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Solicitors can take cut of class action settlement, Full Court rules
The use of a solicitor’s common fund order in class action matters has been approved by the Full Court, allowing lawyers to financially benefit from a settlement or judgment.
Naomi Neilson
In a decision handed down by Justices Bernard Murphy, Jonathan Beach and Michael Lee, it is a “licit exercise of power” upon the settlement or judgment of a class action for parties to make an application for a solicitor’s common fund order (CFO).
The Full Court bench clarified they were not asked to determine whether an order should be made in the Blue Sky class action.
Shortly after the decision was handed down, Shine Lawyers – the firm behind the class action – said it provided “much-needed clarity” into the Federal Court’s powers “with respect to contingency fees”.
“[This] opens up a new way to provide access to justice for groups of people who have experienced wrongdoing,” the firm said.
“As we have seen with group costs orders in Victoria, we expect this will increase access to justice, while also increasing competition in the funding market and in turn placing downward pressure on funding costs, ultimately for the benefit of applicants and group members.”
Blue Sky took no position, but former CEO and managing director Robert Shand, former chairman John Kain, and Ernst & Young opposed the application, arguing a solicitor’s CFO was not “just”.
In submissions, the three respondents argued the solicitor’s CFO could never be just because it “creates a conflict”, is inconsistent with the Uniform Law and Australian Solicitors’ Conduct Rules, and is contrary to public policy against contingency-based fees for lawyers.
In determining the opposing position, Justices Murphy, Beach and Lee noted that irrespective of how class actions are funded, “tensions can and do sometimes arise between the commercial interests of solicitors or funders in finalising a settlement”.
However, while there are concerns of professional duties being breached with solicitor CFOs, the bench found this does “not present as some sort of insuperable barrier to even making such an order if it was otherwise considered just in the circumstances”.
“What matters is that those with duties recognise the existence of the conflict and do their job, and those conflicts are managed (with the help of an independent bar) and the interests of group members are protected by the supervision of the court,” they said.
As for the public policy concern, Justices Murphy, Beach, and Lee said none of the respondent’s arguments “constitute some insuperable barrier” to conclude a solicitor’s CFO “could be within the range of deductions to form a settlement … or judgment sum”.
Naomi Neilson
Naomi Neilson is a senior journalist with a focus on court reporting for Lawyers Weekly.
You can email Naomi at:
