‘Throwing good money after bad’: Judge approves low settlement; declares further investigation unlikely to improve settlement amount

Federal Court decides that further investigative efforts in this case are a ‘case of throwing good money after bad’ and approves a lower than expected settlement, with all class members agreeing to the offer.

This was an application for approval of a proposed settlement pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth). The amount of the settlement could only be described as miniscule in comparison to the ‘headline’ value of the applicant’s and class members’ claims, but was nevertheless sought to be justified on the basis that there were no other sources of funds available to satisfy a larger judgment or with which to pay a larger settlement sum.

In an earlier judgment (Bywater v Appco Group Australia Pty Ltd [2020] FCA 1537) Lee J declined to approve the proposed settlement and instead adjourned it on the basis that further investigations by the applicant’s solicitors ought be undertaken as to whether, in fact, there may be other sources of funds available to satisfy a judgment (or to pay a larger settlement sum), notwithstanding that the applicant’s funder had indicated that it was not prepared to fund those investigations.

Some further investigations were then undertaken by the applicant’s solicitors, which did not bear any substantial fruit. Following those investigations, a notice was sent to all class members advising them of the outcome of the further investigations and seeking an indication as to whether or not they supported the proposed settlement (notwithstanding the token return which they stood to receive). In circumstances where the overwhelming majority of class members indicated their support for the proposed settlement, his Honour was willing to approve it (but also granted leave for two class members to belatedly opt out of the proceeding, who had indicated in response to the notice that they wished to do so). His Honour concluded (at [8]):

In circumstances where group members overwhelmingly take the attitude that they have, together with the fact that I am satisfied that further attempts to augment any sum for settlement will likely be a case of throwing good money after bad, I have reached the conclusion that I ought now approve the settlement; it being fair and reasonable and in the interests of all group members, notwithstanding these rather unusual circumstances.

Thus, the end result was that a settlement in the amount of $2.05 million was approved, from which the following deductions would be made:

  • $512,500 (25%) to the applicant’s funder;
  • $40,000 for settlement administration costs;
  • $35,000 for the costs of the further investigations; and
  • a reimbursement payment to the lead applicant of $5,000, (thus leaving $1,457,500 (71%) for distribution to class members).

Case details

Bywater v Appco Group Australia Pty Ltd [2020] FCA 1877
Federal Court of Australia, Lee J;
24 December 2020;
Applicant’s Solicitors: Adero Law;
Respondent’s Solicitors: Baker McKenzie
Applicant’s Funder: Harbour Fund III, L.P.;
Austlii link: Accessible here.

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