In a speech delivered Friday during a seminar run by Shine Lawyers and the Commercial Law Association, Justice Bernard Murphy questioned recent attempts at legislative reform in the class actions space. These have included requiring funders to obtain an Australian Financial Services License and to register their class actions as managed investment scheme and a push to guarantee a minimum 70 per cent return to group members.

“I think the way we’ve addressed reform in the last two or three years is inappropriate…the courts are doing a good job of managing these problems and as they appear we deal with them,” said Justice Murphy.

“To my mind the important thing for the profession to remember and for the legislature to remember is that class actions have met an important need, they play an important role in ensuring people can obtain redress from mass civil wrongs.

“Laws not capable of enforcement by ordinary Australians are little more than an illusion.”

Justice Murphy pointed to the court’s creation of funding equalisation orders, which allow group members to share the legal costs equally regardless of whether they have registered for the proceedings, as an example of the court’s ability to craft solutions in class action matters.

Funding equalisation orders were created in the Federal Court in Dorajay v Aristocrat Leisure Ltd to counter the unfairness of unregistered group members receiving a higher pay-out than those who had registered, said Justice Murphy, who acted in the case.

Despite being an “ad hoc innovation”, it later became the preferred method for litigation funders, the judge said, quoting Justice Jonathan Beach.

Justice Murphy also addressed the issue of overlapping or competing class actions backed by different litigation funders.

While other judges have warned against the oppressive potential of competing proceedings, Justice Murphy said courts had found ways to safeguard against wasted resources.

‘Backwards step for access to justice’

Also on Friday, Justice Murphy discussed the landmark High Court judgment on common fund orders in BMW v Brewster, calling it a “backwards step for access to justice”.

In that case, the High Court found judges have no power to order all class action members to pay a proportion of a litigation funder’s commission out of their share of a settlement under section 33ZF of the Federal Court Act.

The December 2019 decision overturned a ground-breaking ruling three years earlier by the Full Federal Court that found judges had statutory power to force unregistered group members in class actions to forfeit some of any settlement to pay a third-party funder.

Common fund orders, which ensure funders earn a percentage commission from a proportionate share of the recoveries of each group member, signed up or not, are no longer available to class action applicants at the outset of a class action, but are still made by the courts at the time of settlement.

Despite being a step backwards, Justice Murphy said it was “not a disaster” and class action proceedings continued to thrive.

“It doesn’t change the landscape anywhere as substantially as some of the headlines reported,” said Justice Murphy.

The judge said the Brewster decision considered only the court’s power to make common fund orders under section 33ZF and that judges could still make the orders under section 33V of the Federal Court Act.

Group costs orders improve access to justice

Justice Murphy also addressed the contingency fee regime in Victoria, which empowers judges to make a group costs orders allowing law firms to earn a percentage of any award or settlement reached in the proceeding.

The judge said group costs orders gave protection to group members because the law firms take on the risk of running class actions and had to meet any adverse costs orders.

Group costs orders would also likely improve access to justice in cases where it was difficult to sign up large numbers of group members to a proceeding and sign up a litigation funder to run the action, such as cartel and superannuation class actions, the judge said

Supreme Court Justice Lisa Nichols issued the first group costs order in a shareholder class action against G8 Education in December last year.

No win, no fee arrangements often ‘inadequate’

Justice Murphy said no win, no fee arrangements, which allow lawyers an uplift fee of 25 per cent of a class action award in Australia, often proved “inadequate” as they could not properly compensate lawyers for the risk of running litigation.

The judge noted that in the United Kingdom, lawyers were entitled to an uplift fee of up to 100 per cent of the award and in Canada the amount granted was based on the risk the solicitor took on in running the matter.

When no win, no fee arrangements were the only option for funding class actions, the number of filings declined, the judge said.

“Many lawyers were unwilling or do not have the financial capacity to conduct large class action litigation on a no win, no fee basis,” said Justice Murphy.

“Many victims of mass civil wrongs have been denied access to justice.”

The class action regime “could be healthier” if the government adopted the Australian Law Reform Commission’s recommendations from its 2019 inquiry, the judge said.

The 2019 ALRC inquiry suggested sweeping changes to the class actions space, including enshrining into law the court’s authority to make common fund orders that allow litigation funders to receive a percentage commission of a group members’ award.

Despite the flurry of legislative reform seen in class action funding over recent years, Justice Murphy remained positive about the regime.

“Notwithstanding the ongoing attacks on the Part 4A regime, it remains alive and well…[and provides] a very valuable service to ordinary Australians,” said Justice Murphy.

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