McGing brings investment and insurance principles to court

Bolitho v Banksia Securities class action judgment

The Supreme Court of Victoria’s handing down of judgment in the Banksia Securities class action remitter trial[1] in October brought to light one of the ‘darkest chapters’ in Victorian legal history.

McGing is pleased to have been able to play a significant role in shaping the eventual verdict. In the 696-page judgment, Justice John Dixon delivered a judicial demolition of the legal team at the centre of the case. Justice Dixon condemned that legal team’s ‘egregious’ and ‘fraudulent’ conduct in breach of their professional obligations and referred the matter to the Director of Public Prosecutions for investigation of potential criminal charges.[2] This conduct and the resulting $11.7 million penalty has naturally grabbed news headlines, while McGing’s role in the final outcome has flown under the radar.

Background to case

In November 2018, the Court of Appeal remitted the Banksia Securities Limited group proceeding to the Trial Division to consider an application by Australian Funding Partners Limited (‘AFP’) to be reimbursed $5.2 million in legal costs and to be paid $14.1 million in litigation funding commission, following a $64 million settlement reached in December 2017. In March 2019, the court-appointed Contradictor alleged breaches of the overarching obligations, fiduciary duty, professional conduct rules and the funding agreement, such that AFP ought not be entitled to recover any or all of those amounts.

What did McGing do?

McGing’s Managing Director, Sean McGing FIA FIAA, was engaged by the Contradictor as an Independent Expert Witness to provide a report advising on what would be a reasonable return to AFP as a litigation funder in the Banksia case. Drawing on his extensive experience in investment and insurance , with additional support from Principal Actuary Neekhil Shah and McGing’s analyst team, Sean developed a principles-based methodology applicable to the question at hand. Sean applied this approach to the facts as known at the time and produced a report setting out his methodology and findings. At the request of the Court, Sean also produced a joint expert report with an expert witness engaged by another party. The joint report set out matters Sean and the other expert agreed on, matters they disagreed on, as well as explanations for any such disagreements. In addition to these two reports, Sean also gave oral evidence in court, concurrently with the other expert witness. Drawing on his prior experience testifying in court, Sean fielded questions from multiple parties’ barristers and Justice Dixon with aplomb, giving clear and direct answers during examination in chief and under cross-examination.

After Sean’s participation in the trial, the McGing team have followed the case’s progress closely as the scale of fraudulent activity unfolded in the public arena.

Sean’s evidence was firmly endorsed, and his approach applied, by Justice Dixon in the judgment.[3] His Honour made note of the fact that Sean’s ‘calculations, assumptions and opinions’ contained in his evidence were peer reviewed, as is standard practice for all work completed by McGing.[4] Tellingly, substantial portions of Sean’s initial report were reproduced verbatim in the judgment.[5]. Critical to Justice Dixon’s endorsement and application of Sean’s evidence however was the fact that the evidence was based on principles. By the time Justice Dixon delivered judgment in October (2021), much of the information provided to McGing and upon which Sean’s final calculations were based was found to be irrelevant.[6] However, as a result of Sean’s well-explained and principle-based approach to developing his methodology, the irrelevant information issue was easily overcome. Justice Dixon was comfortable to swap in the new relevant information and use Sean’s methodology to calculate a reasonable return to the ligation funder.[7] Legal complexities meant that the reasonable return calculated using Sean’s approach played an important role in the calculation of an appropriate penalty. Accordingly, Sean’s evidence contributed significantly to the eventual penalty sum of $11.7 million.

Parliamentary Joint Committee Submission

After our public appearance in McGing was asked to make a submission to the Parliamentary Joint Committee on Corporations and Financial Services’ Inquiry into Litigation Funding. We did so, setting out the Principles for a Reasonable Return for Funding Litigation in Class Actions.[8]

Where to from here?

While other courts may choose to follow the approach formulated by Sean McGing and endorsed by Justice Dixon, they may also choose to go another way, or perhaps legislative reforms currently under consideration will change the playing field entirely. But come what may, at McGing we’re continuing to bring our court experience and expertise on investment and insurance, to assist lawyers and the courts in expert assessment and testimony in class actions and loss calculations.