Full Federal Court rules security for costs inappropriate in funded ‘underpayment’ class action

In a commercially funded class action, it is generally expected that the applicant needs to provide security for the respondent’s costs. Typically, security is given — whether by court order or voluntarily — at an early stage of the proceedings.

The rise of the industrial relations class action has raised the question whether that expectation holds where proceedings are brought under the Fair Work Act 2009 (Cth) (FW Act). Court proceedings under the FW Act are said to take place in a ‘no-costs’ jurisdiction, because Section 570 of the FW Act only allows costs to be ordered against parties in very limited circumstances.

Last year, Justice Lee of the Federal Court, in Turner v Tesa Mining (NSW) Pty Limited [2019] FCA 1644, held that the expectation of security for costs remained, despite the ‘no costs’ jurisdiction of the FW Act. Justice Lee held that a respondent in two class actions alleging underpayment of entitlements under the FW Act was entitled to security for costs from the applicant’s litigation funder. The order was made directly against the funder to secure against the risk that a third party costs order may ultimately be made against it in the proceedings.

On 10 November 2020, however, Justice Lee’s decision was overturned by the Full Federal Court in Augusta Ventures Limited v Mt Arthur Coal Pty Ltd [2020] FCAFC 194 (Mount Arthur Coal). The decision suggests that security for costs will rarely, if ever, be ordered in class actions under the FW Act.

In finding that Justice Lee had not properly exercised the power to award security for costs, the Full Court focused on the inconsistency between the effect of the order for security on the applicant, and the policy of the ‘no-costs’ regime established by Section 570. 

Even though it was the funder that was required to provide security for costs in that case, a failure by the funder to provide security would result in a stay or dismissal of the applicant’s proceeding. 

In circumstances where the applicant himself was neither responsible for the respondent’s costs, nor entitled to expect that the respondent would be made responsible for his (unless the exceptions in Section 570 applied), Chief Justice Allsop (Justices Middleton and White agreeing) found that “[s]uch an outcome could not possibly be just”.  

Implications of the decision

Following Mount Arthur Coal, it is unlikely that a court will order a funder to provide security for costs in a class action brought under the FW Act. It was observed that the claim – consistent with many claims made under the FW Act – was substantial, affects a significant number of worker and concerned “one of the fault lines of the organisation of labour in Australia:  casual or permanent employee (along with, though not relevant here, employee or independent contractor)”.

The Chief Justice’s reasons suggest that even an order for security backed by a lesser sanction than stay or dismissal will be inappropriate, if it impedes or affects the applicant’s claim. 

Justice White’s reasons, on the other hand, suggest that any order for security against a funder in FW Act proceedings will be inappropriate, if the cost of providing security is ultimately borne by the applicant and group members (as the litigation costs of funders generally are, in the event of the applicant’s and group members’ success).

The only obvious exception would be a situation (contemplated by the Chief Justice) where the applicant is “a mere vehicle for an attempt to extract fees or commission from the conduct of the litigation in a no-costs jurisdiction”.

All this being said, the Mount Arthur Coal case cannot be treated entirely as a victory for funders. An important step in Justice Lee’s reasoning at first instance was the absence of any reason in principle why an adverse costs order should not be made directly against the funder if the litigation were unsuccessful.   

The Chief Justice’s comments supported the possibility of third party costs orders against litigation funders in FW Act cases. That is undoubtedly the sting left in the tail of this judgment for funders financing FW Act litigation.