIDENTIAL PART (INCLUSIVE) 6. Counsel Opinion All
AFFIDAVIT OF CHRIS MARTIN DATED 29 MAY 2024 # AFFIDAVIT CONFIDENTIAL PART (INCLUSIVE) 1. Paragraphs 16(d) to (e) Entirety of sub-paragraphs (d) to (e) # ANNEXURES CONFIDENTIAL PART (INCLUSIVE) 2. Annexure “CM-2” page 29 The information between ‘Please make payments to’ and ‘Thank you’ 3. Annexure “CM-2” page 31 Information in schedule. 4. Annexure “CM-2” page 32 Row in schedule before ‘CAS – ATE Colonial’. 5. Annexure “CM-2” page 33 Information following ‘Name and address of bank’ and information following ‘Payment Routing’ 6. Annexure “CM-2” page 34 The information between ‘Please make payments to’ and ‘Thank you’. 7. Annexure “CM-2” page 37 Information following ‘Name and address of bank’ and information following ‘Payment Routing’. 8. Annexure “CM-4” page 61 The information between ‘Please make payments to’ and ‘Thank you’. 9. Annexure “CM-5” page 74 Case names in the Schedule, excluding #402 Colonial (Financial Services Class Action). ANNEXURE B
AFFIDAVIT OF KIRSTEN MARIE MORRISON DATED 14 MAY 2024 # AFFIDAVIT CONFIDENTIAL PART (INCLUSIVE) 1. Paragraph 28 The four dollar amounts # BUNDLE EXHIBIT KMM-8 CONFIDENTIAL PART (INCLUSIVE) 2. Executed Conditional Legal Costs Agreements entered into by the Applicants, pages 69 – 92 of KMM-8. Partial:
· Total estimate of legal costs
· Estimate of uplift fee
· Estimate of professional fees incurred on No Win-No Fee basis
3. Funding variation agreements dated 12 April 2021, 31 August 2022, and 5 October 2022, pages 205 – 223 of KMM-8. Partial:
· Funding amounts
· Costs related to after the event insurance
4. Expert costs report of Catherine Mary Dealehr dated 5 April 2024, pages 348 – 475 of KMM-8. Partial:
· Budget and funding figures on pages 360, 362, 363 and 366 of KMM-8 (being pages 13, 15, 16 and 19 of the report)
· Names of expert witnesses (from whom evidence was not filed) on pages 381, 385 and 387 of KMM-8 (being pages 34, 38 and 40 of the report)
· Descriptions and numbers of experts (from whom evidence was not filed) and comments in relation to them and their work on pages 406 and 407 of KMM-8
· Strategic litigation considerations at [3.23] on page 407 of KMM-8
· Information relating to loss estimates at [3.35] – [3.39] on page 409 of KMM-8
AFFIDAVIT OF CHRIS MARTIN DATED 29 MAY 2024 # AFFIDAVIT CONFIDENTIAL PART (INCLUSIVE) 1. Paragraphs 16(a) to (c) and (f) Entirety of sub-paragraphs (a) to (c), and (f) 2. Paragraph 24 The dollar amount in line one. 3. Paragraph 25 Information about increased estimates of fees in
lines 3 to 6.4. Paragraph 36 The dollar amounts of the total policy limits for the ATE Policy in lines 1, 5 and 7. 5. Paragraph 37 The dollar amount of the total policy limit for the ATE Policy in line 6. # ANNEXURES CONFIDENTIAL PART (INCLUSIVE) 6. Annexure “CM-1”, page 23 The dollar amount of the policy limit. 7. Annexure “CM-1”, page 24 The percentages of the subscription. 8. Annexure “CM-1”, page 25 to 26 The percentages of the subscription. 9. Annexure “CM-1” page 27 The dollar amount of the policy limit and percentages of the subscription. 10. Annexure “CM-3” page 42 The dollar amount of the defined term existing policy limit. 11. Annexure “CM-3” page 53 The dollar amounts of the Upfront Premium, Deferred Premium, Deed of Indemnity Fee in Item 5 and dollar amounts of policy limit in Item 6. 12. Annexure “CM-3” page 55 The figures in the columns of the schedule ‘Subscription’ and ‘Limit of Indemnity’. 13. Annexure “CM-5” page 64 The dollar amounts of the minimum and maximum limits of indemnity and percentages of ‘ROL’ in schedule of premiums. 14. Annexure “CM-5” page 66 The percentages in the last sentence. ANNEXURE C
ANNEXURE D
1. Antonio Giorgiante 34. Anastasia Stavrou 2. Max Troy O’Shea 35. Anne Webster 3. Sarantis Karamalis 36. Andrew Geisler 4. Mariam Habib 37. Jernej Hribernik 5. Chantelle Bicknell 38. Eng Hua Lee 6. Nella Chiodo-Bordin 39. Christine Coxon 7. Fiona Glenn 40. Michael McGarvey 8. Dorothy Anne Little 41. Sandra Sadie Clausen 9. Samir Raut 42. Louise Edwards 10. Byron Peter Shaw 43. Craig Condon 11. Rachel Condon 44. Robin Dunstan 12. Kim Parnell 45. Adam Musgrave 13. David Neil Kent 46. Marie Heil 14. Jennifer June Simpson 47. Lindsey Hooper 15. Hwa Hong Lim 48. Craig Cosgrove 16. Mark Adrian Hauswirth 49. Jane Cale 17. Reginald James Roe 50. Ana Ivonne Zubieta 18. Peter Mizen 51. Scott Thompson 19. Leanne Thirwell 52. Cindy Sabharwal 20. Michael Hill 53. Martin Gibson 21. Gavin Walls 54. Anthony David Carroll 22. Robert Henry Hellow 55. Terry Hannell 23. Lynne Marie Anderson 56. Kathrine Waugh 24. Patricia Tereza Villiers 57. Sundesh Sharma 25. Timothy Theodore Schenken 58. Lisa Grace on behalf of Alice Ruth Tattersell 26. Karin Sansom on behalf of Winifred L Maier 59. Teressa Reschke on behalf of Bernard Jendrzejak 27. The Estate of the late David Guy 60. The Estate of the late Bruce Reymond Little 28. The Estate of the late John Stecki 61. The Estate of the late Janis Nugent 29. Louisa Castaldo on behalf of Ermanno De Filippis 62. The Estate of the late Leah Wilson 30. The Estate of the late Eric Emmanuel Smith 63. The Estate of the late Betty Ihle 31. Kim Taylor on behalf of Barbara Loraine Taylor 64. Carisa Riley 32. The Estate of the late Adric Coghlan 65. Brittany King 33. The Estate of the late Antony Bowring 66. Kate Alexandra Spencer ANNEXURE E
1. Michael Azzi 7. Teresa Stevenson 2. Christine Phillips 8. Christopher Paul Hanley 3. Estate of the late Geoffrey W Evans 9. Estate of the Late Max Gail Smith 4. Maxwell Stan-Bishop 10. Marvella Stan-Bishop 5. Estate of the late Douglas William Morton 11. Mark Perrin 6. Adrian Woodhead 12. Ed Mitchem REASONS FOR JUDGMENT
MURPHY J:
INTRODUCTION
The parties in this class action reached an in-principle settlement pursuant to which the first respondent, Colonial First State Investments Limited (Colonial), agreed to pay the applicants and group members $100 million inclusive of costs (Settlement Sum) in full and final settlement of the claim without admission of liability (proposed settlement). These reasons concern an interlocutory application dated 12 December 2023 by the applicants, Ms Marcel Krieger and Mr Jason Burton, seeking orders for Court approval of the proposed settlement under s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act).
The applicants brought the class action against Colonial as trustee during the relevant period of the Colonial First State FirstChoice Fund Superannuation Trust (FirstChoice Fund). They brought the proceeding on their own behalf and on behalf of all persons who:
(a)became members of the Colonial First State FirstChoice Fund Superannuation Trust (FirstChoice Fund) prior to 11 June 2013;
(b)remained members on or after 1 July 2013 (the FOFA Reform Start Date);
(c)were invested in Retail FirstChoice Products (Retail Members) or FirstChoice Employer Super Products (Employer Super Members); and
(d)were charged the relevant fees, being Contribution Fees or Excess Management Fees (as defined in the Amended Statement of Claim (ASOC)), after the FOFA Reform Start Date.
After the proceeding was commenced (and after the relevant period in the proceeding) Avanteos Investments Limited (AIL) became trustee of the FirstChoice Fund. By orders made by consent on 11 December 2023 AIL was joined as the second respondent to the proceeding, for the purposes of settlement administration.
The proceeding was funded by Augusta Pool 1 UK Limited (the Funder), part of a group of companies operated by Augusta Ventures Limited, pursuant to a litigation funding agreement (LFA) between Augusta and the applicants.
The Court made orders to approve the settlement, and I now provide reasons for doing so.
THE MATERIALS
The applicants rely upon the following materials:
(a)three affidavits of Ms Kirsten Marie Morison, a Practice Group Leader of Slater & Gordon Lawyers, the solicitors for the applicants:
(i)an affidavit dated 12 December 2023 (first Morrison affidavit), which includes as annexures:
(A)a copy of the Deed of Settlement dated July 2023 (the Settlement Deed);
(B)a copy of the proposed Settlement Distribution Scheme;
(ii)an affidavit dated 14 May 2024 (second Morrison affidavit), which includes as annexures:
(A)the LFA and subsequent letters of variation;
(B)the Terms of Engagement between the funder and the applicants’ solicitors dated 15 October 2019;
(C)the Costs Report of Ms Catherine Dealehr dated 5 April 2024;
(D)the Confidential Counsels’ Opinion of Mr WAD Edwards KC, Ms Alexandra Foile and Mr Israel Cowen of counsel dated 14 May 2024 (the Confidential Opinion);
(iii)an affidavit dated 29 May 2024 (third Morrison affidavit), which includes as a copy of the revised proposed Settlement Distribution Scheme (SDS or the Scheme) as an annexure.
