Common funds in Australia – Federal Court clarifies law by delivering most significant Class Action and Litigation Funding judgment in a decade?

A decade and two months since a High Court of Australia decision gave a clear greenlight to litigation funding down under, our Federal Court has now increased litigation funders certainty, at an early stage of proceedings, that they will be able to take their success fee in a class action from all group members, despite not having a funding agreement with each of those group members. That success fee is what has come to be known as a common fund. The decision may be of tremendous significance, because it means that only one plaintiff is needed for a class action to commence with litigation funding. Till now, the need to have a funding agreement with each group member meant that before a class action with litigation funding could be viably filed in court, a promotional phase was required, often taking months and in some cases preventing jeopardising the case proceeding.

A significant access to justice benefit of a common fund includes that actions can be started with litigation funding for persons who are hesitant to come forward at an early stage. It addresses the obstacle encountered in cases which would be for the benefits of those who are shy about engaging with an unfamiliar legal system, who are held back by uncertainty about whether hidden strings are attached to the benefits available to them. It should in this regard be remembered that part of the philosophy behind the opt out regime class action introduced in 1992 was the Government’s recognition that, for a range of reasons including hesitation to engage with lawyers, lack of information and fear of the unknown, persons may hold back from engaging with legal action and taking a positive step to become group members even though they would be extremely pleased to reap the benefits if they adequately understood the correct position (which in many cases in fact has no adverse strings attached).

The other side of this sword of justice is that making the promotional stage of a class action unnecessary, means that a class action proceeding with litigation funding can be commenced with the involvement of only one plaintiff. That new dynamic could facilitate a rush by lawyers to file proceedings in order to mark the territory as their own, especially with an increase in competition among Australian class action lawyers. If that happens, there may well be adverse outcomes if it means that proceedings are filed undercooked, a risk enhanced by shoddier lawyer entrants to the class action space who may be comfortable cutting important corners in order to be first.

A good class action lawyer recognises that the magnitude of these big cases warrants considerable due diligence before filing, and that filing half cocked before all the necessary first pass legal and factual questions are answered can do a disservice to the procedure and claimants. It isn’t for nothing that investigations into possible class actions frequently take 6 or more months (which isn’t really different for any large claim).

It's important to also note that the granting of a common fund order today was subject to safeguards set by the Court.

In any event, there may still be room for movement on the law by an appeal, although all who want certainty of outcome as soon as possible should remain grateful to Justice Murphy for earlier this year leapfrogging a single judge proceeding by sending the matter straight to a Full Bench of The Federal Court (who delivered today’s decision), in the wise recognition of the potential for appeal to a Full Bench no matter what a single judge decision was. Whether parties appeal to the High Court of Australia remains to be seen.

At this stage however, Adley Burstyner congratulate the plaintiff’s lawyers on a brave application and their work pioneering bringing stepping forward access to justice.

There is obviously a lot more said in the judgment delivered today, and much detail is required to even properly understand this high level summary, which shouldn’t be relied on for action without a more complete explanation of the decision and the law generally on this topic. Adley Burstyner would be pleased to advise on those details and how they relate to any particular circumstance.