March 2019


Judge rejects fraud case legal fees

by John Reynolds, KT Journalism

Jailed former financial adviser Bradley Thomas Sherwin's victims have had their expected collective class action settlement payout increased from about $200,000 to $4 million after the Federal Court rejected some lawyer and litigation funder costs.

On November 23, 2018, Justice Bernard Murphy said law firm Quinn Emanuel (QE) and funder Vannin had submitted some unjustifiable and disproportionate costs to be paid from a $12 million settlement. He reduced QE's $4.6 million costs claim to $2.7 million and Vannin's from $7.9 million to $5.9 million.

The class action followed Sherwin being charged with fraudulently transferring money from clients' Bank of Queensland (BoQ) accounts into his own from May 2009 to December 2012.

On November 14, 2017, Sherwin pleaded guilty and was jailed for 10 years but clients claimed BoQ and funds manager DDH Graham should have been aware of Sherwin's fraudulent activities.

BoQ and DDH denied liability but agreed to settle and pay $6 million each.

Justice Murphy said he expected many fund members would remain unsatisfied with the revised costs which would see them receive $4 million from a $12 million settlement and "a relatively large number" wanted to seek more compensation through a trial.

But he believed the negotiated settlement was the best option for victims to receive any compensation.

Class action members' dissatisfaction was "understandable given what has happened to them but they need to keep in mind they would have recovered nothing without Vannin's funding and QE acting largely on a no win-no fee basis," Justice Murphy said.

In their objections to the settlement, 23 of 193 registered members said they believed they could win higher individual payouts from both BoQ and DDH through a trial.

"Many class members are highly aggrieved about the fraudulent misappropriation of their retirement savings and have strong feelings about the case," Justice Murphy said.

"It was only after settlement that class members were told the settlement amount would be substantially consumed by legal costs and funding charges; and it was only after settlement that class members were told that they could not recover compensation for any unauthorised withdrawals from their [accounts] which occurred before March 2010.

"One can readily understand class members' disappointment with a settlement of $12 million inclusive of costs when it is plain they were expecting much more, and it is proposed that it be largely subsumed by legal costs and funding charges."

He said it was "impossible not to sympathise" with people whose life savings were misappropriated by fraud and he understood their anger being directed at BoQ and DDH.

But the case was legally and factually difficult, and class action members were better off with a settlement than if the case had proceeded to trial because it would be difficult to show BoQ and DDH had breached contracts or knowingly assisted Sherwin's fraud.

"There is a significant risk if the case proceeds to hearing the applicants' claims will not succeed and I consider settlement to be plainly reasonable in light of all the circumstances," Justice Murphy said.

"It must be kept firmly in mind it was Sherwin [who] perpetrated the fraud; and there is little in the [court] materials to support allegations [BoQ and DDH] knowingly assisted in the fraud. [Those allegations] have poor prospects of success at trial."

Justice Murphy said BoQ and DDH had shown determination in defending the proceeding and were well resourced. Even if the class action were successful, BoQ and DDH were likely to appeal and legal costs would increase significantly.

 "There are no real winners in a settlement like this," he said.

After the ruling, QE's Damian Scattini said Justice Murphy found litigator and funder costs reasonable but disproportionate to the settlement.

 "This is the court doing its job and we accept that," he told Resolve. "We did the work and our best for those affected, as quickly as we could, to get the best outcome for members."

(Petersen Super Fund Pty Ltd v Bank of Qld Ltd (No 3) [2018] FCA 1842, 23/11/2018)

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Resolve is the official publication of the Australian Insurance Law Association and
the New Zealand Insurance Law Association.