The Court has delivered its first decision regarding the appropriate return to be received by a litigation funder.
In the Money Max1 decision late last year, the Court accepted that it could make orders to compel claimants who choose to be part of a class action to contribute a percentage of any settlement monies received to the litigation funder, regardless of whether they entered into a funding agreement with the funder. The recent Blairgowrie v Allco Finance2 settlement approval provided the Court with its first opportunity to exercise that power.
In approving the proposed settlement, the Court accepted that it was reasonable for the litigation funder to receive a funding commission rate of 30% of the net settlement sum (after deduction of the applicants’ legal costs). This results in the funder receiving approximately 22% of the gross settlement sum of $40 million.
In deciding whether the proposed funding commission rate was appropriate, Justice Beach considered a range of factors including:3
- the proportion of group members who had voluntary accepted the funding agreement, and how the proposed rate under the common fund order compared to the rate recoverable under the funding agreement;
- how the proposed rate compared to other funding commission rates available, and to alternative funding mechanisms;
- the risks assumed by the litigation funder;
- whether the commission to be received by the litigation funder was proportionate to the amount received by the group members; and
- whether group members had an opportunity to opt-out of the proceeding, or to notify their objections to the proposed funding commission.
This decision reveals that the question of what will be an appropriate funding rate is complex and may vary from case to case. As a result of this complexity it appears increasingly likely that the determination of the appropriate rate will likely be a question which will remain unanswered until late in the conduct of the proceeding. Where parties seek to compromise the claim they may therefore need to do so on the basis of an assumed return which will then need to be justified to the Court. Funders will be under increasing pressure to persuade the Court that the proposed return represents a fair and reasonable return given the risk assumed by the funder in that proceeding.
Given the prevalence of litigation funding of class actions, there is little doubt that this issue will be the subject of many more decisions to follow.
- Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Limited (2016) 338 ALR 188;  FCAFC 148.
- Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) (No 3)  FCA 330.
- For a full discussion of the factors considered see Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) (No 3)  FCA 330 at -.
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© Herbert Smith Freehills 2020