Class actions brought by victims of the failed Willmott Forests managed investment scheme have come to a close, two years after a judge issued a stunning ruling rejecting an initial settlement as favoring clients of M&K Lawyers over other investors, and including payment of a hefty legal bill.
The lead applicants in the four overlapping actions, brought against Willmott, and lenders Commonwealth Bank of Australia and CBA subsidiary MIS Funding, filed a notice of discontinuance in the Federal Court on Monday.
A spokesperson for M&K did not return a request for comment and lawyers for the defendant companies, Herbert Smith Freehills, declined to comment Wednesday.
The class actions settled on terms Justice Bernard Murphy agreed to in December 2016, but the cases remained open to assess the fairness of M&K’s legal costs.
The law firm’s fees were criticised in Judge Murphy’s April 2016 ruling rejecting the initial settlement. That agreement was not fair and reasonable to all investors, the judge had said, because it failed to consider the rights of group members not represented by M&K.
The Willmott Forests managed investments schemes collapsed in 2010, and investors owed CBA $200 million.
The class actions alleged that the scheme’s product disclosure statements did not adequately disclose the risks to investors, which had borrowed funds to invest in the schemes through loans from CBA and MIS Funding. The class members sought damages and a ruling that the loans were invalid and unenforceable.
An opt-out regime in the case resulted in two groups of class members: those represented by M&K and unrepresented investors. Justice Murphy said the interests of both had to be weighed when considering a settlement and that the deal, which included an admission by the class that the loans were valid, precluded unrepresented group members from defending proceedings brought by the lenders to recoup their money.
Under the rejected settlement, registered class members who were in default under their loans would get an assurance from CBA and MIS that they would not commence any debt recovery proceedings against them until at least 60 days after orders approving settlement.
“The evidence is that there are 79 class members in default of their loan agreements with MIS and 76 class members in default of the loan agreements with CBA. This term of the settlements benefits approximately 155 class members out of the 738 registered class members (about 21%). It provides no benefit for class members who did not take out a loan,” Judge Murphy said.
The judge also found that the opt-out notices did not notify group members that if they did not opt out they might lose the right to make individual claims or defend loan enforcement actions.
The proportion of the payout that would go towards M&K’s legal fees also weighed against approval, he said.
Under the earlier settlement, class members who were M&K’s clients would be paid $3.1 million in pro rata reimbursement. The law firm would get more than $6 million.
The later, approved settlement contained a provision that group members were barred from launching proceedings other than an individual claim or defence. Other settlement details were not available.
The applicants are represented by M&K Lawyers. The defendants are represented by Herbert Smith Freehills.
The case is David Kelly & Ors v Willmott Forests & Ors.