Common fund orders bound by Brewster?

The NSW Court of Appeal has declined to answer a separate question on the Court’s power to make a common fund order at a proceeding’s settlement or judgment stage. However, it gave a clear indication that such power exists in the right circumstances.

In the Corrs Insight Top ten class action predictions for 2020, we noted that since the High Court’s decision in late 2019 (Brewster v BMW Australia Ltd [2019] HCA 45) there is residual uncertainty as to whether courts can make a ‘common fund order’ (CFO). CFOs are an order obliging all group members to pay a proportion of any moneys ultimately recovered in the proceedings to a litigation funder, whether or not they’ve signed a funding agreement, at the settlement or judgment stage of a proceeding. 

The High Court made it clear in Brewster v BMW that there was no power to make a CFO at the early stage of a proceeding pursuant to s 33ZF(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) or s 183 of the Civil Procedure Act 2005 (NSW) (CPA), its cognate provision governing procedure in NSW Courts.

It would be fair to say that this question has bedevilled class action lawyers throughout 2020.  Several judges at first instance have suggested an answer (without necessarily deciding the question). For example, in McKay Super Solutions Pty Ltd (Trustee) v Bellamy’s Australia Ltd (No 3) [2020] FCA 461, Beach J proposed that the power could well exist under s 33V(2) of the FCA Act (or s 173 of the CPA).  The Federal Court’s Class Actions Practice Note (GPN-CA) — promulgated shortly after the High Court’s decision in late 2019 — also implies there is power to make a CFO at the settlement stage of a proceeding if an application is made and if in all the circumstances it is “fair, just, equitable and in accordance with principle” to do so (suggesting, perhaps an alternative source power in the Court’s equitable jurisdiction).  

However, in Cantor v Audi Australia Pty Limited (No 5) [2020] FCA 637, Foster J expressed the view that he did not have power to make a CFO at settlement and was fortified in this view by the High Court’s decision (in particular, the judgment of Gordon J).

In mid-September 2020, in the same proceeding to which the High Court’s decision related (i.e. the Brewster proceeding, which forms one of seven separate ‘Takata airbags’ class actions jointly case managed in the Supreme Court of NSW), Sackar J — at BMW’s insistence — removed the following ‘separate question’ to the Court of Appeal for its answer:

“Does the Court have the power pursuant to s 173 of the Civil Procedure Act 2005 (NSW) to make an order requiring group members in this matter who have not signed a litigation funding agreement with Regency Funding Pty Ltd to pay an amount to that funder out of the proceeds of any settlement by way of return on expenditure, commission or other similar remuneration to the funder?”

The proceeding was otherwise due for a mediation on or before 15 March 2021 and listed for trial in early May 2021.

On 28 October 2020, the Court of Appeal (Bathurst CJ, Bell P and Payne JA) heard argument from the parties. Only two days later, on 30 October 2020, the Court of Appeal (per Bell P, Bathurst CJ and Payne JA concurring) delivered judgment in Brewster v BMW Australia Ltd [2020] NSWCA 272. Strictly speaking, the Court of Appeal gave a ‘non-answer’; it formally declined to answer the separate question. It said that it was not appropriate to answer the separate question:

• in an evidentiary vacuum;
  
  
• where there may or may not be a settlement; and
  
  
• where the Court does not have before it either the terms of any settlement or the terms of any order, by way of proposed distribution, that may at some point be sought by the parties if a settlement were reached and presented to the Court for approval.

In other words, in the absence of an actual settlement and actual proposed order, it was all too abstract for the Court to decide.  

However, in justifying its non-answer the Court made some interesting observations about the issue of power in light of the High Court’s decision:

• the ratio decidendi of the High Court’s decision was limited to the Court’s power under s 183 of the CPA to make what the plurality identified as a CFO prior to any settlement being reached or judgment being delivered;
  
  
• it is far from obvious that, in its dicta, the majority of the High Court (which comprised three separate judgments) was addressing, still less deciding, any question of power under s 173 (as opposed to s 183) of the CPA; and
  
  
• the actual context of a settlement being presented to the Court for approval is very different to the situation where, at an early stage of a proceeding, a CFO is sought. At the early stage, the Court is asked to make a CFO in relation to a settlement or judgment sum when that sum is not known and the attitude of group members towards the settlement is also unknown.

BMW was ordered to pay the costs of the hearing, as it was the party which agitated for the propounding of the separate question.

The Full Court of the Federal Court is currently reserved on the very same issue in the context of the 7 Eleven class action, with judgment to be delivered on 3 November 2020.