Court Rejects Common Fund – for nowAuthor : Patrick Boardman

Directors and Officers Financial Lines

Recent data out yesterday showed that 33 new class actions were launched in the 12 months to June 2015, a significant increase on prior years. The threat of a class action is now a leading risk facing Australian companies and there are a plethora of claimant law firms and litigation funders competing to issue the next class action.

The issue of a ‘common fund’ whereby all damages are paid into a common fund out of which costs and any litigation funders’ share is deducted prior to distribution to class members, has been raised in a number of recent class actions, without any final determination.

That issue has now been addressed in part by a recent Federal Court decision in the Allco Finance Group Class Action, in which the claimants sought orders for a ‘common fund’ which, by implication, would have meant that the litigation funder would have been the funder of the entire class and entitled to receive 32.5% to 35% of all sums recovered, after costs had been deducted. The Claimants put forward six arguments as to why such orders should be made, which were all rejected by the court on the basis that they were not required at the current early stage of proceeding to ensure that justice is done in the proceeding. Wigney J considered that the proposed orders were more about providing some financial certainty to the funder – which undoubtedly would have occurred, given that it currently only has two signed up class members.

Wigney J did go on to say that his judgment did not preclude a similar application being made in the proceeding at a later date and that, given the importance of the issue of a ‘common fund’, he considered it should be settled by legislative reform rather than piecemeal by judicial discretion.

The provision of a ‘common fund’ would clearly provide greater financial certainty to litigation funders and claimant lawyers (should proposed contingency fees come to fruition), which could only lead to more class actions and a race to file, prior to other firms/funders obtaining ‘common fund’ orders.

Click ‘download’ below to view the full case note.

20/08/2015