Victoria’s first group costs order application unsuccessful… at least, for now

Fox v Westpac; Crawford v ANZ [2021] VSC 573

Date published

28/09/2021

Services

Locations

This article was co-authored by Cara Cross, Paralegal.

The Supreme Court of Victoria has delivered its first judgment under Victoria’s new contingency fee regime following applications by two plaintiffs for 'group costs order' (GCO) which, if allowed, would have permitted the plaintiffs’ law firm to receive 25% of any award or settlement.[1]

The Court found that the plaintiffs in the two group proceedings had not established a sufficient basis for the Court to exercise its discretion to order a GCO.  However, the Court adjourned the applications (rather than dismissing them) such that it remains open for the plaintiffs in either group proceeding to reapply at a later date.[2]

The contingency fee regime

In July 2020, section 33ZDA was inserted into the Supreme Court Act 1986 (Vic) (the Act), lifting the blanket prohibition on lawyers charging contingency fees in Victoria.

This change made Victoria the only jurisdiction in Australia to allow contingency fees for group proceedings.

Under a contingency fee arrangement, legal costs payable to a law practice representing a plaintiff and group members in a class action, are calculated as a percentage of the amount of any award or settlement that may be recovered in that proceeding.

These orders are akin to a common fund order but where a percentage of the award or settlement is paid to the plaintiff’s law firm instead of a litigation funder and can be contrasted to the general prohibition on law practices charging contingency fees.[3]

In order to enter into such an arrangement, a plaintiff in a group proceeding must apply to the Court and demonstrate to the Court’s satisfaction that it is “appropriate or necessary to ensure that justice is done” before a group costs order is made.

If a GCO is ordered, the law practice representing the plaintiff and group members:

  • is liable to pay any costspayable to the defendant in the proceeding; and
  • must give any security for the costsof the defendant in the proceeding that the Court may order the plaintiff to give.

The GCO applications

The parties in the two group proceedings consented to the GCO applications being heard together noting that both plaintiffs were represented by the same law firm and the same counsel, both had an existing funding arrangement of “no-win, no-fee”,[4] in both proceedings the law firm had indemnified the plaintiffs against any adverse costs orders and both plaintiffs were seeking a GCO which would allow for the plaintiff law firm to receive 25% of any award or settlement.  Both proceedings relate to the charging of flex commissions by car dealers.

In making the application, the plaintiffs submitted that a GCO would “engender certainty, transparency and the alignment of economic interests of the group and the law practice” but accepted that the most significant consideration was “the financial outcome for the group members”.  The plaintiffs also emphasised that a GCO would guarantee against the erosion of returns to the group by legal costs.

Although the applications were rejected, Nichols J’s findings clarify the interpretation of section 33ZDA of the Act and the operation of contingency fees in group proceedings in Victoria.

Criterion for the exercise of discretion

Under the Act, the Court may make a GCO if it is “satisfied that it is appropriate or necessary to ensure that justice is done in the proceeding”.  Beyond this, the Act provides no further guidance as to what factors might enliven the Court’s discretion.

In these applications, the parties focused their submissions on whether it was “appropriate” to make a GCO, not that it was “necessary”.[5]  In this context, the Court found that, before making a GCO, the Court must be satisfied that doing so would be “a suitable, fitting or proper way to ensure that justice is done in the proceeding”.

The Court observed that, when exercising the discretion to grant a GCO, the Court must:

“be astute to protect the interests of the group members.  Having regard to the Court’s role in ensuring that group members are not prejudiced by the conduct of the litigation on their behalf, the effect on group members of a proposed order must be the primary consideration informing that evaluation.”[6]

Notwithstanding the above, the Court also accepted the contradictor’s submissions that evidence of the nature and extent of the risk that the plaintiff’s legal practice would be prepared to accept might inform the fixing of an appropriate percentage.  On the other hand, there might be circumstances in which the Court considers that the nature of an arrangement with a third party is such that a GCO ought not be made, for example where the law practice is acting as a “mere front” for a third party funder.

Interests of the group members must be given primacy

The Court agreed with the plaintiffs that GCOs make simple, certain and transparent the basis on which legal costs will be calculated.  However, the Court did not consider that those factors in this case, justified the exercise of the discretion, given the primary submission on which the plaintiffs’ “better off” case was put sought to make a substantive change to the funding of the proceeding.

