No-win, no-fee model comes out ahead of funded class action in Dixon Advisory case

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This decision concerned the Court’s handling of two overlapping class actions brought on behalf of retail clients of the financial advisory business carried on by Dixon Advisory and Superannuation Services Ltd. The applicants in the ‘Kosen-Rufu Proceeding’, represented by Piper Alderman and funded by Balance Legal Capital II UK Ltd (Balance), sought orders to consolidate the two proceedings in accordance with a litigation protocol. By contrast, the applicant in the ‘Watson Proceeding’, represented by Shine Lawyers on a ‘no win, no fee’ basis, sought orders to stay the Kosen-Rufu Proceeding and, if those orders were refused, to consolidate the two proceedings with an amendment to the litigation protocol. The crux of that amendment was that Shine did not want class members who had not signed-up to the Kosen-Rufu Proceeding to be exposed to a risk of contributing to Balance’s funding commission.

Justice Thawley favoured the Watson Proceeding’s application and stayed the Kosen-Rufu Proceeding (until after the trial of common issues or any earlier settlement), on the primary basis that the Watson Proceeding’s ‘no win, no fee’ model was more likely to result in a better return for all class members compared with Kosen-Rufu’s funded model.

His Honour outlined the relevant principles in relation to competing class actions, being that the Court must determine, by reference to all relevant considerations, what would be in the best interests of class members, and that the relevant factors can be expected to vary from case to case (at [10]-[12]).

His Honour held in relation to the following factors:

• Funding proposals (at [13]-[22]): Despite the uncertainty in predicting future events, Shine’s 25% uplift on costs was likely to be lower than Balance’s 12.5% to 15% commission on damages. This was considered the most significant factor. His Honour recognised that if the proceedings were consolidated, it was probable that some form of order would ultimately be made to recognise Balance’s funding and it would be unlikely that class members could take the benefit of funding without monetary recognition.

• Consolidation (at [44]-[47]): The consolidation proposal by Kosen-Rufu was likely to add undesirable complexity and was likely to result in additional cost and delay, despite the proposed appointment of a costs referee. If his Honour had consolidated the proceedings, the amended litigation protocol (as proposed by Watson) would have been adopted as the interests of class members as a whole would be better served by those members not being at risk of being required to contribute to Balance’s funding commission, when Shine was prepared to conduct the proceeding on a ‘no win, no fee’ basis.

His Honour also considered the following factors, however they were either considered neutral or were not given significant weight: security for costs; bookbuild; the scope of the claims; experience of lawyers and resources; commencement, stage and conduct of proceedings; Kosen-Rufu’s application under s 1317QF of the Corporations Act 2001 (Cth); alleged benefits under a managed investment scheme; and supervision by a litigation funder.

Kosen-Rufu Pty Ltd v Dixon Advisory and Superannuation Services Ltd [2022] FCA 573

Federal Court of Australia, Thawley J,
18 May 2022

Kosen-Rufu’s Solicitors: Piper Alderman
Watson’s Solicitors: Shine Lawyers
First and Second Respondents’ Solicitors: Herbert Smith Freehills
Third Respondent’s Solicitors: Watson Mangioni Lawyers
Fourth Respondent’s Solicitors (Watson proceeding only): Webb Henderson
Kosen-Rufu’s Funder: Balance Legal Capital II UK Ltd

Austlii Link: Available here

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