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Common fund orders: Full Federal Court considers Brewster

In the NSW Court of Appeal’s recent judgment in Brewster v BMW Australia Ltd [2020] NSWCA 272, the Court declined to answer a separate question as to whether the Court has power to make a common fund order (CFO) at a proceeding’s settlement or judgment stage. However, it gave a clear indication that such a power may exist — in the right circumstances.

The Full Court of the Federal Court has now weighed in to address the same issue by way of a ‘reserved question’ in the 7-Eleven class action Davaria Pty Limited v 7-Eleven Stores Pty Ltd [2020] FCAFC 183 (per Lee J, Middleton and Moshinsky JJ concurring). 

The Full Court has adopted a similar position to the NSW Court of Appeal by refusing to answer the reserved question, primarily due to the absence of a concrete settlement proposal being put before the Court. The Full Court also made express reference to the NSW Court of Appeal’s judgment and the fact that comity considerations favoured the Full Court adopting the same approach. It also took the view that the High Court’s decision of late 2019 (Brewster v BMW Australia Ltd [2019] HCA 45) did not establish that the Court did not have power to make a CFO at the settlement or judgment stage.

While the Full Court’s judgment covers much of the same territory as the NSW Court of Appeal’s, particularly the analysis it offers of the High Court’s decision, there are still a number of features which bear mentioning:

  • A new taxonomy: ‘Commencement CFOs’, ‘Settlement CFOs’, and ‘Judgment CFOs’. A Commencement CFO, made at an early stage in a class action 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)), was the type of CFO which the High Court decision ruled impermissible in Brewster (HC). Settlement CFOs and Judgment CFOs are made at the conclusion of proceedings. Given the new taxonomy, query whether we will continue to see the use of the term ‘expense sharing order’ favoured by several Federal Court judges in recent settlement approval judgments (which Lee J has acknowledged he fashioned to distinguish an order contemplated by the Federal Court’s Class Actions Practice Note from an order made pursuant to s 33ZF(1) of the FCA Act at an early stage of a class action).

  • The detailed discussion of ‘funding equalisation orders’ (FEOs) as an alternative to CFOs. An FEO is a costs spreading mechanism; the funding liability to the funder is not enlarged — instead, the funding costs actually incurred by funded group members are redistributed pro-rata between all group members. The Full Court has questioned the assumption (which some might say is implicit in the High Court’s decision) that a FEO always yields a better result for group members than a CFO. Without examining the precise terms of a proposal for a Settlement CFO, any comparison between the amount received on a Settlement CFO and pursuant to a FEO is incomplete.

  • Unsurprisingly, given the contents of the Federal Court’s Practice Note, the reminder that the Court has a broad-ranging equitable jurisdiction which could very well have a role to play in justifying the making of a Settlement CFO. This could be done once the relevant ‘equities’ materialise in a concrete settlement proposal which is put before the Court.

So where do these two judgments leave us? 

  • Two intermediate appellate courts have now unanimously ruled that, while Brewster (HC) established that there is no power to make a Commencement CFO, it did not establish that there is no power to make a Settlement CFO or Judgment CFO. That latter proposition was not part of the High Court’s ratio decidendi. According to the Full Court there was no ‘seriously considered dicta’ (as that expression is understood in the authorities) by the High Court on the question of whether there is power to make a Settlement CFO or Judgment CFO. According to the Court of Appeal, it was far from obvious that, in its dicta, the High Court was addressing, still less deciding, any question of the power to make a Settlement CFO, and it was not for the Court of Appeal to speculate about that.

  • Two intermediate appellate courts have now unanimously ruled that the question of whether power exists to make a Settlement CFO or Judgment CFO is to be determined on the facts, and cannot be determined in the abstract.

  • Since far more class actions settle than go to judgment (particularly judgment on group member claims), stakeholders in class actions will be paying very close attention to dicta of the Full Court and the Court of Appeal as to the considerations which may be relevant in any given case on the question of whether there is power (statutory or otherwise) to make a Settlement CFO. On the question of whether a Settlement CFO would be ‘just’ within the meaning of the applicable legislation, Bell P (Bathurst CJ and Payne JA concurring) made this observation: 

“… one can well understand an argument that it is just in all the circumstances for a funder to receive a measure of recompense out of the overall settlement sum for its contribution to the realisation of the settlement pool beyond that which may result from an FEO … A conclusion to that effect may be influenced by the size of the overall settlement sum, the amount proposed to be paid to group members, the number of group members who signed up to the funding agreement, the amount that would be required to be paid to the funder if a FEO were made, the degree of risk involved in funding the action, and the length and complexity of the proceedings”

  • And as to the meaning of the words ‘distribution of any money’ in the applicable legislation, Bell P observed that nothing said in Brewster (HC) was addressed to the question of whether the phrase ‘distribution of money’ should be construed to mean “distribution of money as between the claimants in the class action” (i.e. excluding a funder). Moreover, to place such a construction on that wording would be in tension with principles of construction that typically apply to wording which confers powers on courts.

  • Assuming that funders satisfy the new licensing requirements, as a result of these decisions, they may be less reluctant to:

    • fund open class actions;

    • commence such proceedings without first building a book of claimants sufficient to make their investment commercially palatable, even if they do not obtain a Settlement CFO or Judgment CFO;

    • invest in class actions where book building is challenging, either because of the sheer size of the class (such as the bank fees litigation) or because it is difficult to persuade claimants of significance to sign up (such as institutional investors);

    • discontinue their involvement in, or invest with less vigour in, existing funded open class actions which have no or small books;

  • Also, we may see funders taking more bullish positions in mediations, now confidently able to reject the notion that Brewster (HC) established that there is no power to make a Settlement CFO or Judgment CFO.

  • Although the decisions will be seen as a victory for funders, in our view they are unlikely to catalyse a significant increase in the number of class action filings, though it is possible we may see a small increase in the number of competing class actions. It will be interesting to see whether, in determining multiplicity hearings, the courts continue to place significance on hypothetical funding terms premised on a Settlement CFO or Judgment CFO being made.

  • Finally, given the comity between the Courts, the decisions are unlikely to have any impact on the decision-making of plaintiff lawyers when it comes to choice of court.

Authors

PAGENT-chris-highres_SMALL
Chris Pagent

Head of Class Actions

Thomas Scott

Associate


Tags

Class Actions Litigation and Dispute Resolution

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