In a judgement handed down on Monday this week in the Newcrest matter, Justice Murphy (formerly of Maurice Blackburn) again ventures in to new territory in class action law this time stating that in his view the Court can review and potentially lower the actual funders commissions to be deducted from settlements in approving class action settlements which are otherwise fair and reasonable.
In his last outing as part of the majority in the QBE case, where the Full Federal Court approved a common fund application (that is, all class members were required to pay a funders commission even if they had not agreed to do so - see our previous Litigation Alert), Murphy J said then that the Court could review and reduce the funders commission at the end of the case where a common fund order was sought.
In the Newcrest case, Murphy J now goes further and, in the context of considering an application for Court approval of a settlement, his Honour set about opining on the power he considered the Court had to review and reduce the funders commission if it thought it was unreasonable or excessive even where the proposed settlement was otherwise fair and reasonable. There was much opposition to the concept of the Court doing anything more than approving or rejecting the proposed settlement and of the Court unilaterally interfering with the contractual terms agreed between the class member and the funder and no other case had resolved this issue. However, Murphy J would have none of this stating that:
“…if in a settlement approval application the Court considers the proposed settlement is fair and reasonable except that the funding commission is excessive or exorbitant, the Court has power to approve the settlement and reduce the funding commission to be deducted pursuant to the terms of the settlement. Having regard to ss 33V, 33ZF(1), 33Z(1)(g) and 23 I do not accept that the Court’s powers are limited to a binary choice between approving or rejecting the proposed settlement. In such circumstances it may be “just”, “appropriate”, or “appropriate or necessary to ensure that justice is done in the proceeding” that the Court make orders approving the settlement but reducing the funding commission to be deducted under the settlement.”
Murphy J also emphatically rejected the notion that even if the Court reduced the commission to be deducted from the settlement sum, the funder could simply turn around and collect the difference from the funded class members under the terms of the funding contracts warning that if this is what a commercial third party funder sought to do and deny they are bound by orders made in the proceedings, “the Court could move to require that funders undertake to do so before class actions are permitted to continue.”
In considering the Court’s power to reduce the funders’ commission to be deducted from the settlement sum, Murphy J said, amongst other matters, that it was not unlike the Court’s powers to reduce the amount in legal fees charged by the claimants lawyers.
In determining whether the funders % in this case was unreasonable or excessive, Murphy J set out in some detail research on “market rates” charged by funders. This part of the judgement provides a wealth of information about the commissions funders have been charging. Murphy J then concluded that the % in this case of between 26% and 30% was probably at the low end of what one could expect given the risks, complexity and costs in the matter.
The judgment, whilst allowing Murphy J another platform to shape the class action landscape, does contain good summaries of certain aspects of the law around the reasonableness of settlements and of funding commissions. In this case, only about 4,400 shareholders out of probably over 80,000 shareholders made up the class, the matter was settled for only $36M, which was much lower than the claimants had expected, it was settled a week before trial in a fiercely contested defence, the lawyers charged $10.7M and the funder $6.8M leaving a little less than 50% for the class members. In all the circumstances, the settlement was approved including the funders commission.
This makes two very recent decision in a row for Murphy J which on the one hand have created a more favourable landscape for funders but on the other hand warns of the Court’s powers to scrutinise their commissions charged and reduce them if considered unreasonable or excessive.
For a copy of the decision please click here.