Court warns on unrealistic case budgets in small settlement

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This was a shareholder class action which arose out of what Murphy J described as a “scandalous episode of corporate misconduct” (at [2]), and was a case which, at least on liability, was a “slam dunk” (at [5]). Following a long and expensive multiplicity contest, Phi Finney McDonald (PFM) was awarded carriage of the proceeding. Separate civil penalty proceedings brought by the Australian Securities and Investments Commission against the respondents were determined adversely to the respondents. And then, after several years of litigation, the parties ultimately agreed to settle the class action for $1 million, due to the respondents’ insolvency (and the lack of any relevant insurance cover). In this judgment, his Honour was asked to approve the proposed settlement pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth), which his Honour did.

His Honour also approved the following distribution of the settlement sum:

• $100,000 to PFM (leaving them with approximately $3 million in unpaid costs);
• $6,130 to the lead applicant;
• $393,870 to the funder, Therium, as part reimbursement of an ATE insurance premium paid by it (leaving it more than $5.5 million out-of-pocket on account of costs paid to PFM); and
• $500,000 for distribution to registered class members.

Lastly, his Honour also made the following observations about the costs incurred by PFM (notwithstanding that a large portion of those costs will in any event go unpaid) (at [55]):

There is, though, one matter in relation to the applicant’s legal costs which should not pass without comment. The Costs Referee’s report shows that PFM ran up costs which substantially exceeded the case budget that the firm put forward when it won carriage of the proceeding in the multiplicity hearing in April 2018. The Costs Referee, however, opined that this did not show that PFM’s costs were not fair and reasonable because of various matters that arose in the course of the proceeding that PFM could not have anticipated. It is unnecessary to decide, but I am disinclined to accept that. It is important that case budgets that are proposed by competing law firms in a carriage motion are realistic and not a “race to the bottom”. I accept that some of the issues that confronted PFM in the litigation were unexpected, but the case budget PFM put forward was low and very difficult to achieve unless the case could be speedily settled, and obtaining a speedy yet adequate offer of settlement from GetSwift was not within PFM’s control. Unless there is good reason to think this will eventuate (and that is expressed as an assumption) a realistic case budget should not be based on a prediction that the opposing party will make a reasonable settlement proposal at an early stage, and it should include a significant buffer for costs that may arise from unforeseen events in the litigation. Such costs are “known unknowns”; they commonly arise in strenuously contested class action litigation and they are often substantial.

Webb v GetSwift Ltd (No 7) [2023] FCA 90

Federal Court of Australia, Murphy J,
2 February 2023

Applicant’s Solicitors: Phi Finney McDonald
Respondents’ Solicitors: N/A
Applicant’s Funder: Therium Litigation Finance A IC

Austlii link

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