Federal Court: December 2023

CLASS ACTION

Power of Court to make settlement common fund order under Federal Court of Australia Act s 33V(2) – impact of High Court decision finding against Court’s power to make commencement common fund order under s 33ZF(1)

Elliott-Carde v McDonald’s Australia Limited [2023] FCAFC 162

The Full Court of the Federal Court of Australia (Beach, Lee and Colvin JJ) considered whether the Court has the power, under Federal Court of Australia Act 1976 (Cth) (‘FCA Act’) s 33V, to make a settlement common fund order (‘CFO’) in a representative proceeding (a.k.a. class action) conducted under Part IVA of the FCA Act. The issue was one which had been the subject of uncertainty after the decision of the High Court of Australia in BMW Australia Ltd v Brewster [2019] HCA 45; 269 CLR 574 (‘Brewster’) which held, by majority, that the Court did not have the power to make a commencement CFO under s 33ZF of the FCA Act. The Full Court unanimously found that it did have power to make a settlement CFO under s 33V.

Background

A CFO is an order of Court which seeks to ensure the costs of successfully running a representative proceeding on behalf of the lead applicant and group members are evenly distributed amongst all members of the group, rather than just those who have signed retainers with the lead applicant’s law firm (and, where relevant, funding agreements with that law firm’s funder). It comes into effect in the event of successful recovery of funds for group members, whether by reason of settlement or judgment; it does not impose an obligation on group members at large to meet any adverse cost order in the event that the lead applicant is unsuccessful (these costs are typically borne by the lead applicant’s lawyers/funder, by agreement with the lead applicant, as part of the risk of running such an action). That is, a CFO is an ‘upside only’ order from group members’ perspective. It seeks to avoid the ‘free rider’ problem that would obtain if group members who had not signed a retainer/funding agreement were able to take the benefit of the successful resolution (i.e. by taking their payout) without shouldering any of the costs of obtaining that success, and leaving those costs to be borne (i.e. deducted from their payout) only by the lead applicant and others who had signed retainers/funding agreements. A CFO is an alternative to the laborious process of ‘book building’ by signing up as many group members as possible to retainers/funding agreements, as this process may of itself add very considerably to the costs and time of running such a representative proceeding.