Australia: Federal Court Of Australia Rejects "Common Fund" For Litigation Funders

Last Updated: 14 September 2015
Article by John Emmerig and Michael Legg
  • The Federal Court has declined to make orders at the commencement of proceedings which would have endorsed a funder's fee arrangement (reimbursement of legal fees paid to the lawyers and payment of between 22.5 percent and 35 percent of any recovery) as reasonable and required all group members to pay that fee.
  • The making of the orders would have removed the need for a litigation funder to contract with a group member to be paid and therefore allow for an open class action that included all group members rather than a closed class that was limited to group members who had entered into funding agreements. The Court found that the orders, while advantageous to the litigation funder, were not "appropriate or necessary to ensure that justice is done in the proceeding".
  • Litigation funders will now need to consider how they structure their funding arrangements for Australian class actions. At least in the short term this is likely to mean the use of a closed class where group members are only included in the class action if they have entered into a funding agreement. Further, where there are unfunded group members in a class action, court orders will continue to be sought as part of any settlement for the unfunded group members to give up part of their recovery equivalent to that paid by funded group members.


In the Allco shareholder class action, an application was filed by the two applicants/representative parties seeking court orders for the appointment of International Litigation Funding Partners Pte Ltd ("ILFP") as the funder of the class action on the terms of the litigation funding agreement entered into by the applicants. Clause 9 of the funding agreement provided for group members to reimburse the funder the amount of legal fees and disbursements paid by the funder and to pay a percentage of the Resolution Sum determined as follows: 

Number of Shares Held Resolution on or by 30 June 2014 Resolution on or by 30 June 2015 Resolution after 30 June 2015
< 1,000,000 25% 30% 35%
> or = 1,000,000 22.5% 27.5% 32.5%

As the judgment dealing with the application was handed down on 7 August 2015, the percentages to be charged were 32.5 percent or 35 percent. Further, if the funder funds an appeal of a final judgment, or the defence of an appeal from a final judgment, a further 5 percent of the Resolution Sum in respect of the appeal so funded is payable by group members.

Orders Sought

The orders sought by the applicants were that the court approve the amounts payable by the applicant and group members to ILFP pursuant to clause 9 of the funding agreements on the basis that they are "reasonable consideration payable to ILFP and expenditure incurred by the Applicants in prosecuting the proceeding" in exchange for the funding and an indemnity as to costs. Further, that the applicant was entitled to withhold the above amounts from any settlement or judgment and pay them to ILFP.

The making of the orders would have the result that all group members would be liable to pay the funder's fees (costs incurred by the funder and a percentage of any recovery) without having entered into any agreement. The orders, if made, would remove the need for a litigation funder to contract with a group member to be paid and therefore allow for an open rather than a closed class to be employed. The application would create a funding regime similar to the common fund approach employed in the United States for the payment of lawyers' fees in class actions.

Applicants' Argument

The Applicants advanced six reasons for why the Court should make the orders:

  1. The order is analogous to other situations where a person has incurred expenses in recovering property for the ultimate benefit of others and has been held to be entitled to recover their costs, expenses and fees out of the recovered fund, e.g., a liquidator;
  2. The proposed order ensures an equal and equitable outcome between all group members, regardless of whether or not they have entered into a funding agreement with ILFP;
  3. The proposed order will secure a beneficial outcome for all group members by allowing for an open class that includes all group members, rather than a closed class where the group is limited to those persons who have entered into a funding agreement with ILFP;
  4. The proposed order is consistent with the policy objectives of Pt IVA of the Federal Court of Australia Act 1976 (Cth) ("FCA Act") which creates and regulates class actions. Those policy objectives are said to be to enhance access to justice, reduce the costs of proceedings and promote the efficiency of court resources. An open class is more efficient and provides access to justice better than a closed class;
  5. The proposed order appropriately protects the rights of group members because group members retain the right to opt out of the proceeding, the amount that ILFP may receive is reasonable having regard to funding premiums paid in other representative proceedings, and because the Court retains control over any settlement through the need to secure the approval of the Court under s 33V of the FCA Act; and
  6. The proposed order is consistent with orders made in similar proceedings in Australia, the United States (which employs the common fund doctrine) and Canada.

The Court then considered whether it had power to make the orders sought.

Section 33ZF

The main power for the making of the orders was s 33ZF(1) of the FCA Act which provides:

In any proceeding (including an appeal) conducted under this Part, the Court may, of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.

Section 33ZF confers a broad power on the Court to make orders in relation to representative proceedings. The courts have been clear that it is not to be given a narrow construction.1 The only express limitation or requirement in s 33ZF is that the Court thinks the order is appropriate or necessary to ensure that justice is done in the proceeding. The power is subject to discretion.


Wigney J considered each of the six arguments put forward by the applicants from the perspective of whether they engaged the requirements of s 33ZF. His Honour found that none did.

A representative party or applicant is not in an analogous position to a liquidator. In particular, while a representative party can commence proceedings on behalf of group members they have no authority to promise to pay the litigation funder a commission based on a percentage of any amounts recovered on behalf of other group members.

Further, it is neither appropriate nor necessary to impose the Applicants' commercial bargain in relation to the payment of a commission on the group members as a whole, at least at the beginning of proceedings. The fact that orders that have this effect have been made in the context of anticipated settlements, which require the approval of the Court under s 33V of the FCA Act, was said to not assist the Applicants. At the stage of settlement the court is in a better position to determine the settlement sum and the payment to be made to the litigation funder. The lack of information as to the amount that may be payable to the funders also went against the making of an order.

