Court approves $12m funding fee in RAMS franchisee case

The Federal Court has approved a $12 million litigation funder’s commission in the RAMS franchisee class action, with total deductions leaving group members about 44 per cent of the roughly $29.6 million settlement. The decision puts the cost of funding a dispute through trial in focus for Australia’s franchise community.

Why the court approved the commission

The funder paid $4 million in legal fees and disbursements and kept that capital exposed through trial. Its approved $12 million commission represents three times that outlay.

Under alternative formulas in the funding agreements, the commission would have been either $8.58 million or $16 million. The amount sought and approved therefore sat between those two figures.

The court acknowledged that the commission exceeded the average percentage in some recent approvals. However, it ruled that hindsight should not diminish the funder’s reward. Its assessment recognised the expenditure and risk carried while the outcome remained uncertain, rather than judging the funding arrangement solely after a settlement had been achieved.

The timing matters: the parties reached their agreement after exchanging written closing submissions. Funding had supported the proceeding through trial, rather than only to an early negotiated resolution.

What remains for former franchisees

The proceeding covered 15 RAMS franchise businesses. The settlement was struck in September, and court approval clears the way for it to proceed.

The approximately $29.6 million settlement includes withheld trail commission, interest and an additional amount of about $20.8 million. More than $16 million in deductions for legal costs and the funder’s commission leaves group members with about 44 per cent of the headline sum.

The agreement also addresses income beyond the settlement payment. RAMS Financial Group agreed to stop withholding the relevant 25 per cent of future trail commission and to offer group members buy-outs of their future trail commission entitlements. Those future entitlements were estimated to be worth a further $3.3 million.

These are distinct elements of the resolution. The cash settlement is subject to the approved deductions, while the provisions concerning future trail income deal with continuing entitlements after termination. For former franchisees assessing the outcome, both the net payment and those future-income arrangements are relevant, rather than the headline settlement figure alone.

Deductions shared across the group

The court ordered that all group members share the deductions pro rata. That includes members who had not entered into funding arrangements.

The reasoning was that unfunded members should not benefit from expenditure and risk borne for the whole class without contributing their share. The order therefore spreads the approved deductions across the group rather than leaving them solely with funded participants.

A separate allocation issue remained open for one franchise. The court gave its principal until 6 November 2026 to dispute a late revision that reduced the franchise’s share from about 20 per cent to about 17 per cent.

That issue concerns how the settlement is divided within the group. It is separate from the court’s approval of the $12 million funding commission and illustrates another layer of the settlement process: determining individual allocations after the overall deductions have been established.

The dispute behind the funding decision

The former franchisees challenged RAMS Financial Group’s conduct during heightened scrutiny of loan applications, including decisions to revoke authorised credit representative arrangements and terminate franchises.

They alleged that RAMS terminated agreements without proper cause, breached contractual and statutory duties of good faith, and improperly withheld 25 per cent of their trail commissions after termination. These were allegations advanced in the class action, rather than findings established by the settlement.

The trial ran alongside a related case involving the Fairfield franchise. In that proceeding, the court found a confined breach of RAMS Financial Group’s good-faith obligation and assessed the franchisee’s lost opportunity at 12.5 per cent.

Practical takeaway: Franchisees considering funded litigation should obtain independent advice on commission formulas, legal-cost deductions and allocation rules. This decision shows why the amount ultimately received can differ substantially from a headline settlement.