The lead applicant in a resolved class action against Bank of Queensland has argued law firm Quinn Emanuel and litigation funder Vannin Capital should have their costs slashed by millions of dollars, saying their fees left little of the settlement for group members.
Under the deal, which Federal Court Justice Bernard Murphy slammed as one of the “worst” he had ever seen in terms of returns for group members, the Bank of Queensland and fund management firm DDH Graham agreed to fork over $12 million.
The case accused the bank and DDH of negligence after an alleged scam by Sherwin Financial Planners resulted in massive losses for investors. The settlement faced objections by 20 class members.
Quinn Emanuel, which launched the action and brokered the settlement, was forced to bow out of the proceedings in April after Vannin challenged the law firm’s fee, initially calculated at more than $4 million. The firm later sought a fee that cut its hourly rate and removed the 25 percent uplift it had charged. Vannin, for its part, sought $4 million in fees, plus a 25 percent commission.
Lead applicant Petersen Superannuation hired Gilbert + Tobin to represent it in the subsequent dispute between the class, Quinn Emanuel and Vannin about how to divvy up the settlement’s spoils between them.
At an interlocutory hearing Wednesday, barrister for the class David Sulan told Judge Murphy that “appropriate deductions” from the fees of Quinn Emanuel and Vannin’s costs would leave 38%, or around $4.52 million, to be distributed to group members.
“As a litmus test or a guide, Your Honour can start with 30 or 40% as to what the court can assume reasonable in the circumstances,” he said.
The “headline numbers” the class was seeking, he said, would reduce Quinn Emanuel’s final reimbursement for fees by $2.5 million to $2.1 million and Vannin’s costs by $1.6 million to $2.4 million. The class also seeks Vannin’s funding commission to be stripped from 25% to 15% for an overall deduction of $1.2 million.
Quinn Emanuel’s barrister Dr Peter Cashman argued the class had no justification for arriving at the deductions.
“There’s no principled basis to apply a mathematical, arithmetical formula,” he told Judge Murphy, adding that any arguments for “proportionality” — adjusting costs and fees in relation to the overall settlement amount — should be more “nuanced”.
A court-ordered report by independent costs referee Roland Matters on Quinn Emanuel’s and Vannin’s costs also sparked a fight, with both the firm and the funder arguing over who should pay a contested amount of almost $310,000, which Matters said was “not reasonably incurred and should be reduced”. The sum included $176,000 of costs already paid by Quinn Emanuel to Vannin and $133,000 outstanding.
In his report, Matters wrote that although he found the contested amount of $310,000 unreasonable, it was “more than balanced by the parsimony that Quinn Emanuel has applied to quantifying legal costs” within the proceedings. In total, the law firm has charged or proposed to charge legal costs of around $4.2 million, not including GST.
Vannin barrister Lachlan Armstrong QC argued that since these were costs incurred by Quinn Emanuel and merely invoiced to Vannin, the law firm should foot the bill. Vannin had followed protocol by only questioning larger invoices that seemed unusual, he told the court.
“In the real world, one can imagine how disruptive it would be to expect funders to have fights with solicitors on small bill amounts over the course of litigation,” he said.
Cashman, who asked why Quinn Emanuel should bear the costs, said the court shouldn’t even weigh into the dispute. “That really is a matter between Vannin and Quinn Emanuel. It’s not something that Your Honour, in our submission, even has power [to hear].”
At the start of Wednesday’s hearing, both Vannin and Quinn Emanuel entered into a voluntary undertaking barring them from taking legal action against group members regardless of what the final ruling on their fees will be. The undertakings do not stop Vannin and Quinn Emanuel from filing separate proceedings against each other, Armstrong told the court.
The proceedings, filed in March 2016, alleged customers of the now defunct Sherwin Financial Planners were advised to invest in Bank of Queensland Money Market Deposit accounts administered by DDH. About 350 investors lost $60 million.
According to the class action, Sherwin Financial acted without authority and fraudulently advised customers to invest in the money market deposit accounts. It also claimed that the Bank of Queensland and DDH, as operators and administrators of these accounts, should have been on notice of any suspicious activity or fraud by Sherwin Financial.
Sherwin Financial was placed into liquidation in January 2013. Director Bradley Sherwin was charged with fraud in April 2015 following an investigation by the Australian Securities and Investments Commission. The 63-year-old pleaded guilty and was sentenced to 10 years in prison in November 2017.
Petersen is represented by Gilbert + Tobin and Vannin Capital by Baker McKenzie. Quinn Emanuel was also permitted to appear.
Sulan is from Banco Chambers, Cashman from Nine Wentworth, and Armstrong from Castan Chambers.
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