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13-214MR ASIC successful in appeal against Storm settlement deal
The Full Court of the Federal Court of Australia today 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 legal costs.
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 (refer: 13-120MR).
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.’
The Full Court said: ‘In the circumstances outlined, the settlement cannot be said to be fair and reasonable to all group members. A substantial wrong has occurred which the Court is obliged to correct.’
In discussing the funders’ premium aspect of the settlement, Justices Jacobson, Middleton and Gordon said:
‘In the present case, not only was there inequality of opportunity afforded to group members to share in the Funders’ Premium but advantageous terms were offered, after the settlement was reached at the mediation, and those terms were available only to clients of Levitt Robinson. If there is an analogy, it is that a small number of group members (who were also clients of Levitt Robinson) were able to place a bet on a horse race after the race had run and knowing the result of the race.’
ASIC’s dedicated Storm website details the actions undertaken in recent years: https://storm.asic.gov.au
In September 2012 ASIC agreed to settle legal proceedings against Commonwealth Bank of Australia in relation to Storm in return for CBA agreeing to make available up to $136 million as compensation for losses suffered by Storm investors. This amount was in addition to payments of approximately $132 million, and other benefits, previously provided to Storm investors by CBA (refer: 12-227MR).
In May 2013 ASIC secured $1.1 million in compensation from Macquarie Bank and Bank of Queensland for two former Storm investors, Barry and Deanna Doyle, for their financial loss arising from their Storm investments (refer: 13-122MR).
ASIC has also alleged that Macquarie Bank, along with Bank of Queensland, was knowingly concerned in the conduct by Storm of an illegal managed investment scheme. Judgment in this case has been reserved.
ASIC is also taking action against Storm Financial founders Emmanuel and Julie Cassimatis (refer: 13-158MR).
Following the decision of the Full Court in August 2013 to overturn the court's approval of the settlement, a second settlement agreement was negotiated between Ms Richards, the lead applicant and Macquarie Bank.
The total settlement amount remained at $82.5m inclusive of legal costs. The proposed distribution between the members of the class did not include a funding premium to those members of the class who funded the action.
The application to approve the new settlement was heard by Justice Logan in Brisbane on 12 and 13 December and the court approved the second settlement scheme on 20 December 2013.
The Administrator of the scheme is responsible for sending class members notice of the settlement and what steps they need to take to register for participation in the settlement. Class members should in the first instance contact Levitt Robinson Solicitors on (02) 9286 3133 with any questions.