CONTINGENCY FEES: WHAT ARE THEY AND WHY DO THEY MATTER?   

Ever wondered how US plaintiffs’ lawyers make the mega bucks by comparison to their Australian counterparts? The short answer is contingency fees, namely the ability to pocket a significant percentage (rather than by reference to fees billed) of any award or settlement in favour of their clients.   

Until this week, contingency style fees have been banned in all jurisdictions, except for class actions in the Supreme Court of Victoria, making that Court an attractive jurisdiction for plaintiffs’ lawyers seeking to self-fund and recover more than just their fees. 

THE FULL COURT OF THE FEDERAL COURT ALLOWS CONTINGENCY STYLE FEES 

Recently, in R&B Investments Pty Ltd (Trustee) v Blue Sky (Reserved Question) [2024] FCAFC 89 the Federal Court took a step closer to contingency style fees when the Full Court determined that the Federal Court had the power to order a Solicitors’ Common Fund Order (SCFO). This means that, on settlement or judgment, the lawyers can collect payment beyond their fees and disbursements – in effect, a form of contingency style fees. 

BACKGROUND 

The Full Court traced the law’s progress with respect to class actions and contingency fees, going back to the torts of maintenance and champerty which are no longer part of Australian law or a barrier to litigation funding in Australia.  

In previous articles, we have discussed the critical role litigation funding now plays in class actions and explored how the Courts have treated different types of funding orders. These orders are designed to offset costs and risk so that individual class actions can be profitable and attractive to funders. Given the varying (and somewhat inconsistent) treatment by different courts, every new decision is a big deal and can make a real difference when it comes to choosing a forum for a claim.  

JUDGEMENT: THE COURT HAS POWER TO ISSUE AN SCFO, MOVING A STEP CLOSER TO TRADITIONAL CONTINGENCY FEE ARRANGEMENTS  

As a question referred to the Full Court by Justice Lee, the hearing considered whether it would be “just” for the Court to consider this question in isolation and rule on the appropriateness of an SCFO. The Full Court held it was. 

More specifically, the respondents argue that an SCFO was precluded by precedent, or would create a conflict of interest, in breach of various professional rules and contrary to public policy. 

The Full Court rejected all these overlapping contentions, determining that the Federal Court’s power to make an order for an SCFO is inherent in sections 33V and 33Z of the Federal Court of Australia Act 1967 (Cth).   

In relation to general restrictions relating to contingency fees, the Full Court clarified that these apply to client retainers rather than the Court’s ability to award an SCFO as part of its judgment or approval of settlement. It may seem like splitting hairs but the real differentiator lies in the fact that SCFOs cannot be made without Court approval.  

WHERE TO FROM HERE? 

The landscape concerning class actions and funding continues to evolve, particularly as between the different jurisdictions in which matters are brought. The only certainty is that plaintiff firms and funders will continue to bring actions and devise funding models designed to increase access to justice but also economic sustainability, if not profitably, for those who stand behind them.