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Australia – Settlement Fails In The Storm Financial Class Action.

11 September, 2013

 

Legal News & Analysis – Asia Pacific – Australia – Dispute Resolution

 

Two ‘firsts’ in the Australian class action landscape have occurred in relation to ASIC’s appeal against the approval of the Storm Financial class action settlement: 

 

1. The first occasion whereby ASIC intervened in the settlement of a class action; and 

 

2. The first instance that a class action settlement in Australia has been overturned on appeal. 

 

In a unanimous decision handed down on 12 August 2013, the Full Federal Court upheld ASIC’s appeal against the approval of the settlement of the Storm Financial class action: ASIC v Richards [2013] FCAFC 89. The settlement that had been reached between the parties in March 2013 provided for the distribution of $82.5 million among approximately 1,050 group members. This settlement obtained approval by Justice Logan on 3 May 2013: Richards v Macquarie Bank Ltd (No 4) [2013] FCA 438. 

 

Distribution of settlement pool unreasonable or unfair 

 

ASIC’s appeal against the settlement approval did not concern the size of the settlement pool, but rather the way in which it was intended that the pool be distributed amongst group members.  In upholding ASIC’s appeal, the Full Federal Court held that the payment of a ‘Funders’ Premium’ of 35% of the settlement pool to those group members who had contributed varying amounts to funding the class action (the Funding Group Members) was not fair, nor reasonable. 

 

This was for two reasons:

 

  1. The inequality of the opportunity afforded to all group members to share in the Funders’ Premium on the terms offered to the Funding Group Members (represented by solicitors Levitt Robinson). The Court found that although there were no differences between the merits of the claims of the Funding Group Members and group members who were unrepresented, there was a large disparity in the outcome, and
  2. The calculation of the Funders’ Premium by reference to the success fees obtained by commercial litigation funders was not justifiable for a number of reasons, including that:

 

  1. The prospect of the Funding Group Members claiming any premium for funding the litigation was not mentioned until at least two years after the litigation had commenced
  2. The Funding Group Members funded the litigation without any expectation that they would receive a premium
  3. The financial effect of the payment of the Funders’ Premium to the Funding Group Members was disproportionate, and
  4. There was no rational or mathematical basis for the Funders’ Premium to be 35% of the settlement pool.

 

Funding of class actions by group members

 

Although the Court did find that funding of class actions by group members themselves should be encouraged as an alternative to commercial litigation funders, it made it quite clear that the terms and conditions of this type of funding should be clearly defined at the outset of the proceedings and made known to all group members. Additionally, those terms and conditions will still be reviewed and scrutinised by courts when they are asked to approve any class action settlement. 

 

Comparing the Vioxx class action 

 

The Court’s decision to overturn the approval of the Storm Financial settlement should be contrasted with another recent Federal Court decision not to approve a proposed class action settlement. In May 2013, in the long running Vioxx class action, Justice Jessup found that: 

 

  1. the proposed settlement did not adequately distinguish between the characteristics and medical histories of the group members, and
  2. an advice from counsel as to whether the settlement was in the interests of the group members as a whole, rather than an affidavit put on by a Slater & Gordon solicitor, should have been provided to the Court. The Slater & Gordon solicitor was not the ‘ideal person to be the source of assistance for the Court’ as his firm was a party to the settlement agreement and had a ‘very real interest in securing the settlement’.

 

 

 

 

 

For further information, please contact: 

 

Damian Grave, Partner, Herbert Smith Freehills
damian.grave@hsf.com

 

Jason Betts, Partner, Herbert Smith Freehills
jason.betts@hsf.com     

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