Nichols J held that, in these proceedings answering the question of whether the making of a GCO was appropriate or necessary to ensure that justice is done in the proceeding, consideration was to be given to whether there was sufficient evidence on which to conclude that the proposed GCO would “likely deliver a better financial outcome to group members than other funding arrangements would deliver”

That is, the making of a GCO would need to be “more advantageous” for group members than the “no-win, no-fee” funding arrangement already in place.[7]

However, the Court also found that the Act does not require or suggest that a GCO may only be awarded if it can be positively proven that it would deliver a better financial outcome to group members than some other funding model.

Percentage rate

With the introduction of contingency fees to group proceedings in Victoria, a key question is how Court’s will assess the percentage of return requested by a plaintiff.  To this point, Nichols J accepted the following as considerations the court ought to have regard to when assessing the proposed GCO rate:

  • the proportionality of costs sought by way of a GCO percentage;
  • the rate of return that a GCO should reasonably provide to a plaintiff law firm in light of anticipated costs and risks to be incurred by it;
  • historical outcomes and returns to group members in proceedings of similar size and risk; and
  • the commission rates presently charged by third party litigation funders with respect to group proceedings of similar size and risk, and if the commission rates are different to the proposed GCO, whether the GCO percentage sought is nevertheless justifiable.

While the applications weren’t granted, at least for the time being, the Court provided some commentary on the law firm’s proposed rate of 25%:

“[o]n the evidence… there is nothing to suggest that the proposed rate of 25% is inherently unreasonable, considered generally against third party funding commissions that have historically been offered in Australia, or that projected rates of return of Maurice Blackburn suggest that such a rate would produce disproportionate profits.”

Concluding remarks

Although a contingency fee is yet to be ordered in group proceedings in Australia, this judgment provides some guidance as to how the Court will approach the use of its discretion.

In future GCO applications (and when these adjourned summonses return), the Court will undertake a broad, evaluative test with the effect on the group members of the proposed GCO being the primary consideration informing that evaluation.

In 2018, the Victorian Law Reform Commission suggested that contingency fees would result in better access to justice by increasing competition amongst firms and amongst litigation funders and reduce plaintiff costs.[8]  This would undoubtedly be a good outcome if it secured a greater return to group members.

However, without national consistency, it remains to be seen whether these better outcomes will be achieved or whether it will simply make the Victorian Supreme Court more attractive for plaintiff firms looking to commence group proceedings.

 

Read other items in the Australian Insurance Brief - October 2021

 

Footnotes

[1] Fox v Westpac; Crawford v ANZ [2021] VSC 573.

[2] Given the Court was not persuaded to make a GCO at the proposed rate at this time, the summonses were adjourned to permit the plaintiffs to “further consider their position, and specifically whether a reformulated application should be pressed at a later time”.

[3] Section 33ZDA of the Act allows for contingency fees to be charged in a group proceeding despite the general prohibition contained in section 183 of the Legal Profession Uniform Law which provides that “a law practice must not enter into a costs agreement under which the amount payable to the law practice or any part of that amount, is calculated by reference to the amount of any award or settlement”.

[4] The “no-win, no-fee” or conditional costs agreement provides that the plaintiffs will pay costs only if the action is successful, in which case an uplift fee calculated at 25% of the costs will be charged.

[5] Conceivably, a GCO might only be “necessary” where a plaintiff can demonstrate that no other funding arrangement is possible but the Act does not itself require this.

[6] At para 34 but also in the context of the Court’s comments at para 15 that “It is clear then that the provision is concerned only with the liability of the plaintiff and group members to pay the law practice representing them… the law does not directly or on its face concern the defendants; it is prima facie a law directed to matters on the plaintiff’s side of the record”

[7] At the time of the application, the plaintiffs were beneficiaries of a “no-win, no-fee” funding arrangement and the plaintiffs’ law firm had indemnified the plaintiffs against the risk of any adverse costs.  The Court rejected the plaintiffs submissions that these arrangements were interim arrangements.

[8] Victorian Law Reform Commission,  Access to Justice: Litigation Funding and Group Proceeding (Report, March 2018) 63.