The Full Federal Court of Australia has held that the Court has power to make a ‘Solicitors’ Common Fund Order’ (Solicitors’ CFO), in R&B Investments Pty Ltd (Trustee) v Blue Sky (Reserved Question) [2024] FCAFC 89 (Murphy, Beach and Lee JJ). A Solicitors’ CFO is an order made upon the settlement or judgment of a class action that provides for a percentage of the settlement or judgment sum to be distributed to solicitors acting for the class action plaintiffs otherwise than as payment for costs and disbursements.
This decision follows that of Elliott-Carde v McDonald’s Australia Ltd (2023) 301 FCR 1 (Beach, Lee and Colvin JJ), in which the Full Court greenlit settlement common fund orders, which are orders dealing with the renumeration of litigation funders out of settlement or judgment sums and Justice Lee’s earlier comments in Greentree v Jaguar Land Rover Australia Pty Ltd (Carriage Application) [2023] FCA 1209 suggesting that Part IVA of the Federal Court of Australia Act 1976 (Cth) (Act) does not preclude a Solicitors’ CFO.
Background
Solicitors’ CFOs came before the Full Court in the context of a securities class action brought against Blue Sky Alternative Investments Limited (in liquidation), alleging misleading and deceptive conduct and breach of continuous disclosure obligations. Under the funding arrangements, the class action plaintiffs had instructed their lawyers to seek a Solicitors’ CFO upon settlement or judgment of the class action. The question of whether the Federal Court is empowered to make such an order was subsequently raised before Justice Lee, who reserved the question to the Full Court.
The Decision
The Full Court ruled that a Solicitors’ CFO can be made under sections 33V or 33Z of the Act.
The Full Court rejected contentions that it lacked power to make a Solicitors’ CFO because such an order could never be ‘just’ within the meaning of sections 33V and 33Z on the basis that it, or the funding agreement that requires the class action plaintiffs to apply for it, would, among other things:
(a) create a conflict of interest between a solicitor’s professional obligations and personal financial interest in the relevant class action;
(b) be inconsistent or breach a provision in the Legal Profession Uniform Law (NSW) (LPUL) prohibiting contingency fees; and
(c) be contrary to a general public policy against contingency fees for solicitors.
The Full Court’s decision was confined to the question of whether power existed to make a Solicitors’ CFO and whilst arguments pertaining to conflicting professional duties, statutory prohibitions on contingency fees and public policy were insufficient to persuade the Court that it lacked power, those arguments may still bear upon exercise of the Federal Court’s discretion to make a Solicitors’ CFO in a particular case. Ultimately, whether the exercise of the power to make a Solicitors’ CFO is ‘just’, will require an individual evaluation of the evidence before the Court and the terms of the proposed CFO on the occasion when the Court is called upon to exercise its discretion. The Full Court hinted at some factors that will guide discretion:
The considerations relevant to the exercise of the discretion and as to whether the proposed order is, or is not, ‘just’ will include the existence of the fully-informed consent of the applicants, and the adequacy of notification to group members and the reaction of those group members—not to mention the Court’s ability to scrutinise whether the solicitors had in fact acted in a way consistent with the existence of [professional] obligations … (perhaps aided, at that time, by a court-appointed contradictor if necessary).
Conflicts of Interest
The Full Court engaged with the vexed issue of the nature and extent of a solicitor’s professional obligations to group members in a class action who are not subject to a retainer. In so doing, it endorsed the conclusion reached by Justice John Dixon in Bolitho v Banksia Securities Ltd (No 18) (Remitter) (2021) 69 VR 28 that a fiduciary duty is owed by the solicitor to group members (and not just the lead plaintiff) during negotiations to settle all group member claims. In those circumstances, the duties owed by the solicitor are properly regarded as proscriptive; the solicitor would owe an obligation of disinterested loyalty, would be unable to obtain an unauthorised benefit from the relationship, and could not permit any conflict to arise between his or her duty to the group members and his or her own personal interests or duties to others.
The Full Court noted that potential conflicts of interest will inevitably arise in class actions and emphasised the responsibility of the Court to assume its protective and supervisory role in considering whether the rights of group members have been adequately protected in a proposed Solicitors’ CFO.
Not Strictly a Contingency Fee
While the Full Court considered legislation prohibiting solicitors’ entry into fee agreements providing contingency payments, the Court held that this did not mean that it lacked power to make a contingent payment to solicitors under sections 33V and 33Z. The Full Court noted that an agreement by a class action plaintiff to instruct an application for a Solicitors’ CFO is not an agreement contrary to the LPUL because there is no promise to pay any amount pursuant to a bargain reached between solicitor and plaintiff forming part of a retainer. Instead, there is simply a promise to make an application for an order, and to the extent any benefit is conferred, that benefit is properly conferred by the Court because it is ‘just’ to do so in all the circumstances.
Changing Attitudes
In considering public policy arguments, the Full Court acknowledged a ‘historical aversion’ to contingency fees, which it traced to the medieval origins of maintenance and champerty, doctrines in part prohibiting the funding of litigation by unconnected third parties. The Court observed that these doctrines, now abolished in most jurisdictions in Australia, long fomented hostility towards litigation funders and contingency fees in the law. The Court emphasised, however, that in recognition of the fact that public policy is neither fixed nor immutable, any assessment of public policy must be grounded in the context of modern Australian class action practice—a context where class actions are now the norm and there exists a mature market wherein solicitors and funders are in competition for carriage of class actions. Against that backdrop, the Full Court concluded:
There is much to be said for the notion that there is no longer a coherent basis for a rule of public policy that precludes solicitors being remunerated in class actions on the same basis as litigation funders where providing overlapping services (namely, taking on risk, including as to adverse costs, in relation to class action litigation benefitting numerous other persons).
The Victorian Experience
The Full Court gave considerable attention to the effectiveness of a Group Costs Order (GCO), an order available in the Supreme Court of Victoria that enables solicitors, in limited circumstances, to receive a contingent fee upon judgment or settlement of a class action. After canvassing academic commentary on the effect of GCOs on the cost of class actions, the Full Court concluded that there is no reason to think Solicitors’ CFOs would not, consistent with the experience of GCOs in Victoria, make the resolution of group member claims in large class actions ‘significantly less expensive’.
Conclusion
The Supreme Court of Victoria, owing in part to the availability of GCOs, has since 2020 been a forum of choice for class action plaintiffs. That may change as a result of the Full Court’s decision. Whilst the ability to apply for contingency fees is but one factor in a plaintiff’s decision on forum, it is an important one. That point is illustrated by the class action plaintiffs in the present case foreshadowing an application to cross-vest their proceeding to the Supreme Court of Victoria for the purposes of seeking a GCO in the event the Full Court ruled that a Solicitors’ CFO was unavailable. It will be interesting to see whether the decision has an impact on future filings and whether state jurisdictions with similar class action regimes follow the Full Federal Court’s approach.
