Plaintiff lawyers may soon be able to charge contingency fees in class action proceedings in Victoria.
The Justice Legislation Miscellaneous Amendments Bill 2019 (Vic) (Bill), which has already passed the lower house of the Victorian Parliament, will allow plaintiff lawyers to charge a percentage of any amount recovered in a successful class action proceeding. The Bill gives effect to recommendations made by the Australian Law Reform Commission (ALRC) and the Victorian Law Reform Commission (VLRC) to introduce contingency fees in order to provide greater access to justice for plaintiffs in group proceedings.1
Will this yield the benefits promised to plaintiffs; what will this mean for other class action jurisdictions in Australia; and what will happen to litigation funders? In this alert, we look at the changes proposed by the Bill and who will be the likely winners and losers.
Current funding options for class action plaintiffs
Plaintiffs face many challenges bringing group proceedings. At present, most large plaintiff law firms in Victoria operate on a no-win, no-fee basis and can charge plaintiffs an 'uplift fee' of up to 25% of their legal costs if the action is successful. In addition, two-thirds of class action plaintiffs in the Federal Court also rely on litigation funding to finance their legal fees.2 Under those arrangements, litigation funders may require successful plaintiffs to pay 'success fees' that are up to three times the amount of their initial investment.3 In both circumstances, plaintiffs bear extra financial burdens if they are successful and are personally liable for any adverse costs orders.
New option proposed by the Bill
Under the Bill, class action plaintiff lawyers will be allowed to charge contingency fees where the Supreme Court of Victoria is satisfied that it is "appropriate or necessary to ensure justice is done".4 Although there is no limit specified in the Bill on the percentage of the recovered sum that may be charged as a contingency, this subjective test will require courts to assess the fee in each particular case and set this out in an order.
In addition, the Bill removes plaintiffs' personal liability for the defendant's costs in a group proceeding. Plaintiff lawyers claiming a contingency fee must also indemnify the lead plaintiff for any adverse costs orders and may be required by the court to give security for the defendant's costs.
Contingency fees: winners and losers
Fundamentally, the Bill promises to put more money in successful plaintiffs' pockets by replacing two fees (lawyers' uplift fee and litigation funder's success fee) with one (lawyers' contingency fee). According to Maurice Blackburn in the ALRC's December 2018 report, contingency fees will mean that plaintiffs see an average of 75% of any award instead of the 60% they have seen in the past.5 It also has the potential to allow more plaintiffs to pursue meritorious group claims that are currently too small or risky to be a viable investment for litigation funders and where the lead plaintiff may be unable (or unwilling) to carry the risk of an adverse costs order.6
However, the biggest winners from the Bill may well be large plaintiff law firms, particularly those with branches in Victoria. Victoria is poised to become the Australian class action forum of choice by offering plaintiffs the greatest financial return. This may pressure other jurisdictions to follow suit and pass similar legislation — as was recommended by the ALRC and VLRC — to harmonise the approach in Australia7 and, indeed, the caseloads of the courts. This could also prompt the Commonwealth Attorney-General to adopt the ALRC's recommendation that the Federal Court be given exclusive jurisdiction over class actions that concern the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth).8
Whether or not Australian corporations, likely defendants of class actions, see an increase in litigation as a result of the Bill is difficult to predict. In an already uncertain climate (see our previous Client Alert, December 2019 discussing the High Court's rejection of Common Fund Orders), litigation funders may find themselves in direct competition with plaintiff law firms for class actions. Litigation funders are currently lobbying that the Bill be amended to extend them the same rights as plaintiff law firms.9 If this fails, litigation funders are looking to step into the role of funding plaintiff law firms to provide their security for costs and working capital and, further, to establish their own law firms to derive contingency fee returns.
The future of class actions in Australia
This Bill has the potential to overhaul the class action landscape in Australia as we know it.
In a world currently grappling with the impacts of COVID-19, and soon to be dealing with its aftermath, these changes could provide a forum for a raft of smaller, meritorious group claims to be heard in Victoria that would otherwise not have an avenue of redress. While Victorian courts and large plaintiff law firms are poised to be the biggest winners from this legislation, other class action jurisdictions and litigation funders may be adversely impacted. What will be the domino effect in other class action jurisdictions in Australia if this Bill passes? Will we see a restructuring of the legal and litigation funding industries as a result?
The Bill is next due for consideration by the Victorian Parliament in May 2020. Whether or not it is on the agenda at that time, or pushed down the list by more urgent matters (including those arising due to the COVID-19 pandemic), we will have to wait and see. We will keep you updated as the Bill approaches its final legislative hurdle.
1 The Hon Jill Hennessy MP, 'Improving Access to Justice for Class Actions' (Media Release, 28 November 2019); Australian Law
Reform Commission, Integrity, Fairness and Efficiency — An Inquiry into Class Action Proceedings and Third-Party Litigation
Funders (Report 134, December 2018) (ALRC Report), Recommendation 17; Victorian Law Reform Commission, Access to Justice
— Litigation Funding and Group Proceedings (Report, March 2018) (VLRC Report), Recommendation 7
2 ALRC Report at 3.21
3 Ibid at 7.58
4 Bill, Part 2, clause 5
5 ALRC Report at 7.62
6 VLRC Report at 3.56
7 ALRC Report at 7.75; VLRC Report at 38 (p xviii), 3.64 and 4.36
8 ALRC Report, Recommendation 7
9 Michael Pelly, 'Victoria passes law slammed as promoting class action forum shopping', Australian Financial Review (27 February 2020) https://www.afr.com/companies/professional-services/victoria-shows-no-class-in-contingency-fees-push-20200226-p544h0