Background

Litigation funding has seen significant growths over the last decade, with investments into litigations funds being more attractive due to the prospective returns and the continued development of class action regimes in Australia.

In Australia, the touchstone case that gave rise to commercial funding agreements was Campbell’s Cash and Carry Pty Ltd v Fostif Pty Ltd2 (2006) 229 CLR 386, which saw the High Court accept that litigation funding was not contrary to public policy and not an abuse of process.

What we have seen since Campbells is essentially a green-light for litigation funders to fund, and thereby significantly grow, a significant  number of class actions proceedings.

Orders for funders to be paid

In 2016, we saw a significant shift and development in litigation funding following the decision in Money Max Int Pty Ltd v QBE Insurance Group Ltd (2016) 245 FCR 191.  In Money Max the Federal Court was asked to, and did so, invoke s33ZF(1) if the Federal Court of Australia Act 1976 (Cth) which provided “the Court may…make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding”.

At the time of Money Max, it was held that CFOs could be made; however, differences of opinion as to its appropriateness were well advanced.

What is a Common Fund Order

A Common Fund Order is a court order where the members of a class action are required to contribute to the common fund or to the litigation funder regardless of whether or not such member signed a litigation funding agreement. It also grants a litigation funder, if won, a commission from settlement fund or judgment amount, typically around 25% to 35% of the settlement fund or judgment amount if sought.  However, the implementation of CFOs has been the subject of significant contention since 2016.

While CFOs may appear beneficial, in that they spread the costs of litigation across the entire members of the class actions, questions concerning a member’s freedom to enter into a contract have been raised. 

In BMW Australia Ltd v Brewster [2019] HCA 45, the Court held that it did not have the power to make a CFO at an early stage of a proceeding.  The outcome of Brewster was in clear contrast to Money Max and resulted in third party litigation funders no longer being able to claim a proportion of the total settlement or judgment in a class action as a return on funds invested.  What litigation funders were left with were funding equalisations orders, that distributes (i.e. equalises) the costs that funded group members have contractually agreed to pay the funder across the whole class.  Such an order halted any ability to ‘free ride’ the costs and resulting in group members being better off then funded group members.

Recently, as a further evolution of CFOs, in Davaria Pty Limited v 7-Eleven Stores Pty Ltd (No 13) [2023] FCA 84, the Federal Court of Australia ruled that the Court has no power to issue CFO at the end of proceedings. Leading the class litigants in limbo as to whether the Courts have the power to issue CFO’s at all. The decision in this case will increase different interests between those involved in class actions.

Until such time that a uniform reform is in place, the most accommodating jurisdictions to commence proceedings is undoubtedly Victoria.  In 2020, Victoria introduced powers that allow a Court to make Group Costs Orders calculated as a percent of any gross award or settlement available to class members.

Additionally, a surprising consequence of Victoria’s GCOs regime, is that it now opens the door to solicitors to enter into contingency fee agreements with their clients.  The glaring issue with this approach is how such fee agreements will survive in the face of s183 of the Legal Profession Uniform Law, which strictly prohibits such arrangements.

All things considered, in the absence of parliamentary intervention, the issues related to litigation funding and contingency agreements will undoubtedly make their way to the High Court again, with yet another likely grand shift on the horizon.

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.*