When settlement isn’t the end of the road: lessons from Excel Texel Pty Ltd v Wilson (No 2) [2026] FCA 154
Settlement of a proceeding isn’t always the end of the dispute. The recent decision in Excel Texel Pty Ltd v Wilson (No 2) [2026] FCA 154 highlights the various considerations that ought to be had when deciding whether to commence proceedings and when navigating resolution of the dispute.
While this case relates to representative proceedings (also known as class actions), it nonetheless provides important lessons for litigation for generally.
The case also provides guidance in relation to when a claim can be brought arguing entitlement to a portion of a fund based on contributions or expenditure that assisted in creating that fund.
Facts
The proceeding relates to the settlement of a representative proceeding brought by Excel Texel Pty Ltd (Excel Texel) as trustee for the Mandex Family Trust as the representative applicant on behalf of persons who purchased shares in Quintis Ltd and suffered loss as a result of conduct of Quintis and its CEO, Mr Frank Cullity Wilson (Excel Texel Proceeding).
Excel Texel claimed that Mr Wilson made misleading or deceptive statements to the market and caused Quintis to breach its continuous disclosure obligations. These wrongdoings allegedly conveyed a misleadingly positive impression of Quintis to the market, resulting in an artificially inflated share price. When the ‘true picture was eventually revealed’, Quintis’ share price dropped, causing loss to the shareholders.
Separately, Mr Geoffrey Peter Davis and Mr Geoffrey William Davis as trustees for the GP Davis Superannuation Fund brought proceedings as representative applications on behalf of other Quintis shareholders against Quintis, Mr Wilson and Quintis’ auditor (Davis Proceeding).
The Davis Proceeding alleged that Quintis and Mr Wilson had engaged in misleading or deceptive conduct by overstating the value of certain assets in its financial statements and that the auditor breached its duties due to the inaccurate financial statements.
The applicants to the Excel Texel Proceeding were represented by Gadens and the proceeding was funded by Ironbark Funding Navy Pty Limited (Ironbark).
The applicants to the Davis Proceeding were represented by Piper Alderman and the proceeding was funded by LCM Operations Pty Ltd (LCM).
In July 2022, the applicants to the Excel Texel Proceeding applied for and were granted leave to amend their pleading by adopting the Davis Proceeding’s claims with a further order that Piper Alderman, the Davis applicants’ solicitors, would have carriage of those specific claims at the trial. The Davis applicants were to bear the costs of the Davis Proceeding’s claims even though the Excel Texel applicants could eventually benefit from them.
Prior to the consolidation of the Excel Texel and Davis Proceedings, both entered into a settlement agreement with Quintis for a global balance of $4,377,154.78 (Quintis Settlement Sum).
On 12 July 2024, nearly 4 months after the trial commenced, the Excel Texel applicants entered into a settlement deed with Mr Wilson for $13.5 million, expressed to not relate to the Davis Proceeding’s claims, which were stated to be settled solely by mutual releases.
The Court later delivered judgement in the Davis Proceeding, finding that while the Davis applicants had established liability against both Mr Wilson and the auditor, they failed to establish causation of loss.
Facts
The main issues for the Court to determine were:
whether the settlement of the Excel Texel Proceeding should be approved;
how much of the money paid under that settlement should be distributed to lawyers;
how much of the money paid under that settlement should be distributed to the litigation funders of the Excel Texel Proceeding; and
how much, if any, of the money paid under that settlement should be distributed to LCM.
The first issue arose under section 33V(1) of the Federal Court of Australia Act 1976 (Cth), which dictates that ‘a representative proceeding may not be settled or discontinued without the approval of the Court.’
The final issue arose because LCM, the litigation funder of the Davis Proceedings, intervened and argued that it was entitled to a share of the settlement sum because it effectively funded the Davis Proceeding claims pursued by Excel Texel.
Decision
Whether the settlement of the Excel Texel Proceeding should be approved
The central question that the Court considers when determining whether to approve the settlement of a representative proceeding is whether it is fair and reasonable and it the interests of group members as a whole.
Such a decision is to be decided in light of all of the circumstances of the settlement, including the complexity and duration of the litigation, the stage of the proceedings, the risks and prospects of success, the risks of appeal and the best possible result from continuing to trial.
Based on these principles, the Federal Court held that the settlement sum was within a reasonable range having regard to the complexities of the claim, particularly in relation to causation and damages. This was a view also held by the contradictor, a Court-appointed lawyer that provided an independent assessment of the merits of the proposed settlement and its terms.
