Lawyers and US-based litigation funder set to gobble up big chunk of payout
Litigation funder in line to pocket nearly 28 per cent of the payout as BHP settles a class action lodged on behalf of aggrieved investors.
Mining giant BHP has agreed to pay $110m to settle a class action launched in Australia over the fatal Samarco dam collapse, but a big chunk of the payout is set to be gobbled up in lawyers’ fees and by a US-based litigation funder.
The conditional settlement was announced on Tuesday in the hours before a long-awaited trial was scheduled to start in the Federal Court.
US-based litigation funder G&E KTMC Funding stands to pocket about $30m from the settlement, according to information on the Maurice Blackburn website.
Two legal firms – Maurice Blackburn and Phi Finney McDonald – represented investors in the class action against BHP, racking up considerable legal fees and administration charges in the seven years since the case was launched.
A spokesperson for Phi Finney McDonald said “tens of thousands of shareholders” had registered in the BHP class action, but declined to give an exact number. However, it appears what remains of the $110m - after the payment to the litigation funder, lawyers’ fee and administration charges - will be spread relatively thinly.
BHP announced it had reached the settlement as it sweats on the outcome of a potential multibillion-dollar claim lodged on behalf of victims of the Brazilian dam tragedy in a UK court.
The Australian settlement is subject to approval by the Federal Court and involves a class action brought on behalf of shareholders who acquired BHP shares before the dam failure that killed 19 people, devastated the town of Bento Rodrigues and other communities, and caused environmental damage along the Doce River.
The Federal Court action was filed on behalf of investors who acquired shares in BHP in the period from August 8, 2012 to November 9, 2015.
Under the terms of the settlement, BHP has agreed to pay the applicants $110m, inclusive of interest and costs, with no admission of liability. BHP expects to recover the majority of the settlement amount from its insurers.
BHP filed an amended defence as recently as June 27 as the case headed towards a trial.
The Fundão tailings dam at the Germano iron ore mine in Minas Gerais – owned by BHP and Vale through joint venture company Samarco – collapsed on November 5, 2015.
BHP chief executive Mike Henry signed off on a settlement with Brazilian authorities last November after years of negotiations on adequate compensation for the disaster. The settlement included less onerous conditions to gain access to compensation than earlier schemes.
In the same month, a court in Brazil cleared BHP and a handful of former executives of responsibility in a criminal case over the dam collapse.
In the Australian case, BHP was accused of failing to disclose material information to the market and alleged to have been involved in misleading or deceptive conduct by claiming safety was its highest priority and that it had in place effective systems and processes to identify and manage risks. BHP denied the allegations.
The class action was partially funded by G&E KTMC Funding, which is backed by Grant & Eisenhofer and Kessler Topaz Meltzer & Check, two prominent shareholder litigation firms in the US.
Maurice Blackburn and Phi Finney McDonald said in case details published on its website that if successful, the joint applicants intended to apply to the Federal Court to recover costs from class action members on a pro rata basis and for G&E KTMC to receive a commission of 27.5 per cent of any net recovery up to $200m.
“If there is a successful outcome, the amounts payable to G&E KTMC by group members will be deducted from the settlement or judgment sum (in addition to the reimbursement of reasonable costs incurred including recovery of premiums associated with after-the-event insurance arrangements procured for the BHP class action) before the balance is distributed to group members,” Maurice Blackburn said.
Phi Finney McDonald principal lawyer Cameron Myers said that after a hard-fought battle that included two High Court appeals, the $110m settlement was “a welcome result for BHP investors wherever they are located”.
“Phi Finney McDonald is proud to pursue securities class actions that seek to enforce high standards of market disclosure, which we see as vital to good corporate governance,” he said.
The Australian asked Phi Finney McDonald and Maurice Blackburn for an estimate of the average payout investors who bought BHP stock in the relevant period can expect. The Phi Finney McDonald spokesperson said that would depend on a number of factors, including the amount of the deductions from the $110m approved by the court.
BHP is one of the most heavily traded stocks on the ASX and in the period that followed the dam collapse, the share price plunged 22 per cent.
BHP declined to comment beyond Tuesday’s ASX statement on the legal settlement.
In Brazil, BHP and Vale have extended until Sunday the deadline to apply for payouts under a $US30bn ($45.43bn) compensation scheme.
The extension comes as large numbers of Brazilians opt for the compensation cash and abandon what London-based law firm Pogust Goodhead once touted as a $70bn class action against BHP.
It is understood about 175,000 of what started out as about 300,000 claimants in the UK case have opted to accept the compensation package.
Pogust Goodhead is now under financial pressure compounded by a recent adverse court judgment in Brazil, and with a ruling on the UK case – and whether it will proceed to penalty hearings – still pending.
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