The Fate of Class Action Common Fund Orders

Common Fund Orders’ (CFOs) have had a significant effect on Australian third party-funded class actions by requiring all class members to make a contribution to the third-party litigation funder’s fee in the event of a successful outcome.  This altered past practice whereby only class members who had contracted with the litigation funder would be liable for such a contribution.  However in a 5:2 decision in BMW Australia Ltd v Brewster in 2019, the High Court cast some doubt on CFOs, determining that neither s 33ZF Federal Court of Australia Act 1976 (Cth) nor s 183 Civil Procedure Act 2005 (NSW) provided a legal basis for making CFOs at the outset of proceedings so as to secure litigation funding support.  In late 2020, the Commonwealth Parliamentary Joint Committee (PJC) on Corporations and Financial Services recommended that legislation be enacted to ‘address uncertainty’ in Brewster in a manner that would enable CFOs to be made at settlement or judgment.  The authors canvass normative arguments as to the merits of CFOs and compare the alternative practice of making Funding Equalisation Orders (FEOs). They also consider the related issue of courts setting overall funding commissions.  Given the possibility of legislative intervention, they also review arguments as to the potential constitutional validity of CFOs, a matter that was raised, but received very limited treatment from the High Court in BMW.