
Financing of Australian Class Actions—Solicitors Common Fund Order Disallowed
In Short
The Situation: Australia's highest court has ruled on the question of whether lawyers in New South Wales ("NSW") can charge contingency fees in class action litigation in the Federal Court of Australia (otherwise known as a solicitors' common fund order, or "SCFO"). The Federal Court, in answer to a question reserved to the Full Court, had ruled that lawyers could charge a SCFO.
The Result: In a 7–0 decision, the High Court of Australia in Kain v R&B Investments Pty Ltd [2025] HCA 28 held it was not permissible for NSW lawyers to charge a SCFO in Federal Court class action proceedings.
Looking Ahead: The financing of class actions is a major policy issue in Australia. The High Court has limited the fee options available to plaintiffs' lawyers in the Federal Court, while giving litigation funders greater clarity. The debate about how lawyers can charge is likely to continue, but as a legislative issue rather than a judicial one.
Overview
The issue was whether Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the "FCA Act") empowers the Federal Court, upon the settlement of, or judgment in, a class action, to approve the distribution of a sum, calculated as a percentage of the sum recovered at settlement or judgment, in favour of a law practice conducting the proceeding on behalf of the representative party.
The High Court held that pursuant to ss 33V(2) and 33Z(1)(g) in Pt IVA of the FCA Act, the Federal Court can make such an order in favour of a litigation funder but not a law practice conducting the class action. The High Court also, however, clarified its earlier decision in BMW Australia Ltd v Brewster (2019) 269 CLR 574—which placed a restriction on litigation funders charging a Common Fund Order ("CFO") stated at the front end of proceedings—and held it was permissible for the Federal Court to order a CFO in favour of a professional funder (not a law firm) to obtain a CFO in appropriate class action matters at the back end or settlement stage of the proceedings.
Solicitors' CFO
The High Court reasoned that the starting point is the text of each of s 33V(2) and s 33Z(1)(g), which obliges the Federal Court to decide what orders are just in a particular context—s 33V(2), where the proceeding ends by settlement, and s 33Z(1)(g), where it ends by judgment. These were accepted to be broad powers. However, neither provision empowers the Federal Court to make an order for payment from the settlement or judgment fund which is prohibited by law or gives effect to an agreement or understanding that is otherwise unlawful. An unlawful payment cannot be a just payment.
The Federal Court exercises power in federal jurisdiction against the background of the scheme of regulation of the legal profession in the State or Territory in which the solicitors in the proceeding are practising. The Federal Court has no power to make a SCFO in NSW, as that would give effect to an agreement entered into contrary to the prohibition on contingency fee agreements in s 183 of the Legal Profession Uniform Law (NSW).
The charging by a law practice of a contingency fee (called a group costs order—essentially, a SCFO that must be approved by the court) is prohibited in other Australian States and Territories. The sole exception to that prohibition is in Victoria, which permits a group costs order in class actions.
Litigation Funders' CFO
Litigation funders are permitted to charge a fee payable from the recovery in a class action. Various types of fee have been charged over time. In BMW Australia Ltd v Brewster (2019) 269 CLR 574, the High Court of Australia ruled that s 33ZF(1) of the FCA Act (and its equivalent in s 183 of the Civil Procedure Act 2005 (NSW)) did not empower the Federal Court (or the Supreme Court of New South Wales) to make an order early in class actions that allowed for a litigation funder's remuneration to be a proportion of moneys recovered in a settlement or judgment.
In the current proceedings, the High Court ruled that it was not necessary to reopen and overturn Brewster as the form of order sought in that case—an interim order made at the commencement of proceedings in favour of a litigation funder—was distinct.
However, the High Court did explain that in Brewster, the Court did not consider other legislative provisions, nor orders being sought at the conclusion of proceedings. This clarified that ss 33V(2) and 33Z(1)(g) could be used to make CFOs for the payment of litigation funders at the conclusion of proceedings.
Two Key Takeaways
- The State of Victoria is the only Australian jurisdiction permitting lawyers to charge a group costs order. With a clear trend in plaintiff firms wishing to increasingly charge on a contingency-fee basis in class action litigation in Australia, this decision is expected to result in an uptick in class action filings in the Supreme Court of Victoria.
- The decision provides an important brake on at least NSW lawyers charging contingency fees in Federal Court litigation and speaks deeply to the structure of Australian federalism. The High Court's approach respects the policy positions taken by state legislatures on the regulation of the legal profession, including how lawyers can charge for their services.