Justice Murphy clarifies Money Max and opens further the door for litigation funders and “Common Fun

Key takeaways

After the decision in Money Max late last year, it was not at all clear whether it would be a condition of common fund orders that the class members should be “no worse off” than they would have been under a funding equalisation order. This created quite some confusion amongst litigation funders and lawyers and operated as a “brake” on the rush to file and seek common fund orders (which allow funders to take their commission from all class members even if they do not sign up with the funder).

However, Justice Murphy, in Pearson v State of Queensland [2017] FCA 1096 (the Stolen Wages Case), has now clarified that the decision of the Full Federal Court in Money Max was not intended to establish broad principles that would apply to all cases in which a common fund was sought but rather was specific to the facts of that case.  

This will encourage funders and may see a greater number of claims filed early with only very few signed up class members with funders relying on successfully making common fund orders later on in the action to shore up their numbers and make certain the funded claims are economic for them.

Background

The Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Limited [2016] FCAFC (Money Max), case was the first case in Australia in which an order was made that enabled a litigation funder to collect their commission from all class members in an open class and not only from those who had entered into a litigation funding agreement with the funder (see our previous article here). These orders are known as “common fund” orders.  It was initially thought that this decision would open the floodgates for funders who would rush to file with very few signed up class members and then later rely on getting a common fund order to guarantee their commissions from all class members, meaning that there were no “free riders”.  

However, one of the conditions the Court in Money Max placed on the order in that case was that the class members should be no worse off under the common fund order than they would have been under a funding equalisation order. A funding equalisation order is an order in which a deduction is made from the payment to the class members who have not entered a funding agreement in order to equalise contributions to the costs of the case and recovery, that is, an amount is “contributed” equivalent to that which would have been payable to the funder if the class member had entered into a funding agreement with the sum of those amounts redistributed on a pro rate basis to all class members. This made funders wary and added uncertainty to their commission calculations because it was not clear if this condition would be applied in all future cases where common fund orders were sought.

There was a suggestion that this condition may not always apply when Beech J commented, in Blairgowrie Trading Ltd and Another v Allco Finance Group Limited (recs and mgrs. Apptd (in lig) and Others (No 3) (2017) 343 ALR 476 (Blairgowrie), that the “rider” from the Money Max decision should not be “decontextualized”.(105)

The position was clarified by Murphy J in his decision in the Stolen Wages Case (handed down on 14 September 2017), when he took the opportunity to set out in no uncertain terms what he meant in Money Max. He said categorically that the condition he referred to would not be required for the Court to grant a common fund order in all circumstances. His Honour said:

That rider should not be decontextualized from the circumstances of that case.  …….The rider was a case specific tool, and in any event it did not necessarily require the counterfactual of a funding equalisation order (30)

It is clear from Murphy J’s judgement that it will not generally be a condition that the class members be no worse off than they would have been under a funding equalisation order in closed class proceedings which are opened to permit other parties to join the class. In relation to open class proceedings, it appears that whether or not this condition will be required will turn on the facts of the particular case.

Outcomes

As a result, we consider funders will be further encouraged and we may see an increase in the number and speed of filings as funders race to Court to be first to file, worrying later about either signing up additional class members or getting common fund orders in the proceedings thereby ensuring their commissions from all class members.

However, the comments in Earglow Pty Ltd v Newcrest Mining Ltd [2016] FCA 1433 (157) and more recently in Blairgowrie (119) must be born in mind which are clear signals that the Court will play an interventionist role not only in deciding between competing funded class actions but also in setting final commissions which are appropriate and proportionate to the claims and the returns irrespective of what the funding agreements may provide for.

You can find Justice Murphy’s decision in the Stolen Wages Case at the below link:

http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2017/2017fca1096