Australia: Common fund order made in QBE class action

Last Updated: 7 December 2016
Article by Paul Bannon

In brief - Court's order may encourage open class proceedings

In the matter of Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Limited [2016] FCAFC 148 (QBE class action), a Full Court of the Federal Court was prepared to make orders requiring all class members to pay the same pro rata share of legal costs and the funding commission from the common fund of any amounts they receive in settlement or judgment in the case. The Court required the funder, the applicant and the applicant's solicitors to undertake to agree to be bound by the litigation funding terms the Court annexed to its judgment before making the orders.

In other words, in a proceeding where the applicant (Money Max) had already agreed with a funder, International Litigation Funding Partners (ILFP) and its solicitor regarding terms on which litigation funding would be provided, the applicant sought orders which in essence would have the effect of applying litigation funding terms to all class members (not just the funded class members) and varying the rate of commission it had agreed with that funder.

The funder has been given the choice as to whether or not it wishes to proceed to fund the case where a common fund would be established but the rate of commission payable to it would be determined by the Court at a later time in the proceedings - probably at settlement approval or distribution of any judgment sum.

Allco class action case in 2015 saw Court decline common fund order

In our article of 13 August 2015 "Common Fund" application dismissed by Federal Court in Allco class action, we wrote on the reasoning of His Honour Justice Wigney of the Federal Court in the case of Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers and Managers Appointed) (in Liq) [2015] FCA 811 where His Honour dealt with an application to impose obligations on group members to pay the litigation funder even though they had not entered into a funding agreement. Only the applicants in that case had entered into a funding agreement with ILFP.

Justice Wigney did express the view that many of the issues raised by the applicants in their submissions in support of an order made out "a fairly compelling case for reform" of litigation funding, including possible introduction of Court approval of funding agreements.

As reported, Justice Wigney was concerned about the far reaching operation and effect of the proposed orders. The Court was being asked to declare the reasonableness of what were, at that stage of the proceeding, indeterminable or inestimable amounts. His Honour declined to make the order imposing the funder on the group.

Money Max brings open class action proceedings against QBE

When QBE made an ASX announcement on 9 December 2013 (which the applicant calls a corrective disclosure), QBE's share price declined $4.63 per share over that and the following day.

The proceeding brought by the applicant is an "open class" action. That is, the applicant brings the class action on its own behalf and on behalf of all persons who acquired an interest in QBE shares in the defined period and who claim to have suffered loss as a result of QBE's conduct.

The QBE class action is also funded by ILFP. Not all class members had entered into a funding agreement.

Interlocutory application for a common fund order

The Court, comprising Murphy, Gleeson and Beach JJ, stated (at [1]-[2]) that:

  • At the date of hearing of the interlocutory application for a common fund to be imposed upon the class, the applicant and 1,290 class members had each entered into a litigation funding agreement with ILFP. The balance of the class members had not.
  • The funded class members had agreed to reimburse ILFP the legal costs paid and also to pay ILFP a percentage commission of either 32.5% or 35% (depending on how many QBE shares they acquired in the defined period).
  • Accordingly, it was the funded class members who were collectively bearing the cost of the action against QBE as they had agreed to pay a funding commission and to reimburse the legal costs paid by the funder, out of any settlement or judgment.

Money Max's expert evidence estimated unfunded class members had a shareholding falling in the range of approximately 53% to 75% of shares acquired during the relevant period and held at the close of the period. Those unfunded class members would benefit from the commercial arrangements undertaken by the funded class members unless an order was subsequently made at the time of settlement approval or judgment, in the nature of a "funding equalisation order" in respect of those who did not opt out.

Such an order allows deductions from settlement amounts payable to unfunded class members of amounts equivalent to the funding commission that would otherwise have been payable by them had they entered into a funding agreement, and such amounts are then distributed pro rata across all class members. In this way both funded and unfunded class members receive the same proportion of the settlement or judgment amount. Thus, while unfunded class members under such a regime would not pay a funding commission to the funder, equality of treatment is achieved between class members because the unfunded class members do not receive any more "in the hand" than funded class members.

In the common fund proposed in the QBE class action, application was made to apply litigation funding terms to all class members at a reduced rate of 30%, from the common fund of any settlement or judgment in favour of the class.

Funding commission rate considered too high by some objectors to the order

All class members were notified of the application.

There were only two active objectors when the application was heard and both objections were on the basis that the funding commission rate of 30% was too high, especially when legal costs were required to be paid on top of the funding commission. Those objectors were minor participants in the proceeding given one only acquired ten shares in the relevant period and the other thirty shares.