The Court rejected an argument brought by LCM that the settlement would be unreasonable if Mr Davis was prepared to renegotiate the settlement sum to exclude the Davis Proceeding’s claims from the settlement (thus allowing them to continue to be pursued).
The Court instead found that the Excel Texel applicant’s lawyers’ view that the Davis claims had nil value was genuine and reasonable.
Distribution of settlement sum
Lawyers
In determining how to much of the settlement sum should be distributed to the lawyers, the Court takes a pragmatic approach to consider whether the fees claimed are unreasonable having regard to the nature and complexity of the work.
Based on this approach, the Court appointed an independent costs referee to determine how much of the lawyers’ fees should be upheld.
This report was largely adopted, adjusting for errors identified by the contradictor. The quantum of legal fees deducted from the settlement sum was $7 million.
Litigation Funders
Likewise, in considering how much of the settlement sum should be distributed to the litigation funder, relevant factors include the number of class members that agreed to the funding commission, a comparison of the agreed commission with the market rate, the litigation risks and risks of adverse costs exposure, the legal costs actually expended and the proportionality between the commission and the settlement amount.
Ironbark claimed a commission of 30% of the gross settlement, which constituted 60% of the net settlement amount after the deduction of legal fees and costs. The effect of such a commission was that less than 30% of the settlement proceeds would be available to the group members.
Instead, the Court fixed Ironbark’s commission at 25% of the overall settlement fund, which was towards the upper middle of market rates and left over 30% of the fund for distribution to group members.
LCM
LCM’s claim rested on the equitable principle that a person who created or realised a valuable asset should have their costs paid from the fund their efforts created.
It argued that it was entitled to receive a portion of the settlement sum in reimbursement for the costs it paid in the Davis Proceeding for the benefit of group members in the Excel Texel Proceeding (given that the Davis claims were adopted by the Excel Texel applicant son the basis that they were run by the Davis applicants to avoid duplication of legal fees).
The Court appointed referee ultimately determined that the Excel Texel applicants and group members did not receive any benefit, as part of the settlement of the Excel Texel Proceeding, from the costs incurred by LCM in funding the Davis claims and that therefore no amount should be allocated to LCM from the settlement sum. However, the referee’s report has no effect unless it is adopted by the Court.
The Court held that the relevant question in determining whether a party is entitled to be have costs paid that contributed to creation or realisation of an asset is whether the expenses incurred by LCM were incurred ‘in connection with creating the fund’; in this case settling the dispute.
Applying this principle, the Court held that LCM’s expenditure was incurred solely in connection with the Davis Proceeding in the interests of the Davis applicants. They were not incurred in the interests or for the potential benefit of the Excel Texel applicants and group members and they could not point to any item of expenditure incurred other than in connection with the Davis Proceeding for the benefit of the Davis applicants.
Given that the settlement deed expressly attributed to settlement sum to claims other than the Davis claims, it could not be said that LCM’s expenditure was incurred in connection with creating the fund. Likewise, given the settlement sum did not relate to the Davis claims, it could not be said any work carried out by the Davis applicant’s lawyers and paid for by LCM in fact contributed to the creation or realisation of the settlement fund.
Take Aways
The facts of this case highlight a number of potent lessons.
First, when drafting settlement deeds, language matters. A clear settlement deed can be the difference between future disagreement and final and effective resolution. In this instance, the drafting of the settlement deed was critical to the finding against LCM’s claim for a share of the settlement sum.
Second, a claim for entitlement to a portion of a fund based on contributions or expenditure that assisted in creating that fund is a highly technical and fact dependent argument. As decided in this case, it must be determined that the expenditure or conduct was undertaken ‘in connection with creating the fund’.
Finally, the case highlights the various factors that should be considered when deciding whether to pursue litigation. The legal costs and interested parties are matters that ought to be taken into account to determine whether litigation is in your best interest.
Sladen Legal is able to assist you in navigating the complex and consequential steps of litigation and dispute resolution.
Please contact:
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au
Jake Cole
Special Counsel
T: +61 3 9611 0112 | M:+ 61 413 557 157
E: jcole@sladen.com.au
Amy Green
Senior Associate
T: +61 3 9611 0175 | M +61 439 835 480
E: agreen@sladen.com.au
This article was prepared with the assistance of Charlie Cooper, Law Clerk.
