The Full Federal Court decision of Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd [2016] FCAFC 148 is a judgment within a shareholder class action in which the Applicant alleges, on its own behalf and on behalf of an “open class” comprising all persons who acquired an interest in QBE shares in a defined period, misleading and deceptive conduct in connection with the performance of QBE’s business (“Action“).
The Action is primarily funded by International Litigation Funding Partners Pte Ltd (“Funder“).
The Applicant and approximately 1,290 class members (“Funded Class Members“) have each entered into a litigation funding agreement (“Funding Agreement“) with the Funder. The balance of class members has not (“Unfunded Class Members“).
Pursuant to each Funding Agreement, the funded class members agreed that, in consideration for the Funder meeting their legal costs, any adverse costs order and any security for costs, they will, from any settlement or judgment monies they receive, reimburse the Funder the legal costs paid and will also pay the Funder a percentage commission.
The cumulative effect of the Funding Agreements sees Funded Class Members collectively bearing the cost of the Action.
While Unfunded Class Members benefit from the funding arrangements, they were not required to pay the Funder a pro rata share of the funding commission or any share of the legal costs.
The decision relates to an interlocutory application in which the Applicant sought to apply the litigation funding terms to all class members (not just the Funded Class Members). The principal orders sought would oblige all class members to contribute equally to the legal costs and litigation funding costs.
QBE opposed the orders on the following basis:
- The Court was likely to make a ‘funding equalisation order‘ when approving settlement, which would distribute the same proportion of settlement or judgment to all class members and deduct an amount for the funding commission that would have otherwise been payable by Unfunded Class Members.
- A common fund order will result in the Funder receiving a greater (perhaps substantially greater) aggregate funding commission and that both funded and unfunded class members will therefore receive less, which is not in the class members’ interests. It also submitted that the significant increase in the aggregate funding commission under a common fund order will constitute a barrier to settlement which is not in the interests of class members or in the interests of justice.
- Any amounts deducted from Unfunded Class Members’ recoveries should not be paid to the Funder. On its construction of the Funding Agreement, QBE argued that if a ‘funding equalisation order’ is ultimately made, no deductions in settlement monies will be paid to the Funder and instead distributed between all class members.
Murphy, Gleeson and Beach JJ of the Federal Court of Australia held that it is appropriate to require all class members to pay the same pro rata share of legal costs and funding commission from the common fund of any settlement or judgment.
In so finding, the Court proposed orders that included the following safeguards:
- The Court, at an appropriate time, will approve the funding commission at a rate that it considers reasonable, when the Court is armed with better information including as to the quantum or likely quantum of the settlement or judgment.
- Under the previous arrangements, in the event of a very large settlement it might have eventuated that the Funder is entitled to an excessive or disproportionate amount as there is no cap on the aggregate funding commission that Funded Class Members may have to pay, which is significantly ameliorated if not avoided under the proposed orders.
- Under the previous arrangements, Unfunded Class Members faced the prospect that through a funding equalisation order they will be saddled with the deduction from any settlement or judgment of an amount equivalent to the funding commission rate charged to funded class members. Under the orders proposed, unfunded class members will pay a funding commission at a potentially lower rate as the Court considers reasonable.
The proposed orders also contain a floor condition that no class member can be worse off under the orders than he or she would be if such orders were not made. Class members are able to opt out of the proceeding and bring their own case with or without other funding arrangements.
The Court considered that whilst this matter was distinguishable from previous case law on this topic, its position did not depart from that of other courts in dealing with comparable issues.
Moving forward, the Court asserted that,
“..it expects that courts will approve funding commission rates that avoid excessive or disproportionate charges to class members but which recognise the important role of litigation funding in providing access to justice, are commercially realistic and properly reflect the costs and risks taken by the funder, and which avoid hindsight bias.”
This decision suggests there may be a greater propensity for class action members to entertain funded litigation. This will enhance the position of litigation funders as it results in greater profits, and may in turn potentially generate a greater number of funded class actions.
As argued by QBE, an increase in funded class member actions may create increased difficulty in resolving actions if a greater portion of settlements are ultimately paid to funders as opposed to members.
This article was written by Anthony Hillary, Partner and Kimberley Miller-Owen, Solicitor.