14 September 2017: Common fund order made for 20% success fee in Stolen Wages Case. Defendant’s claimant database to be used.
- Court and judge: Murphy J in the Federal Court of Australia (Queensland Registry)
- Citation and link: Pearson v State of Queensland  FCA 1096
Executive summary: Common fund ordered, granting litigation funder a success fee of its costs investment plus 20% of a recovery. The court’s order annexed the terms of the litigation funding agreement.
Summary of judgment:
The case is a class action to recover Aborigines or Torres Strait Islanders’ wages misappropriated between 1939 and 1972. Till this judgment the case was limited to persons who had signed a litigation funding agreement (known as a closed class).
The application sought to both open up the class to include any affected Aborigine or Torres Strait Islander (not just those who had signed a funding agreement) plus a common fund order. A common fund order means a litigation funder can be paid a success fee from everyone in the class benefitting from the case, not just those who have signed an agreement. Unlike some earlier common fund order cases, the Court was expressly told that the litigation funder wouldn’t fund an open class without a common fund order.
The defendant (the State) consented to the class being opened but was neutral as to a common fund order, treating that issue as one for the Court to deal with as part of its supervisory responsibility to protect its processes and class members’ interests.
Opening the class?
Interestingly, the court acknowledged a plaintiff’s right to define the represented class.
The evidence disclosed that:
- around 8,700 Aborigines and Islanders suffered from stolen wages;
- since the case was commenced 3,267 of them had been met with; and
- approximately 4,000 persons in Queensland hadn’t been able to be contacted.
The court said: “Making a class opening order so that potential class members - many of whom are elderly, poorly educated, lack legal and commercial sophistication and live in relatively isolated locations - can participate without taking any positive step meets the access to justice aims of the Part IVA regime. It will also meet the aim of improving judicial economy by increasing the level of finality achieved through the case.”
Common fund order?
The Court found it to be appropriate and in the interests of justice that costs be shared “equally” across all class members. It accepted the proposed 20% success fee, provisionally, noting that the rate compared favourably with market rates and was said to be reduced because of the social justice issues of the case.
But it added the rider that the success fee could later become “such lower percentage as the Court considers reasonable”, stating: “The funding commission rate will be approved at a later point when the Court has more complete information in that regard”.
Importantly, the Court recognised that class members weren’t forced to accept to give away 20% of their claim by the common fund order, because they would have an opportunity to opt out of the case.
· Necessary to order that Class members not be worse off because of common fund order?: The Court said it was unnecessary to impose such a condition, even though it had been done in earlier cases. The Court accounted for the fact that this case had started as a closed class, which meant that no existing members of the case were being prejudiced by the order (because they had already agreed to a 20% success fee). That distinguished the matter from earlier cases where class members already in an open class, who had not agreed to a funding fee, could have suddenly found themselves arguably worse off in having to bear the cost of such fee when a common fund order was made.
· Should notice of common fund order be circulated to class members?: The parties differed about whether notice of the common fund order should be given to original class members (persons who had signed a funding agreement) and/or persons automatically included by virtue of the new order opening the class. The Court accepted the applicant’s proposal, that notice of the common fund order be given to group members separately as part of the opt-out process (a course taken in some earlier cases). Potentially interesting for future cases , but obiter in this matter, was His Honour’s observation that s.33X of the Federal Court of Australia Act 1976 applied to notice to existing class members, not those who might become class members.
The applicant sought orders allowing use of the “contact details of Aboriginal and Islander claimants held by the State on the Community and Personal Histories electronic database (CPH Reparation database)”. The State objected, essentially on privacy grounds, offering that it would send a mutually agreed communication to persons on the list.
The Court noted that the objective of s.33X was that notice be given “in the most efficient and effective way” and concluded that “It is plain that the database should be used to notify class members”. As it turned out, the parties conceded that an independent commercial mail house could circulate the opt out notices and protect the confidentiality of the database.
This favourable judicial approach to using lists of class members could be seized upon in future cases. In shareholder cases, for example, there have for a long time been impediments to using share registers, especially at an early stage of a proceeding, largely because of the operation of the Corporations Act in respect of the purpose for which such lists can be used.
Things to think about
- Although the Court both nominally approved the specified rate of 20%, and went further in indicating why future judicial consideration should treat that rate favourably, it fell short of given the litigation funder certainty by concretely locking in that rate (a balance which makes sense, but litigation funders may feel the uncertainty unnecessarily adds to the risks they already take on).
- The Court appeared to give favourable weight to the fact that opening the class would reduce costs of bookbuilding.
- On some issues the court’s approach was shaped by the low education and lack of access to communication, such as email, radio and newspapers, of many falling in the open class. The same might be unable to be said for many other class actions, notably shareholder class actions.
- The Court’s attention in considering the application for the common fund order appeared to be more on the nuances and fairness of the arrangement, rather than the broad concept of common fund orders, reflecting the increasing judicial acceptance of such orders (especially when combined with class opening orders). The Court, for example, set out in considerable detail much of the litigation funding agreement in question, noting that it included “appropriate protections”.