A new era in Class Actions: The common fund approach is in

In Money Max Int Pty Ltd (Trustee) –v- QBE Insurance Group Limited [2016] FCAFC 148, the Full Court of the Federal Court determined that a common fund order with respect to litigation funding fees and legal costs would be granted subject to certain conditions.

This means that in a class action being run in an open class format, where some group members are funded because they have signed a funding agreement with a litigation funder and others who are not funded because they have not, the litigation funder will be able to recover, from any settlement fund, a contribution towards commission and legal fees incurred from those that have not signed the funding agreement.

Essentially, this has the effect of applying litigation funding terms to all class members (not just the funded class members who voluntarily agreed to such terms).

However, the Court determined that some safeguards should be imposed to make sure that all class members are benefited and no material detriment is caused to their interests. The Court requested undertakings concerning funding terms to be applied from the applicant, funder and lawyers. If a common fund order is to be made, then the funding commission rate will be approved by the Court at the settlement approval or distribution stage, when more information is available to consider the charges in the context of the outcome. In doing so, the Court commented that it is highly likely that the Court approved rate will be lower than 32.5% or 35%, being the rates under the funding agreements applicable to this case.

In considering the purpose of the legislative class action regime, the Court noted that the way litigation funding and class actions have evolved was not contemplated by the parliament when it enacted it and that “it is time the Court gives further consideration to the interests of class members in relation to reasonableness of litigation funding charges”.

The Court is of the view that the common fund orders would have additional benefits:

  • enhancing access to justice by encouraging open class proceedings.
  • If litigation funders are permitted to charge a commercially realistic and reasonable commission to the whole class, it is less likely that funders will seek to bring class actions limited to those persons who have signed a funding agreement.
  • The encouragement of open class proceedings should reduce the potential for conflicts of interest between funded registered class members and unfunded class members and between the solicitors for the applicant and unfunded non-client class members.
  • Open class proceedings will also act to inhibit competing class actions and avoid the multiplicity of actions which they represent manifesting in significant delay, increased costs and wastage of the resources

The Court also recognised that the funders may be discomforted by the result because a funder will be obliged to fund a proceeding even though it does not know what its ultimate returns will be. The Court expects that any such concerns will diminish as the jurisprudence around approval of litigation funding charges develops. In particular, the Court expects that the approved funding commission rates will be commercially realistic and properly reflect the costs and risks taken by the funder, but not excessive or disproportionate.

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