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Common Fund Orders Update 2

6 minute read

Class Actions

Shine Lawyers provides a summary of the recent case considering an application to open a closed class action and an order that all members of the opened class be subject to a common fund order. We note in particular the judicial oversight of the funding commission rate.

Key findings

This judgment concerns an interlocutory application made by the Applicant, Hans Pearson, in the “Stolen Wages” class action against the Respondent State of Queensland. The proceedings were commenced as a closed class to those that had entered a litigation funding agreement with the litigation funder (Litigation Lending Services Ltd (LLS)) as at the date of filing of the Amended Statement of Claim on 17 March 2017.

The interlocutory application brought by Mr Pearson sought to open the class and seek a common fund order.

In his judgment, Murphy J ordered that:

  1. The class be opened;

  2. That all members be subject to a common fund order; and

  3. A funding commission rate of 20% or such lower percentage as the Court considers reasonable at that time (emphasis added), and that the rate would be approved at a later point when the Court had more complete information.

The application

The interlocutory application by Mr Pearson sought the following orders:

  • Pursuant to s33K of the Act, to remove the requirement that class members must have entered the funding agreement, thereby resulting in an “open” class action

  • Pursuant to ss23 and 33ZF of the Act, and rule 1.32 of the Federal Court Rules 2011, to apply the litigation funding terms to the opened class, including that the class pay to LLS a pro-rata share of the legal costs incurred and a funding commission of 20%, and

  • In the alternative, orders to expand the closed class by amending the class definition to bring in additional claimants who register and sign a funding agreement.

Reasons for judgment

The class opening order

In summary, Murphy J was satisfied that the order was appropriate, having regard to factors such as the interest of reaching a settlement, the likelihood of subsequent litigation if the class is not opened and the interests of the class members.

His Honour noted the following:

  • It is a matter for the Applicant to define the represented class, unless there is a reason to refuse leave to amend the definition. If it were refused in this case it leaves open the possibility that a class member could simply commence another “open” class action.

  • A closed class is likely to be a barrier to settlement, due to the fact that any class member barred from the class action can bring an individual claim, or another class action, resulting in a lack of finality.

  • It is standard practice in closed class actions for respondents to request that the class be opened prior to settlement and then closed again in a compressed time frame. In light of this, he found it preferable given the remoteness of the areas some class members may live in and the lack of capacity of some to understand the litigation, that the class be opened now.

  • In considering the interests of the current, funded group members, Murphy J noted that their claims are unlikely to be diluted by additional class members, because individual claims are for specific sums that were withheld by the State rather than an entitlement to a portion of a “lump sum” amount.

The common fund order

Murphy J started by noting that an application for a common fund order is grounded in s 33ZF of the Act, which is a broad power to make such orders as are “appropriate or necessary to ensure that justice is done”.

In terms of the interests of the class members, he pointed to the need to ensure an equal distribution of costs, reasoning that it is in the interests of justice that the burden of paying the legal costs and funding commission be shared equally amongst all class members. He also reasoned that funding charges have become a standard cost in class actions, and absent the order, the class would not be open and new class members would therefore not have the option of joining the action.

Murphy J noted that by ordering that the Court have power to set the funding commission rate, this ensures that class members have the protections afforded by judicial oversight. Further, this means that they may even obtain a lower rate (although Murphy J stated he thought it unlikely it will be less than 20%, as he was satisfied by evidence that the 20% rate was favourable).

Murphy J also noted the following additional reasons for making the order:

  • In terms of notices that should be made, Murphy J assured that class members will be informed of the requirement to pay the commission before they decide whether to opt-out, and that members can always opt-out if they are unhappy with the order.

  • Absent the orders, conflicts of interest may arise between the different types of class members, which are avoided through the implementation of the common fund order.

  • The order will avoid the necessity to extensively explain the details of the funding arrangement to class members for the purpose of inviting them to join.

  • The order will likely reduce “book building” costs, which would have ultimately been deducted from the class members’ possible recoveries.

  • It is unnecessary to impose a condition that the class members not be “worse off’ by reason of a common fund order, which was a case-specific condition imposed in Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Limited, (Money Max), relevant only in the circumstances of that case (namely because it involved a funded “open” class, while this case involves a funded “closed’ class proceeding in which the only class members are those who have signed the funding agreement).

  • Existing class members will be better off under the common fund order for reasons already provided.

  • There is no reason a ‘funding equalisation order’ is suitable for all occasions or preferable to a common fund approach.

Take away points

This case provides another important and recent case example of the reasoning Courts will apply and the issues considered when determining whether it is in the 'interests of justice' to make a common fund order.

It also provides a helpful example of the specific types of issues that may be considered if such orders were sought for Shine LawyersStolen Wages class action, in light of the analogous circumstances of this action.

If you have any questions regarding this matter, please contact our class actions team.

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