Their objections to the commission rate were said (at [44]) to be of little significance to the Court's decision as under the Court's proposal, they would have the opportunity to be heard at a later stage when the Court approved a reasonable funding commission rate.

Common fund order includes three safeguards

A common fund order was made.

It was a little like the curate's egg for ILFP. If it wishes to continue to fund the action on the basis of a common fund, it has the expected commercial advantage of having a funding rate applied to the whole settlement or judgment amount and not just to the proportion due to its clients who had signed funding agreements. It has the disadvantage of not knowing the rate until the Court approves it, most likely at the settlement approval stage.

Accordingly, when a settlement is being negotiated, the funder will not know the rate that will apply.

Indeed, in making a common fund order, the Court stated (at [11]) that it had included three safeguards, namely:

  1. It did not approve the funding commission at the rate of 30% as the applicant sought or indeed at any percentage rate.
  2. Court approval of a reasonable funding commission rate was to be left to a later stage when more probative and complete information would be available to the Court - probably at the stage of settlement approval or the distribution of damages.

    The Court made no attempt to bind the court hearing the relevant application at a later time as to the appropriate rate of funding commission but did state it was highly likely that the funding commission would be approved at a rate lower than 32.5% or 35%.

    The absence of a cap on the aggregate funding commission that funded class members may be contractually obliged to pay could have a consequence that the funder is entitled to an excessive or disproportionate amount in the event of a very large settlement. Under the Court's proposed orders, that consequence would be significantly ameliorated if not avoided - because the commission rate is set when the settlement or judgment amount is known.

    Unfunded class members faced the prospect through a funding equalisation order (absent a common fund) that they would be saddled with a deduction from any settlement or judgment of an amount equivalent to the funding commission rate charged to funded class members as fixed in the funding agreement. Now, they and the funded class members would have the protection inherent in judicial approval of the rate of commission.

    Indeed, the Court stated that judicial oversight of the funding commission charged by the funder is central to its decision.

  1. The Court's proposed orders contained a floor condition that no class member could be worse off under the orders than he or she would be if such orders were not made.
  2. It is contemplated that before class members are required to choose whether or not to opt out, they would be informed of the proposed orders and the fact that they would have deducted from any settlement or judgment a reasonable funding commission at a Court approved rate. The rate may not have been approved at that stage, but the group member knows judicial approval of the rate is required.

Common fund approach and open class proceedings consistent with Part IV(A) of Federal Court of Australia Act

The Court observed that a common fund approach to litigation funding charges and legal costs was consistent with the aims of Part IV(A) of the Federal Court of Australia Act 1976 which deals with representative proceedings.

The Court saw a common fund approach as enhancing access to justice by encouraging "open class" representative proceedings as a practical alternative to the "closed class" representative proceedings which are prevalent in funded shareholder class actions. Open class proceedings were seen as more consistent with the opt out representative procedure envisaged by the legislature in enacting Part IV(A).

Finally, the Court said that by encouraging open class proceedings, a common fund approach may reduce the prospects of overlapping or competing class actions and reduce the multiplicity of actions that sometimes occurs with class actions.

The Court considered it appropriate that it supervise litigation funding charges.

What will be the effect of encouraging open class proceedings?

The trade-off in encouraging open class proceedings will be whether it leads to a race to file.

Due diligence in relation to prospective claims prior to filing may suffer. However, plaintiff solicitors will argue that there is still required the Genuine Steps Statement under rule 8.02 of the Federal Court Rules 2011 (Cth), a proper basis certification under section 42 of the Civil Procedure Act 2010 (Vic) or verification of certain pleadings by Part 14 Rule 23 of the Uniform Civil Procedure Rules 2005 (NSW).

The setting of funding commission rates

The Court's expectation is that courts will approve funding commission rates that:

  • avoid excessive or disproportionate charges to class members
  • still recognise the important role of litigation funding in providing access to justice
  • are commercially realistic
  • properly reflect the costs and risks taken by the funder
  • avoid hindsight bias

A court is likely to approve commission rates which produce a figure that is not excessive or disproportionate to the risk taken by the funder. A court may cap the aggregate funding commission. A court may adopt a sliding scale which decreases as the judgment or settlement amount increases.

Whilst it was stated that the Court had no real difficulty in accepting that a 30% funding commission rate is within the range of rates commonly offered, it will be interesting to see if an approved rate of say 10% for a common fund by one court will set the floor or the ceiling for rates considered by others. As is often the case, it is likely to depend on the circumstances.

Paul Bannon
Insurance and reinsurance
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Paul Bannon
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions