Three game changers in 10 days in the class action space

First, on 29 November 2019, the Queensland floods class action judgement was delivered by Beech-Jones J in Rodriguez & Sons Pty Ltd v Queensland Bulk Water Supply Authority trading as Seqwater (No 22) [2019] NSWSC 1657.  As an aside, this was a class action brought in the NSW Supreme Court involving Queensland residents and business owners, Queensland government defendants and damages suffered only in Queensland.  But now with Queensland having its own class action regime, similar future actions can now be brought in Queensland Courts. The significant issue for the litigation funders backing the case is that it will stand as a prime example of the benefits of insurers allowing their subrogated claims to be prosecuted by funders delivering a “cost free” return but with a commission to the funders.  In a market where premium increases are limited and where investment returns are at historically low levels, monetising their subrogated recovery actions via litigation funding may be one avenue for insurers to increase profits.  Along with funding one off or portfolios of corporate claims, this may be another growth market for funders in the years ahead.

Secondly, on 27 November, the Victorian government introduced legislation which would permit lawyers to charge “contingency fees” in class actions, that is, legal costs payable to the law practice would be calculated as a percentage of the amount of any award or settlement that may be recovered in the proceedings (subject to court approval).  The flip side for the law practice is that the law practice itself would be liable for any adverse costs and the law practice would have to provide any security for costs ordered.  This proposal, if it becomes law, would be a significant game changer in the class action landscape.  It follows the recommendations made by the Victorian Law Reform report late last year and that of the recent Australian Law Reform Commission too. There may well be more class actions commenced but the financial risks for a law practice will be significant and act as a deterrent especially for what may be considered “speculative” claims. There is probably a limit to the number of firms who have an appetite to carry this type of risk and for those which are, a limit to the amount of risk they will be willing to carry at any one time. Litigation “funders” would be competing with law firms to run cases but they may well become litigation “financiers” providing capital and funding to the law firms who are providing the work on a contingency basis. It is likely that in order to avoid Victoria becoming the epicentre for class actions, other states and the Federal Court will feel the pressure to follow suit.   So watch this space.

Thirdly and finally, the High Court delivered judgement on 5 December finding that the Courts were not empowered to make common fund orders (CFO) in class actions at the beginning of claims or at an interlocutory stage.  A CFO is where the court orders group members who have not entered into funding agreements with the funder to pay commission to the funder effectively in return for the costs and risks incurred by the funder in getting in any monies recovered. The decision removes the more guaranteed return environment that was developing for funders under Federal Court jurisprudence.  The wide ranging implications from this judgement include that funded cases will be delayed until a significant book build is done, there may not be the “race to file first” as we have seen recently but there may be a race to book build, class actions may well revert to closed classes defined by those who have entered into funding agreements, there may be less cases filed as smaller funders and some international funders may not have the infrastructure and relationships needed to book build and funders might wait until settlement and final approval under s33V and seek a CFO at that stage (which some argue was not explicitly dealt with by the High Court in the plurality). While this may mean fewer competing open classes, and fewer “beauty parades” or “carriage motions” between competing funders and lawyers, there may be a return to the problem of multiple closed classes covering similar claims, and a return to problems facing defendants when seeking to resolve matters which only cover part of the potential loss arising from particular conduct.  There may also be less appetite for funders to bring high volume but low value claims as the effort of signing up tens if not hundreds of thousands of group members may well not be worth the return. The suggestion that CFO type arrangements will still be permitted as part of the final orders for distribution of settlement funds still leaves considerable risk for funders who cannot guarantee either that matters will settle or that the Courts will be willing to make CFOs at the settlement approval stage.