On 6 August 2025 the High Court of Australia (High Court) unanimously held that at the time of settlement or judgment in a class action, the Federal Court of Australia (Federal Court) does not have the power to grant a "solicitors' common fund order", being an order that allows the applicant's lawyers to receive a percentage of the settlement or judgment sum, as remuneration for the value of their work and expenses incurred to conduct the proceeding (Solicitors' CFO).1
As the decision related to a Solicitors' CFO sought from the Federal Court in the New South Wales registry, the High Court determined Solicitors' CFOs would contravene the prohibition of contingency fee arrangements in that jurisdiction.
Background
The High Court decision arises from an appeal from a Full Federal Court decision on 5 July 2024, in which Justices Murphy, Beach, and Lee unanimously held sections 33V(2) and 33Z(1)(g) of the Federal Court of Australia Act 1976 (FCA Act) empower the Federal Court to grant Solicitors' CFOs.2
For further background on the Full Federal Court decision, see here and for details of the special leave bid, see here.
The questions asked of the High Court were as follows:
- does the Federal Court have power under Part IVA of the FCA Act to make a CFO at the time of settlement or judgment in a class action?
- if the answer to the first question is yes, does the Federal Court have power to make a Solicitors' CFO for a solicitor who conducts a class action and is subject to the Legal Profession Uniform Law (LPUL NSW)?
The Decision
The High Court accepted the Federal Court's power to make a CFO to litigation funders under sections 33V(2) and 33Z(1)(g). However, it was held that power would not permit the Federal Court to grant a Solicitors' CFO in New South Wales. The majority provided the following reasons for that conclusion:
- any remuneration received under a Solicitors' CFO would constitute an "amount payable to the law practice" within the meaning of section 183 of the LPUL NSW (which prohibits law practices from entering into contingency fee arrangements);
- it cannot be "just", as required under sections 33V(2) and 33Z(1)(g), for the Federal Court to make a Solicitors' CFO as that would give effect to a contingency fee arrangement, in breach of section 183 of the LPUL NSW.
Implications
1. No CFO for solicitors subject to Legal Profession Uniform Law (NSW)
The first clear implication of the decision is that solicitors acting for a representative party who are subject to the LPUL NSW are not entitled to a Solicitors' CFO. That is even so in circumstances where the Federal Court would otherwise have the power to make a CFO under sections 33V(2) and 33Z(1)(g) of the FCA Act, as held by both Chief Justice Gageler and the plurality (Gordon, Steward, Gleeson and Beech-Jones JJ).
The same reasoning would likely apply to solicitors practicing in the Australian Capital Territory, Northern Territory, Queensland, South Australia, Tasmania and Western Australia, who are subject to provisions equivalent to section 183 of the LPUL NSW, and where those jurisdictions do not exempt class actions from the prohibition on contingency fees.
2. Can Victorian solicitors get a Solicitors' CFO in the Federal Court?
The Federal Court cannot make a Solicitors' CFO if it contravenes section 183 of the LPUL NSW, which also applies to solicitors practicing in Victoria through an equivalent provision.
However, the Supreme Court of Victoria has a statutory exception under section 33ZDA of the Supreme Court Act 1986 (Vic), which allows it to make a Group Costs Order (GCO) and permits legal costs to be calculated as a percentage of the amount recovered and shared among group members. The High Court recognised section 33ZDA as the "sole exception" to the prohibition of contingency fees across Australia.
It remains to be seen whether a Victorian solicitor involved in a Federal Court class action could still argue for a GCO (or a Solicitors' CFO). It may be open to contend that such an order is "just" in the distinct Victorian context, where contingency fees are expressly permitted through the GCO regime in the Supreme Court. The High Court has suggested that this would be a hard road for a plaintiff solicitor, but the door was not closed as firmly as it perhaps could have been.
In practice, Victorian class action practitioners are likely to prefer the certainty of the GCO mechanism in the Supreme Court, where available.
3. Will we see a continued trend of class actions being commenced in the Victorian Supreme Court?
Undoubtedly, the present landscape means that class actions will continue to be filed in Victoria due to the availability of GCOs, regardless of whether there is a nexus between Victoria and the proceedings. Often times there is none. It is then a curious outcome for proceedings to be heard in that jurisdiction when there is no link between the location of the parties or the substance of the alleged wrong. This is particularly so in circumstances where group members are often located all over Australia (and in other countries) and almost every State has the same class action regime. The present landscape creates a jurisdictional imbalance and it will be up to each legislature to consider the issue and decide whether it is an imbalance it wishes to rectify.
Other than the power to make a GCO in Victoria, which was made legal in July 2020, there has been no change to the statutory prohibition on contingency fees in other jurisdictions.
In December 2020, the federal Parliamentary Joint Committee on Corporations and Financial Services published its report, "Litigation funding and the regulation of the class action industry" recommending a cautious and incremental approach to the use of contingency fees in class actions.
However, given the High Court's decision forecloses contingency fee-style arrangements for solicitors' practicing in jurisdictions outside of Victoria, there may be renewed calls for States to enact legislation that mirrors 33ZDA of the Supreme Court Act 1986 (Vic).
4. Is this the beginning of a change in attitude toward novel funding arrangements and the class action regime more generally in Australia?
The current High Court bench's decision marks a pause in the trajectory of judgments endorsing novel funding arrangements for class actions, which began with the High Court's ruling in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 that permitted litigation funding.
This shift in attitude may in part reflect some recent criticism directed at plaintiff law firms and funders for taking significant cuts out of class action settlements, calling into question the "social justice" of the class action regime.
The recent attention to funding arrangements and returns to group members may be the catalyst for renewed consideration of reform in the funding space. A key consideration that will need to be grappled with is whether contingency fees have a sound policy foundation.
Footnotes
1. Kain v R&B Investments Pty Ltd; Ernst & Young (a firm) v R&B Investments Pty Ltd; Shand v R&B Investments Pty Ltd [2025] HCA 28
2. R&B Investments Pty Ltd (Trustee) v Blue Sky (Reserved Question) [2024] FCAFC 89
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.
