Class action payday: decoding funding payment trends

The Supreme Court of Victoria recently approved a settlement in the G8 Education Limited Class Action upholding a group costs order (GCO) of 27.5% of a $46.5 million settlement sum to the plaintiff’s solicitors Slater & Gordon. This means that, rather than the traditional approach where a plaintiff would seek to recover their legal costs and disbursements calculated either on a time spent basis or by reference to a Court scale (either from or in addition to any settlement sum depending on the settlement terms), a percentage of the total settlement sum is paid instead.

At first glance this may seem to increase the amount payable to the solicitors – and therefore reduce what is left for Group Members – given the absence of a litigation funder (who would otherwise be taking a cut). However, the overall position was found to be either net neutral or positive for group members. As noted in the settlement approval judgment when approving this settlement the Court could have varied the GCO from the 27.5% ordered in March 2022, if the Court considered that 27.5% was not appropriate having regard to the terms of settlement.

As we noted at the time, the plaintiff’s lawyers gave an undertaking that the 27.5% contingency fee rate was a maximum rate that they would seek in the proceeding and any future adjustment would only be a reduction below that rate.

In the settlement approval judgment delivered on 28 August 2024, Justice Watson upheld the GCO issued in November 2021 granting 27.5% of the settlement sum to legal costs. Justice Watson observed that the solicitors would receive approximately 7.9% commission for services (once fees for legal work completed in the case had been taken into account) that would ordinarily have been provided for 23-24% commissions by third party litigation funders. In Courts where GCOs are not permitted, solicitors are often awarded an “uplift” of up to 25% (calculated on costs incurred, rather than referable to any ultimate settlement sum) when taking matters on a “no win, no fee” basis. Seen in that light the GCO based costs award in this case is not a significant windfall for Slater & Gordon over and above the traditional position. It is worth noting that Slater & Gordon were also awarded the role of Settlement Administrator, with fees associated capped at $350,000 but to be paid over and above the 27.5% award.

Where a class action has a litigation funder it is not uncommon for the funder to receive 25% of any settlement sum, in addition to any award or negotiated sum for legal costs payable to the solicitors. Indeed, while the range of funding commissions generally sits between 14 and 25%, awards of up to 40% have been seen recently in the Victorian Supreme Court:

• Bogan v Smedley [2022] VSC 201: shareholder class action where a GCO (in favour of a funder, with a cost sharing agreement entered into with solicitor) of a 40% rate for legal costs was sought. A notable point in the decision was the significant risk that the proceedings, which were fairly advanced at this stage, would not proceed unless the GCO was made;
• Gawler v Fleetpartners Group Ltd [2024] VSC 365: GCO of 39% (in favour of solicitors). The Court expressed reluctance to proceed with a percentage of this magnitude but was ultimately persuaded to proceed.
• Warner v Ansell Ltd [2024] VSC 491: In consideration of the potential for unintended consequences depending on the magnitude of the resolution amount, the court awarded a tiered 40% rate for a resolution amount up to $50 million, and a 25% rate for any part of a resolution amount above $50 million.

It remains to be seen if GCOs will continue to increase in quantum and popularity or extend from the Victorian Supreme Court to other jurisdictions. However, this decision provides a useful blueprint for parties to consider for class actions filed in the Victorian Supreme Court. While running proceedings on a speculative basis without the backing of a litigation funder necessarily involves plaintiff law firms assuming added risks, reducing the number of different stakeholders seeking “slices of the pie” can serve to simplify when attempting to negotiate a settlement.

While not all plaintiff solicitors will have the resources and capabilities to run class actions without the backing of a litigation funder, where the percentages awarded remain comparable to what solicitors could ordinarily recover (without the need for a lengthy costs assessment process) there seems to be a place for GCOs in Australia’s class action system.