Falling flat: Supreme Court of Victoria rejects ratcheted Group Costs Order

The Supreme Court of Victoria rejected a novel, ratcheted Group Costs Order (GCO) in Peter Collens and Gai Collens ATF the Collens Superannuation Fund v Mineral Resources Limited and Anor preferring a simple and transparent GCO at a flat rate of 30%.

Group Costs Orders in Victoria

A contingency fee is a method of billing for legal services through a percentage of the amount recovered in the litigation rather than through time-based or costs scale billing. Under a contingency fee arrangement, a fee is only charged if the litigation is successful.

Historically, lawyers were prohibited from entering into a costs agreement with a client which allows contingency fees to be charged. However, in 2020 section 33ZDA of the Supreme Court Act 1986 (Vic) was introduced to give the Supreme Court of Victoria the power to order that lawyers representing a plaintiff be allowed to recover a contingency fee.

Section 33ZDA permits the lead plaintiff in a class action to apply to the Court for an order that the legal costs payable to the plaintiff's legal representative are in the form of a contingency fee and for those costs to be shared between the plaintiff and all group members. This order is referred to as a GCO. GCOs are calculated as a percentage of the litigation proceeds to which lawyers will be entitled if the class action is successful. If the class action is unsuccessful, the lead plaintiff’s lawyer may be liable to pay any adverse costs order in favour of the defendant.

The Court is only able to make a GCO if it is satisfied that it is appropriate and necessary for justice to be done in the proceeding.

Application for a ratcheted GCO

The plaintiffs brought a shareholder class action against Mineral Resources Ltd and its former managing director in the Supreme Court of Victoria. The plaintiffs alleged that the defendants breached continuous disclosure obligations and engaged in misleading or deceptive conduct.

The plaintiffs sought a tiered or "ratcheted" GCO where the percentage would decrease from 32.5% as the recovery increased. While the Court was satisfied that it was appropriate or necessary to make a GCO, it declined to make the order in the ratcheted form because:

• A ratcheted approach is less simple and transparent than a fixed percentage.

• Approving a ratcheted structure requires a level of precision as to quantum that was not achievable. The Court found the plaintiffs' proposed ratchet points were arbitrary in the absence of submissions and affidavit material to support them.

• Solely using quantum as the basis for ratcheting oversimplifies the complex risk-reward calculus involved in such cases. For example, the risk involved in pursuing a broader claim that might result in a higher return for shareholders might mean that it is appropriate for a plaintiff law firm to recover the same GCO rate at the higher quantum level.

• Justice is better served when a law practice's incentive for taking risk in pursuit of reward is aligned with the objective of maximising returns for group members.

The Court observed that the objective of the ratchet mechanism, being to avoid disproportionately high fees as the quantum of settlement or judgment increases, was laudable. However, it was ultimately unnecessary. This is because the Court has power to address any windful by amending the rate of GCO at a later stage in the proceeding, if necessary.

The Court considered GCO rates in shareholder class actions to date and observed that the rates varied from 14% to 40% between 2022 and 2025 with an upward trend over this period. Ultimately, the Court ordered a GCO at a flat rate of 30% on the basis that this appropriately balanced the risk and reward calculus in the specific circumstances.