Surplus settlement funds divided between third-party charity and funder

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The Court in this case was tasked with determining who should be paid surplus settlement funds after group members have received 100% of their losses back, eventually deciding to divide it between the funder and the Consumer Action Legal Centre.

This was a class action arising out of ‘junk’ warranties issued by the respondent to motor vehicle purchasers between July 2013 and May 2015.

In an earlier judgment (Evans v Davantage Group Pty Ltd (No 3) [2021] FCA 70), Beach J approved a settlement of the proceeding in the amount of $9.5 million. Unusually, at the date of settlement approval, only a very small proportion of eligible class members had registered to participate in the settlement. As a result, registered class members’ losses were just $2.2 million, while the amount available for distribution to class members under the Settlement Distribution Scheme (SDS) was $3.55 million. Even allowing for a further registration period, it therefore seemed likely that there would be a surplus of funds available for distribution. His Honour rejected the parties’ proposal at the settlement approval hearing that any surplus be paid to registered class members (a situation which his Honour said would have resulted in them receiving a ‘windfall’) and instead ordered that the SDS be amended so that his Honour had full control as to the distribution of any surplus.

In this decision, his Honour was tasked with determining who should be paid the ultimate surplus of $680,000.

The applicant sought an order under s 33V(2) of the Federal Court of Australia Act 1976 (Cth) (FCAA) for the surplus to be paid to registered class members proportionate to the assessed value of their claims, with appropriate deductions to be paid to the litigation funder (Vannin) in the form of supplementary funding commission. His Honour rejected this option on the basis that allocating the surplus to class members who have been fully compensated would constitute a ‘windfall’, a result which his Honour said would be inconsistent with the purpose of Part IVA of the FCAA.

The respondent sought an order under s 33V(2) of the FCAA for it to be paid the surplus. His Honour also rejected this option. His Honour observed that the respondent agreed to settle the proceeding for the settlement sum on the basis of its own risk assessment in order to obtain certainty and finality. In doing so, the respondent did not negotiate or express any interest in the manner of distribution of the settlement sum or the terms of the SDS. In these circumstances, his Honour said that the respondent had no further interest or entitlement in how the surplus was to be dealt with and there was no proper basis to depart from the respondent’s contractual position.

Instead, his Honour imposed his own option. His Honour ordered that 56.5% of the surplus be paid to the Consumer Action Law Centre and 43.5% of the surplus be paid to Vannin. In doing so, his Honour held that the Court has power to make a cy-près type order under s 33V(2) of the FCAA and/or the Court’s equitable jurisdiction to direct payment of settlement funds to a charitable organisation. His Honour nominated the Consumer Action Law Centre as the recipient of the surplus in this proceeding because: (a) it was his nominated recipient, rather than the nomination of the applicant or the applicant’s solicitors; (b) its “objectives … are not unrelated to the types of issues and rights that the group members sought to vindicate in the present proceeding” (at [109]); and (c) his Honour had considered and accepted its suitability as a recipient in another context.

In ordering that 43.5% of the surplus be paid to Vannin, his Honour observed that the funder had sought significantly less than its contractual entitlement at the settlement approval hearing, in order to maximise the feasible return to class members. Notwithstanding this concession, in approving the settlement, his Honour had further significantly reduced the commission payable to Vannin. In these circumstances, his Honour reflected that ordering that the surplus be paid to the respondent may result in funders in future proceedings being “reluctant to adopt the facilitative approach that Vannin did in the present case” (at [116]). His Honour observed that the total return to Vannin in the proceeding would be a multiple of 1.11 times of the aggregate action costs, which was below the 3 times multiple that many cases have indicated is the market rate.

Evans v Davantage Group Pty Ltd (No 4) [2021] FCA 1634

Federal Court of Australia, Beach J,
22 December 2021

Applicant’s Solicitors: Baker & McKenzie;
Respondent’s Solicitors: Herbert Smith Freehills;
Applicant’s Funder: Vannin Operations Ltd

Austlii Link: Available here

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