Australia’s first Group Costs Order opens the door for greater certainty and transparency

Allen v G8 Education Limited, S ECI 2020 04339

The first ‘group costs order’ (GCO) has been made in the Supreme Court of Victoria, one year and five months after the regime came into effect. It was granted by the Honourable Justice Nichols in the shareholder class action case of Allen v G8 Education Limited and set at 27.5% (incl. GST).

The GCO regime allows law firms acting for plaintiff(s) (and group members) in representative proceedings to recover its legal costs as a percentage of the amount of any award or settlement in the proceeding.[1]

The regime serves as an exception to the nationwide prohibition on solicitors charging contingency fees, and is only currently available in Victoria.

The first GCO was conditional on the plaintiff providing an undertaking that the percentage would be a “ceiling” and that he would not seek to increase the percentage in the future.

Justice Nichols has not yet published reasons for granting the GCO in Allen v G8 Education Limited.[2] Nevertheless, we have discerned the following key practice points from the submissions and her Honour’s oral judgment.

Key Findings

In seeking a GCO, plaintiffs are not constrained to outcomes-based analyses. Each case will be assessed on a case-by-case basis, and the Court may be guided by:

• whether a GCO is appropriate or necessary to ensure the process of the litigation continues; and
• the inherent features of a GCO, and whether, in the circumstances, those features weigh in favour of the Court granting a GCO.

The inherent features of a GCO include:

• greater transparency, simplicity and certainty about the legal costs payable;
• equality of outcome through a fair distribution of costs between group members;
• an alignment of the law firm and the plaintiff’s financial interests; and
• assurance that costs will not consume the majority of any return to group members, particularly if the award or settlement is not very high.

Although the Court may order a GCO early in the proceeding,[3] the appropriate time for the Court to assess whether the percentage set by the GCO is proportionate may be at the end of the proceeding.

To obtain a GCO, plaintiffs  might be required to provide undertakings to the Court that constrain either seeking to increase the GCO’s percentage at a later date, to give effect to the percentage sought being a “ceiling”.

Background

The Allen v G8 Education Limited proceeding has been brought on behalf of certain investors who purchased shares in G8 Education Limited, and alleges that G8 Education Limited contravened its continuous disclosure obligations and engaged in misleading or deceptive conduct.

The matter had been run on a ‘no win, no fee’ basis since commencement, however in May 2021, the plaintiff sought a GCO pursuant to section 33ZDA of the Supreme Court Act 1986 (Vic), set at 27.5% inclusive of GST. The application was listed for hearing in November 2021, and the Court appointed a contradictor to make submissions on behalf of group members.

The application was the second of its kind. The first brought by the plaintiffs in the Fox[4] and Crawford[5] class actions (Fox/Crawford)[6], was unsuccessful.[7]

Plaintiff’s Submissions

The plaintiff’s submissions[8] included that the circumstances were distinguishable from Fox/Crawford and that a GCO was appropriate and necessary to ensure that justice is done in the proceeding.

The plaintiff submitted that:

• the pre-GCO costs arrangement was “genuinely interim and conditional”, providing for ‘no win, no fee’ funding up to the GCO application and, if unsuccessful, providing a pathway for third party litigation funding;
• absent a GCO there was a possibility that the proceeding may either not continue, be stayed or be delayed, and therefore that a GCO would be appropriate and necessary to ensure that the process of the litigation continued;
• the confidential modelling that the plaintiff relied upon showed a GCO may provide a better return to group members than the likely alternative funding arrangements, namely third party litigation funding. The submissions as to outcome were primarily advanced with reference to the funding commission rates and legal costs that are typically payable in funded representative proceedings;
• the inherent features of the GCO weighed in favour of it being ordered in the circumstances of the case; and
• unlike in Fox/Crawford,[9] the plaintiff deposed to the comfort that he (and other group members) would take in a GCO being made given that it eliminates the risk that legal and funding costs might consume the majority of returns to group members.

Contradictor

The Court appointed contradictor opposed the plaintiff’s application. The contradictor’s submissions included that the existing ‘no win, no fee’ costs arrangement was not “necessarily interim”. Therefore, if the Court accepted that it was appropriate to consider whether a GCO would provide a better return to group members than alternative funding arrangements, the alternative funding model to be considered is the existing ‘no win, no fee’ arrangement (rather than third party litigation funding).

Time for settling rate

The parties also made oral submissions that the appropriate time for the Court to assess the proportionality of any return to a law firm pursuant to a GCO might be at the end of the proceeding. They also suggested that an appropriate mechanism for ensuring that the percentage set by the Court in making an initial GCO was a “ceiling” might include the plaintiff  providing an undertaking that neither he would later apply to increase the GCO’s percentage.

Determination

Justice Nichols delivered her judgment orally with written reasons to follow. Her Honour granted the GCO at 27.5% (incl. GST), the rate sought by the plaintiff. Her Honour emphasised that the plaintiff relied on submissions, and his personal view, that a GCO is attractive because:

• costs will be “capped”;
• there will be no other deductions for disbursements and costs;
• the plaintiff would take great comfort as group members have greater certainty and transparency regarding deductions from any resolution sum; and
• it eliminates the risk that legal costs and funding costs might consume the return, particularly if the award or settlement is not very high. 

Her Honour noted that these matters were relevant not only because they were the plaintiff’s position, but also because her Honour considered them relevant factors. In addition, her Honour stated that the GCO was ordered on the basis that undertakings were accepted that the plantif would not seek to increase the percentage in future.

Once her Honour’s written reasons are published, there will be further clarity on the factors that the Court considered in determining to order the GCO, which will provide further guidance for plaintiffs and law firms in representative proceedings.

Conclusion

The GCO regime is an attractive funding model for plaintiffs and plaintiff law firms that is now closer in reach. It provides plaintiffs and group members with inherent benefits such as certainty and transparency, and also rewards law firms for taking on significant risks in prosecution complex and lengthy class action proceedings without receiving payment for legal costs if, and until, any successful outcome.

Plaintiffs seeking a GCO might draw analogy with the plaintiff’s case in Allen v G8 Education Limited, such as by providing evidence and submissions of how the inherent benefits might be appropriate or necessary to achieve justice in the case, addressing the benefits of a GCO for both outcome and process, and being prepared to offer an undertaking that the percentage sought will be a “ceiling”.

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).