Court considers fund intervention

The Federal Court has for the first time agreed to consider ordering a class action common fund before a case has concluded and intervening in final settlement commission rates.

In a joint October 26 decision, Justices Bernard Murphy, Jacqueline Gleeson and Barry Beach agreed to hear further arguments in an application for a common class action commission fund brought by Goldie Superannuation Fund trustee Max Money Int Pty Ltd (MMI).

It made the request under Part IVA of the Federal Court of Australia Act 1976 (Cth) as part of its action against insurer QBE for allegedly intentionally writing down Goldie shares by 20% in December 2013.

MMI alleges QBE breached its disclosure obligations and ASX listing rules and engaged in misleading conduct.

It had asked the court to order funded and unfunded members in the action against QBE to contribute to a pool. The request was unusual because courts usually made fund orders only in judgements or when settlements were approved.

While the judges reserved making the order until they had heard further legal arguments, they said they were looking favourably at the application.

QBE opposed the application on several grounds, including its belief an order would increase aggregate funding commissions paid to litigation funders at the expense of class action members, and that any detriment to unfunded members could not be rectified by the right to opt out.

It also argued the Federal Court did not have the power to intervene under sections 33ZF and 23 of the Federal Court Act.

MMI said it was appropriate to order a common fund because most class members involved in the action either supported it or at least were not opposed. It said the Act clearly gave judges the discretion to intervene if justice required it.

The court heard 51 class action members had originally objected to the application, but most admitted they were confused about the purpose of the common fund and 45 subsequently withdrew their objections.

Of the remainder, three did not give intelligible grounds for objecting and did not respond to a request to clarify their positions. One withdrew his objection after being contacted by MMI's lawyers.

The two members who maintained their objections believed the proposed funding commission rate of 32.5% to 35% was too high, especially when legal costs were required to be paid on top of the funding commission. 

MMI said the court could consider an absence of any substantive objection (beyond the two class members who favoured a lower rate of funding commission) as evidence class members considered the proposed funding terms fair, reasonable and in their interests.

The court's view was supported by a ruling in Darwalla Milling Co Pty Ltd & Ors v F Hoffman-La Roche Ltd & Ors (No 2) (2006) 236 ALR 322; [2006] FCA 1388, it said.

The judges said there was some force to QBE's argument but they believed the court was only being asked to consider orders to determine how settlement or judgement money paid by QBE would be distributed.

That would not substantially affect QBE's liability in the proceeding or the quantum of damages QBE may be required to pay.

While they did not fully agree with MMI's argument a lack of objections could be taken as full acceptance, they agreed the "absence of substantive objection is some evidence of class members' assent to what is proposed".

Justices Murphy, Gleeson and Beach also rejected QBE's argument that under sections 33ZF and 23 of the Act, the court could not make such an order except in approving a settlement or delivering a judgement.

Section 33ZF allowed the court "in any proceeding (including an appeal) …  of its own motion or on application by a party or a group member, make any order the court thinks appropriate or necessary to ensure justice is done in the proceeding".

They said the important words to consider were a judge "thinking" an order was "appropriate or necessary to ensure justice is done".

Justice Beach had set the unchallenged precedent in Earglow Pty Ltd v Newcrest Mining Ltd [2015] FCA 328; (2015) 230 FCR 469 when he found a judge could intervene at any time during a case if he or she thought it necessary in the interest of justice.

While not yet making a common fund order, the judges said they were looking favourably at the application because it was fairer if all beneficiaries shared costs.

"A common fund approach may reduce the prospect of overlapping or competing class actions and reduce the multiplicity of actions that sometimes occur," they said.

As a safeguard against excessive funder commissions, the judges said final commissions should be determined by trial judges, capped at 32.5% to 35% but probably lower.

They said a floor condition should be inserted in all common fund agreements to ensure no class members were worse off under common fund arrangements.

"It is time the court gives further consideration to the interests of class members in relation to the reasonableness of litigation funding charges," Justices Murphy, Gleeson and Beach said.

Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd [2016] FCAFC 148, 26/10/16