Court approves settlements in trio of flex commissions class actions

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These three judgments concerned approval of settlements in three separate, but related, proceedings arising out of the charging of undisclosed ‘flex commissions’ paid to car dealers in connection with loans arranged by car dealers and entered into between January 2011 and March 2016 (in the O’Brien proceeding) or March 2013 and October 2018 (in the Nathan and Fox proceedings). All three cases were case managed together.

The claims arose from arrangements whereby the defendant lenders notified car dealers of a ‘base rate’ of interest, but permitted dealers a discretion to set higher contract rates, with the lenders paying dealers a commission on the difference. A consequence of this arrangement was that the higher the rate of interest set by the dealer, the greater the flex commission and the greater the return to the lender. The plaintiffs alleged that this conduct was unfair for the purposes of section 180A of the National Consumer Credit Protection Act 2009 (Cth) (NCCPA), constituted misleading or deceptive conduct contrary to section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth), and gave rise to claims in mistake at law (which entitled the plaintiffs and group members to rescission of the loan contracts or rendered them void or voidable). The claims under the NCCPA and for misleading or deceptive conduct were subject to a six-year limitation period.

The O’Brien proceeding settled shortly before trial for an amount of $85 million. The Nathan and Fox proceedings settled after trial, but before judgment, for $56.5 million and $130 million respectively. At the time of settlement, there were more than 300,000 registered group members in each of the O’Brien and Fox proceedings, and more than 150,000 registered group members in the Nathan proceeding. The evidence was that the proposed settlement and distribution scheme in each case was the subject of extensive modelling by the plaintiffs’ legal team of the estimated value of the plaintiffs’ and group members’ claims.

The methodology for assessing loss was based on a forensic expert report, which calculated loss as the difference between the actual interest paid under the contract rate and the interest that would have been paid at the ‘base rate’ (plus statutory Court interest). The settlement distribution scheme provided for different calculations between two classes: (i) those with loans that were entered into within six years prior to commencement of the proceeding (who therefore had statutory claims under the NCCPA and for misleading or deceptive conduct); and (ii) those with earlier loans (whose statutory claims were barred by limitation periods, and therefore only had ‘mistake’ claims). For the purposes of settlement distribution, the claims of the mistake-only claimants were discounted by ~90%, which was based on an assessment of the risks associated with those claims, having regard to the more limited basis of the claims and the defences pleaded.

Justice Harris separately approved each settlement, finding it fair and reasonable having regard to the litigation risks, particularly for the mistake-based claims which faced more significant barriers to success. For example, in the O’Brien proceeding Harris J concluded (at [76]) that “the figure is comfortably within the range of what is a reasonable and fair settlement amount for group members”, and in the Fox proceeding (at [63]):

I accepted, based on the evidence and submissions, that the settlement sum was fair and reasonable. It was within the range of reasonable outcomes to resolve the plaintiffs’ and group members’ claims, and was arrived at rationally, having been informed by the extensive modelling described above of all the group members’ losses.

Her Honour also approved the group costs order providing for the plaintiffs’ solicitors to receive 24.5% of each settlement sum on account of legal costs. This percentage had been established by a group costs order made in each proceeding by Nichols J in March 2023. Justice Harris found no reason to vary the percentage rate, and specifically found that it remained within the mid-range of percentage rates in comparable group costs orders. Her Honour emphasised that the benefits of certainty and transparency had been served throughout the interlocutory phase of the proceedings and for the purposes of informing a mediated compromise. Pursuant to Maurice Blackburn's cost sharing arrangement with the funder Vannin, as agreed prior to the group costs order application, Vannin was obliged to pay 50% of the proceeding costs including professional fees and disbursements, and 50% of any adverse costs or security for costs; and Maurice Blackburn was obligated to pay Vannin 50% of any group costs order payment it received in the proceeding. Her Honour also separately approved settlement administration costs in each proceeding, and payments to each of the lead plaintiffs in amounts between $20,000 and $40,000 each.

Lastly, there were a small number of objections to some of the settlements, mostly by group members who had mistake-only claims (who contended that their claims should be valued at a higher amount for settlement distribution purposes). Those objections were considered in detail, but for the reasons set out above, were dismissed and did not prevent approval of the settlements.

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