From The Age
A correction is in order regarding the class action against ANZ over the bank's penalty fees.
Reports referred to lawyers “representing customers” - that's not totally correct.
Oh, in a technical sense I suppose ambulance chasers Maurice Blackburn Lawyers are representing customers and no doubt complying with the letter of their ethical obligations, but in practical terms the firm's own self-interest and that of litigation funder IMF are hardly of passing importance.
And while self-generating a rich source of fees, such legal firms have made Australia second only to the United States in the burgeoning class action business - a dubious distinction for our increasingly litigious society.
What makes it worse is the sanctimonious claptrap the firms are wont to sprout, the image they seek of taking on the big bad banks to correct a dreadful injustice. What nonsense - the firms involved were nowhere to be seen when the real work was being done to curtail the banks' penalty fee gouge.
They have merely landed to feed on the corpse well after the event.
Consumer action template
A little history is in order. The anti-penalty fee campaign in Australia was kicked off by Channel 7's Sunrise program in February 2007 on the back of the Office of Fair Trade highlighting the dubious legality of UK bank penalty fees.
Sunrise uncovered the very fine 2004 work by Nicole Rich, supervising solicitor at Victoria's Consumer Law Centre, who provided the legal underpinning of the case here. I was happy to lend a hand to the Sunrise campaign and spread it to Crikey.com.au. Not too long after, Choice joined in with its own attack on penalty fees.
Nicole Rich's study could have been the template for the British consumer action. It comes down to there being no provision in contract law for penalty provisions beyond recouping actual losses.
It didn't take too long for the message to start getting through to the banks.
It had been a very nice little earner, part of the furniture, but once its dodgy legal underpinning was exposed, the racket was bound to end.
NAB read the wind and made a virtue of necessity, gaining some competitive advantage by being the first to cut the odious fees, the rest of the gang of four gradually following suit to a greater or lesser extent.
Charge of the class action brigade
So, with the battle fought and pretty much decided, along come the class action brigade, corral some aggrieved parties on the promise of something for nothing - or perhaps not much for nothing. By the time the litigation funder takes a fat profit and the law firm takes fatter fees, the members of the class (maybe only a minority of all the people who have paid penalty fees of one sort or another over the years) divvy up what's left.
I suspect that for most of us who have copped a penalty fee at various times, it would be enough for a few cups of coffee - but apparently not for some IMF customers.
This action was whipped up on the internet with aggrieved bank victims invited to register for a slice or crumb of the action. The result, according to IMF:
“Bank customers holding 240,000 accounts with claims in excess of $250 million against 12 Australian banks have now entered into litigation funding agreements with IMF. The first class action, against ANZ, was launched on 22 September 2010, involving some 27,000 customers with 40,000 accounts.”
If the ANZ class (27,000 customers with 40,000 accounts) is typical of the total, the average punter signing up with IMF claims to have paid more than $1,543 in penalty fees. And that's the average - some must be claiming a great deal more than that.
Earlier loss
For all the publicity gained for Maurice Blackburn Lawyers this week with their High Court appeal, it's worth remembering they lost most of the first round of this fight. As IMF itself summarises it, they've gone to the High Court because the lower court's judgment was that only late payment fees were capable of being penalties – the other “exception fees” were not.
If this class is reduced only to fighting over those annoying and outrageous late-payment penalty fees, it's hard to believe anyone who was so badly organised as to keep running them up to a significant amount would be so well organised as to keep the detailed records necessary to prove it.
Donation option
Maurice Blackburn Lawyers boasts it is Australia's largest class action law firm, recovering more than $700 million “for groups, individuals, shareholders and businesses that have suffered loss due to illegal behaviour by big business.
“In the past two years, Maurice Blackburn has settled major shareholder class actions against AWB, Multiplex, Centro and Nufarm. In 2011, the firm settled a cartel claim against Amcor and Visy for $120m. It was the largest cartel settlement in Australian corporate history. We are also fighting back against unfair fees imposed by Australian banks including the 'big 4'.”
Oh spare me – “fighting back against unfair fees” sounds so noble when the battle is already pretty much over and the firm is pursuing a lucrative fee-generating avenue. If they were genuine about it, they should donate those fees to the Consumer Law Centre.
Class conflict
The conundrum of the blossoming class action industry is that the “winners” often are members of the same class that are the “losers”. Most of the members of Maurice Blackburn Lawyers' bank customer class also would own shares in the big banks through their superannuation funds and some of their dividend payments over the years would have been funded by penalty fees.
Centro shareholders were understandably annoyed that their board and management didn't do their jobs properly and trashed the company – but the select sub-set who could claim they bought their shares during the period when the difference between short- and long-term loans wasn't noticed managed to take $200 million (minus all the fees) from all shareholders (plus a contribution from auditors PWC).
There's something that doesn't quite gel about the fairness of that.
ASIC endorsed
That the supposed corporate regulator is happy to outsource aspects of its job to the ambulance chasers is another worry. In light of the Centro case, ASIC chairman Greg Medcraft endorsed class action litigation, suggesting it was “a good market-driven solution”, albeit with the waffly qualification that class actions needed to be “done responsibly”, whatever that means.
It's certainly a good market-driven solution for IMF.
Litigation funding provides a valuable service for those with a strong case but don't have deep enough pockets to take on a rich adversary in a legal system that remains weighted towards the wealthy – and it's proven a nice little earner.
As of June 30, IMF, a listed company, enjoyed a “case investment portfolio” of 25 cases with a total estimated claim value of $1.23 billion.
The company's website explains that IMF's commission normally ranges between 20 and 45 per cent of recoveries, plus costs and a project management fee. On the other hand, if the action fails, IMF typically is up for the customer's legal costs and perhaps those of the other side.
This year's annual results are pending, but 2011 saw a near doubling of net profit before tax to $33 million. And the annual report suggested the outlook for more is looking promising with that strong pipeline of cases “augmented with the establishment of a US subsidiary and New York office”.
Litigation funding to the US, coals to Newcastle, ice cream to the Eskimos…
PS In response to my question about how much the members of the Centro class action actually received, Maurice Blackburn Lawyers refer to an announcement to the ASX by IMF.
Of the $200 million Centro settlement, $150 million was for the Maurice Blackburn action, of which about $90 million was distributed to members of the class. IMF retained the balance. After legal and other fees (including Maurice Blackburn’s) and overheads, IMF’s profit before tax was approximately $42 million.
Maurice Blackburn also said it was retained by the CLC and advised them for free, helping form the basis of Ms Rich’s fine work.
“We then continued to work with the CLC for years to build the class action case. We weren’t in a position to proceed with the case until IMF came on board in the role it’s currently playing,” the firm said. “Without the work and intervention of Maurice Blackburn and IMF, the thousands of Australians we represent would have no recourse to recover their money.”
Michael Pascoe is a BusinessDay contributing editor.
