Bogan v The Estate of Peter John Smedley (Deceased) [2022] VSC 201
On 26 April 2022, John Dixon J delivered judgment in the Arrium class action holding that a group costs order (GCO) at 40% (including GST) was appropriate to do justice in the proceeding.
This is the second successful GCO application, and is a rate that is 12.5% higher than the first (being 27.5%).[1]
It demonstrates that GCO rates are not limited to a maximum of 30% and that the Court is prepared to acknowledge the risks that law practices take when prosecuting complex commercial proceedings.
The key takeaways for plaintiff law practices are:
The Arrium class action has been brought on behalf of certain investors in Arrium Limited (Arrium) against four former directors of Arrium and Arrium’s former auditor.
The plaintiffs sought a rate of 40% (including GST). Prior to the plaintiffs’ GCO application, the proceeding was funded by third party litigation funding. The plaintiffs submitted that given the complex and expensive nature of the case, the funder would not continue funding on the existing arrangement but would agree to co-funding with the plaintiffs’ solicitors if a GCO was obtained at a rate of 40%.
Co-funding would involve the plaintiff law practice and the litigation funder entering a costs sharing agreement where the law practice would pay 50% of any payment it received pursuant to the GCO (after certain deductions) to the litigation funder.[2]
Justice Dixon determined that a GCO at 40% was appropriate to do justice in the proceeding. This determination turned on the circumstances of the case, including that:[3]
Justice Dixon provided further guidance for prospective applicants by considering investment evaluation principles “in the expectation that in future cases such an analysis will be presented to the Court …or its absence explained.”[4] This included discussion of the core risks that law practices face in prosecuting proceedings pursuant to a GCO[5] and an explanation of the components for determining a fair and reasonable risk premium.[6]
His Honour also considered methods for decision making regarding investments and opined that expert evidence of the rate of return obtainable in the market by insurers, private equity, and venture capital may assist to assess a rate of return for an investment by a law practice.[7]
His Honour rejected any suggestion that the contemplated arrangement was one where the law practice was acting as a ‘mere front’ for a third party funder, and held:[8]
The statutory language does not invoke any inquiry into the means by which the law practice chooses to fund its obligations. A group costs order would result in the Funder having no direct agreement with the plaintiffs and group members and [the law practice] would be liable for the costs of the proceeding.
The Arrium judgment provides law practices contemplating prosecuting proceedings on the basis of a GCO and litigation funders considering co-funding a law practice’s GCO obligations, an assurance that the Court is prepared to recognise that a commitment to a GCO is an investment and that the returns need to be commensurate with other investment opportunities with similar risk profiles.
[1] See our analysis of the first GCO at Australia’s first Group Costs Order opens the door for greater certainty and transparency and Australia’s first group costs order explained.
[2] See Bogan v The Estate of Peter John Smedley (Deceased) [2022] VSC 201 at [62] for an overview of the key terms.
[3] Bogan v The Estate of Peter John Smedley (Deceased) [2022] VSC 201 at [105].
[4] Ibid at [18] – the analysis can be confidential.
[5] Ibid at [24].
[6] Ibid at [25].
[7] Ibid at [26]-[28].
[8] Ibid at [101].
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