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Judge ‘vexed’ with deductions in settlement sum
In approving a settlement in a class action against NAB, a Federal Court judge has said there were two deductions that “vexed” him, including the sum to be paid to the funder for insurance and commission.
Naomi Neilson
Justice Michael Lee approved a $20 million settlement sum to group members and creditors of Walton Construction, who alleged a restructuring scheme not only benefited its director but advanced NAB’s interests by limiting its liability under bank guarantees.
In doing so, Justice Lee commended the counsel and solicitors who stepped into the matter in late 2023, following a “chequered and lamentable history” that left the proceedings in a “long period of stasis”.
However, he said deductions from the proposed settlement, sought under the Federal Court of Australia Act 1976, had “vexed” him, starting with the amount to be paid to the funder for “after the event’ insurance (ATE insurance), action costs and its commission.
Justice Lee said it pointed to “one of the problems in this area of law”, being the “inability to compare apples with apples when it comes to the comparative fairness of settlements” in class action proceedings.
“Often, gross settlement sums are said to be subject to a deduction for ‘funder’s commission’ without it being understood that additional amounts are being paid to the funder. This is particularly the case for costs incurred by a funder in deferring risks, such as insurance premium for ATE insurance,” Justice Lee said.
Rather than calculating the amount to be paid to the funder on the basis of any multiplier to its return of capital, or on the basis of a percentage commission, the funder, in this case, calculated the sum on an alternative basis to ensure the interests of group members were prioritised.
In cases like class actions, Justice Lee said the amount in dispute may not appear particularly high, and the settlement can ultimately be relatively modest, “but huge costs have been expended”.
In this case, the funder’s total deductions are about 43 per cent of the $20 million, with further modest deductions for the approval process.
This ensures about half of the settlement goes to group members.
“Every settlement must be looked at closely, and they are all different. But to those experienced in class actions, one can get a general feel as to the relative merits of each class action in generating a return to group members,” Justice Lee said in his written reason for judgment.
The next issue was the lack of progress “and what seemed to me to be unnecessary legal costs being expended in preparing suboptimal pleadings”.
However, Justice Lee said the funder had compromised costs “that would otherwise be payable to legal practitioners” and deferred costs.
“Those negotiating on behalf of the funder are not gaping rustics, and the funder has been well represented,” Justice Lee said.
“I think I can work on the assumption that it would seek to ensure, for its own commercial reasons, that it does not spend an amount for legal costs unnecessarily, and I should have some confidence in the competitive market ensuring that agreed deductions for legal costs are informed by a sensible assessment as to the worth of the legal work completed.”
The case is Williams & Kersten Pty Ltd v National Australia Bank Limited (No 5) [2025] FCA 155.
Naomi Neilson
Naomi Neilson is a senior journalist with a focus on court reporting for Lawyers Weekly.
You can email Naomi at:
