Federal Court of Australia considers power to make ‘common fund orders’ for solicitors

A more up to date version of this article capturing new developments can be found here.

During a recent hearing in the Blue Sky Class Action¹, the Full Federal Court (Murphy, Beach and Lee JJ) considered whether the Federal Court had power to make a so-called ‘Solicitors' Common Fund Order’ – being an order that a portion of the compensation from any settlement or judgment be used to remunerate the applicant’s lawyers for the value of their work, the expenses and outgoings they incurred and the financial risks they took. The Court adjourned the matter.

Key takeaways

• Contingency fees are currently restricted to class actions in the Supreme Court of Victoria. However, if the Federal Court determines it has power to make a ‘Solicitors’ Common Fund Order,’ it would effectively permit contingency fees in matters heard in the Federal Court.
• The Supreme Court of Victoria has been the preferred jurisdiction for class action lawyers since 2020, when legislation was passed permitting ‘group costs orders’ entitling solicitors to a percentage of any recovery. 
• Whilst not expressing a definitive view as to whether it could, or would, make the ‘Solicitors’ CFO’, the Full Court did question the extent to which the proposed contingency fee arrangement created a genuine conflict of interest and suggested methods for managing any issues which might arise.

Background

The question of power came before Lee J during a hearing of the Blue Sky Class Action late last year, which he then sent up to the Full Court. Consideration of the issue also comes not long after the Full Court (Beach, Lee and Colvin JJ) ruled in Elliott-Carde v McDonald's Australia Limited [2023] FCAFC 162 that the court had power to make common fund orders at settlement pursuant to section 33V(2) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) permitting ligation funders to obtain a percentage commission from the settlement proceeds.

The Court’s power to make a Solicitors’ CFO

Counsel for the applicant contended that if 33V(2) of the FCA Act supported establishing a common fund order for the benefit of a third-party litigation, as a matter of power, it should also support similar payment for a similar service provided by solicitors.

Determination of hypothetical question

Counsel for the Second Respondent submitted that the Court should not answer the question at this stage of the proceeding. They argued that the Court could not be satisfied that it was “just” to make a common fund order, until all relevant facts became available, which would occur at the time of judgment or settlement approval.  

However, Beach J noted the issue between the parties was “very real”, as the applicant’s had indicated that if the solicitors’ common fund orders was not sanctioned, it would seek a transfer of the proceeding to the Supreme Court of Victoria in order to seek a Group Costs Order.

The Blue Sky Class Action

In the Blue Sky Class Action, it is alleged that Blue Sky engaged in misleading and deceptive conduct and breached its continuous disclosure obligations before it was placed into administration and following the publication of a short seller’s report questioning its asset valuation methods.