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This is a shareholder class action against EML Payments Ltd (EML) arising out of EML’s disclosure in May 2021 that the Central Bank of Ireland had raised significant anti-money laundering/counter-terrorism financing risk and control frameworks and governance at one of its European businesses. The plaintiffs allege EML breached its continuous disclosure obligations and engaged in misleading or deceptive conduct by making statements as to the robustness of its compliance and governance framework.

In this judgment, Delany J approved the plaintiffs’ application for a group costs order (GCO), pursuant to s 33ZDA of the Supreme Court Act 1986 (Vic) (SCA). However, his Honour refused the plaintiffs’ application to fix the legal costs payable as a percentage of any judgment or settlement at 30%. Rather, his Honour concluded that the appropriate rate was 24.5%.

His Honour found that it was appropriate to make a GCO in the proceeding for the following reasons:

  • A GCO would fairly distribute the burden of legal costs among all class members, while giving certainty and transparency to the percentage net return to class members.
  • A GCO would not expose the plaintiffs to significant and disproportionate exposure to financial risks as a result of assuming that role.
  • A GCO would put the proceeding on a stable base of funding, and avoid the risk of the proceeding either being discontinued, abandoned, delayed or made uncertain. It would also result in the plaintiffs’ lawyers (Shine Lawyers) indemnifying the plaintiffs for the payment of any security for costs and adverse costs ordered in the proceeding.
  • A GCO would result in a greater return to the plaintiffs and class members than a third-party litigation funding agreement at the same percentage.
  • There was no controversy about the financial ability of Shine Lawyers to fund the proceeding.

However, his Honour was not willing to set the GCO at the rate of 30% sought by the plaintiffs. His Honour acknowledged that, unless a litigation funder was willing to fund the proceeding for a commission of less than 20%, class members would be better off with a 30% GCO. However, his Honour observed that “[n]o steps have been taken to obtain litigation funding” and “based on funding arrangements in other shareholder class actions, it seems likely that litigation funding at a commission rate of 20% or perhaps less would be able to be obtained” (at [83]). His Honour also found that Shine Lawyer’s costs estimates for discovery and subpoenas were overstated and that, once the estimate of legal costs was reduced to reflect both that over-statement and the lesser uplift chargeable in a funded proceeding, “the benefits to group members of a 30% GCO compared to a litigation funder model at 20% are, at least in a high settlement scenario, harder to identify” (at [84]).

His Honour was also not convinced that third-party litigation funding was, in fact, the appropriate proxy against which the proposed GCO rate should be measured. His Honour observed that while the costs agreement provided that third-party litigation funding “may” be sought if a GCO is not made, it would not permit Shine Lawyers to seek third-party litigation funding if a GCO rate is made at a rate lower than 30%. His Honour said that another relevant measure was a no win no fee (NWNF) funding model, and observed that the evidence demonstrated that class members would be materially better off in two of the three modelled scenarios if Shine Lawyers was prepared to proceed on a NWNF basis.

Another important reason for his Honour’s refusal to set a 30% GCO was the GCO percentage ordered in other similar proceedings. His Honour noted that, in chronological order, the GCO rates approved in earlier cases were: 27.5% in Allen v G8 Education Ltd [2022] VSC 32; 40% in Bogan v The Estate of Peter John Smedley (deceased) [2022] VSC 201 (Bogan); 24.5% in Nelson v Beach Energy; Sanders v Beach Energy [2022] VSC 424 (Beach Energy); and 22% in Gehrke v Noumi Ltd [2022] VSC 672 (Noumi). His Honour said that the plaintiffs had identified no distinguishing features about the present case that would set it apart from other shareholder class actions where GCOs have been ordered. His Honour rejected the submission that the absence of competition in the present case set it apart from the circumstances in which GCOs were fixed in Beach Energy and Noumi. His Honour inferred that Shine Lawyers would be willing to conduct the present case in return for a GCO set at 24.5% because that was the rate sought by Shine Lawyers in the Beach Energy shareholder class action, and the plaintiffs had adduced no evidence and made no submissions which sought to distinguish between the risk profile in Beach Energy and the present case.

Finally, his Honour said that the GCO of 40% fixed in Bogan could be put to one side. First, because of the particular liability and recovery risk considerations that applied in that case. Second, because the evidence in Bogan was that, unless a GCO at 40% was made, the case would not have gone forward. Neither of those factors applied in the present case.

In all the circumstances, his Honour concluded that a 24.5% GCO reflected costs that were no more than fair and reasonable. His Honour noted that s 33ZDA(3) of the SCA allows the Court to review a GCO percentage once information informing proportionality becomes available. Nevertheless, his Honour said that the 24.5% GCO would create “a default position from which there will be at least be [sic] a practical onus upon those who urge departure on either settlement approval or following the conclusion of the proceeding to displace the s 33ZDA(1) percentage” (at [95]).

Mumford v EML Payments Ltd [2022] VSC 750

Supreme Court of Victoria, Delany J,
6 December 2022

Plaintiffs’ Solicitors: Shine Lawyers
Defendant’s Solicitors: Herbert Smith Freehills
Plaintiffs’ Funder: N/A

Austlii Link: Available here

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