KPMG settlement approved in CuDeco shareholder class action

The Federal Court of Australia has approved a partial settlement in long-running shareholder class action proceedings against CuDeco Limited, endorsing a deal with KPMG while deferring any distribution to investors until the balance of the litigation is resolved.

CuDeco was an ASX listed Australian mining company that owned and operated the Rocklands Group Copper Project near Cloncurry, Queensland. The company went into liquidation in 2020 owing over $60 million, with Matthew Joiner and Jeremy Nipps of Corrs appointed liquidators and Kelly Trenfield, Ian Francis and Michael Ryan of FTI appointed as receivers and managers.

The case arises from allegations that CuDeco misrepresented the value and prospects of the Rocklands Group Copper Project, inflating its share price. The claim against KPMG focused on its audit opinions for the 2016 and 2017 financial years, which the shareholders alleged were issued without reasonable grounds and were misleading to the market.

Ultimately, a proposed confidential settlement was reached with KPMG, which the Court was asked to approve. The key terms of the settlement, including the settlement sum and valuation analyses, have not been publicly disclosed.

The Federal Court of Australia held that the proposed settlement was fair and reasonable under s 33V of the Federal Court of Australia Act 1976, despite the unusual posture of resolving claims against only one respondent while proceedings continue against others.

The Court accepted that the claims involved significant legal and evidentiary complexity, including questions around audit standards, causation, and loss quantification, all of which supported compromise at this stage. The Court emphasised that its role was not to identify the best possible outcome, but to determine whether the settlement fell within a reasonable range of outcomes for group members.

While approving the settlement itself, the Court initially declined to approve the proposed settlement distribution scheme, citing insufficient evidence on its fairness. Following further submissions, the Court ultimately endorsed a revised approach that prioritises reimbursement of legal costs and partial payment of the litigation funder’s commission, while preserving the remaining settlement proceeds. The funder, Equite Capital No. 4 Pte Ltd, will receive reimbursement of reasonable legal costs as assessed by an independent costs referee, together with an interim commission equal to 30% of the net settlement amount after costs. The lead applicant will also receive a modest payment for time spent advancing the proceeding.

Crucially, the balance of the settlement sum will be held in an interest-bearing account pending final resolution of the broader class action. The Court rejected immediate distribution to group members, finding that the costs of administering an interim distribution would materially erode recoveries and could expose investors to clawback risk depending on the outcome of the remaining claims.

The Court acknowledged concerns that early payments to a litigation funder in a partial settlement could reduce incentives to pursue the remaining claims, but found no evidence of such risk in this case. The Court also noted that any final settlement or judgment will remain subject to further judicial scrutiny, providing an additional safeguard for group members.

Read the decision here.

Professionals involved:

• T Chalke of List A Barristers, counsel, and Banton Group, solicitors, for the applicant, shareholder Leo Toner

• Kane Loxley SC of List G Barristers, counsel, and Allens, solicitors, for KPMG

• Lachlan Armstrong KC of List A Barristers and Thomas Rawlinson of List G Chambers, counsel, and Sutherland Legal, solicitors, for the intervener, litigation funder, Equite Capital No. 4 Pte Ltd