(b)two affidavits of Mr Cameron David Hanson, a partner in the Disputes group of Herbert Smith Freehills, the solicitors for Colonial:
(i)dated 1 June 2024 (first Hanson affidavit); and
(ii)dated 3 June 2024 (second Hanson affidavit).
The Funder relies upon the affidavit of Chris Martin, an investment manager at Augusta Ventures Limited dated 29 May 2024 (Martin affidavit).
The Court appointed Ms Catherine Dealehr as a referee under s 54A of the Act to inquire and report to the Court in relation to the reasonableness of the legal costs proposed to be charged by Slater & Gordon (Costs Referee) and the settlement administration costs charged by that firm in relation to its role under the SDS. She provided a report dated 5 April 2024 (Costs Referee’s Report).
RELEVANT PRINCIPLES
The fundamental issue for determination on an application for settlement approval under s 33V of the Act is whether the proposed settlement is fair and reasonable and in the interests of the group members who will be bound by it, including as between the group members. As I said in Webb v GetSwift Limited (No 7) [2023] FCA 90; 414 ALR 500 at [15]-[16]:
The applicable principles in relation to settlement approval under s 33V of the FCA Act are now well-established. The Court’s fundamental task is to determine whether the settlement is fair and reasonable and in the interests of the group members who will be bound by it, including as between the group members inter se: see for example, Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [7]-[8]; Kelly v Willmott Forests Ltd (in liq) (No 4) (2016) 335 ALR 439; 112 ACSR 584; [2016] FCA 323 at [68]-[77]; Camilleri v Trust Company (Nominees) Ltd [2015] FCA 1468 at [5]; Blairgowrie Trading Ltd v Allco Finance Group Ltd (recs and mgrs. apptd) (in liq) (No 3) (2017) 343 ALR 476; 118 ACSR 614; [2017] FCA 330 at [81]; Caason Investments Pty Ltd v Cao (No 2) [2018] FCA 527 at [12]; McKenzie v Cash Converters International Ltd (No 3) [2019] FCA 10 at [23]-[24]; Smith v Commonwealth (No 2) [2020] FCA 837 at [6]-[12]; and Prygodicz v Commonwealth (No 2) (2021) 173 ALD 277; [2021] FCA 634 at [85]-[88].
In undertaking that task, the Court:
(a)assumes an onerous and protective role in relation to group members’ interests, in some ways similar to Court approval of settlements on behalf of persons with a legal disability;
(b)must be astute to recognise that the interests of the parties before it, and those of the group as a whole (or as between some members of the group and other members), may not wholly coincide;
(c)relatedly to the second point, should be alive to the possibility that a settlement may reflect conflicts of interest or conflicts of duty and interest between participants in the common enterprise which has conducted the representative proceeding;
(d)should understand that at the point of settlement approval, the interests of the parties will ordinarily have merged in the settlement. It is likely that they both will have become ‘friends of the deal’. As a result, both sides may not critique the settlement from the perspectives of any group members who may suffer a detriment or obtain lesser benefits through the settlement; and
(e)must decide whether the proposed settlement is within the range of reasonable outcomes, rather than whether it is the best outcome which might have been won by better bargaining.
OVERVIEW OF THE PROCEEDING
The class action concerned Colonial’s alleged conduct, in its capacity as trustee of FirstChoice Fund, in continuing to pay commissions to financial advisers, pursuant to arrangements with financial advisers (Adviser Arrangements), from fees charged to members of its First Choice Fund who joined the fund prior to 11 June 2013, without the provision of any commensurate benefit to those members. This is alleged to have occurred in circumstances where Colonial ceased to have such Adviser Arrangements (and therefore neither charged the same fees, nor paid such commissions) in relation to members who joined the First Choice Fund after 11 June 2013. The conduct the subject of the proceeding occurred from 1 July 2013 to 1 June 2020.
The proceeding alleged that Colonial:
(a)breached its duty arising under the general law and the covenant under the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) to act in members’ best interests;
(b)breached its duty at general law and the covenant under the SIS Act to avoid conflicts between its duties to and interests of members, and its personal interests or the interests of associated third parties; and
(c)engaged in unconscionable conduct within the meaning of s 12CB of the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act).
Colonial denies the allegations.
In relation to the commissions paid by Colonial to financial advisers, it is alleged that:
(a)for Retail Members with financial advisers linked to their account (linked advisers) who joined before the Future of Financial Advice Reforms (FOFA Reforms) to the Corporations Act 2001 (Cth) (Corporations Act) took effect on 1 July 2013 (Pre-FOFA Retail Members), the commissions paid were percentage contribution commissions on amounts contributed or transferred by or for the benefit of a Retail Member (Contribution Commissions); and
(b)for Employer Super Members with linked advisers who joined before 1 July 2013 (Pre-FOFA Employer Super Members) and Pre-FOFA Retail Members, commissions paid were percentage per annum trail commissions calculated as a percentage on the total balance of the member’s account (Trail Commissions).
In relation to the fees Colonial charged members prior to the FOFA Reform Start Date of 1 July 2013 it is alleged that Colonial charged:
(a)contribution fees to Retail Members calculated as a percentage of the amounts contributed or transferred by or for the benefit of a Retail Member (Contribution Fees); and
(b)to Retail Members and Employer Super Members, fees described as management, investment or administration fees, which were calculated as a percentage of the member's funds under management (Management Fees).
It is alleged that Colonial’s purpose in charging Contribution Fees, and in charging Management Fees at a level inflated by Trail Commission amounts (Excess Management Fees), was to fund Colonial’s payment of commissions to financial advisers. Colonial denies these allegations.
The FOFA Reforms prohibited issuers or sellers of financial products from giving financial services licensees (or their representatives) “conflicted remuneration”, being a benefit to a licensee who provides financial product advice to a retail client, where it could reasonably be expected to influence the choice of product recommended by the adviser: see Corporations Act ss 960 to 968. The proceeding alleged that the Adviser Commissions constituted conflicted remuneration. However, the conflicted remuneration provisions did not apply where the benefit was given under an arrangement entered into before the FOFA Reform Start Date (Grandfathered Commissions): Corporations Act s 1528 and Corporations Regulations 2001 (Cth), regs 7.7A.15B to 7.7A.16F.
From 7 June 2013, Colonial ceased to have Adviser Arrangements under which it paid Adviser Commissions in respect of new Retail and Employer Super Members who became members from 11 June 2013. However, it is alleged that by 11 June 2013, in respect of Pre-FOFA Members, Colonial had decided that it would continue to pay Grandfathered Commissions after the FOFA Reform Start Date. Accordingly, from the FOFA Reform Start Date to 31 May 2020, Colonial continued to have Adviser Arrangements pursuant to which it paid Adviser Commissions in respect of Pre-FOFA Members, and from July 2013 until various dates between 1 January 2019 and 31 May 2020, Colonial continued to charge Contribution Fees to Pre-FOFA Retail Members and Excess Management Fees to Pre-FOFA Retail and Employer Super Members.
On or about 29 October 2018 and 21 February 2020, Colonial made two decisions about ceasing payment of Adviser Commissions, and ceasing charging Contribution Fees and Excess Management Fees to Pre-FOFA Members. Between late October 2018 and June 2020, Colonial altered or amended its Adviser Arrangements so that by 1 June 2020, Colonial no longer paid Adviser Commissions in relation to all Pre-FOFA Members. By June 2020, Colonial ceased to charge Contribution Fees and Excess Management Fees to members.
It is alleged that Pre-FOFA Members received no benefit in return for Colonial’s continued charging of Contribution Fees and Excess Management Fees, or Colonial’s continued payment of Adviser Commissions. It is alleged that the Adviser Commissions were in the nature of “introducer fees” for the Financial Adviser having introduced the members or their employer to the FirstChoice Products, and did not involve any additional or ongoing service being provided by the Financial Adviser to the member. Pursuant to the Adviser Arrangements, the Financial Advisers were not required to provide any additional or ongoing services to the member in consideration for the Adviser Commissions.
In addition, it is alleged that at all material times Colonial had the ability to put members funds into options that had the same underlying investment profile, but where the high fees which funded Adviser Commissions were not paid. Colonial admitted that it had power to transfer Retail Members, subject to the provisions of the trust deed and the SIS Act, to a division, plan or class of the FirstChoice Fund in respect of which they were not liable to pay Contribution Fees or Excess Management Fees. And in respect of the Employer Members, in May 2020 Colonial closed the Pre-FOFA Employer Super Investment Options and in fact did exercise its transfer power, with the result that the investments of Pre-FOFA Employer Members were transferred to the equivalent Post-FOFA Employer Super Investment Option in respect of which they were not liable to pay Excess Management Fees.
Alleged breach of duty to act in the best interests of members
It is alleged that, by operation of the SIS Act, a covenant is taken to be contained in the trust deed which required Colonial to perform its duties and exercise its powers as trustee of the FirstChoice Fund in the best interests of the beneficiaries. It is also alleges that Colonial had a duty imposed by law to deal with the assets of the FirstChoice Fund in the best interests of beneficiaries .
Broadly, it is alleged that Colonial breached that covenant and duty by:
(a)continuing to charge pre-FOFA members commission-based fees under grandfathering exemptions;
(b)failing to transfer members of retail products to equivalent commission-free and lower fee products offered from the First Choice Fund;
(c)failing to transfer members of Employer Super to equivalent commission-free and lower fee investment options within the same product; and
(d)failing to advise members of their ability to request the transfers referred to above.
Alleged breach of duty to avoid conflicts of interest
It is alleged that at all times from the FOFA Start Date until Colonial no longer charged fees, in respect of Colonial charging Contribution Fees and Excess Management Fees to Pre-FOFA Members, there was a conflict between:
(a)Colonial’s duties to and the interests of Pre-FOFA Members on the one hand; and
(b)the interests of financial advisers, Colonial and CBA on the other hand.
