Judge finds units held in trust are indemnified by insurance

‘Add on’ insurance class action – Settlement approval – Power of court to make common fund order at settlement – Sources of power

This is a decision concerning a settlement approval application in relation to an open class consumer class action. The proceeding concerned the sale of ‘add on’ insurance products to consumers across Australia with respect to new motor vehicles purchased from dealers over a period spanning from 2008 to 2017. Broadly, the claims alleged misleading or deceptive conduct, statutory unconscionable conduct and that approximately 450,000 class members purchased the insurance products by reason of mistake. The gross settlement sum payable pursuant to the settlement was $138 million. The settlement contemplated that the funder, Balance Legal Capital I UK Ltd (Balance), be reimbursed its reasonable costs (including various costs paid or payable associated with minimising its risks by the taking out of an ‘after the event’ insurance policy (ATE Policy)) in addition to remuneration of 25% of the gross settlement sum by way of a common fund order (Settlement CFO). The primary issue before Lee J was whether the payment to Balance should be approved.

His Honour approved the settlement, including the Settlement CFO, but not on the terms proposed. His honour allowed Balance to recoup 25% of the gross settlement sum, however, did not allow Balance to recoup the costs it had incurred in taking out the ATE Policy (ATE Costs). The key observations made by his Honour in arriving at this decision were as follows:

  • There is no dicta of a majority of judges of the High Court in BMW Australia Ltd v Brewster (2019) 94 ALJR 51; [2019] HCA 45 for the proposition that there is a want of power to make a Settlement CFO. The Court has the power to make a Settlement CFO under ss 33V(1) or 33V(2) of the Federal Court of Australia Act 1976 (Cth) (FCAA) or in equity.
  • In Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd (2016) 245 FCR 191; [2016] FCAFC 148, the Full Federal Court set out the factors which, depending on the circumstances, are relevant in the fixing of a commission rate for a litigation funder at the end of a class action. It is appropriate for the Court to assess the reasonableness of remuneration using these criteria. The Court undertakes a similar process when fixing remuneration in different contexts. Further, in this case, detailed evidence and other materials were made available to the court.
  • In this case a 25% gross commission was appropriate in light of the following factors:
    • The class action was complex and risky and stoutly resisted, settling only a few weeks before trial. Absent settlement, a positive outcome on the claims was far from certain.
    • The class action required a large financial commitment from Balance and the adverse costs exposure taken on by Balance was significant.
    • The commission sought by Balance was towards the middle of the range of rates offered or accepted by funders for class actions in Australia. The return is not a windfall to Balance.
    • This is a ‘legacy case’ where a judge of the Court, looking at the matter from an ex ante perspective, was content to make a ‘Commencement CFO’ for “not more than 25%” of gross recovery. Although the error of making such orders has been corrected, at least the preliminary indication of a cap in such an order was done without a hindsight bias.
  • The costs of providing security in cases which settle or are otherwise resolved favourably to the class members will ultimately be borne by them, in most cases, indirectly through payments to the funder. It is desirable that Settlement CFOs are made by reference to gross settlement sums. If a funder wishes to defray the risk of performing its central obligation to provide indemnity against adverse costs by paying ATE Costs it is a matter for the funder, but it is not a cost that ought to be passed on separately to class members – it should be incorporated into the commission paid to the funder.
  • While his Honour ultimately approved the Settlement CFO pursuant to s 33V of the FCAA, he would have been prepared to make an order to a similar effect in equity. His Honour observed (at [39]):

… it is consistent with equitable principle to recognise that the applicant and group members seek equity because they claim on a fund in which none of them has an ascertained interest, and accordingly require the aid of the Court to distribute that fund. Therefore they must do equity by allowing payment of the just expenses and remuneration of persons without whom the fund would not have, and could not have, come into existence, such as the litigation funder. Moreover, based on the almost total absence of objection, group members are quite prepared to do equity in this way.

Case details

Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 3) [2020] FCA 1885

Federal Court of Australia, Lee J;
17 December 2020 (judgement) and 28 January 2021 (reasons);
Plaintiff’s Solicitors: Johnson Winter & Slattery;
Defendant’s Solicitors: King & Wood Mallesons;
Plaintiff’s Funder: Balance Legal Capital I UK Ltd;
Austlii link: Accessible here

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