Common Fund Orders are here to stay “at least for now”: an update on 7-Eleven Stores Pty Ltd v Davaria Pty Limited & Ors

24 Aug 2021

On 25 June 2021, the High Court of Australia dismissed 7-Eleven’s application for special leave to appeal the decision of the Full Court of the Federal Court of Australia made on 3 November 2020.

7-Eleven sought leave to appeal to the High Court from the decision of the Full Court of the Federal Court in relation to the Full Court’s decision not to answer a question which it held to be too ‘hypothetical’. That question, which 7-Eleven sought to argue before the Full Court, was whether the Federal Court had power to make a common fund order upon the settlement or determination of the proceeding.

William Roberts Lawyers acted for The Association of Litigation Funders of Australia who were granted leave to intervene by the High Court to make submissions as amicus curiae.

What next?

Given that the mediation between the parties in Davaria appears to have borne fruit since the application to the High Court, with a settlement approval hearing on the cards, the Federal Court will soon be presented with a real, rather than hypothetical question as to whether it has the power make a common fund order at settlement. The matter is currently listed for timetabling orders concerning settlement approval.

If a common fund order is sought, the weight of current judicial opinion suggests that such order can be made. If it is not made, it is unlikely to be because of a question of the Court’s fundamental power to grant such an order, but rather whether its terms are fair and reasonable.

It will be interesting to see whether the settlement emerges in a form that would allow 7-Eleven the right to appeal any granting of a common fund order, which in many ways would be odd in circumstances where one would expect it to be a friend of the deal. Putting commerciality aside, and theoretically, one cannot see a reason why a class member may not be able to pick up the cudgels instead.

Those involved in class actions no doubt look forward to any further precedent that will provide guidance on common fund orders.

Recalling the path to the High Court Application

The saga was sparked into existence by the High Court’s judgment in Brewster and Lenthall in December 2019 which, at the time, cast doubt as to whether the Court had any powers to make common fund orders, apart from those common fund orders made at an early stage of representative proceedings under s. 33ZF of the Federal Court of Australia Act and cognate State provisions. Common fund orders (CFOs) are, broadly speaking, orders that permit litigation funders to receive a commission fixed as a proportion of any monies ultimately recovered by group members in the proceeding, irrespective of whether litigation funding agreements have been entered into with group members.

On 3 November 2020, the Full Court in Davaria clarified that the majority in Brewster did not state that courts lacked the power to make a CFO at settlement (Settlement CFO) and/or at judgment (Judgment CFO). Rather, the Full Court observed that Brewster stood for the principle that the Court did not have the power to make a CFO at “an early stage in a class action” pursuant to section 33ZF of the Federal Court of Australia Act (Commencement CFO).[1]

The application for special leave to appeal

7-Eleven sought special leave for determination by the High Court as to whether the Federal Court had power to make a Settlement and/or Judgment CFO (the special leave question).

7-Eleven alleged that the Full Court had erred by:

1. not identifying and not applying the majority dicta of the Court in Brewster so as to determine that there was a want of power to make a Settlement CFO or Judgment CFO. In particular, 7-Eleven argued that the conclusions expressed by the majority about Commencement CFOs was “an emanation of the broader principle that the Federal Court does not have power at any time to make a CFO with the critical characteristics they identified”;
2. declining to make a declaration that there was no power to make a Settlement CFO or Judgment CFO; and
3. deciding that no legal controversy presently exists of a type which makes it appropriate to determine the issue of power.

Decision

In a hearing that lasted a mere, but not an unusual 22 minutes for such an application, Justices Keane, Edelman and Gleeson dismissed 7-Eleven’s application on the grounds that “the application did not present a suitable vehicle for the determination of the issue which the applicant seeks to raise”.

The result was not at all surprising because, as the Full Court effectively held, as did the NSW Court of Appeal in Brewster v BMW Australia Ltd [2020] NSWCA 272, the special leave question was an abstract or hypothetical question.

There is no homogenous or “standard-form” common fund order that can be looked at in a vacuum, devoid of its text and divorced from the context of particular facts and circumstances of a case existing at the time when it is actually sought.

Accordingly, it was unlikely that the High Court would wish to entertain the special leave question for the same reasons articulated by the Full Court.

[1] His Honour Justice Lee said at [32] and [33]: “As the contradictor submitted, it is accurate to observe that BMW v Brewster concerned the Court’s power to make a Commencement CFO under s 33ZF of the Act (see at 58 [1] per Kiefel CJ, Bell and Keane JJ). The majority held that the Court has no such power under s 33ZF (at 58 [3] per Kiefel CJ, Bell, Keane JJ, at 78 [125] per Nettle J, at 80 [135] per Gordon J). Of the three judges who made observations of the power to make a CFO at the conclusion of the proceeding (that is, a Settlement CFO or a Judgment CFO) under other provisions in Pt IVA of the Act, Gageler and Edelman JJ said that there was power (at 77 [117] per Gageler J, at 94 [207] per Edelman J), but Gordon J said that there was no power (at 80–3 [135], [141], [143], [149]). The other judgments, of the plurality (Kiefel CJ, Bell and Keane JJ) and Nettle J, confined their reasons to the Court’s power under s 33ZF to make a Commencement CFO. A number of judges of this Court have also approached the judgments in BMW v Brewster in this way when considering whether, in the wake of that decision, it is open to conclude that the Court has power to make a Settlement.”

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