It is alleged that by the acts and omissions summarised above, Colonial:
(a)did not prioritise its duties to and interests of beneficiaries over the interests of financial advisers;
(b)did not prioritise its duties to and interests of beneficiaries over the interests of CBA;
(c)did not prioritise its duties to and interests of beneficiaries over its own interests;
(d)did not ensure that its duties to beneficiaries were met despite the above conflicts;
(e)did not ensure the interests of beneficiaries were not adversely affected by the above conflicts,
and therefore, that Colonial contravened both a covenant implied by the SIS into the trust deed, and a general law duty, to avoid conflicts between its duties to the interests of beneficiaries and its personal interests or the interests of associated third parties.
Alleged unconscionable conduct
It is further alleged that by the acts and omissions summarised above, Colonial engaged in unconscionable conduct within the meaning of s 12CB of the ASIC Act.
The proceeding sought declarations, damages and equitable compensation from Colonial, both under statute and at general law, paid directly to group members or to superannuation funds of which they are members for their benefit.
Defences
Colonial denied the allegations of contravention, and the claimed entitlements to relief. Its defence alleged three broad responses.
First, it said that the charging of fees was authorised by the trustee; by contracts disclosed and agreed to by members under the relevant product disclosure statements (PDSs); and by the FOFA Reforms themselves, which allowed for Grandfathered Commissions for a period of time.
Second, that the ongoing fees were in the best interests of members because they were charged in exchange for access to and affordability of financial advice, of which members would be deprived if the fee deductions and associated commissions ceased immediately on the FOFA Reform Start Date.
Third, any Advisor Commissions were paid from its general revenue rather than pursuant to any obligations of trust which it owed to members, with the implication that those payments did not involve the exercise of any trust power, or performance of any trust, duty, to which the relevant best interests duties could attach.
Colonial also relied on statutory limitation provisions to say that any loss or damage to which the applicants and group members are entitled does not include loss or damage suffered six years prior to the date of issue of the proceeding, and in the case of the allegations of contravention of duty to avoid conflicts between its duties to and interests of beneficiaries which were included in the ASOC, six years prior to filing the amended pleading.
THE CLASS
The proceeding is an “open class” representative proceeding. “Group Members” are defined in the group definition in the ASOC as all persons who:
(a)became a member of the FirstChoice Fund prior to 11 June 2013;
(b)were a member of the FirstChoice Fund at any time on or after 1 July 2013 who were
(i)invested in FirstChoice Retail Products; or
(ii)FirstChoice Employer Super; and
(c)were charged Contribution Fees or Excess Management Fees after the FOFA Reform Start Date,
OR
at any time after the FOFA Reform Start Date received payment from the FirstChoice Fund of all or part of the benefits of a deceased member who satisfied all of paragraphs (a) to (c) above;
OR
satisfy all of the following paragraphs:
(a)were the spouse of a member of a member of the FirstChoice Fund who at any after the FOFA Reform Start Date had units or rights in or in respect of the FirstChoice Fund, and who satisfied all of paragraphs (a) to (c) above; and
(b)at any time after the FOFA Reform Start Date received a transfer from the FirstChoice Fund of all or part of the member’s account in the FirstChoice Fund pursuant to an order or settlement in a Family Law Act1975 proceeding or a superannuation agreement within the meaning of Part VIIIB of the Family Law Act 1975.
In her second affidavit Ms Morrison deposed that, based on the data provided by Colonial, there are 395,645 group members.
The limited group member registration process
The Court made orders on 15 February 2023 fixing a date for opt out and ordering that any group member who did not opt out before the deadline of 12 June 2023 would remain a group member for all purposes. No group member registration or class closure orders were made before settlement was reached. That is appropriate in a class action concerning group members’ superannuation as it is likely that many superannuation fund members will have a low level of engagement in relation to their superannuation. The 2018 Productivity Commission report titled “Superannuation: Assessing Efficiency and Competitiveness” (December 2018) found at 18:
Some members are highly engaged with the super system – actively comparing products or opening SMSFs. But most are not. Many members simply default, and rely on their funds to manage their super for them. Levels of engagement are especially low among the young and members with low balances.
…
See more generally Alford v AMP Superannuation Ltd (No 2) [2024] FCA 423 at [19]-[31], [83] (Murphy J).
Then, upon the proposed settlement being reached, by orders made on 20 December 2023, group members were classified into the following four categories:
(a)Type A Group Members - being members identified by the respondents that had a product with a linked adviser as at either or both of 1 July 2013 and 31 December 2018 but who did not pay an Adviser Services Fee (ASF). Payment of an ASF is used as a proxy to indicate that a group member has not suffered loss by payment of Advisor Commissions.
Members had an option of entering into an ASF relationship with a financial advisor after Advisor Commissions ceased. Entering an ASF allowed a member to receive financial advisor services. It is therefore probable that a member who entered an ASF after the end dates of automatic advisor fees did so in order to continue receiving financial advice services that were available to them before the fee end dates, and which represented a service benefit associated with the fees they were charged by Colonial.
The orders provided that Type A Group Members were required to register in order to provide information as to whether they received ongoing financial advice services in return for fees charged to their superannuation account. Under the proposed SDS, Type A Group Members who registered and confirmed that they did not receive ongoing financial advice services will be entitled to compensation.
(b)Type B Group Members - being members who fall into two sub-categories:
(i)first, members identified by the respondents who can be inferred from structural features of their accounts did not receive financial advice, being those who:
(A)had no linked adviser as at 1 July 2013 or at 31 December 2018; or
(B)had a linked adviser as at 1 July 2013 or at 31 December 2018, but did not have an ASF relationship; and
(ii)second, members of the First Choice Employer Super product who were not group members in the Coatman class action, a partly overlapping representative proceeding alleging breach of trustee duties in relation to the Employer Super Product: see Coatman v Colonial First State Investments [2022] FCA 1611.
The orders provided that Type B Group Members do not need to register. Under the proposed SDS they are automatically entitled to compensation.
(c)Type C Group Members - being Retail Members identified by the respondents with a financial adviser linked to their account and an ASF relationship. Such group members are considered to have received ongoing financial advice services under these arrangements and on that basis have not suffered loss. The orders provided that they are not required to register, because under the SDS it is not proposed they will be entitled to compensation.
(d)Type D Group Members - being members identified by the respondents who were eligible to be compensated in the Coatman class action and who are therefore expected to have individual loss below the proposed minimum of $20 after apportionment under the Scheme. The orders provided that they are not required to register, because it is not proposed they will be entitled to compensation.
Each category of group member received a different Notice of Proposed Settlement, informing them as to their eligibility (if any) to receive a distribution under the proposed settlement and any steps they were required to take in in order to receive a distribution. The Notice of Proposed Settlement explained to group members that the settlement would be distributed only to eligible Type A Group Members and Type B Group Members. The registration process was undertaken by Slater & Gordon and Deloitte in accordance with the orders.
For the reasons I explain when dealing with the fairness and reasonableness of the proposed SDS, notwithstanding the likely low level of engagement of group members with their superannuation, I was satisfied that the registration process applicable to Type A Group Members was appropriate in the circumstances of the case.
THE DELAY IN SEEKING SETTLEMENT APPROVAL
The Settlement Deed was executed on 12 July 2023 and the applicants did not seek a settlement approval hearing until 3 June 2024, almost 11 months later. The Court was available to hear the application whenever the parties were ready.
Substantial delay in seeking settlement approval must be deprecated, but I was persuaded that the delay arose through particular difficulties associated with the proceeding, including the general undesirability of registration orders in superannuation class actions because of the low typical low level of member engagement, the design of categories to reflect the different categories of group members, the design of group member registration orders and who they should be applied to, the need for Colonial to collate and organise the data for the group member registration process to be implemented, and for the design of an appropriate SDS which reflected the different categories of group members and their differing entitlements to a distribution under the Scheme. Having regard to those difficulties I was persuaded that it would be inappropriate to criticise the applicants’ lawyers in this regard.
THE PROPOSED SETTLEMENT
The key terms
Under the Settlement Deed, upon Court approval of the settlement and the settlement approval orders becoming final (as defined), Colonial is obliged to pay within 21 days:
(a)the Settlement Sum of $100 million (less the amounts to be paid pursuant to (b) and (c) below) into an interest-bearing controlled money bank account opened by Colonial’s solicitors (Settlement Account);
(b)the applicants’ legal costs, and the Funder’s litigation funding charges, in amounts approved as reasonable by the Court, to Slater & Gordon; and
(c)$40,000 to Slater & Gordon to be remitted to the applicants to reimburse them for their time and effort in providing instructions in the proceeding on behalf of group members (Reimbursement Payments).
The no detriment clause
The Settlement Deed provides that the Settlement Sum will not be met from the Operational Risk Financial Requirement (ORFR) reserves held by Colonial or AIL or otherwise met from the assets of the FirstChoice Fund, and will not be the subject of any claim for indemnity by Colonial or AIL.
ORFR reserves are financial reserves required to be held by registrable superannuation entities to address operational risk events that may affect business operations. Ordinarily, it is permissible for ORFR reserves to be replenished from assets held by the superannuation fund, but any such transaction for the purposes of paying the Settlement Sum may affect the interests of current members of the FirstChoice Fund including group members. The no detriment clause protects against such an outcome.
Releases
Under the Settlement Deed, upon payment of the Settlement Sum, the applicants agree on their own behalf and on behalf of group members:
(a)to finally settle the proceeding and all of the applicants’ and group members’ claims with no admissions as to liability or wrongdoing. “Applicants’ and group members’ claims” is defined to mean only the claims brought by the applicants on behalf of the group members in the proceeding, and substantially similar claims seeking substantially the same relief.
