27 May 2013
Updated:13 August 2013
Compensation outcomes under the settlement
The settlement of the Richards class action proceedings against Macquarie Bank Limited, negotiated between Macquarie Bank and solicitors Levitt Robinson, would see Macquarie Bank pay $82.5 million (inclusive of legal and administrative costs) in final settlement of the claims of 1050 Storm clients who took out margin loans with the bank.
Compensation available under the settlement would be distributed having regard to what Levitt Robinson (the solicitors for the applicant in the Richards class action) have called the ‘net equity’ lost by Richards class action members through Storm. In material provided to the Court as part of the process for seeking approval of the settlement, Levitt Robinson estimated that the total of the ‘net equity’ lost by class action members was approximately $270 million.
ASIC calculates that the total loss suffered by Richards class action members to be approximately $358 million. That part of the total loss of $358 million that is allocated to Macquarie in accordance with the ASIC compensation model is approximately $292 million. (For a description of the ASIC compensation model and the allocation of loss between banks, see question 7 and question 12 in the FAQ document in the ASIC/CBA Settlement section of this website.)
Under the negotiated Richards class action settlement, the majority of class action members (around 735 people) would recover about 18% of their lost ‘net equity’ (as estimated by Levitt Robinson). The remaining class action members (around 315 people), who contributed in varying amounts to the funding of the class action, would be reimbursed their legal costs and compensated for approximately 42% of their lost ‘net equity’ (as estimated by Levitt Robinson).
Under the terms of settlement, a member of the Richards class action group was not able to make any further claim against Macquarie Bank for compensation. Any compensation that a class action member received from Macquarie Bank was to be limited to his or her entitlement to compensation under the Richards class action settlement.
As far as ASIC is aware, and possibly subject to one exception, any person who borrowed from Macquarie Bank to invest through Storm is a member of the Richards class action unless the person formally opted out of the class action.
ASIC's concerns about fairness
Levitt Robinson and Macquarie Bank negotiated the settlement. ASIC was not involved in the negotiations. The settlement required approval by the Court.
ASIC intervened in the application for Court approval of the settlement to express concerns about matters affecting the fairness of the settlement arrangements.
ASIC’s concerns centred on:
- the distribution of the compensation money, and in particular the disparity between the compensation outcomes for the majority of class action members who are to recover approximately 18% of their lost ‘net equity’ and the minority of class action members who are to recover approximately 42% of their lost ‘net equity’;
- the quality of disclosure to class action members of the effect of the settlement and the extent of prior disclosure of the prospect of disparate outcomes under a settlement; and
- the uncertainty under the settlement of the rights of class action members to pursue claims against other banks.
The Court considered that the allocation of the compensation money between those class action members who had contributed to payment of costs of the class action, and those class action members who had not contributed to payment of costs, was fair and reasonable. View a copy of ASIC's written submissions in respect of the application for Court approval of the settlement (PDF 92 KB). Part of the written submissions relates to terms of the settlement that are confidential. That part of the submissions has been blacked out.[
Court approval of the proposed settlement
On 3 May 2013 Justice Logan of the Federal Court approved the settlement of the Richards class action proceedings.
The Court considered that the allocation of the compensation money between those class action members who had contributed to payment of costs of the class action, and those class action members who had not contributed to payment of costs, was fair and reasonable.
ASIC’s successful appeal of the settlement approval decision
ASIC appealed the decision of Justice Logan to approve the Richards class action settlement.
ASIC’s appeal related to:
- the distribution of the settlement money, which is not in proportion to losses suffered by class action members;
- whether the funders’ premium for class action members who funded the action amounts to an unfair advantage for those members at the expense of the remaining 70% of class action members;
- whether inadequate notice was given to class action members of the prospect of payment of a funders’ premium; and
- whether class action members who were not clients of Levitt Robinson had the same opportunity to become members of the group funding the action as did those class action members who were clients of Levitt Robinson.
Following a hearing in Brisbane on 5 August 2013, the Full Federal Court delivered its judgment on 12 August 2013, and upheld ASIC’s appeal.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.
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.’
The Court directed the parties to agree, by 19 August 2013, on formal court orders to give effect to the reasons for judgment.
Any queries regarding the Richards settlement should be directed to Levitt Robinson Solicitors.
Levitt Robinson's contact details are:
ASIC’s other Storm related proceedings
ASIC’s actions in connection with Storm continue.
In the Doyle proceedings which has now been settled (brought, in part, on behalf of two former Storm investors Barry and Deanna Doyle), ASIC alleged against Macquarie Bank and Bank of Queensland Limited breach of contract, unconscionable conduct and liability as linked credit providers of Storm. As a result of the settlement, ASIC secured $1.1 million in compensation from Macquarie Bank and Bank of Queensland for Mr and Mrs Doyle for their financial loss arising from their Storm investments (refer to: 13-122MR).
In the UMIS proceedings, ASIC alleged that Macquarie Bank and Bank of Queensland were each knowingly concerned in the conduct by Storm of an illegal managed investment scheme. These proceedings were heard by the Federal Court between September 2012 and February 2013. These proceedings have now been settled. As a result, ASIC's UMIS proceedings against the banks have been dismissed by the Federal Court - see the settlements page.
ASIC is also taking action against Storm Financial founders Emmanuel and Julie Cassimatis for alleged breaches of their directors’ duties - see further information about the Cassimatis civil proceedings.