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  • Writer's pictureDaniel Meyerowitz-Katz

Court leaves open possibility of solicitors charging contingency fees in class actions

I have previously commented on the Australian Law Reform Commission ("ALRC")'s proposal to permit solicitors to charge percentage-based or "contingency" fees in the context of a class action, as well as the difficulties that I see with the ALRC's specific proposal.

Based on the decision of the Full Federal Court in Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group Limited [2019] FCAFC 107, it may be that the Court already has the power to do this.

The case concerned appeals from a decision relating to three competing shareholder class actions against BHP arising from the Fundão dam disaster. One of the competing bidders was the law firm Maurice Blackburn, who had put forward a traditional "no-win-no-fee" with an uplift funding model, but also a funding model pursuant to which Maurice Blackburn would be awarded a percentage of the proceeds of any judgment or settlement.

The Full Court set aside the primary judge's decision in part, on the basis that his Honour had made an assumption that Maurice Blackburn's "no-win-no-fee" model provided less of an incentive for Maurice Blackburn to work assiduously to achieve the best possible outcome for the group members than if the action were funded by a commercial litigation funder, which, the Full Court found, was not supported by the evidence.

In the course of the appeal, their Honours were invited to re-examine the primary judge's conclusion that it was unlikely that a judge would approve the percentage-based common fund order proposed by Maurice Blackburn, as it was contrary to the statutory prohibition on solicitors charging contingency fees in s 183(1) of the Legal Profession Uniform Law ("LPUL"), which provides:

"183 Contingency fees are prohibited

(1) A law practice must not enter into a costs agreement under which the amount payable to the law practice, or any part of that amount, is calculated by reference to the amount of any award or settlement or the value of any property that may be recovered in any proceedings to which the agreement relates."

The primary judge had found that:

"even if there would be no contravention of s 183(1), it is unlikely that the Court would make a common fund order incorporating the payment to a law firm of a commission on a settlement sum or judgment in circumstances where the clear legislative policy evinced by s 183(1) is against the payment of such a commission. Accordingly, I consider it unlikely that the Court would make a common fund order as proposed in respect of the Klemweb proceeding."

On appeal, Middleton and Beach JJ found that this was an expression of opinion only and it was reasonably open to express such a view, although their Honours noted that some judges may consider it to be "too conservative": at [22].

Lee J went somewhat further, and gave a lengthy consideration to the issue at [113]-[143]. At [135] his Honour found that the proposed common fund order would not breach s 183 of the LPUL. This was on two bases. First, the LPUL is state legislation and would not prevail against an order made under the Federal Court of Australia Act 1976 (Cth). Second, and perhaps more importantly, s 183 prohibits a law practice from "entering into a costs agreement" of the relevant type. A common fund order would not constitute entering into a costs agreement.

His Honour went on to find that it is "[not] unlikely that a common fund order incorporating a contingency payment could be made": at [141]. However, there were various problems that his Honour identified with the order proposed by Maurice Blackburn in that case.

It follows that while it was not necessary to decide the question in Klemweb, the Court at least left open the possibility that a common fund order pursuant to which solicitors (and possibly even barristers) may be paid a percentage-based fee could be made in an appropriate class action, and Lee J in particular seemed to endorse the suggestion.

No doubt some enterprising law firm (perhaps even Maurice Blackburn) will test that theory in due course.

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