Wigney J stated that the only real rationale for making the order at this stage was to ensure the commercial viability of the proceeding from the perspective of the litigation funder, but that had nothing to do with ensuring that justice was done in the proceeding. Wigney J also observed that:

Justice "in the proceeding" would not ordinarily involve any consideration of the commercial interests of a litigation funder unless they gave rise to some issue or problem that has, or is likely to have, some direct impact on the proceeding.2

The court also rejected the argument that there would be an inequality between the group members if some may benefit from the funding without contributing to its cost. The issue of fairness amongst group members, including whether unfunded group members may "free-ride", could be dealt with should a settlement arise. The Federal Court has recognised, in the context of making orders facilitating or approving settlements, that fairness may require that group members who have entered into funding agreements should not end up in a worse position than group members who have not entered into funding agreements.

Wigney J then turned to consider the rights and interests of group members and the argument that the orders were consistent with the policy of Pt IVA. His Honour was not convinced that the order sought was in the interests of group members, at least at such an early stage of proceedings when so little was known about the possible outcome. The applicants' argument that without the order a closed class would be commenced, which would shut out some group members, contrary to the policy of Part IVA was seen as being driven by the interests of the funder rather than group members.

Wigney J considered the fact that notice had been given to group members and none had objected to the orders that were sought. While notice clearly had to be given, the fact that no objections were received is not determinative. The right to opt out does afford protection to group members, but here the proceedings had been commenced very close to the expiry of the statute of limitations. When this is combined with group members having small claims it is likely that opting out would equate with being unable to bring an action, and so its protective force was diminished. Wigney J also considered how the requested order would interact with s 33V and the requirement for the court to approve any settlement. While the applicants accepted that the court would retain the power to vary the orders sought as part of a settlement, Wigney J was concerned at how a court could practically do that if it had previously found the amounts payable to the funder as reasonable. His Honour also thought that the order may conflict with s 33ZJ which allows for costs reasonably incurred by an applicant to be reimbursed out of any damages awarded to group members where those costs cannot be recovered from a respondent.

His Honour reviewed the case law in the U.S. and Canada but found it unhelpful due to differences between those jurisdictions and Part IVA of the FCA Act.

His Honour then turned to the discretionary aspect of s33ZF. Even if the power was engaged his Honour would not have exercised his discretion to make the orders because so much was unknown: the number of group members, the value of the damages claims in question, the amount of the commission that the court was asked to approve as reasonable consideration payable to ILFP, the likely length and complexity of the trial and the legal costs that would be incurred.

Law Reform

Although his Honour declined to make the sought after orders he did observe that there may be a case for legislative law reform to take account of the role of litigation funders. In particular, "there would need to be specific provision for scrutiny and court approval of the amounts payable to the litigation funder at the determination of the proceeding".3


The current decision demonstrates the growing and significant role that litigation funding plays in relation to class actions. The judgment also recognised explicitly that funders structure class actions and their funding arrangements in their own self-interest.

The law around class actions has been developed by funders seeking to advance their interests through favourable precedent development. The closed class that was approved in the Multiplex class action is a clear example.4 Wigney J examined the sought after orders from the perspective of their impact on group members as a whole and found that, while the orders may assist the funder, they were not in the interests of the group members. It must not be forgotten that the function of class actions is to pursue remedies for those allegedly wronged—not to make profits for litigation funders.5

The Allco decision means that litigation funders will in the short term continue to either employ a closed class definition or seek orders as part of any settlement to address the existence of unfunded group members. The former is problematic as it makes the funder (and the terms of its funding agreement) the gatekeeper of access to a class action and it can promote multiple class actions or other litigation.

The latter gives rise to a continuing debate as to how unfunded group members should be dealt with. Two broad approaches have been adopted to date. First is an equalisation order whereby unfunded group members have their recovery reduced by the amount the funded group members have paid to a litigation funder. This amount is redistributed across all group members. The second is the imposition of the funding agreement terms on unfunded group members so that they must pay the funder's fee to the funder. The former ensures equality amongst group members but without a direct payment to the funder. The second ensures equality but with the funder receiving a greater fee.

In the GPT shareholder class action Gordon J rejected the second approach because the funder had knowingly funded the class action without signing up all group members and the unfunded group members had not agreed to it—"[t]he deduction of the funding commission was never part of a commercial bargain".6 Gordon J employed the first approach, in keeping with the practice in previous class actions. However, the second approach has been employed in at least two class actions—a shareholder claim in the Supreme Court of Victoria and a bank fees claim in the Federal Court.7


1 McMullin v ICI Australia Operations Pty Ltd (1998) 84 FCR 1 at 4; Courtney v Medtel Pty Ltd (2002) 122 FCR 168 at [48]-[49]; The Owners of the Ship "Shin Kobe Maru" v Empire Shipping Company Inc (1994) 181 CLR 404 at 421; Wong v Silkfield Pty Limited (1999) 199 CLR 255 at [11].

2 Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) [2015] FCA 811 at [113].

3 Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) [2015] FCA 811 at [227]-[228].

4 Multiplex Funds Management Ltd v P Dawson Nominees Pty Ltd (2007) 164 FCR 275.

5 See Treasury Wine Estates Ltd v Melbourne City Investments Pty Ltd [2014] VSCA 351 at [14].

6 Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626 at [57].

7 See Pathway Investments Pty Ltd v National Australia Bank Ltd (No 3) [2012] VSC 625; Farey v National Australia Bank Ltd [2014] FCA 1242.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.