(b)to release and discharge the respondents (and related parties, defined as all related bodies corporate and present and former directors, officers, partners, servants, contractors and agents of those entities jointly) jointly and severally from the applicants’ and group members’ claims;
(c)not to sue the respondents and related parties in respect of any applicants’ and group members’ claims;
(d)that the Settlement Deed may be pleaded by the respondents (and related parties, as defined) as a bar to any claim brought by the applicant or any group member in breach of the terms of the Deed.
Provision for the Settlement Distribution Scheme
The Settlement Deed also requires that the SDS provide:
(a)for the appointment of Slater & Gordon as the Settlement Administrator and Colonial and AIL as the Settlement Distributor;
(b)that an independent expert consultant will be appointed to assist in the distribution of the Settlement Sum;
(c)for equitable guiding principles and methodology for the calculation and effecting of payments from the Settlement Distribution Fund to Group Members;
(d)that the Settlement Distribution Fund will be fully distributed within 18 months of the expiry of the appeal period from other than in exceptional circumstances;
(e)that Colonial and AIL shall have no recourse to the Settlement Sum or Colonial’s or AIL’s ORFR reserves or any assets of the FirstChoice Fund for the costs of distribution of the Settlement Sum, including the costs of the Expert Consultant.
The Coatman undertaking
In Coatman the Court approved a $56 million settlement in another related class action against Colonial. The releases provided on behalf of group members in that proceeding affected the claims of some group members in this proceeding.
In this proceeding Colonial provided an undertaking to the Court that:
(a)it would not contend that the definition of “Applicants’ and Group Members’ Claims” in the Settlement Deed in the Coatman proceeding includes any of the claims made in this proceeding by the second applicant on his own behalf and on behalf of group members in respect of the period 11 June 2013 to 30 June 2015; and
(b)it will not contend that the claims made by the second applicant on his own behalf and on behalf of group members in respect of the period 11 June 2013 to 30 June 2015 are otherwise released by the Settlement Deed in the Coatman proceeding or the Court’s approval of the settlement of the Coatman class action.
WHETHER THE PROPOSED SETTLEMENT IS FAIR AND REASONABLE
For the reasons I now explain, I am satisfied that the proposed settlement is fair and reasonable in the interests of group members to be bound to it, and as between group members. I am satisfied that it is appropriate to approve the proposed settlement pursuant to s 33V of the Act.
I now turn to assess reasonableness by reference to some of the considerations in paragraph [15.5] of the Class Actions Practice Note (GPN-CA) and other relevant considerations.
Counsels’ Confidential Opinion
The Court has the benefit of the Joint Confidential Opinion of Mr William Edwards KC, Ms Alexandra Folie and Mr Israel Cowen dated 14 May 2024. I cannot go to the detail of the Confidential Opinion, and it must suffice to note that it thoroughly addresses whether the settlement is fair and reasonable in the interests of group members and as between group members by reference to considerations including the complexity and likely duration of the litigation, the stage of the proceedings at which settlement was reached; the risks of establishing liability; the risks of establishing loss or damage; the range of reasonableness of the proposed settlement in light of the risks of the litigation; and the reaction of the class to the proposed settlement.
The Confidential Opinion is comprehensive and considered and it concludes that the proposed settlement is fair and reasonable in the interests of group members to be bound to the settlement, and as between group members including in relation to the limited registration process and the fact that compensation will be provided to two categories of group member, and not the other two. It is appropriate to give substantial weight to the Confidential Opinion, which was provided by counsel in their capacity as officers of the Court, with an obligation to candidly expose all relevant matters, rather than as advocates for the applicant. The Confidential Opinion points strongly in favour of approving the proposed settlement.
The scope of the releases
The releases provided by the applicant are limited by the definition of “Applicants’ and Group Members’ Claims”, which confines the releases to claims made in the proceeding and substantially similar claims arising from the allegations made in the proceeding or seeking orders for substantially the same relief. In my view the releases go no further than to release the common claims of the applicants and group members which are or could have been advanced in the proceeding and do not go beyond the scope of the applicants’ representative authority under Part IVA of the Act: see Timbercorp Finance Pty Ltd (in liquidation) v Collins; Timbercorp Finance Pty Ltd (in liquidation) v Tomes [2016] HCA 44; 259 CLR 212 at [39], [49], [53]-[54] (French CJ, Kiefel, Keane and Nettle JJ), [122] and [141]-[142] (Gordon J); Dyczynski v Gibson [2020] FCAFC 120; 280 FCR 583 at [96], [106(a)], [201], [249]-[251] (Murphy and Colvin JJ), and [395]-[396] (Lee J). The extent of the releases do not justify refusing to approve the proposed settlement.
The stage of the proceedings at which settlement was reached
The proposed settlement was reached following a mediation on 16 June 2023, approximately seven weeks before trial. The pleadings had been closed for over two years, and the parties had filed all of their lay and expert evidence. Thus, the proposed settlement was reached at a point that the parties’ lawyers had a strong understanding of the strengths and weaknesses of their respective cases. This consideration points in favour of approving the proposed settlement.
The complexity and likely duration of the litigation
The proceeding alleges distinct cases based on trustee duties under statute and general law, and unconscionable conduct. Each case demanded attention to the legal nuance and complexity attending each area of law. The proceeding is strenuously defended. The scale of the litigation further compounded this complexity. The claim period was seven years long. Discovery ran to over 30,000 documents, and five expert reports were filed. The trial was listed at an estimate of four weeks, itself an indication of the complexity of issues raised. The complexity of the litigation points in favour of approving the proposed settlement.
In a proceeding with claims of this aggregate value and complexity an appeal is a likely prospect whichever party is unsuccessful in the initial trial. The case has already been on foot since 2019 and any appeal is likely to add a further one to two years to the duration of the litigation. The likely duration of the litigation also weighs in favour of settlement approval.
The risks of establishing liability
Colonial denied all allegations, and it strenuously defended the proceeding. Even so, based on the materials I consider it appropriate to approach the proposed settlement on the basis that the applicants have good prospects of establishing the alleged breaches of statutory and general law obligations to avoid conflicts of interest and to act in members best interests, at least in respect of the Type B Group Members who had no adviser linked to their account.
However, the majority of group members had a linked advisor, which means that the applicants must establish that they received “no benefit” in return for Colonial’s continued deduction of fees from their accounts for payment of Adviser Commission. Figures provided by Slater & Gordon show that there were 178,197 Type A group members who had linked advisers, compared to 84,384 Type B group members who had no linked advisers. That negative evidentiary burden is substantial, and there is a risk that the Court would not accept that the burden was discharged. For some Retail Members the issue may be finely balanced, and may have needed to be established on a case by case basis. The position is less clear in respect of Employer Super Members, where the fact that advice was not regularly given to individuals seems to have in part depended upon member apathy, which suggests that advisors were available.
There are also risks associated with the fact the FOFA Reforms expressly permitted the grandfathering of these types of fee arrangements. In the context of the best interests duty, this presented the possibility that the duty did not require Colonial’s immediate attention to fee arrangements for existing members, and that instead it was permitted to remain inactive and to continue to collect members fees in accordance with the trust deed and the relevant PDSs. That presented even greater risks to the unconscionability case, which appears the weakest of the claims. There are obvious difficulties with making out unconscionability where conduct is expressly permitted by statute. The limitation defences also add risks to the applicants’ case.
The risks of establishing liability in relation to some categories of group member point in favour of settlement approval.
The risks of establishing loss or damages
If it can be established that Colonial breached its statutory or general law duties or engaged in unconscionable conduct in charging the Contribution Fees or Excess Management Fees, the contravening conduct self-evidently caused a loss to the Members in the amount of the fees that were wrongfully deducted from their accounts. Thus the risks of establishing loss and damage are low.
The range of reasonableness in the proposed settlement in light of the best recovery
The applicants sought to estimate the aggregate value of the undiscounted claims of the applicants and group members, based on confidential data provided by Colonial for the purpose of mediation. Counsel addressed that estimate in the Confidential Opinion, and it was also addressed in a confidential part of the second Morrison affidavit.
That estimate is confidential, and it must suffice to note that the proposed settlement falls comfortably within the range of reasonableness in light of the best recovery.
The range of reasonableness in the proposed settlement in light of all the risks of the litigation
In Kelly v Willmott Forests Ltd (in liq) (No 4) [2016] FCA 323; 335 ALR 439 at [74] I said:
It is established that the Court should not second-guess the applicants’ lawyers as to whether the settlement ought to have been accepted, or to proceed as if it knows more about the actual risks of the litigation than those lawyers. The Court takes the applicant’s lawyers as it finds them, recognising that different applicants and different lawyers will have different appetites for risk. The question is whether the proposed settlement is within the range of reasonable outcomes, not whether it is the best outcome which the Court considers might have been won by better bargaining.
The proposed $100 million settlement, and the proposed distribution model under the SDS, reflect a low risk discount for the cohort of group members with the strongest claim, and progressively higher discounts for those group members that would have faced greater hurdles in making out their case. I am satisfied that the proposed settlement falls comfortably within the range of reasonable outcomes, which takes into account that I am satisfied that it is fair and reasonable to require Type A Group Members to undertake registration if they are to recover compensation.
The reaction of the class to the proposed settlement
25 group members submitted a Notice of Objection or contacted Slater & Gordon or the Court indicating an intention to object. Objections fell into the following categories.
Objections as to misclassification under the SDS
13 group members initially classified as Type C - those who had a linked adviser and an ASF relationship - objected primarily on the basis that they did not receive ongoing financial advice, and therefore should not be deemed ineligible for compensation.
In her second affidavit Ms Morrison deposed that in response to these objections the respondents reviewed their data, and identified that one of those 13 group members was incorrectly identified as a Type C group member when in fact they should have been a Type B group member. The respondents then identified a further 3,316 accounts affected by the same error, and those group members were reclassified as Type B, and included in the Type B loss calculations.
