Judge rejects application for contingency fees in flex commission cases

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This decision concerns two class actions (the ‘Fox proceeding’ and the ‘Crawford proceeding’) regarding alleged unfair conduct, amongst other things, in ‘flex commission’ arrangements in retail lending to consumers purchasing motor vehicles. The plaintiff in each case sought a group costs order (GCO) pursuant to s 33ZDA of the Supreme Court Act 1986 (Act). These were the first GCO applications of their kind to be determined. If granted, the effect of the GCO would have been that: 

• the legal costs payable to the solicitors for the plaintiff and class members (Maurice Blackburn) would be calculated as a percentage of the amount of any award or settlement that may be recovered in the proceedings;

• the percentage would be 25% (subject to further order); and 

• liability for payment of the legal costs would be shared among the plaintiff and all class members. 

Refusing the applications, Nichols J decided that the plaintiffs did not establish a sufficient basis for the exercise of the discretion conferred by s 33ZDA to make a GCO at the proposed rate. In arriving at this finding, her Honour made the following observations:

(a) The statutory criterion for the making of a GCO is whether it is “appropriate or necessary to ensure that justice is done in the proceeding”. The answer to this question will “depend upon a broad, evaluative assessment of the relevant facts and evidence before the court” (at [8(a)], see also [28], [33]). In making this assessment, the interests of class members are paramount and the costs that class members are likely to pay is a relevant consideration among others (at [8(a)], see also [34]).

(b) In the proceedings before the Court, the plaintiffs are beneficiaries of existing funding arrangements in which Maurice Blackburn is acting on a “no win no fee” (NWNF) basis (see [8(d)]). 

(c) To make a fundamental change to the funding arrangements in accordance with the criterion in s 33ZDA necessitates, in this case, an assessment of the financial return to class members under the proposed GCOs vis-a-vis the existing NWNF arrangements (at 8[d] and [50]). 

(d) The Court was not persuaded that the appropriate comparator for the proposed GCOs was third party litigation funding in which a funder would charge a commission in addition to reimbursement of legal costs, with a resulting recovery to class members of 45-64% (as opposed to a guaranteed return of 75% under the proposed GCOs (see [50])). The Court did not see the NWNF agreements as interim or conditional, in the sense that they would cease to bind Maurice Blackburn in the event that a GCO was not made (at [60]). Her Honour observed (at [67]):

… notwithstanding a stated intention on the part of Maurice Blackburn to seek third party funding in the event that group costs orders are not made, the default contractual arrangement is the present NWNF agreement, and not third party funding.

(e) The Court observed that “this case was pitched at a particular standard – whether a group costs order would provide a better outcome than relevant alternative funding arrangements” (at [143]). Her Honour was not satisfied that class members would be ‘better off’ financially under the proposed GCOs as her Honour perceived that the relevant predictive modelling was “riven with uncertainty” (at [115]). The Court observed (at 8[e]):

In the Fox proceeding, [the predictive] modelling does not, on its face, indicate that group members will be better off under the proposed group costs order. In the Crawford proceeding, the modelling does support that contention, but it, too, is founded on significantly uncertain assumptions, and the evidence is otherwise presently unsatisfactory. Ultimately, the present evidence is insufficient to support the exercise of the discretion.

(f) While her Honour found that the answer to the statutory question in this case, based on how the applications were framed, turned on whether the GCO would be more advantageous to class members than the existing NWNF arrangements, this was “not a general proxy for the statutory test” (at [8(f])]). Her Honour observed at [139]:

In any given case there might be a range of reasons why the making of a group costs order is appropriate or necessary to ensure that justice is done in the proceeding. The comparative exercise serves a particular purpose in this case. In a different case, for example where a GCO would ameliorate the financial risks that a plaintiff would otherwise be required to assume, or where the plaintiff had obtained only genuinely interim arrangements for funding, an analysis of the likely outcome to the group might assume less importance.

(g) The Court accepted that a number of factors are relevant considerations in setting an appropriate percentage under s 33ZDA, including the proportionality of costs sought by way of a GCO percentage, the rate of return that the GCO should provide to the lawyer for the plaintiff, historical outcomes and returns to class members, and commission rates presently charged by third party litigation funders (see [140]-[141]).

Her Honour ultimately adjourned the applications to permit the plaintiffs to consider their positions, and whether reformulated applications should be pressed at a later time. 

Fox v Westpac Banking Corporation [2021] VSC 573 

Supreme Court of Victoria, Nichols J,
14 September 2021

Plaintiffs’ Solicitors: Maurice Blackburn;
Defendants’ Solicitors in S ECI 2020 2946: King & Wood Mallesons;
First Defendants’ Solicitors in S ECI 2020 3365: Herbert Smith Freehills;
Second and Third Defendants’ Solicitors in S ECI 2020 3365: Gilbert + Tobin;

Plaintiffs’ Funder: N/A

Austlii Link: Accessible here

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