Banksia battle over funding commission from 3rd party insurance claim

This is a class action that was commenced by Mr Bolitho on behalf of debenture holders following Banksia’s collapse.

This is a class action that was commenced by Mr Bolitho on behalf of debenture holders in Banksia Securities Ltd (Banksia), following Banksia’s collapse. The defendants to the proceeding included Banksia itself, as well as the trustee for the debenture holders, and several other defendants. Special purpose receivers (SPRs) were appointed by the Court to Banksia, and were responsible for the conduct of the proceeding on behalf of Banksia as one of the defendants.

In the course of the proceeding, the SPRs caused Banksia to file a third party claim against Banksia’s insurance broker (being Insurance House Pty Ltd) alleging, in essence, that the insurance which it arranged for Banksia was unsuitable and inadequate for its purposes (Insurance Broker Claim). All of the claims in the proceeding, other than the Insurance Broker Claim, had previously settled.

The SPRs then agreed to a proposed settlement of the Insurance Broker Claim in the amount of $5.5 million. The plaintiff in the class action, Mr Bolitho, was not a party to the proposed settlement. It was proposed that, upon receipt of the settlement sum by the SPRs, the SPRs would distribute that sum to Banksia’s debenture holders (for whose benefit the SPRs were appointed) (i.e. it was not proposed that the settlement sum would be ‘funnelled’ back through the class action plaintiff for distribution to the debenture holders).

In this judgment, John Dixon J dealt with two presently relevant (and in some respects related) issues:

  • first, whether the settlement of the Insurance Broker Claim (being a third party claim filed by a defendant in the context of a class action) required the approval of the Court under s 33V of the Supreme Court Act 1986 (Vic) (SCA) (Approval Issue); and
  • second, whether Mr Bolitho’s funder (Australian Funding Partners Ltd (AFPL)), which funded the class action on behalf of Mr Bolitho and the class members, was entitled to claim a funding commission (in the amount of $687,500) out of the settlement proceeds of the Insurance Broker Claim pursuant to its funding agreements with class members (and subject to a funding equalisation order being made) (Funding Commission Issue).

Both of those issues were answered in the negative by his Honour.

In relation to the Approval Issue, his Honour noted (at [73]-[77]) that:

a third party notice is, under the Supreme Court (General Civil Procedure) Rules 2015 (Vic), an originating process as between defendant and third party (and thus, in essence, a separate proceeding between those parties, albeit notionally filed in the main proceeding);

  • by contrast, a ‘group proceeding’, for the purposes of s 33V, is a proceeding commenced under Part 4A of the SCA, and must meet the requirements of that Part (which the Insurance Broker Claim did not);
  • the fact that the Insurance Broker Claim was raised by way of a third party claim within the class action, and involved joining the insurance broker as a third party to that action, did not make the Insurance Broker Claim, of itself, a ‘group proceeding’, and nor did the settlement of the Insurance Broker Claim involve any settlement of any claim made in the ‘group proceeding’; and
  • accordingly, s 33V was not engaged (which also meant that s 33V(2) was not available to assist AFPL in relation to the Funding Commission Issue).

(Notwithstanding the above, the SPRs sought the Court’s approval for the proposed settlement by way of a direction under s 283HB of the Corporations Act 2001 (Cth), which his Honour was satisfied should be given.)

In relation to the Funding Commission Issue, his Honour (at [78]-[96]):

reviewed the terms of AFPL’s funding agreements, and particularly the definitions of ‘Resolution Sum’, ‘Claims’, ‘Defendants’, ‘Proceedings’ and ‘Class Action’;

  • found that, on the proper construction of the funding agreements, the Insurance Broker Claim was not a ‘Claim’ within the meaning of those agreements (which was clearly limited to the claims as between plaintiff and defendant(s) in the class action, and did not encompass some third party claim which happened to be brought by one of those defendants in the context of the class action);
  • also noted that it was not to the point that the settlement funds arising from the Insurance Broker Claim would eventually be paid by the SPRs to the debenture holders (being the class members in the class action) – those proceeds will be distributed to debenture holders as creditors in the receivership, not as class members in the class action; and
  • found, therefore, that the settlement funds did not fall within the definition of ‘Resolution Sum’ under the funding agreements.

Although not necessary for the above conclusion, his Honour also noted that AFPL had only funded the class action and had not provided any funding for the separate Insurance Broker Claim (which was funded by the SPRs themselves), nor was it on risk for any adverse costs order arising from the Insurance Broker Claim, and that (at [102]):

AFPL’s claim was rightly described as a spotter’s fee. That expression encapsulates the extremely tenuous connection between the amount claimed, work performed and risk taken by AFPL in the third party claim. For the reasons I have given, such a fee cannot be justified by reference to the terms of the litigation funding agreement. More broadly, it could not be contended that such a fee was contemplated by Part 4A of the [SCA] had it applied to the third party claim.

Case details

Banksia Securities Ltd (recs & mgrs pptd) (in liq) v The Insurance House Pty Ltd [2020] VSC 123

  • Supreme Court of Victoria, John Dixon J, 24 March 2020
  • Plaintiff’s Solicitors: Crow Legal
  • Defendant’s Solicitors: Maddocks
  • Third Party’s Solicitors: Sparke Helmore
  • Funder’s Solicitors: Arnold Bloch Leibler
  • Contradictor’s Solicitors: Corrs Chambers Westgarth
  • Plaintiff’s Funder: Australian Funding Partners Ltd

Read more about this case on Austlii: Banksia Securities Ltd (recs & mgrs pptd) (in liq) v The Insurance House Pty Ltd [2020] VSC 123

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