At the settlement approval hearing the respondents submitted that the other 12 Type C objectors were not misclassified. That issue was addressed through a modification to the Settlement Administrator’s power so that Slater & Gordon could resolve whether, in respect of those objectors, there was in fact an error with the data recorded by Colonial in relation to their account.
If group members are correctly classified into categories then these objections do not justify refusing to approve the proposed settlement. For the reasons I explain in relation to the SDS, it is appropriate that group members who had a linked advisor and an ASF relationship do not receive compensation under the SDS.
A further two group members, Ms Morgan and Ms Spencer, objected to the proposed settlement on the basis that they did not receive compensation in the Coatman class action, and therefore should not be deemed ineligible for compensation (that is, they should not have been categorised as a Type D Group Member). In his second affidavit Mr Hansen deposed that as part of the settlement distribution in the Coatman class action, amounts were credited to the superannuation accounts of Ms Morgan and Ms Spencer. Ms Spencer appeared at the approval hearing and she ultimately accepted that she had in fact received compensation in the Coatman class action which she had had not noticed because no specific notification was sent to her. It is likely that in the absence of specific notification, Ms Morgan similarly missed the credit to her account. Ms Spencer also objected to the proposed settlement on the basis she had a second superannuation account with Colonial, which she had not registered. She was accepted as a late registrant in respect of this account, which dealt with this aspect of her objection.
These objections do not justify refusing to approve the proposed settlement.
Objections to the level of legal costs and litigation funding charges
Three group members, including Ms Bartier and Mr Lim who appeared at the approval hearing, objected to the proposed settlement on the basis that the legal costs and litigation funding charges are too high, taking up approximately 32% of the proposed settlement.
I accept that the legal costs and litigation funding charges may appear excessive to those not used to the costs regularly and reasonably incurred in large, complex class action litigation. But that is not a well-informed view given the quantum of the legal costs in class actions regularly certified as reasonable by independent Court-appointed costs referees, and the quantum of legal costs and funding charges regularly approved as reasonable by the Court. Ultimately, each of Ms Bartier and Mr Lim accepted that so long as the settlement approval process was conducted with a keen eye to the fairness and reasonableness of the legal costs and litigation funding charges their objections were addressed.
The legal costs were assessed by the independent Court-appointed Costs Referee who assessed the reasonable applicants’ legal costs in the amount of $7.467 million. For the reasons I later explain, I am satisfied that the applicants’ legal costs in that quantum are fair and reasonable. I take a similar view in relation to the litigation funding charges which I consider to be commercially realistic and to properly reflect the costs and risks that the Funder took on.
These objections do not justify refusing to approve the proposed settlement.
Objections to notice regime
Mr Lim also objected on the basis that he did not receive the Notice of Proposed Settlement in time to register, as did Mr Rowlandson, Mr Cosgrave and Ms Anderson. Mr Rowlandson, however, had in fact received Type B Notice, so he did not need to register. In respect of the other three group members they were permitted to register as late registrants, and these objections accordingly fell away.
Other objections
Two people objected on the basis that they are not eligible group members. In response to these objections Ms Morrison deposed that the respondents had confirmed that these objectors were not group members. I accept that.
One group member objected on the basis that the settlement sum is insufficient to cover the losses and damages of all participating group members. I refer to the Confidential Opinion, and the discussion above regarding the reasonableness of the proposed settlement having regard to best possible recovery, and also in light of the attendant risks of litigation. For the reasons I have explained, I consider the proposed settlement to be fair and reasonable.
One group member objected on the basis that he expected the overall impact of the litigation on his superannuation to be negative and not in his best interests, especially by reference to the legal fees charged. I do not accept this objection. Under the proposed settlement more than 68% of the Settlement Sum will be returned to group members, and the Settlement Deed provides that the Settlement Sum will not be met from the ORFR reserves held by Colonial or AIL or otherwise met from the assets of the FirstChoice Fund. The assertion that the payment of compensation to group members, even after deductions for legal costs and litigation funding charges, will have a negative impact on an individual member’s superannuation account cannot be sustained.
Finally, one group member objected on the basis that they were unable to register. It was however clarified that that person was a Type B Group Member and was not required to register to share in the settlement.
The terms of the SDS
The SDS has the following key terms.
First, the SDS categorises group members into four categories consistently with the 20 December 2023 orders. Under the Scheme Type B Group Members will be compensated regardless of registration, Type A Group Members will be compensated if they registered and confirmed they did not receive financial advice services, and Type C and D Group Members were not required to register as they will not receive compensation.
Second, Colonial and AIL are jointly appointed as Settlement Distributor under the SDS, and they take responsibility for the distribution of the Settlement Sum. Ernst & Young (or following consultation with Slater & Gordon, another independent expert consultant) is appointed as the Expert Consultant and will perform the calculations underlying the distribution of the Settlement Sum. Slater & Gordon is appointed as the Settlement Administrator, and is permitted to engage the services of Deloitte to assist with scheme administration. Colonial is to provide group member data to Slater & Gordon to assist in the administration of the scheme.
Third, the implementation of the SDS is expressly subject to the ongoing supervision of the Court, and the Settlement Administrator or the Settlement Distributor may refer any issue arising in relation to the SDS or its administration to the Court.
Fourth, upon the settlement approval orders becoming final, Colonial will pay to Slater & Gordon an amount equal to:
(a)the applicants’ legal costs;
(b)the litigation funding charges; and
(c)the reimbursement payments to the applicants,
in the amounts approved by the Court. The balance of the Settlement Sum (Residual Settlement Sum) will then be paid to the Settlement Account.
The Notice of Proposed Settlement informed group members that the deductions from the Settlement Sum would comprise approximately $32 million, leaving an estimated $68 million as the Residual Settlement Sum to be distributed to group members.
Fifth, an apportionment formula by which individual group member entitlements are proposed to be calculated is set out in Annexure A of the proposed SDS (Apportionment Formula). The Apportionment Formula is based on the loss calculation methodology used by the applicants’ expert witness, Mr Andrew Ross of KordaMentha, in his report filed in the proceeding.
The Apportionment Formula involves:
(a)adding:
(i)the Contribution Fees paid annually as per the member statement balance date each financial year (applicable to Retail members only); and
(ii)the Excess Management Fees incurred. Excess Management Fees are calculated as the nominal rebate to Group Members, being 0.6% per annum for Retail members and 0.44% per annum for Employer members, accrued monthly; then
(iii)subtracting any actual rebate that was provided by Colonial; and
(b)dividing the total in (a) above by the total loss of all group members; and
(c)multiplying the result of (b) above with the Residual Settlement Sum (the Settlement Sum less the amounts approved by the Court to be deducted).
Under the Apportionment Formula:
(a)simple interest at Court rates is applied to each of the Contribution Fees annually, and to Excess Management Fees as accrued monthly to the settlement date; and
(b)individual group member entitlements are calculated as a proportion of the total loss and the Residual Settlement Sum is to be distributed on a pro rata basis.
Sixth, as group members have different account statuses or relationships with Colonial, the methods of payment vary in accordance with that status:
(a)for group members who still have an active account in the FirstChoice Fund, the Settlement Distributor will increase their account balances by the applicable entitlement;
(b)for group members for whom direct payment is impracticable, they may have funds paid to other superannuation accounts in accordance with their instructions, or by way of a trustee voluntary payment (TVP) to the Australian Taxation Office (ATO) under the Superannuation (Unclaimed Money and Lost Members) Act1999 (Cth).
Seventh, the Scheme provides a threshold loss value of $20. If a group member is entitled to an amount less than $20, it will not be paid to them as the distribution of amounts less than $20 would cost the group more than $20 in administrative costs.
Eighth, the Settlement Distributor is obliged to report to the Settlement Administrator and the Expert Consultant throughout the settlement distribution process. At three-monthly intervals after the commencement of distribution of the Residual Settlement Sum, the Settlement Distributor is required to report on, amongst other things, the total quantum of the payment amounts distributed to group members in the preceding three months and the dates on which those payments were made. The Settlement Distributor is also required to report on the method in which payment amounts were distributed to group members (for example, whether payments were made in cash, into active accounts in the FirstChoice Fund, by way of transfer to another superannuation account or by TVP).
After the distribution of the Residual Settlement Sum, the Settlement Distributor must report to the Court on, amongst other things, the total quantum of payment amounts distributed to group members, the amounts representing the highest, lowest, mean and median payments to group members, the dates on which payments were made, and any other relevant matter as determined by the Settlement Distributor.
Ninth, the Settlement Distributor will distribute the Residual Settlement Sum within 6 months of the expiry of the appeal period from the approval orders, other than in exceptional circumstances, in which case the Settlement Distributor will report to the Court and the Settlement Administrator on the reasons for the delay and the steps that the Settlement Distributor proposes to take to address it.
Tenth, Mr Hanson’s first affidavit addressed the issue of tax under the Scheme. He deposed that the amount of tax that will be deducted from the Residual Settlement Sum will be 10% for distributions made to the superannuation accounts of group members who are in the accumulation phase, 15% for the distribution of interest made on the Residual Settlement Sum to the superannuation accounts of members who are in the accumulation phase, and 0% for distributions made to superannuation accounts of members who are in the pension phase.
The reasonableness of the proposed SDS
In Camilleri v The Trust Company (Nominees) Ltd [2015] FCA 1468; 190 ACSR 191 at [43]-[44] Moshinsky J usefully summarised the authorities in relation to the fairness of a settlement distribution scheme, as follows:
The cases indicate a number of factors relevant to the assessment whether a proposed distribution scheme is fair and reasonable having regard to the interests of the group as a whole. Some of these factors are as follows:
(a)whether the distribution scheme subjects all claims to the same principles and procedures for assessing compensation shares;
(b)whether the assessment methodology, to the extent that it reflects ‘judgment calls’ of the kind described above, is consistent with the case that was to be advanced at trial and supportable as a matter of legal principle;
(c)whether the assessment methodology is likely to deliver a broadly fair assessment (where the settlement is uncapped as to total payments) or relativities (where the task is allocating shares in a fixed sum);
(d)whether the costs of a more perfect assessment procedure would erode the notional benefit of a more exact distribution;
(e)to the extent that the scheme involves any special treatment of the applicants or some group members, for instance via ‘reimbursement’ payments – whether the special treatment is justifiable, and whether as a matter of fairness a group member ought to be entitled to complain.
