Certainty for class action funders as High Court greenlights common fund orders, but plaintiff firms miss out

Australia's class action industry is more certain, although plaintiff law firms have less to celebrate, following the High Court's decision this morning that the Federal Court does have the power to make a common fund order (CFO) or funding equalization order (FEO) for the benefit of third party funders at a late stage of a class action, but does not have the power to make a CFO for the benefit of solicitors (Kain v R&B Investments Pty Ltd as trustee for the R&B Pension Fund [2025] HCA 26).

What common fund orders in class actions are and why they matter

In class actions, only the group members who have directly entered into agreements with funders are contractually required to pay the funder if the class action succeeds, despite the entire pool of group members reaping the benefit of the settlement or award. This potential imbalance can be addressed by two forms of funding orders to facilitate payments to third-party litigation funders: FEOs or CFOs.

FEOs require unfunded group members to contribute to the total commission payable by the funded group members, so all group members contribute equally to that commission amount. Under a CFO, all group members (funded and unfunded) must pay the funder a commission, generally in the form of a percentage of any settlement or judgment. A funder will usually receive more money under a CFO than an FEO.

The availability of CFOs

In 2019, the High Court determined in Brewster that the Federal Court and Supreme Courts in states with class action regimes could not make CFOs at an early stage of a class action, but left open whether they could be made at a later stage in a class action, including at settlement approval or judgment. The Full Federal Court has held that the Federal Court could do so. 

In 2024, Justice Lee raised the possibility that CFOs could be made for the benefit of solicitors (SCFOs), notwithstanding the longstanding statutory prohibition on contingency fees in every jurisdiction other than the Supreme Court of Victoria. As with late-stage CFOs, the Full Federal Court determined that it had the power to make SCFOs in R&B Investments.

This time however the decision was appealed to the High Court, which was asked:

1. whether the Federal Court can make a CFO at the time of settlement or judgment; and

2. if so, whether a CFO can be made for the benefit of a solicitor.

The High Court has unanimously held that the Federal Court:

1. can make CFOs in group proceedings at the time of settlement or judgment; and

2. cannot make SCFOs.

Fundamentally, the High Court considered that:

• Brewster still stands as good law, meaning CFOs are not available at an early stage of a proceeding under s 33ZF of the Federal Court Act (FCA);

• the power conferred on the Federal Court by ss 33V(2) and 33Z(1)(g) of the FCA is broad enough to empower the Federal Court to make a CFO at settlement approval or judgment to persons other than the parties where such an order would be “just” (a term which should be construed broadly); and

• a CFO for the benefit of a solicitor would, in effect, be a contingency fee referrable to the provision of legal services (no matter how the relevant costs agreement might describe it) and thus a contravention of the express prohibition in the Legal Profession Uniform Law.  Such an order could not be “just” in the relevant sense and the “Court cannot authorise what the LPUL forbids”.