Funders may not have to provide security for costs in employee underpayment class actions

Articles Written by Robert Johnston (Partner), Andreas Piesiewicz (Partner), Jade Tyrrell (Associate)

On 10 November 2020, the Full Court of the Federal Court of Australia overturned orders made by Justice Lee which required the litigation funder to provide security for costs in two class actions for underpayment of wages and entitlements.

In allowing the appeals and setting aside the orders requiring security for costs to be paid by Augusta Ventures Limited (Augusta), the Full Court considered the purpose and effect of what is essentially a “no costs” regime under the Fair Work Act 2009 (Cth) (Fair Work Act) as well as the potential unjust nature of the consequences for the applicant and group members if there was non-compliance by Augusta with the orders, in particular, a stay or dismissal of the proceeding.[1]

In effect, the decision means that the typical “no costs” nature of Fair Work proceedings could not be circumvented by requiring a third party funder to provide security for costs.

The decision comes at a time where there has been a spate of funded class action proceedings brought under the Fair Work Act against employers in circumstances where there was a degree of uncertainty as to the funder’s obligation to provide security for costs. That uncertainty has now largely been removed, suggesting that litigation funders may be emboldened to investigate and prosecute even more Fair Work Act proceedings against employers.

Background

Mr Turner commenced the two class actions against relevant employers at the Mount Arthur Coal Mine in relation to matters arising under the Fair Work Act, on his own behalf and on behalf of other mine employees.

In each proceeding, compensation and penalties are sought on behalf of group members employed during certain periods for alleged unpaid wages and unpaid entitlements on the basis that they were mischaracterised as casual employees.

Procedural History

In October 2019, Lee J made orders that Augusta provide security for the respondents’ costs of over $3 million across both proceedings, to be paid in traches. Lee J determined that it was within the Federal Court’s power to make the orders for the funder to pay security for costs and that it was also appropriate in the circumstances to do so because the proceedings were commercially funded.[2] Lee J also found that there was no compelling reason for the costs protection in Fair Work Act claims to extend to non-party funders using such claims to obtain some commercial gain,[3] and that any unfairness to the funder that might be caused by the funder’s inability to recover its costs if it were later successful could be remedied by an adjustment in the pricing the funder offered for its funding services.[4]

On Appeal - Findings of the Full Court

Central to Allsop CJ’s reasoning in the leading judgment on the appeals was that Mr Turner had properly sought to ventilate his rights and the rights of others, and the employers’ rights to any order for costs against Augusta - a non-party - did not grant the employers an entitlement to make Mr Turner’s proceedings conditional in any way upon securing the obligations of Augusta to pay the employers’ prospective costs.[5] In a separate supporting judgment, Middleton J agreed on the basis that the threat that the proceedings were to be stayed or dismissed for non-compliance with the orders made for security for costs was a consequence that would be directly and unfairly visited upon Mr Turner and the group members he represented.[6]

In their separate judgments, Allsop CJ and White J respectively considered the purpose and rationale of section 570 of the Fair Work Act - which deals with the limited circumstances in which a party may be ordered to pay costs. This was contrasted with the usual principles underlying orders for security for costs in other types of litigation. Allsop CJ was troubled by the usual consequences if Augusta failed to put up the security, which would be to stay or dismiss Mr Turner’s proceeding. Such an outcome, which would impede or even destroy Mr Turner’s right to proceed with a bona fide claim and class action could not possibly be just where the Fair Work Act provides that no party is to be liable for costs, except in circumstances where he, she or it has behaved in a manner worthy of criticism (which was not the case here).[7]

In White J’s judgment, His Honour agreed with Allsop CJ’s reasons for allowing the appeals and also considered that Lee J had overlooked a number matters, in particular, the need for caution so as to avoid undermining the terms and rationale of section 570.[8]

In concluding that an order for security was not appropriate in the circumstances, White J stated the proper question which Lee J had not considered was “whether effect could be given to the usual principles on which security is ordered while at the same time preserving the protection s 570 afforded to Mr Turner and respecting its underlying rationale”[9]. Crucially, Lee J had not considered the impact on that protection of an order that Augusta provide security, or the likely effect on Mr Turner and the group members of having to essentially fund Augusta’s provision of the security in the proceedings because of the terms of the Augusta’s funding agreement. White J therefore said the Full Court should re-exercise the discretion to order security and overturn the orders made for Augusta to provide security for costs.[10]

Implications

The Court’s decision comes in the wake of a marked rise in employment-related class actions involving underpayment claims for wages and entitlements in recent years (commenced against Coles, Woolworths, On the Run, Hays, and WorkPac – to name a few). Employer defendants had typically deployed seeking security for costs as a defence strategy which would put financial pressure on funders standing behind such claims. They are no longer able to do that, except in limited circumstances, and one can expect that this will embolden funders to investigate and prosecute even more Fair Work Act proceedings, having regard to the comparatively limited risk profile in relation to, both, adverse costs liability and security for costs, as compared to other litigation.

This is even more likely to be the case if the Courts ultimately sanction the power to make a “common fund order” at a settlement or judgment of a class action proceeding,[11] thereby permitting litigation funders to be paid a percentage of settlement or judgment proceeds from all class members, even where class members have not signed litigation funding agreements permitting that to occur.


[1] Augusta Ventures Limited v Mt Arthur Coal Pty Limited [2020] FCAFC 194 at [21] – [23] per Allsop CJ.

[2] See [49] per Allsop CJ.

[3] Turner v Tesa Mining (NSW) Pty Limited [2019] FCA 1644 at [77] per Lee J.

[4] Ibid at [80] per Lee J.

[5] At [73] per Allsop CJ.

[6] At [90] – [91] per Middleton J.

[7] At [20] – [26] per Allsop CJ.

[8] At [127] – [131] per White J.

[9] At [132] per White J.

[10] At [132] – [135] and [144] - [145] per White J.

[11] The fate of common fund orders in class actions remains uncertain, with the High Court saying such orders cannot be made early in proceedings and in light of two recent decisions of the Full Court of the Federal Court of Australia and the New South Wales Court of Appeal, in which both Courts declined to determine the issue of whether the Courts had the power to make a common fund order at a settlement or judgment of the class action proceeding.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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