Federal Court repeats invitation to facilitate contingency fees in class actions

What you need to know

• The Federal Court has repeated that it considers there is power to order contingency-like payments to plaintiff lawyers as part of a solicitors' common fund order despite the legislative ban on contingency fees.
• But it still hasn't happened yet, and a question remains when it would be appropriate.  The Full Court may also express a view on this soon.

The slow march to recognising a power to order contingency fees (or something similar)

There has been ongoing debate about the introduction of contingency fees for class actions since the ALRC's recommendation that they be allowed, and their introduction in Victoria in 2020 through the group costs order regime.

Other jurisdictions have not yet allowed them, and they maintain prohibitions on contingency fee arrangements in costs agreement.

In a judgment on a carriage motion in the Jaguar Land Rover class action, Justice Lee has repeated his views contingency fees could be ordered as part of a common fund order because:

• that would not breach the prohibition on contingency fees, because it would not involve a contractual agreement to pay them; and
• if there is power to make a common fund order in favour of a litigation funder, then there is power to make one in favour of a solicitor in an appropriate case – because the basis of the power (s33V of the Federal Court of Australia Act) does not depend on the existence of a commercial litigation funder.

This follows comments to similar effect by Justice Lee in a 2019 Full Court decision, as well as a first instance decision earlier in 2023 ((Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group [2019] FCAFC 107 and R&B Investments v Blue Sky Alternative Investments Limited (Carriage Application No 2) [2023] FCA 142).

Justice Lee's decision in Jaguar Land Rover indicated his Honour considered the decisions of Middleton and Beach JJ in Kleweb to suggest they also considered that if the court had power to make a CFO then it could make a solicitors' CFO.

It is also worth noting that:

• In Klemweb, Justices Middleton and Beach did not express a view on whether there was a legislative policy against such payments even if there was power to make them. Their Honours did accept there was a reasonable argument to that effect.
• This issue may be considered by the Full Federal Court shortly in the Blue Sky class actions, where it has been previously indicated that approval may be sought to issue a notice to group members foreshadowing an application for a solicitors' CFO. This had been deferred pending the outcome of Elliott-Carde.

So will there be an appropriate case if there is power?

In characterising what might be considered just, in Jaguar Land Rover Lee J considered it relevant that a CFO is consistent with the notion that a person who benefits from another's efforts in producing a fund is obliged to provide appropriate value in return. His Honour considered the underlying principle to be that it would be inequitable for a person who has created a valuable asset not to have the costs and expenses of doing so paid out of the fund.

A key question may be whether those solicitor's costs and expenses should just be paid in the ordinary way – ie hourly rates, without a contingency fee.

Greentree v Jaguar Land Rover Australia (Carriage Application) [2023] FCA 1209

Authors: Ian Bolster, Partner; John Pavlakis, Partner; Sally-Anne Stewart, Senior Associate; and Andrew Westcott, Expertise Counsel.