Attempt to claim costs for ‘After the Event’ insurance rejected by court in Opal Tower action

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This was a class action on behalf of owners of units in a 36-storey residential building known as ‘Opal Tower’, located in Sydney Olympic Park, in connection with the building’s construction and partial structural failure.

In this judgment, Black J delivered his reasons for approving a settlement of the proceeding in the amount of (approximately) $50 million. His Honour was satisfied that the settlement was fair and reasonable to class members as a whole, including because it represented a significant percentage of the “best case” outcome for the plaintiffs and class members in the proceeding, notwithstanding significant risks. His Honour was also satisfied that the settlement was fair and reasonable between class members, including because the method for distributing the settlement sum under the Settlement Distribution Scheme (SDS) reflected the manner in which the plaintiffs’ case was to be put if the trial had proceeded.

His Honour also found that the following deductions from the settlement sum sought by the plaintiff were fair and reasonable:

• $6.5 million for the plaintiffs’ legal costs and disbursements. His Honour observed that the plaintiffs had engaged an independent costs assessor (Mr Ronald Matters), who had opined that the amount sought by the plaintiffs was reasonable, after excluding $232,203 for work undertaken by the plaintiffs’ solicitors in the period 3 January 2019 to 8 February 2019. His Honour accepted the submission by the Court appointed contradictor (Dr Ruth Higgins SC) that the methodology adopted by the costs assessor was appropriate. In approving the plaintiffs’ costs and disbursements, his Honour also noted that: (i) there was no basis to exclude the practice of the rounding up of time to the next six minute increment, “particularly where it is not apparent what alternative basis for assessment of the legal representatives’ costs could be put in its place” (at [95]); (ii) there was no reason to doubt that attendances by two or more personnel of the plaintiffs’ solicitors for thirty minutes or more; and (iii) there was no apparent reason to doubt the proportionality of the legal costs and disbursements incurred.
• $20,000 to each of the representative plaintiffs to reimburse them for the time spent and expenditure incurred in the proceeding for the benefit of class members.

However, his Honour was not satisfied that the proposed deductions from the settlement sum for the funder’s commission ($13.1 million) and the costs of ‘after the event’ insurance (ATE insurance) it obtained ($5.1 million) were fair and reasonable. The reasons why his Honour did not approve those deductions included the following:

• The proposed deductions would have delivered the funder 36.4% of the gross settlement sum (26% for commission and 10.4% for ATE insurance costs), which was well above the amount that would ordinarily be allowed for a funding commission.
• Neither the plaintiffs nor the funder adduced any expert or other evidence regarding the return on investment generated for the funder, a reasonable rate of return on its invested capital having regard to the level of risk it assumed in the proceeding, or the equity beta for funders locally or globally. While his Honour recognised that the funder was not “required” to lead such evidence, his Honour said that “it seems to me that the Courts should be vigilant to ensure that litigation funders are not recovering funding commissions or other deductions which they cannot or choose not to justify by adequate evidence, and that the trend to increased scrutiny of funding arrangements in recent case law is to be welcomed” (at [69]). In these circumstances, his Honour found that the funder had not justified recovering a percentage of the gross settlement sum that was well above the return permitted in other cases, including those in which better evidence was led by the parties (e.g. Haselhurst v Toyota Motor Corporation Australia Ltd t/as Toyota Australia [2022] NSWSC 1076 and Endeavour River Pty Ltd v MG Responsible Entity Ltd (No 2) [2020] FCA 968).
• While the funding commission was disclosed to class members before they entered into funding agreements, the information provided to them did not disclose, or did not adequately disclose: (i) the potential size of the ATE insurance costs; (ii) the fact that class members would be asked to separately reimburse the funder for the cost of protection against adverse costs that is often included within the funding commission; or (iii) the real possibility that their returns from a settlement would be substantially eroded by deductions for ATE insurance costs.
• Under the funding agreements executed by the plaintiffs and class members, the funder’s entitlement to commission was expressly limited so that it would not exceed any amount that the Court determined to be reasonable in all the circumstances. Together with the disclosure issues regarding the ATE insurance costs, his Honour found that the present case was in a different category to Wetdal Pty Ltd as Trustee for the BlueCo Two Superannuation Fund v Estia Health Ltd [2021] FCA 475, in which Beach J approved the reimbursement of ATE costs in addition to funding commission, on the basis that this was expressly agreed in the applicable funding agreements. His Honour referred with approval to Lee J’s comments regarding the recovery of ATE insurance costs in Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 3) (2020) 385 ALR 625; [2020] FCA 1885 (at [32]):
  
  the costs of the funder performing its central obligation to provide an indemnity against adverse costs. If a funder wishes to defray their risk of performing that obligation it is matter for the funder but, in my view, it is not a cost that ought be passed on separately.

In light of the above, his Honour found that the funder was not entitled to recover its ATE insurance costs on top of its funding commission. His Honour said that he would allow no more than a deduction to the funder equating to a multiple of 2.6X the project costs, being the commission rate disclosed to class members in their funding agreements. However, a 2.6X multiplier would have resulted in the funder receiving 29.56% of the gross settlement sum, which his Honour said was “not justified by any evidence that that would be an objectively reasonable rate of return on [the funder’s] investment” (at [86]).

Ultimately, his Honour agreed with the contradictor that a fair and reasonable settlement would be achieved if the total deduction for the funder’s commission and ATE insurance costs was 25% of the gross settlement sum. In so finding, his Honour observed that no question arose as to the Court’s power to override the parties’ contractual entitlements in the course of approving the settlement, because (as set out above) the funding agreements expressly provided that the funder’s commission was not to exceed any amount that the Court determined to be reasonable in all the circumstances.

Williamson v Sydney Olympic Park Authority [2022] NSWSC 1618

Supreme Court of New South Wales, Black J,
28 November 2022

Plaintiffs’ Solicitors: Corrs Chambers Westgarth
Second Defendant’s Solicitors: MinterEllison
Third Defendant’s Solicitors: DLA Piper
Plaintiffs’ Funder’s Solicitors: M2M Law
Plaintiffs’ Funder: Augusta Pool 1 UK Ltd

Austlii Link: Available here

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