There are also procedural factors which relate to the fairness of a proposed distribution process, such as:
(a)whether appropriate individuals have been nominated to administer the scheme;
(b)whether the procedures for lodging and assessing claims are appropriate and to be conducted in a timely manner;
(c)whether the scheme incorporates appropriate ‘checks and balances’, such as procedures for ensuring consistency between assessments and meaningful opportunities for review (and objection) by group members.
In this case the main feature of the SDS that demands justification is the division of group members into four categories with only Type B Group Members, and Type A Group Members who register and confirm that they did not receive financial services, being eligible for compensation.
I consider those distinctions between categories of group members are justifiable by reference to differences in the cases of each different type of group member, as follows:
(a)Type B Group Members have structural account features from which it is possible to infer that they did not receive any financial services, and thus no benefit from the fees deducted from their accounts. There is no imperative for a registration process when they can be assumed to have suffered a loss. Nor is registration required before compensation can be distributed to them. The respondent has access to their account details, and if not, it has access to the TVP mechanism to ensure they are paid any compensation to which they are entitled. A requirement for registration may unnecessarily shut some Type B Group Members out of compensation and it would involve wasted expenditure. Under the Scheme, registration is not required for this category of group members as they are automatically entitled to compensation;
(b)Type A Group Members have account features which are indeterminate, as they had a linked advisor, but did not pay an ASF. In Ms Morrison’s first affidavit, she deposed on the basis of Colonial’s filed evidence which is uncontradicted by discovered documents, that some financial advisors linked to the accounts of members may have provided ongoing financial advice services to some group members, as this was a matter of agreement between the financial adviser and the member. Colonial’s only agreement was with the financial advisor dealer group. It follows that whether those members received financial advice can only be confirmed by asking that member directly through a registration process. The requirement for registration is a barrier to receiving compensation but, absent a registration process, the parties are unable to be satisfied that only those entitled to compensation in fact receive compensation. And the evidential burden for registration by a Type A group member is minimal, as they needed only confirm that they did not receive financial advice services to be eligible for compensation under the Scheme;
(c)Type C Group Members have account features from which it is possible to infer that they received ongoing financial services. It would be inappropriate for this group to receive compensation for non-delivery of a service that they in fact received. As Ms Stevenson, an objector categorised as Type C, pithily said in the settlement approval hearing, “if it was available and we didn’t take it up, then it’s on us. It’s not on them”. This category of group members are not required to register as they will not receive compensation under the Scheme;
(d)Type D Group Members received overlapping compensation in a related class action, and any who have an entitlement are likely to recover an amount lower than the $20 threshold. They are also not required to register as they will not receive compensation under the Scheme;
It should be kept in mind that the median distribution under the Scheme will be approximately $327. This is a case where the costs of a more perfect procedure would speedily erode the notional benefit of such a process. In this scenario the SDS may provide “rough justice”, but it is the only through the class action regime that these group members could have achieved any justice.
I am persuaded that it is fair and reasonable that:
(a)Colonial and AIL are appointed as Settlement Distributor with joint responsibility for the distribution as they have significant experience in undertaking large scale remediation projects with similar features to the distribution proposed here. Indeed, Coatman itself is an example of such a project. It is to group members’ benefit that they will not charge any fee for the provision of this service. They are the most well-placed and cost-effective entities to undertake this role;
(b)Slater & Gordon is appointed as Settlement Administrator, as the firm is familiar with the case and is in a position to carry out an oversight role and to enforce the rights of group members under the SDS, if necessary;
(c)Ernst & Young is appointed as the independent Expert Consultant given the complexity of the necessary calculations. Engagement of a specialised third party to undertake this discrete task also provides an impartial check on the conduct of both the Settlement Distributor and Settlement Administrator. This will be cost-effective for group members as Ernst & Young’s charges will not come from the Settlement Account;
(d)the methodology for loss calculation is based in the calculations by the applicants’ loss expert prepared for the proceeding. That is appropriate as it ensures that the compensation payable to a group member is payable in accordance with the case theory of the litigation and in a quantum proportionate to the amount of Contribution Fees and Excess Management Fees they paid. The methodology does not involve judgment calls, and the calculation can be efficiently undertaken on the available data;
(e)the SDS otherwise only distinguishes between group members by excluding those whose average notional loss is less than $20. That is a reasonable threshold to apply when the administrative cost of distributing payments below that threshold would cost the group more than the value of the payment, and because there is little prejudice to a group member of not receiving a payment of less than $20. According to draft distribution calculations performed by the respondents, this will operate to exclude 20,057 group members, or about 19.2% of the total number of group members who would receive a distribution;
(f)the SDS permits the use of the TVP process as a distribution method for:
(i)“related members”, being people who received payments from the FirstChoice Fund on behalf of a deceased member who would have been eligible; and
(ii)as a back-up payment method for other group members who cannot easily be identified.
In my view the TVP process represents a reasonably effective method of ensuring that eligible members who have left the FirstChoice Fund receive their distributions: see Coatman at [87(h)];
(g)the proposed SDS does not contain a mechanism for individual reviews of group Members’ entitlements and distributions. The Notice of Proposed Settlement informed group members of their categorisation, and group members had an opportunity to challenge that categorisation by objecting to the proposed settlement. Beyond their categorisation, there is little utility in allowing for individual reviews of distributions given the transparent and plainly fair Apportionment Formula. Further, given that the median distribution is only approximately $327, providing for individual reviews would generate costs which would quickly cost the group more than the value of the proposed distribution ; and
(h)the proposed timeframe for distributions is within 6 months of the expiry of the Appeal Period. That appropriately takes into account the time and effort that will be required to distribute the Residual Settlement Sum, while holding the Settlement Administrator and Settlement Distributor to a high standard of efficiency in the interests of group members.
Having regard to the matters identified in Camilleri, I am satisfied that the SDS is fair and reasonable as between class members. In particular, it provides for a fair division of the proceeds of the proposed settlement between eligible class members pursuant to the same principles and procedures, the administration process does not involve judgment calls, and if it proceeds as planned the settlement administration process will not involve unreasonable costs or delay.
The proposed reimbursement payment to the applicant
The applicants sought an order that a reimbursement payment of $20,000 be deducted from the Settlement Account and paid to each of them for their time, inconvenience and expense in prosecuting the claims on behalf of group members.
In her second affidavit Ms Morrison deposed as to the categories of work the applicants were required to undertake in the litigation, and it is sufficiently clear that a significant proportion of the time devoted by the applicants to this litigation was time expended for the benefit of all group members. She also deposed that the time expended by each of the applicants on the case could otherwise reasonably be expected to have been devoted to other income-producing activities or otherwise in enjoyment of free time.
It is established that the representative applicant in a class action who has sacrificed time or incurred expenses in prosecuting the proceeding on behalf of group members may be entitled to some reimbursement from the corpus of any settlement or judgment: Caason Investments Pty Ltd v International Litigation Partners No.3 Ltd [2018] FCAFC 176; 265 FCR 487 (Allsop CJ, Middleton and Perram JJ); Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd [2018] FCA 1030; 358 ALR 382 at [212].
A payment of $20,000 per applicant is within the range of amounts commonly allowed by the courts as a reimbursement payment. Professor Morabito’s empirical research identified the median and average reimbursement payments made to applicants in Federal Court class actions to be $19,105 and $30,408 respectively: see Morabito V, An Evidence-based Approach to Class Action Reform in Australia - Common Fund Orders, Funding Fees and Reimbursement Payments (January 2019). The figures suggest that the $30,408 figure is skewed by large outliers: Kuterba v Sirtex Medical Limited (No 3) [2019] FCA 1374 at [23] (Beach J).
The opt out notice relevantly informed group members as follows:
Litigation Funder’s Remuneration
4.8.In exchange for paying the Applicants’ legal costs and agreeing to pay adverse costs and security for costs, the Litigation Funder may seek to be paid an amount (remuneration) out of any settlement or Court awarded compensation in the event of a successful outcome.
4.9. If any compensation becomes payable as a result of any order, judgment, or settlement in the class action, the Applicants and/or the Litigation Funder may ask the Court to make an order that some of that compensation recovered for Class Members be used to pay the Litigation Funder’s remuneration.
4.10. The amount of the Litigation Funder’s remuneration must be approved by the Federal Court. The Court will only make an order for remuneration to be paid to the Litigation Funder in an amount that the Court considers appropriate. If the Applicants and/or Litigation Funder seek an order for remuneration, the amount they seek will not exceed 2.5 x the amount spent by the Litigation Funder on the class action, plus between 5% and 12.5% of any settlement or judgment sum recovered for Class Members, plus certain fees as may be approved by the Court.
(Emphasis added.)
In my view that information was likely to be difficult to understand for many group members and uninformative without their also being informed about how much the Funder had spent on the class action. Another difficulty with that information is that the Funder seeks funding charges calculated as 2.5 x legal costs plus 12.5% of part of the settlement sum, plus ATE insurance costs, and that is not clearly stated.
The Notice of Proposed Settlement informed group members as follows:
Litigation Funding Costs and ATE Insurance
26. Augusta will seek payment of a litigation funding commission which will total approximately $18 million.
27. In addition, Augusta has secured ‘After the Event’ (ATE) insurance to cover the lead Applicants’ risk of being ordered to pay the Respondent’s legal costs in the event of an unsuccessful outcome and in order to provide security for the Respondent’s costs during the conduct of the Proceeding. ATE insurance costs are estimated to total approximately $5 million and will be sought by Augusta to be paid from the Settlement Sum.
