40% contingency fee awarded in Victoria

By Jason Betts, Christine Tran, Aoife Xuereb and Sam Bytheway

In August 2020, an open funded representative proceeding was filed on behalf of shareholders against four former directors of Arrium Limited and its auditor, KPMG. It is alleged that the defendants made misleading or deceptive statements in the published financial results as to the compliance with AASB standards and failed to disclose material impairments of Arrium’s assets in the period 19 August 2014 to 6 April 2016. The funder was Equite Capital No 1 Pte Ltd, a litigation funding company registered in Singapore.

Development

The plaintiffs sought, and were granted, a Group Costs Order in April 2022: Bogan v The Estate of Peter John Smedley (Deceased) & Ors [2022] VSC 201.

Pursuant to that order, the legal costs payable to the plaintiffs’ solicitors will be calculated as 40% of the amount of any judgment award or settlement obtained in the proceeding. As a condition precedent to the making of that order, the funder had to forgo any accrued rights under the funding arrangements (including its rights to a commission of 45% of any gross resolution sum). In evidence before the Court, if the Group Costs Order was made, the plaintiffs’ solicitors intended to enter to a cost sharing arrangement with the litigation funder, whereby inter alia:

• the funder pays 50% of the plaintiffs’ solicitors’ fees at their usual hourly rate and 100% of the plaintiffs’ disbursements;
• the plaintiffs’ solicitors will pay to the funder 50% of any payment received under the Group Costs Order, after deducting the costs paid by the funder and after the plaintiffs’ solicitors receives the outstanding 50% of its fees.

In granting the Group Costs Order, the Court took into account a range of factors, including:

• the considerable risk that the funder will cease funding the proceeding and exercise its right to terminate the funding arrangements;
• the considerable risk that the funder will not enter into the costs sharing agreement with the plaintiffs’ solicitors, if a rate lower than 40% was ordered;
• the significant impediments for the plaintiffs and group members to engage an alternative funder;
• the complexity, difficulty and risks in prosecuting the proceedings;
• the benefits for group members, such as transparency and simplicity of the funding terms; an equal sharing of the costs and burden across all group members; and the opportunity for group members to seek a review of the Group Costs Order (in the event circumstances changed).

What is a Group Costs Order?

A Group Costs Order is an order which permits a plaintiff law firm to charge legal costs calculated as a percentage of any damages award or settlement in a class action proceeding filed in the Victorian Supreme Court: s.33ZDA of the Supreme Court Act 1986 (Vic). A Group Costs Order can only be made if the Court is satisfied that it is appropriate or necessary to ensure that justice is done in the proceeding.

Group Costs Orders are available in Victoria only, and have been available since July 2020. Since their introduction, we have observed a notable increase in filing activity in the Supreme Court of Victoria.

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How many Group Costs Orders have been made?

The Bogan Group Costs Order is the second (and highest) group order made.

The first Group Costs Order was made in November 2021, where the Court ordered that the legal costs payable to the solicitors for the plaintiff and group members, to be calculated at 27.5% (inclusive of GST and subject to further order) of the amount of any award or settlement that may be recovered in the proceeding: see Allen v G8 Education Ltd [2022] VSC 22.

Prior to that, in the first application for a Group Costs Order, the Court rejected an application seeking a 25% contingency fee: see Fox v Westpac [2021] VSC 573. In that case, the plaintiffs’ lawyers were acting on a ‘no win, no fee’ basis. In those circumstances, the Court did not consider it “appropriate or necessary to ensure justice is done in the proceeding” to make a group costs order.