Class Actions Update: Courts rain on beauty parade for unfunded lawyers seeking contingency fee
14 August 2024
14 August 2024
In concurrent decisions, the Supreme Court of Victoria and the Federal Court of Australia have resolved a carriage dispute regarding three competing claims against IC Markets that were commenced within four months of each other, with substantially the same allegations.
The Courts resolved the dispute by consolidating two proceedings in the Federal Court and permanently staying the competing proceeding in Victoria.
The High Court has endorsed a multi-factorial approach to managing competing claims (see our previous update here). The key factors that were relevant in this case were:
A significant factor in the decisions was an evaluation of existing work and effort expended by the respective solicitors. The Courts consider it relevant that one firm had prepared the pleadings by substantially copying the pleadings in one of the earlier claims. The Courts found that legal teams that had undertaken the thought and effort involved in investigating, preparing and filing the original pleadings would necessarily be in a better position to conduct the proceeding.
The Court evaluated the contrasting funding arrangements that reflected the differing models in the Victorian and Federal regimes, including the evidence as to the available resources of the respective funders.
In Victoria, the Court has a statutory power, at any time of the proceeding including on commencement, to make a GCO. These orders allow the plaintiff's solicitors to be paid a percentage of any settlement or judgment amount (instead of legal costs on an hourly rate basis).
In the Federal Court, common fund orders (CFOs) can be made at the conclusion of a proceeding. These allow a litigation funder to receive a commission, calculated as a percentage of any settlement or judgment. Recently, the Full Federal Court has held that CFOs can be made in favour of solicitors (see our update here) – achieving essentially the same commercial effect as a GCO. The Federal Court's power to make CFOs has been challenged in three separate applications for leave to appeal to the High Court, which we discuss in our update here.
In this case, based on the evidence available, the Courts concluded that while the headline rate of funding commission was lower under the proposed GCO, which was better for group members, this was not determinative including because a firm acting on a 'no-win, no-fee' basis (and seeking a GCO) had a higher risk of facing financial difficulty in running the matter, compared with the proceeding supported by traditional third party litigation funding (and in circumstances where there was insufficient evidence about the ability of the firm to fund the litigation and/or seek litigation funding in the future if required).
The Federal Court also noted that the headline percentage rate was not determinative because the actual return to group members would depend on how the litigation was conducted and the judgment or settlement (if any) which was achieved. The focus was therefore more on other factors, including the experience and existing work of the representatives in each proceeding.
Both Courts rejected the proposition that the GCO model was inherently 'better' for group members compared with CFOs on the basis there was no practical difference in the benefit to group members between the two.
The availability of a GCO at an earlier point than a CFO was considered to provide greater certainty to group members (essentially by locking in the GCO rate). However, as the applicants in the Federal Court proceedings undertook that at conclusion of the matter they would not seek recovery in a CFO for amounts higher than their current proposed rates of recovery, the same certainty was afforded to group members in the Federal Court proceeding.
It is also relevant in carriage contests to consider fairness to the defendant, particularly in relation to the adequacy of security for costs. IC Markets submitted a preference for the security arrangement in the Federal Court proceeding, in which a deed of indemnity from a reputable insurer was offered. This was in comparison to the Victorian proceeding, in which security was resisted, but it was said that it could be provided, if required. Both Courts agreed security would likely be required, irrespective of whether a CFO or GCO was pursued, and the clarity of the position in relation to the Federal Court proceeding favoured that proceeding.
This highlights a way that defendants can have input into carriage disputes and progress negotiations around security in the context of them.
The power of the Federal Court of Australia to make CFOs is currently the subject of applications seeking special leave to appeal to the High Court in the Blue Sky class action. The outcome of that case will likely impact choice of forum by firms seeking to run contingency fee style and other class actions.
Authors: Angela Pearsall, Partner; Mark Bradley, Partner; Ian Bolster, Partner; John Pavlakis, Partner; Oscar Doupe-Watt, Lawyer, Sally-Anne Stewart, Senior Associate.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.