The Full Court of the Federal Court of Australia has made a ground-breaking order in a proceeding that all class members pay for litigation funding costs, not just funded class members (full decision available here).
This decision is significant because it is the first time that a Court has made a ‘common fund order’ in Australia. The judges commented in their reasons that ‘by encouraging open class proceedings, a common fund approach may reduce the prospect of overlapping or competing class actions and reduce the multiplicity of actions that sometimes occurs with class actions.’ There have been several parallel class actions relating to the same subject matter commenced in Australia in the last two years, so these comments (and the Court’s approach) are perhaps unsurprising.
The application for a common fund order was brought by the lead plaintiff in a securities class action against an insurer for a shock writedown in December 2013 resulting in a share price drop of around 20%. The class action alleges that the insurer breached its disclosure obligations, ASX listing rules and engaged in misleading conduct, resulting in losses to shareholders.
Some members of the class are funded by litigation funder International Litigation Funding Partners, and some class members are unfunded. The common fund order was not strongly opposed by unfunded members. The insurer opposed the application because it argued that a common fund order would increase the aggregate funding commission paid to the litigation funder.
The Court considered that, on balance, it is fair for all of the parties who will benefit from the involvement of a litigation funder to share the associated cost. However, the Court refused to make orders confirming the commission charge of between 32.5% and 35% which will be determined by the trial judge or during Court approval of any settlement. In either process, the Court must be satisfied that the litigation funding commission is reasonable. The Court also ordered that a floor condition be inserted that no class member can be worse off under the common fund order than they would have been without the order. Class members are, of course, also free to opt out of the proceeding if they are concerned about the obligation to pay reasonable Court-approved funding commission.