King & Wood Mallesons

Asia-Pacific 100 position: 3

Premium to funding group members causes Storm Financial class action settlement to fail

The Full Federal Court (Jacobson, Middleton and Gordon JJ) has unanimously upheld the Australian Securities & Investments Commission’s (ASIC’s) appeal against the approval of the settlement of the Storm Financial class action against Macquarie (ASIC v Richards [2013] FCAFC 89), finding that the 35 per cent premium afforded to funding group members, who had contributed varying amounts to fund the class action, was neither fair nor reasonable. The proceedings are the first instance where ASIC has intervened in the settlement of a class action and this judgment marks the first time that the approval of a class action settlement in Australia has been overturned on appeal.

The court upheld ASIC’s appeal for two main reasons: first, because group members were not given an equal opportunity to share in the premium; and, second, because the calculation of the 35 per cent premium by reference to success fees taken by commercial litigation funders was not justifiable.

Mrs Richards commenced the representative proceedings against Macquarie in December 2010. A number of group members entered into retainer agreements with Richards’ lawyers, Levitt Robinson, and agreed to pay levies in order to fund the action. The levies were determined on a sliding scale referable, but not proportional, to the size of the losses incurred by the funding group members…

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