Guidance on group costs orders for Victorian class actions

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

The first determination of an application seeking a ‘group costs order’ (GCO) was unsuccessful for the plaintiffs in two flex commission class actions in the Supreme Court of Victoria.

Justice Nichols has provided some initial guidance on the operation of a new Victorian regime dealing with costs in class action proceedings, while leaving the door open for the plaintiffs in Fox[1] and Crawford[2] to re-apply at a later date.

The regime is the first of its kind in Australia, effectively allowing law firms to charge contingency fees in class action proceedings as a percentage of any successful recovery, on condition that they give security for costs and will become liable for any adverse costs orders.

Key findings

• Justice Nichols found that the plaintiffs had not established that making a GCO was ‘appropriate or necessary to ensure that justice is done in the proceedings’ in accordance with the statutory criterion for the exercise of the Court’s discretion.
• In the circumstances of these applications, the key issues for declining to make a GCO included:
  • that the plaintiffs’ current funding arrangements, being a ’no win, no fee’ engagement, already sufficiently protected the plaintiffs from exposure to security for costs or any adverse costs orders by way of an indemnity provided by the plaintiffs’ law firm; and
  • that the evidence relied on by the plaintiffs to support a submission that group members would be financially “better off” under a GCO was, in some hypothetical modelling, not established, and in any event was inherently uncertain given the early stages of the proceedings.
• On the applicable GCO rate, some considerations which can meaningfully inform the setting of an appropriate percentage under s 33ZDA include:
  • the proportionality of costs sought by way of a GCO percentage;
  • the rate of return that a GCO should provide to the law firm and whether it is reasonable when considering anticipated costs and litigation risks;
  • historical outcomes and returns to group members in comparable class actions; and
  • the commission rates presently charged by third party litigation funders in comparable class actions.

Background

Section 33ZDA of the Supreme Court Act 1986 (Vic) introduced the group costs order regime in July 2020. Where a GCO is made, the plaintiff’s liability to pay its own legal costs is dependent on a successful recovery and the costs payable to the plaintiff’s law firm is calculated as a percentage of that award or settlement. The law firm must pay security for costs and becomes liable for any adverse costs orders. The provision is the first of its kind in Australia and was introduced to enhance access to justice.

The Fox and Crawford class actions both relate to ‘flex commissions’ allegedly paid to car dealers by Westpac, St George, ANZ and Macquarie resulting in higher interest rates on car loans.

As Justice Nichols acknowledged,[3] a number of class actions in Victoria since July 2020 have foreshadowed seeking a GCO.[4]

Determination

Her Honour indicated that the making of a GCO will depend on a ‘broad, evaluative assessment of the relevant facts and the evidence’ where primacy is given to the interests of group members.[5]

Most significant to the Court’s finding that the plaintiffs had not established the statutory criterion that making a GCO was ‘appropriate or necessary to ensure that justice is done in the proceedings’ was the current funding arrangements already in place with the plaintiffs.

The Court did not accept that the current funding arrangements, a ‘no win, no fee’ engagement which indemnified plaintiffs for adverse costs and security for costs, was an interim arrangement. Properly construed, they were not interim, even if that was the subjective intention of the plaintiffs’ law firm.[6] This finding meant that the plaintiffs had to establish that a GCO would be more advantageous to group members than the current funding arrangements.

“…in this case, the plaintiffs’ central contention is addressed to outcome, because that is what presents on the facts as the substantive and most significant basis on which the two models may be distinguished.”[7]

Her Honour emphasised that the focus on which funding arrangement would deliver the better price was a particular feature of these proceedings, and may well be anomalous.[8] While it is a relevant consideration, other considerations, including indemnity for adverse costs and security for costs and reasonableness and proportionality considerations are also important factors and may well be more critical in other cases.[9]

“In a different case, for example where a GCO would ameliorate the financial risks that a plaintiff would otherwise be required to assume, or where the plaintiff had obtained only genuinely interim arrangements for funding, an analysis of the likely outcome to the group might assume less importance. That was not this case.”

Ultimately, with the plaintiffs tasked with establishing that group members would be better off under a GCO than the current funding arrangements, Justice Nichols found that the evidence relied on was too uncertain to discharge the onus of proof.[10] It was found that, on the plaintiffs’ financial modelling, there were realistic scenarios where the group would be worse off under a GCO, and the modelling in any event was “riven with uncertainty,”[11] including because of the early stage of proceedings.[12]

Conclusion

Justice Nichol’s analysis of section 33ZDA and its legislative context, in addition to her findings on the evidence presented in these proceedings, will be instructive for a number of pending GCO applications. While her Honour emphasised the unique factual scenario in this case, all class action plaintiffs considering an application for a GCO will need to give close consideration to the funding arrangements in place at the beginning of proceedings.

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).