On Tuesday, 14 September 2021, the Victorian Supreme Court handed down the first decision relating to section 33ZDA of the Supreme Court Act 1986 (Vic) (the Act), which makes provision for ‘group costs orders’, in Fox v Westpac Banking Corporation; Crawford v Australia and New Zealand Banking Group Limited  VSC 573.
Justice Nichols determined that the plaintiffs had not established a sufficient basis for the exercise of the Court’s discretion conferred by section 33ZDA of the Act to make a group costs order. The Court, however, considered the principles that will govern making such an order and adjourned the applications rather than dismissing them, leaving open the possibility that the plaintiffs will reagitate their application at a later date.
Background: group costs orders in Victoria
The applications were made in the context of class action proceedings concerning “flex commission” arrangements in lending to consumers purchasing motor vehicles.
The group costs order mechanism was introduced by the Victorian Parliament into Part 4A of the Act in July 2020. Victoria is the first and only Australian jurisdiction to introduce a provision of this kind. The new provision permits a plaintiff’s solicitors to be remunerated with a percentage of the total amount of any award or settlement, if ordered by the Court. As such, the plaintiff’s liability to pay their own legal costs is contingent on the recovery of an award or settlement ().
When is it appropriate or necessary to grant a group costs order?
The Act requires that the Court must be satisfied that it is ‘appropriate or necessary to ensure that justice is done in the proceeding’ before making a group costs order.
Nichols J found that whether a group costs order is appropriate or necessary depends on a broad, evaluative assessment of the relevant facts and that:
- the Court needs to be satisfied that making such an order would be a ‘suitable, fitting or proper way to ensure justice is done in the proceeding’ ();
- in making this assessment, it is the ‘interests of the group members that must be given primacy’ (): the ‘law does not directly or on its face concern the defendants, it is prima facie a law directed to matters on the plaintiff’s side of the record as it were’ (); and
- the effect on group members of a proposed order must be a primary consideration ().
The plaintiffs had argued that group members would be “better off” under the group costs order than under alternative arrangements, in particular, third party litigation funding. This was because litigation funders typically recover the amounts expended on legal costs in addition to their commission. A group costs order of 25% would therefore deliver a better return to group members than a funder’s commission of 25%.
In considering this submission, the Court determined that the relevant comparator was each plaintiff’s existing funding arrangement, which in this case was a ‘no win no fee’ arrangement entered into by the plaintiffs and their solicitors () coupled with an indemnity against any adverse cost consequences. Those arrangements could only be terminated or varied in limited circumstances.
The plaintiffs also adduced confidential evidence of predictive modelling (presumably in relation to prospects, costs and returns to group members), and argued that there were some potential scenarios where a group costs order would deliver better outcomes to group members than the existing no win no fee arrangements. They submitted that the group costs order provided group members with transparency and certainty, and provided protection for group members against the risk of an adverse outcome (specifically, a cap on the law firm’s return if an award or settlement amount was comparatively low). The Court determined, however, that the predictive modelling was “riven with significant uncertainty”, and the evidence in both proceedings was too uncertain to establish that a group costs order would be appropriate or necessary ().
Notably, the Court also found that section 33ZDA of the Act does not require that a group costs order be made only if it can be positively proved that it would deliver a better financial outcome than some other funding model (). Whether or not a comparative assessment is relevant may vary from case to case.
How does a group costs order interact with the indemnity principle?
Her Honour did not find it was necessary to decide whether section 33ZDA displaces the ordinary indemnity principle: that from the perspective of an unsuccessful defendant costs would follow the event, and a successful litigant will recover costs in the absence of special circumstances justifying some other order (). Her Honour did observe that Parliament “cannot be taken to have intended that a law practice in respect of which a group costs order is made would be entitled to be paid both a percentage of the monetary award, and a percentage of any costs recoverable from the defendant.” The phrase ‘[a]ward or settlement’ is to be construed as a reference to any principal monetary sum awarded or recovered, not inclusive of any costs awarded against the defendant in favour of the plaintiff ().
The decision provides guidance on the considerations relevant to an application under section 33ZDA. Plaintiff lawyers contemplating group costs order applications in future will need to give careful consideration to whether the group costs order sought genuinely compares favourably to existing funding arrangements. The decision may lead plaintiff lawyers and funders to revisit their interim funding arrangements to maximise the chances of ultimately obtaining a group costs order. Whether the legislation will fulfil its primary aim, which was to “improve access to justice by lowering the risk for a potential lead plaintiff” and “pave the way for class actions to proceed where they otherwise may not have been viable”, remains to be seen.