Tides shift in Australia's class action landscape as Federal Court green lights solicitors' common fund orders

The Full Court of the Federal Court of Australia determined  in a recent decision that the Federal Court has the power to make a Solicitors’ Common Fund Order (“SCFO”) in class action proceedings which open the door for class actions plaintiff lawyers to receive a contingency fee – i.e., a percentage from a class actions settlement or judgment. 

Prior to this decision, class action plaintiff law firms were only able to obtain contingency fees in the Supreme Court of Victoria, following the enactment of legislation in 2020 permitting group costs orders, which entitled lawyers to a percentage of any recovery. Historically, for this reason, the Supreme Court of Victoria has been the preferred jurisdiction for class actions lawyers who did not wish to engage with a third party funder to bring an action. 

This article discusses the Full Court’s decision and what this means for Australia’s class action landscape going forward. 

The decision 

The Full Federal Court found in R&B Investments Pty Ltd (Trustee) v Blue Sky (Reserved Question) [2024] FCAFC 89 that SCFO’s may be made under ss 33V or 33Z of the Federal Court of Australia Act 1976 (Cth) (Act).

The Full Court rejected the respondent’s contentions that SFCO’s would:

1. create a conflict of interest against solicitors’ professional obligations;
   
2. be inconsistent with or breach the Legal Profession Uniform Law (NSW) (LPUL); and
   
3. be contrary to public policy.

Solicitors’ ethical responsibilities do not make SCFOs unjust 

The respondents argued that accepting a contingency fee would conflict with solicitors’ professional obligations to act with integrity and independence.

However, the Full Court held that the existence of solicitors’ professional obligations did not mean that SCFOs were unjust, and that the Court is capable of identifying relevant conflicts and protecting group members’ interests.  

NSW rules against contingency fees do not prevent SCFOs 

The respondents argued that SCFOs would breach or be inconsistent with a rule in the LPUL prohibiting solicitors’ entry into fee agreements providing contingency payments. 

The Full Court held that a promise to pay contingency fees was distinct from the promise to make an application for an order for contingency fees. As a result, a lead applicant’s instruction to seek a SCFO to be made was not an agreement that could contravene that rule. 

SCFOs not contrary to public policy 

The respondent contended SCFO’s would be contrary to public policy referring the Court to historic approaches to the treatment of champerty and maintenance in litigation.

The Full Court observed that public policy is neither fixed nor immutable, but rather a concept which changes with the passage of time. The Full Court considered the current Australian funding landscape which comprises a mature competitive market in which funders and solicitors, because of the regime in Victoria, are in competition for carriage of and funding for class actions.  

The Full Court also acknowledged recent research that showed that in the Victorian regime, group costs orders resulted in generally greater returns for group members. 

In this modern context, the Full Court rejected the notion that a rule of public policy exists which “precludes solicitors being remunerated in class actions on the same basis as litigation funders where providing overlapping services (namely, taking on risk, including as to adverse costs, in relation to class action litigation benefitting numerous other persons)”.

Key takeaways 

Choice of forum for class action litigation

The Full Court’s decision provides a new avenue for class action plaintiff lawyers when considering choice of forum and may cause a shift away from filings in the Victorian Supreme Court.
However, it is possible that the Victorian Supreme Court will remain an attractive option, as group costs orders are enshrined in the legislation and this is a well-trodden path for plaintiff class action lawyers.

Competition in the class action market 

Further, the ability to obtain a SCFO may increase competition in the funding for (between funders and law firms seeking SCFOs) and carriage of (between law firms competing for carriage with different funding arrangements where there is a multiplicity of proceedings) class actions. 

This may lead to downward pressure on funding costs, to the benefit of applicants and group members. 

Risks for businesses operating in Australia 

For businesses, the full impact of this decision is yet to be seen and will become clearer as the market responds with future filings of class actions. Until SCFO’s are awarded and tested in the Federal Court, the Victorian Supreme Court will likely remain an attractive forum for class action litigation. 

Should you wish to further discuss how to navigate these changes, please reach out to Jonathon Ellis or Jonathan Tay.