Perera v GetSwift Limited  FCA 732
This decision provides guidance to practitioners, aggrieved investors and litigation funders in the post common fund era of the competitive securities class actions space.
Earlier this year, three overlapping open securities class action were commenced against the same respondent, GetSwift Limited, in the Federal Court of Australia. The lead applicants in each of those class actions sought to represent essentially the same investors in advancing cases that are substantially the same against the respondent. The Federal Court was tasked with deciding how best to resolve the overlap while protecting the interest of the investors who are proposed to be the class members.
Justice Lee permanently stayed two of the three class actions and allowed one action (the Webb Class Action) to proceed. In doing so, his Honour adopted a “multifactorial approach” to the assessment as to which of the three class actions should proceed. In summary, three key features of the Webb Class Action stood out as being advantageous when compared with the others.
First, the Webb Class Action involved a proposed two-tiered funding model (Two Tiered Model), under which the return to the litigation funder (in the event of a settlement or judgment in the applicant’s favour) was on the lower of:
- multiple of the expenses that the funder had paid in the proceeding (being 2.2 times if the parties in the proceeding enter into a settlement agreement on or before 12 april 2019, and that settlement subsequently receives court approval; or 2.8 times if there is a successful resolution after 12 april 2019); or
- 20% of the net litigation proceeds (settlement or judgment sum less approved professional fees and disbursements).
The Court considered that the Two Tiered Model had the following advantages:
- it recognised the reality that the risk of a funder increases incrementally as legal costs increase;
- it better reflects the fact that litigation funders are promoting the provision of legal support and hence have become indirectly engaged in the provision of legal services to a client;
- it prevents windfalls to litigation funders, where the net litigation proceeds are high;
- it also guards against disproportionality where the net litigation proceeds are disproportionately low compared with the legal costs expended; and
- provision of commissions purely on “headline” percentages may lead to a form of reverse auction where the funders’ proposals are not struck by reference to material assessments of risk and proportionate and commensurate return, but by competitive undercutting by press release or twitter.
Second, the Webb Class Action involved innovative ways of seeking to reduce costs as follows:
- a proposal that the Court appoints a referee who progressively monitors legal costs, so that the multiple-based commission is calculated by reference to costs that have been scrutinised. In addition, having a referee control costs during the course of proceedings is also likely to make the settlement process more efficient when costs need to be assessed for any ultimate settlement approval. As a cost control measure, appointing a referee is also superior to cost capping, as the latter may encourage a respondent to wear down the resources of an applicant subject to a cap; and
- it is open to the prospect of an appointment of a joint expert on questions of loss causation and the quantification of loss and damage, which would likely lead to a significant saving of costs.
Third, based on a comparative analysis of the most likely returns to class members in a range of different scenarios on the basis of common costs assumptions, the Webb Class Action is very likely to produce a better return for class members in the vast bulk of realistic scenarios at all stages of the proceedings.
Whilst the Webb Class Action won the “beauty parade”, the ultimate winners from this decision are class members.
Based on early indications made to the Court, it is possible that an appeal will follow.