28. Augusta has entered into a Litigation Funding Agreement with each of the Lead Applicants. Slater and Gordon has entered into a Conditional Legal Costs Agreement with each of the Lead Applicants. Legal costs and funding charges have been agreed to by each of the Lead Applicants. Augusta and Slater and Gordon will seek a common fund order (CFO) from the Court as part of the Settlement Approval which will seek to deduct payments for total legal costs and funding costs from the Settlement Sum and that each group member shares equally in the payment of these costs. The Court will need to be satisfied that sharing the costs in this way under a CFO is fair and reasonable to Group Members.
The information provided at this stage was clear. Group members could be expected to understand from the Notice of Proposed Settlement that the Funder would seek approximately $23 million in commission and ATE costs at the settlement approval hearing, which was the amount in fact sought.
A comparison of the funding commission with funding commissions in other Pt IVA proceedings and/or what is available or common in the market
A funding commission of $23,111,979 (which includes ATE Costs and Security Costs) represent a funding rate of 23.1% of the gross $100 million settlement. That is comfortably within the range of funding rates available or common in the litigation funding marketplace in 2019 when the proceeding was commenced. Professor Morabito’s most recent empirical report, Group Costs Orders and Funding Commissions (January 2024), divides analysis of funding commissions into the pre-GCO period (prior to the introduction of Group Costs Orders (GCOs) in Victoria in 2020) and the post-GCO period in which the availability of GCO’s gave rise to lower funding rates. The median funding commission rate in the pre-GCO period when this proceeding was commenced was 24.9%. Even against the median post-GCO commission of 22.7%, the 23.1% funding rate sought here compares favourably.
But it is simplistic to assert that a particular funding rate is fair and reasonable because it falls within 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 at [89] (Murphy J, with whom Lee and Colvin JJ agreed). Two particular matters often mean that a comparison of funding rates has limited value:
(a)the quantum of the settlement, as higher funding rates will be appropriate in lower settlements: e.g. BlairgowrieTrading Ltd v Allco Finance Group Ltd (in liq) (No 3) [2017] FCA 330; 343 ALR 476 at [160]; and
(b)the terms of the particular funding arrangements, which affect the costs and risks taken on by the funder.
As I said Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433 at [179]:
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.
Here the funding arrangements were structured by the Funder so that it shared the costs and risk of the case with Slater & Gordon. The Funder provided funding for 100% of disbursements throughout the litigation, and 75% of professional fees, except for part of the discovery phase, where it provided only 50% of the professional fees. As it eventuated, by the end of the proceeding the Funder had paid $4,560,960.80 and legal costs and Slater & Gordon had incurred and carried $2,906,463.62 in legal costs including uplift fees.
While Ms Morrison deposed as to the funding rates in five recent Slater & Gordon class actions. I did not find those case examples of much assistance as the funding rates ranged from 11% to 29%, and each case had factors that may not be present here.
I sought further submissions from the Funder in relation to cases which involve risk sharing between the funder and the applicants’ solicitors. The Funder relied on the following cases, tabulated as follows:
Case involving risk sharing Details of risk sharing Funding charges approved (% of gross settlement sum) Ghee The gross settlement was $29.95 million. The funder was obliged to pay 50% of professional fees and 100% of disbursements up to a low fixed cap in the context of that case, with the solicitors being entitled to a 25% uplift on the other 50%. 23% Spotless The gross settlement was $95 million. The funder’s obligation to pay the legal costs and disbursements incurred in the proceeding were capped at $6.65 million “which was well short of any reasonable assessment of the amount of costs and disbursements likely to be incurred if the proceeding went to trial.” The funding cap was reached approximately 9 months before the trial was listed to start, with the solicitors carrying the remaining costs. 20.5% Webster (Trustee) v Murray Goulburn Co-Operative Co Ltd (No 4) [2020] FCA 1053 The gross settlement was $37.5 million. The funder was not obliged to pay professional fees at all (i.e., the funding was disbursements only, plus security for costs and an adverse costs indemnity). Counsel’s fees were asserted to be funded, but they may have been charged on a no win, no fee basis. 23% Hall v Slater and Gordon Ltd [2018] FCA 2071 The gross settlement was $36.5 million. The funder paid a small portion of professional fees and disbursements. The applicant’s lawyers claimed $5.3 million in costs, but the funder had only contributed $930,421.03 towards those fees, and a further $1.07 million towards disbursements and security: see [35] and [91]. 21.92% Blairgowrie Trading The gross settlement was $40 million. In an initial agreement, the funder agreed to pay 75% of professional fees and 100% of disbursements. However following interlocutory dismissal of the common fund application, the funder provided 100% of disbursements, with all professional fees only to be paid on a successful outcome: see [19]. Ultimately, the funder paid approximately $2.4 million in legal costs, of a total $10.5 million incurred, and put up $7.25 million in security. 22% Average funding commission awarded 22%
It is not clear to me, even with these cases, that the Funder is comparing apples with apples. But the average funding rate in those cases is 22%, only slightly below the 23.1% sought in this case. This consideration points somewhat in favour of approving a 23.1% funding rate.
In passing I note that a trend seems to have emerged in which a greater proportion of the costs and risks of class actions are pushed from funders to the solicitors, yet the funder still seeks to be paid a funding rate as if it had funded the whole case. Recently, in Street (handed down after the approval orders in the present case) I allowed a funding rate of only 16% in circumstances including a high settlement quantum ($180.4 million); high legal costs of which the funder had paid approximately 50%, with the rest carried by the applicant’s solicitors; low adverse costs assumed by the funder because of ATE insurance; and the funder had not complied with the payment terms in the LFA: Street at [315]-[328].
The negotiations leading to the funding rate
Slater & Gordon have considerable experience in class actions and in dealing with litigation funders, and the funding commission was agreed through a process of negotiation between the funder and the applicants’ lawyers. In her second affidavit Ms Morrison deposed that Slater & Gordon sought and received independent counsel’s advice on the final variation to the LFA and considered that the result would still fall within what the firm deemed an acceptable range.
She further deposed that Slater & Gordon accepted the higher percentage funding rate proposed by the Funder because the firm accepted that the material increase to the Funder’s investment justified a greater funding commission than the initial LFA allowed. The positive agreement by an experienced firm, with the benefit of advice from independent counsel, carries weight in assessing the reasonableness of the funding rate.
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
Litigation risk is a critical factor in assessing the reasonableness of a funder’s commission: Money Max at [80(d)].
The proceeding was complex, expensive and hard fought and at least at its commencement the proceeding was perceived to carry substantial risk of failure at trial. That risk significantly diminished by the point of settlement, at least in relation to Type A Group Members, but that is not the point at which the Funder took on the risk. At the point of commencement the applicants lawyers did not have the understanding they later reached as to the different categories of group members, and the variations in the strengths of their respective cases ranging from weak through to strong. Twice during the course of the proceeding the Funder was required to advance additional funding above the original case budget, and required to more than double the level of ATE insurance cover, reflecting its view of increased exposure to adverse costs. As it eventuated, albeit unknown at the time of commencement, significant numbers of group members have suffered no or negligible loss through the charging of fees for Adviser Commissions because either financial advice was available to them, they actually received financial advice, or they had received compensation through another related class action.
In my view, at commencement, the case faced significant risks on liability and it would be defended by a determined and well-resourced respondent. That points in favour of a funding rate of 23.1%.
The quantum of adverse costs exposure that the funder assumed, again recognising that assumption of risk was done at the commencement of the proceeding
Money Max (at [80(d)]) recognises the importance of taking into account the quantum of adverse costs exposure that the Funder assumed. Here the Funder took out $9 million in ATE insurance cover to protect itself against the risk of an adverse costs order. It therefore had an adverse costs exposure only to the extent that Colonial’s party/party costs might have exceeded $9 million. There is no evidence as to the likelihood of that.
However, achieving that cover came at a cost to the Funder. The cost of the upfront ATE premiums plus the costs of the deeds of indemnity regarding security for costs and enforcement, totalled $2,900,087. That is a proxy for the amount the Funder risked in relation to adverse costs because, if the case was unsuccessful, that was the amount that it would not recover. The Funder was not at risk for the deferred ATE premiums because, under the LFAs, that cost was to be met by deduction from group members’ recoveries if the proceeding was successful.
The legal costs expended and to be expended by the Funder
Money Max (at [80(f)]) directs attention to the quantum of legal costs expended and to be expended in the litigation. The Funder funded the majority of the legal costs and all of the disbursements in the proceeding from the outset up to the point of settlement was reached, in a total of approximately $4.5 million. Had the proceeding not settled, it was committed to funding approximately $5.9 million more in costs and disbursements in accordance with the case budget (as amended). Its total funding commitment was therefore approximately $10.4 million.
The quantum of the settlement
In Money Max at [80(g)] the Full Court explained that this consideration could be of particular significance when a very large or very small settlement or judgment is obtained, and that it is important to ensure that the aggregate commission received is proportionate to the amount sought and recovered in the proceeding and the risks assumed by the funder.
Here, the $100 million settlement is plainly substantial, and a 23.1% cut of a settlement of this size is a large aggregate charge. It is important to ensure that the aggregate commission received is proportionate to the amount sought and recovered in the proceeding and the risks assumed by the funder. The Funder expended $4,560,960 in legal costs, $2.9 million in ATE and Security Costs, and it was on the hook for $5.9 million more in legal costs had the case not settled. Had the case not settled and been unsuccessful at trial the Funder would have lost approximately $13.36 million, assuming any adverse costs order was covered by the ATE insurance. I do not consider a funding commission of $23.11 million to be disproportionate to the costs and risks the Funder took on.
Nor is the aggregate commission sought disproportionate to the amount recovered in the proceeding. 68% of the Settlement Sum will remain for distribution to group members after all approved deductions. That is materially more than the median proportion received by group members in funded class actions overall, which has been assessed as between 51% to 58%: Spotless 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).
Any substantial objections made by group members in relation to litigation funding charges
It is appropriate to take into account any substantial objections by group members in relation to litigation funding charges: Money Max at [80(h)]. Here there were three objections to the Funder’s charges, although they were expressed as objections to the combined legal costs and funding charges taking up 32% of the proposed settlement.
As I said in relation to those objections, they are based in legitimately held concerns but they are not well-informed as to the costs regularly and reasonably incurred in large, complex class action litigation. Legal costs in such amounts (and far greater) are regularly certified as reasonable by independent Court-appointed costs referees, and legal costs and funding charges in such amounts (and greater) are regularly approved as reasonable by the Court. Here the independent Court-appointed Costs Referee assessed reasonable applicants’ legal costs in the amount of $7.467 million, and I have adopted her report. In relation to the funding commission I am persuaded that a $23.11 million funding commission, representing a 23.1% funding rate, is reasonable.
Nor do I accept the contention that allowing a deduction of 32% of the gross settlement to meet legal costs and the litigation funding charges is somehow excessive. As I said earlier, the proportion of the Settlement Sum remaining for group members will be materially more than the median proportions received by group members in funded class actions, which has been assessed as between 51% to 58%: Spotless at [106] and the references cited therein; Slade (2023).
For the above reasons I am satisfied that it is appropriate to approve the deduction of a funding commission of $23,111,979, representing 23.1% of the gross settlement, as “just” pursuant to s 33V(2) of the Act.
CONFIDENTIALITY
With the exception of the Confidential Opinion, neither the applicants nor the Funder made a blanket claim of confidentiality. The applicants and Funder each sought confidentiality orders over specified parts of documents filed in the proceeding, including:
(a)the LFAs (and their variations) between the Funder and the Applicants;
(b)the CCAs between the applicants and Slater & Gordon;
(c)the Deloitte Engagement Letter;
(d)the Cost Referee’s Report;
(e)personal information contained in material submitted by or concerning the objectors;
(f)the ATE insurance policy documents;
(g)parts of Ms Morrison’s first affidavit; and
(h)parts of Mr Martin’s affidavit.
Even so, the orders sought were too broad. In Caason Investments Pty Ltd v Cao (No 2) [2018] FCA 527 at [8]-[9], I said in the context of a settlement approval application:
… 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…
See also Liverpool City Council v McGraw-Hill Financial, Inc (now known as S&P Global Inc) [2018] FCA 1289 at [102] (Lee J); in Clark v National Australia Bank Limited (No 2) [2020] FCA 652 at [13]-[15] (Lee J).
Further, as I said in Coatman at [8]-[9]:
Class actions are not just disputes between private parties about private rights, they have a public dimension: Madgwick v Kelly [2013] FCAFC 61; 212 FCR 1 at [91]. The settlement of class action proceedings is not just a private bargain between the parties in which the parties may legitimately seek to keep aspects of the settlement confidential: McGraw-Hill at [107]. Frequently, class actions perform a public function by being employed to vindicate statutory policies such as disclosure to the securities market, prohibition of cartel conduct and the provision of safe medical and pharmaceutical products: see Legg M, Class Actions, Litigation Funding and Access to Justice (Law Research Paper No 17-57, UNSW, 7 September 2017). It is important to safeguard the public interest in open justice, which is entrenched in the settlement approval regime under Part IVA of the FCA Act: Jenkings v Northern Territory of Australia (No 4) [2021] FCA 839 at [64]-[65] (Mortimer J).
There is also a significant public interest in information relating to legal costs and litigation funding charges in class action litigation. In recent years those matters have been considered by the Australian Law Reform Commission and the Parliamentary Joint Committee on Corporations and Financial Services and have been the subject of much media commentary: see ALRC Report No 134, Integrity, Fairness and Efficiency - An Inquiry into Class Action Proceedings and Third-Party Litigation Funders, (December 2018); Parliamentary Joint Committee on Corporations and Financial Services, Litigation Funding and the Regulation of the Class Action Industry (21 December 2020); see also Petersen Superannuation Fund Pty Ltd v Bank of Queensland Limited (No 3) [2018] FCA 1842; 132 ACSR 258 at [20]; Endeavour River Pty Ltd v MG Responsible Entity Ltd (No 2) [2020] FCA 968 at [35].
Although the applications for confidentiality were not as broad as some, I am not satisfied that they are all necessary to prevent prejudice to the proper administration of justice: s 37AG(1)(a) of the Act.
The Confidential Opinion
I accept that it is appropriate to treat the Confidential Opinion as confidential. The Confidential Opinion sets out the candid assessments by counsel for the applicants of the merits and prospects of success on liability and quantum of the applicants’ and group members’ causes of action. Disclosure of the Confidential Opinion:
(a)is likely to prejudice the applicant as to the opinion includes a great deal of material subject to legal professional privilege. It would prejudice the proper administration of justice if the applicants’ privilege was to be compulsorily waived by the requirement to provide a confidential opinion in support of settlement approval; and
(b)it is likely to affect other cases in which the applicants’ lawyers act, or other cases on foot. Many class actions pleading similar causes of action are commenced. If the candid assessments by counsel for the applicants of the merits and prospects of success on liability and quantum are required to be disclosed it will inhibit candid and fulsome disclosure, with the corollary that the Court’s ability to determine fairness in future settlement approval applications will be inhibited.
The orders provide for the Confidential Opinion to be kept confidential, until further order, to prevent prejudice to the proper administration of justice.
Estimates of costs, fees, funding amounts, insurance estimates and premiums not confidential after expiry of the appeal period
The applicants and the Funder sought confidentiality orders in respect of information regarding:
(a)funding amounts provided at various points, including the reasons for funding increases;
(b)estimates of legal costs and uplift fees, as well as estimates of fees incurred on a no win no fee basis; and
(c)costs and limits of ATE insurance;
I accept that there may be commercial reasons that Slater & Gordon and the Funder prefer their costs, charges and estimates to be kept confidential. But in my view those commercial reasons come nowhere near meeting the test of being necessary to prevent prejudice to the proper administration of justice. A primary objective of the administration of justice is to safeguard the public interest in open justice, and open justice is fundamental to the operation of the judicial power of the Commonwealth. It is important that confidentiality orders do not rob group members and the public of the ability to understand the basis for the legal costs and litigation funding charges to be charged by deduction from a class action settlement. After all, those two amounts are usually the largest single deductions, and group members must be permitted to understand the basis of the charges to be deducted from the common fund of their recoveries. I note also that I have found it necessary to disclose some of the revisions to the case budget in these reasons, and those matters cannot remain confidential.
Having said that, I accept that disclosure of some such information may in some circumstances prejudice the applicants in the event of an appeal from settlement approval, or in a trial in the proceeding. To protect against that, the orders provide that the confidentiality of such information (at least that which is not disclosed in these reasons) extends until the expiry of the appeal period, or if an appeal is brought, until further order.
Detailed budget information to be kept confidential
The applicants seek confidentiality orders over budget figures that indicate the precise split of funding between the funder and Slater & Gordon at every stage of the proceeding and in relation to every category of cost. I am not persuaded that it is appropriate to treat the headline numbers as confidential, and I have found it necessary to disclose some headline numbers in these reasons.
I am, though, satisfied that the breakdown of those numbers and the precise split should be treated as confidential because the specificity of these figures is revelatory of aspects of Slater & Gordon’s and/or the Funder’s practices which may prejudice them in future class actions in which either is involved. It has a tendency to give respondents a “war chest” advantage. Further, the requirement for open justice does not demand that group members and the public are informed as to the precise breakdown of fees for each stage of litigation.
Deloitte Engagement Letter not confidential
The applicants sought confidentiality orders over hourly rates and information said to be commercial-in-confidence relating to registration services and payment arrangements within the letter of engagement between Slater & Gordon and Deloitte. I accept that there may be commercial reasons that Deloitte (and perhaps Slater & Gordon) prefer that Deloitte’s costs, charges and estimates be kept confidential. But again, that comes nowhere near meeting the test of being necessary to prevent prejudice to the proper administration of justice.
Nor can I see how disclosure of this information could prejudice the applicants in the event of an appeal from settlement approval, or in a trial in the proceeding. It is accordingly unnecessary to order that confidentiality be maintained until the expiry of the appeal period, or if an appeal is brought, until further order.
Costs Referee’s Report not confidential
The applicants submitted that information in the Costs Referee’s Report as to the names and number of experts consulted but whose reports were not filed, information going to strategic litigation considerations, and some information relevant to settlement negotiations should be kept confidential until the expiry of the appeal period, or until further order if an application to appeal was made. I accept that that is necessary to prevent prejudice to the proper administration of justice.
Other strategic information
The Funder sought confidentiality in relation to some parts of Mr Martin’s affidavit relating to the estimated value of group members’ claims and the Funder’s strategy in relation to court orders regarding funding. I accept that disclosure of some such information may in some circumstances prejudice the applicants or the Funder in the event of an appeal from settlement approval, or in a trial in the proceeding. To protect against that, the orders provide that confidentiality of such information as is not disclosed in the reasons extends until the expiry of the appeal period, or if an appeal is brought, until further order.
Other strategic information provided in the first Morrison affidavit and the Martin affidavit concerns their candid assessments of the applicants’ prospects of success in the various claims and the discounts applied to estimated aggregate claim value. This should be kept confidential until further order for the same reasons as the Confidential Opinion.
Other information to be kept confidential
It is appropriate that personal information such as names, addresses and contact details pertaining to the applicants and group members, and banking details of the Funder and insurers, are kept confidential until further order. There is no public interest in these details being disclosed.
It is also appropriate that insurance policy amounts and other details pertaining to other cases currently on foot are kept confidential. It may prejudice those proceedings for this information to be released.
CONCLUSION
For these reasons I made the attached orders.
I certify that the preceding one hundred and eighty-two (182) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Murphy. Associate:
Dated: 5 December 2024
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