Australia: Industrial relations class actions - a funders cost to bear

In brief - Litigation funders will be weighing up the consequences of a recent Federal Court decision requiring them to provide security for costs in industrial relations class actions.

Lee J handed down a landmark ruling in the case of Turner v Tesa Mining requiring the litigation funder, Augusta Ventures Limited (Funder) to provide a total of $3.1 million in security for costs.

It is the first decision in Australia in which security for costs has been ordered against a non-party litigation funder.

The Court's ruling means that the 'no costs' jurisdiction for matters arising under the Fair Work Act 2009 (FWA), will not shield litigation funders from the obligation to pay costs if the litigation is unsuccessful, and further, to give security for those potential adverse costs.

As foreshadowed in our previous article, Employment class actions - feast or famine, whilst the number of industrial relations class actions have rapidly increased over the past 2 years, litigation funders are now clearly on notice that the FWA is not a risk-free litigation environment.

Funders will now need to factor the requirement to provide security for costs in deciding whether to fund industrial relations class actions. This brings industrial class actions into line with other class actions, where security is accepted as a precondition of funders using the Court's processes to obtain a commercial benefit from the funding operations.

s570 of the Fair Work Act and the 'no costs' jurisdiction

Mr Turner commenced two separate class actions against labour hire companies Chandler Macleod (plus its subsidiary Ready Workforce) and TESA Group, as well as host employer, Mt Arthur Coal. In the proceedings it is alleged that casual employees supplied on labour hire should be entitled to full time award entitlements, including leave, accident pay and other benefits.

Both class actions were brought under the FWA. Section 570 of the FWA has created a 'no costs' jurisdiction, whereby a party may be ordered to pay the costs of the other party only if the proceeding has been instituted vexatiously, or a party has acted unreasonably causing the other party to incur costs.

Chandler Macleod and Mt Arthur Coal both filed applications seeking security for costs directly against the Funder, as a non-party to the proceeding.

Costs Against Funders

The existence of litigation funding is seen as an avenue for facilitating access to justice - rather than for the purpose of funders gaining access to justice for their own commercial profits.

The Respondents argued that where the litigation funder was seeking to derive a commercial benefit from the litigation, it ought to bear the risk of paying adverse costs in the event the Applicant's claim was unsuccessful.

Whilst expressing caution about being too definitive as to the likely exercise of a 'broad and fact dependant discretion', his Honour concluded that there was no reason in principle why an adverse costs order should not be made against a funder if the litigation was unsuccessful in circumstances where:

  • there is funded litigation which can be characterised as a common enterprise;
  • there is there is a statutory fetter on making an award of costs against the funded party; and
  • according to usual costs principles an award of costs should otherwise be made in favour of a successful party

The Power to Order Security

The Funder argued that there was no power outside section 56 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) for the Court to award security for costs on the basis that the power was limited to orders against applicants in a proceeding or appellants in an appeal. His Honour rejected that submission and held that there was nothing in the text or context of that section to conclude that the implied power of the Court should be confined so as to preclude an order for security against a non-party.

His Honour also rejected the Funder's submission that other legislative provisions could not be called in aid to order security against a non-party. Section 33ZF of the FCA Act vest the Court with the power to make any order the Court it "thinks appropriate or necessary to ensure that justice is done". The Court found that nothing in the FWA or its 'no costs' jurisdiction qualifies or confines the Court's power to award security for costs .

The Exercise of Discretion

The Court's discretion will be a key factor in determining whether orders will be made requiring a party (or non-party) to give security for costs. His Honour considered a number of factors, including:

the 'no costs' jurisdiction for matters arising under the FWA, and the contention that the funders are unlikely to recover costs against the respondents should the litigation be successful;

  • the location of the funder (in this case, the funder is based in the UK);
  • the costs of providing security and that such costs will ultimately borne by group members;
  • whether the requirement to give security would stultify the proceeding; and
  • the commission the funder will impose from any money which might be recovered by group members.

Lee J concluded that there was no apparent textual or contextual argument that was compelling to suggest that the costs protection afforded by s570 of the FWA should be extended to a litigation funder seeking to derive a commercial benefit.

Further, his Honour did not think that the unfairness suggested by the Funder giving rise to an 'asymmetry of risk' was as significant as had been suggested, and went on to state that "if it turns out the Funder has not adequately factored that risk into the price it has contracted to charge, this does not seem to me to be something which should be of particular concern to the Court".

Ultimately, Lee J found that the respondents had established "that adequate security for their costs in the amount that they seek from the Funder should be ordered". His Honour is still to determine the form of security that must be provided.

How will the security for costs decision impact class actions in Australia?

There are currently 11 industrial relations class actions which have been commenced in the Federal Court, representing a marked increase from historical trends. The 'no costs' jurisdiction of the FWA, coupled with a favourable litigation funding environment and increasingly levels of funding capital being directed to Australia, are likely to be factors which have fuelled the uptick in industrial relations class actions.

The Court's decision in this case recognises that funders must provide the relevant quid pro quo for using the Court's processes to procure a commercial benefit. This rebalancing of risk may act as a counterweight to entrepreneurial litigation funders attracted by risk-reduced litigation under the FWA.

Whether this decision will affect the number of industrial relations class actions commenced in Australia remains to be seen. The answer to that question will depend on whether funders are willing to pay the new price of admission.

The Funder has not yet appealed the decision.

Michael Russell Paul O'Halloran Adrian Konstantinidis
Insurance Workplace Relations
Colin Biggers & Paisley

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.

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