Clifford Chance

High Hurdles: Group Costs Orders in Class Action Settlements

The Supreme Court of Victoria has approved the first settlement of a class action involving a group costs order (GCO), illustrating the commencement of a new phase of the GCO regime in Australia.

Background

From 1 July 2020, the Supreme Court of Victoria (VSC) had power under s 33ZDA of the Supreme Court Act 1986 (Vic) to make a GCO in a class action which provides for the legal costs to be calculated as a percentage of an award or settlement, liability for which is to be shared among all class members. If a GCO is made, the plaintiff law firm is liable to cover any costs payable to the defendant in the proceeding and give any security for costs. GCOs are currently only expressly recognised in Victoria.

Under s 33ZDA(3) of the Supreme Court Act 1986 (Vic), the VSC has power to amend the percentage set in a GCO during the course of the proceeding. The exercise of this power, and specifically whether this power will be exercised at settlement stage of a class action, was considered for the first time in Allen & Anor v G8 Education Ltd (No 4) [2024] VSC 487.

Facts and procedural background

G8 Education (G8) is a provider of early childhood education and care listed on the ASX. In 2017, G8 made a series of announcements regarding its forecasted earnings before interest and tax (EBIT). The EBIT forecasts provided by G8 were higher than its final EBIT for FY2017. This resulted in a share price drop when its final EBIT was published. The fall in share price is the loss claimed by G8’s shareholders.

The plaintiffs brought a group proceeding at the end of 2021 on behalf of certain shareholders of G8 alleging that G8 breached its obligations of continuous disclosure under the Corporations Act 2001 (Cth) and engaged in misleading and deceptive conduct in contravention of the Corporations Act 2001 (Cth) and ASIC Act 2001 (Cth). The plaintiffs applied to the VSC for a GCO.

On 1 December 2021, the VSC granted a GCO that allowed for 27.5% of any award or settlement to be paid to the plaintiff firm, Slater and Gordon.

In March 2024, the parties executed a Deed of Settlement and applied to the VSC for approval of the proposed settlement. 

Decision

The VSC approved the proposed settlement and held that the GCO should not be amended pursuant to s 33ZDA(3) of the Supreme Court Act 1986 (Vic), as the rate of return was reasonable having regard to the effort put in by the plaintiff firm and the risks of the proceedings.

The VSC emphasised that the Court's power to amend a GCO at settlement stage is limited. Watson J stated that the consideration of whether to exercise the power under s 33ZDA(3) to amend a GCO is not a "hearing de novo regarding the appropriateness of the [GCO]”. The Court will pay close attention to the reasons for the original GCO and will only amend the GCO if circumstances now mean that an amendment is “appropriate or necessary to ensure that justice is done in the proceeding”.[1]

The Court also recognised that there is latitude to maintaining the original GCO even if the award or settlement amount of the case falls outside the range of estimates relied on by the law firm in support of its application for the original GCO.

As such, GCOs may be unlikely to be amended at settlement stage of a class action absent exceptional circumstances.

[1]     Allen & Anor v G8 Education Ltd (No 4) [2024] VSC 487, [63].

Discussion

To date, no other Australian jurisdiction appears to be contemplating introducing a GCO regime. As one would expect, there has been a substantial increase in class action filings in Victoria following the introduction of the GCO regime, which has ignited discourse that Victoria is becoming the preferred forum for class actions.

This has been met with some scrutiny. In his speech to the Association of Litigation Funders in Sydney on 13 August 2024, the Chief Justice of NSW, the Honourable Justice Andrew Bell commented on Victoria's emergence as the jurisdiction of choice for class actions, stating:[1]

There can be no doubt that the effect of the Victorian legislative amendments of 2019 has been to make the Victorian Supreme Court an attractive venue for class actions because of the opportunity afforded to plaintiffs’ firms of solicitors to take a proportionate slice of any outcome obtained, and there has been a documented flight of such actions to Victoria from both the Federal Court and the Supreme Court of New South Wales since the legislative amendments.

His Honour continued noting the recent judgment in R&B Investments Pty Ltd (Trustee) v Blue Sky (Reserved Question) [2024] FCAFC 89 (Blue Sky) was "surprising" and "inconsistent with the intended spirit of uniform legislation regulating the legal profession the traditional antipathy in Australia to solicitors charging contingency fees".[2]

In Blue Sky, the Full Federal Court held it has the power to make a "solicitors' common fund order" (Solicitors' CFO) under sections 33V or 33Z of the Federal Court of Australia Act 1976 (Cth). This permits a solicitor to receive a distribution from funds paid upon settlement or judgment.

GCOs and Solicitors' CFOs are significant additions to the funding channels available to back class action litigation in Australia. In awarding the GCO in Allen v G8 Education Ltd [2022] VSC 32, Nichols J accepted GCOs "engenders simplicity and transparency from the outset, which is in the interests of group members"[3] as compared to litigation funding arrangements which can lead to uncertainty in group members' returns. If plaintiff law firms have the balance sheet to bear their own costs and disbursements, are content to assume substantial cost liability and advance security for costs, this may result in greater competition in the market for litigation funding.

[1]     Opening Keynote Address to Association of Litigation Funders of Australia, 13 August 2024, The Hon. A S Bell, Chief Justice of New South Wales, [37].

[2]     Opening Keynote Address to Association of Litigation Funders of Australia, 13 August 2024, The Hon. A S Bell, Chief Justice of New South Wales, [35].

[3]     Allen v G8 Education Ltd [2022] VSC 32, [41].