Key class action development to drive down costs

26 October 2016
The Federal Court has today handed down one of the most significant decisions in recent class action history, approving ‘common fund’ orders which are expected to increase access to justice and decrease costs for claimants.

Australia’s leading class action law firm, Maurice Blackburn Lawyers, successfully applied for the ‘common fund’ orders in its shareholder class action against QBE in the Federal Court.

In 2015 the firm filed an ‘open’ class action on behalf of all shareholders who suffered loss as a result of alleged contraventions by QBE, regardless of whether shareholders had entered into a funding agreement with the litigation funder.

While an ‘open’ class means access to justice for more claimants, it can also produce inequality between claimants who have entered a funding agreement with a funder (and agreed to share the cost of litigation funding), and claimants who have not entered into a funding agreement but still expect to share in the proceeds of the litigation.

The ‘common fund’ orders will clarify funding terms for all claimants, regardless of whether they have entered into a litigation funding agreement or not. All claimants will be required to pay the same pro rata share of the funding commission from any recovery. The court will approve the rate of the commission, taking into account a range of factors such as the size of the damages award or settlement, the litigation risks of providing funding in the proceeding, and the funding commissions available or common in the market. 

Class action Principal at Maurice Blackburn, Brooke Dellavedova, says today’s judgment is an important step in the evolution of class actions.

“The Court has endorsed this mechanism as a means of promoting transparency, equality and fairness for group members,” Ms Dellavedova said.

“It is likely to see group members enjoy a lower funding commission rate, and therefore higher recoveries in class actions.

“It also means that group members will be informed at the outset of the requirement to pay a reasonable, court-approved funding commission from any settlement or damages, ensuring all group members are treated equally.   

“The Federal Court has seized this opportunity to play an active role in the management of litigation funding charges, noting courts can be expected to approve funding commission rates that avoid excessive or disproportionate charges to group members, but which recognise the important role of litigation funding in providing access to justice, are commercially realistic and properly reflect the costs and risks taken by the funder.”

The Court’s decision did not specify what the new funding commission rate will be, other than to say it would probably be lower than the current rate. The common fund orders are also conditional upon the funder, Maurice Blackburn and the representative plaintiff agreeing to be bound by the litigation funding terms.

“The Court has said, and we agree, that the common fund approach is consistent with the broad policy aims of the class actions regime, in particular to enhance access to justice,” Ms Dellavedova said.

Maurice Blackburn previously ran a common fund application in its Allco shareholder class action, also with the view that it would have ensured all participants contributed to the costs of the case and reduced funding costs to group members by maximising participation.

Despite that application not succeeding, Justice Wigney in his ruling last year made the point that such an approach may be appropriate in the future and separately acknowledged there may be a compelling case for law reform.

“The real opportunity that has been acted on today, lies in improving outcomes for victims of corporate wrongdoing, victims who invariably include other businesses, corporations and large institutional investors as well as individuals,” Ms Dellavedova said.

“This is just one of several sensible and controlled mechanisms available to drive down costs involved in running class actions. There are other policy measures ready to go which can further improve an already effective system, such as the Productivity Commission’s recommendation to introduce contingency fees as a billing option.”