The Australian Securities and Investments Commission (ASIC) has effectively called into question the basis upon which litigation funders extract their return, by moving to appeal the Federal Court settlement between Macquarie Bank and Storm Financial Limited investors.
A key factor underlying the ASIC appeal is that the companies and individuals who funded the class action which led to the Macquarie Bank settlement received more than the regulator believed was appropriate.
According to the documents filed by ASIC, under the settlement, around 315 investors who funded the class action will be reimbursed their legal costs and also compensated for approximately 42 per cent of their losses, while around 735 Macquarie borrowers will get back about only 18 per cent of their losses.
The regulator is therefore basing its appeal, in part, upon whether a funder's premium for class action members who funded the action "amounts to an unfair advantage for those members at the expense of the remaining 70 per cent of class action members".
In doing so, the regulator is not only raising questions with respect to the Macquarie settlement with Storm Financial but also other cases in which those funding the action, including specialist litigation funding companies, receive a premium.
Commenting on the reasons for ASIC's action, the regulator's deputy chairman, Peter Kell said: "Settlement of a class action should be undertaken in the interests of the class action group as a whole".
"ASIC's appeal raises the question whether this settlement was unfair to the 70 per cent of class action members who did not, or were unable to, contribute to the funding of the action," he said.
ASIC has made clear that it is still involved in legal action relating to the collapse of Storm Financial, including against Macquarie Bank.
"ASIC's various actions in connection with Storm continue, including its proceeding (brought in part on behalf of two former Storm investors) against Macquarie Bank, Bank of Queensland Limited, and Senrac Pty Limited, with ASIC alleging unconscionable conduct in connection with their dealings with Storm investors. The trial is scheduled to start on 3 June 2013," the regulator's announcement said.
"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."
