On Tuesday the Full Court of the Federal Court of Australia upheld ASIC’s appeal against court approval of the $82.5 million settlement between former Storm Financial investors and Macquarie Bank.
The settlement arose from a class action brought against the bank by Sydney law firm Levitt Robinson.
Under the settlement, around 315 investors who funded the class action were to be compensated for approximately 42% of their losses (as estimated by Levitt Robinson) while around 735 investors were only to get back about 18% of their losses (as estimated by Levitt Robinson). The difference between the rates of compensation arose from a funders’ premium of $28.875 million (35% of the settlement sum of $82.5 million) to be paid to investors who funded the class action. The funders’ premium was in addition to reimbursement of
Justice Logan approved the settlement in May.
ASIC appealed the decision, challenging the court’s approval of the settlement on the basis the differential distribution of the settlement funds resulted in a lack of fairness to the majority of the members of the class.
The Full Court decided that the distribution of the settlement sum was not fair and reasonable to all class (or group) members. It said that the unfairness arose in two ways: first, the lack of opportunity afforded to class members who were not clients of Levitt Robinson to share in the premium proposed to be paid to those funding the class action; and secondly the inappropriate calculation of the premium by reference to success fees obtained by commercial litigation funders.
ASIC Chairman Greg Medcraft said: ‘We welcome today’s decision. The proposed distribution of the money was irrational and unfair.
‘The disparity between the compensation outcomes for the majority of class action members and the minority of class action members and how that was disclosed, was at the heart of our concerns.’
For more on actions undertaken by ASIC against Storm in recent years click here.