In brief

The Full Federal Court in Davaria Pty Limited v 7-Eleven Stores Pty Ltd [2020] FCAFC 183 has now weighed in on the debate concerning the Court's power to make common fund orders (CFOs) at the settlement approval or judgment stage of class action proceedings. Although the Full Court declined to answer the question in this instance, the Full Court's remarks make clear that the question is still very much alive and in need of determination at the appellate level.

More detail

The High Court in Brewster v BMW Australia Ltd and Lenthall v. Westpac Life Insurance Services Limited [2019] HCA 45 (Brewster) has recently made clear that the Federal and NSW Supreme Courts have no power to make CFOs under section 33ZF of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and its NSW equivalent1 at an early stage of class action proceedings. Whether the Federal Court has power to make CFOs at the settlement approval or judgment stage of class action proceedings pursuant to s33V of the FCA Act has recently been the subject of differing views at the Federal Court level in the wake of the High Court ultimately leaving that question open.

We have previously provided analysis of the High Court's decision in Brewster here and subsequent Federal Court decisions here.

Given conflicting opinion at the Federal Court level, the Federal Court in the 7-Eleven class action referred the question to the Full Court for determination. The Full Court declined to answer the question in circumstances where no application for a CFO at settlement or judgment had yet been made (nor was it foreseeable that one would be made) meaning any consideration of the power of the Federal Court to make a CFO would be in the abstract and not in the context of known facts and precise form of CFO. In declining to answer the question, the Full Court also took into account that neither the lead plaintiff nor the funder participated in the hearing and considered that any decision about whether the Court has power to make a CFO at settlement or judgment stage should take place by reference to facts and not assumptions.

Notwithstanding the Full Court declined to answer the question in this instance, it made clear that the question is still very much alive and rebuked any suggestion it was the "evident intention" of the High Court in Brewster to prohibit all forms of CFO at any stage of a class action proceeding. The Full Court stated:

  • the decision of the High Court in Brewster was only concerned with the power to make an early stage CFO under s33ZF of the FCA Act and its NSW equivalent;
  • only 3 of the 7 High Court justices in Brewster made observations as to whether there was power to make a CFO at a later stage (i.e. settlement approval or judgment); and
  • intermediate appellate courts are only required to follow the observations of a majority of the High Court and no majority of judges in Brewster support the proposition that there is no power to make a CFO at any stage, including settlement approval or judgment.

The Full Court's decision in the 7-Eleven class action is consistent with a NSW Court of Appeal decision handed down on 30 October 2020 in the Brewster class action ([2020] NSWCA 272), in which the Court of Appeal declined to answer a similar question as to power to make CFOs but also made comments confining the scope of the High Court's decision in Brewster to the making of early stage CFOs.

Implications for class actions

This decision of itself is unlikely to shift the current attitude of litigation funders, who, given the uncertainty around the making of CFOs, are focused on:

  • commencing class actions only if adequate loss is attributable to class members willing to sign litigation funding agreements (i.e. following a "book-build"); or
  • commencing class actions in the Supreme Court of Victoria in light of new laws permitting contingency fees to be ordered in Victorian class actions.

However, the Full Court decision in the 7-Eleven class action is important because it indicates the Full Court does not consider itself bound in any way by observations of the High Court on the question of power to make later stage CFOs. To the extent the Full Court does determine there is power to make a CFO at settlement approval or judgment, the preference of funders to book-build or commence actions in Victoria will no doubt change, resulting in an increase in the number of class actions filed, as well as filing of class actions at an earlier stage of due diligence.