In August 2021, 7-Eleven agreed to pay $98 million to a group of franchisees who brought a class action against the convenience store giant, accusing it of misleading franchisees about the profitability of its stores.

The class action, led by law firm Levitt Robinson, alleged that 7-Eleven enticed store operators to become franchisees, who were subsequently unable to make a profit unless they underpaid staff and worked for less than minimum wage. 

The proceedings were funded by litigation funder Galactic, which posited that if the court case was successful, it would be entitled to 25 per cent of the settlement sum, plus reimbursement for legal costs incurred. 

The figure owed to Galactic, it submitted, amounted to $24.5 million from the settlement sum, plus approximately $20 million worth of legal costs incurred and paid by the funder.

However — and significantly — it was determined that the commission payable to the litigation funder was to be set at $12 million, by a funding equalisation order (FEO).

In May 2022, the applicants sought a fund equalisation order from the court, requesting that each of the group members who apply for and receive payment out of the settlement sum is required to contribute to the funder’s portion.

The CFO would effectively oblige group members to pay their proportionate share of the litigation funder’s commission out of the proceeds they receive.

VIEW ALL

The court was asked if it had the power “to make a CFO of the kind sought under s 33V(2) of the Federal Court of Australia Act, or in its equitable jurisdiction under s 5(2)”.

O’Callaghan J concluded: “The reasoning of the majority points clearly enough to the conclusion that there is … no power to make a common fund order upon settlement under s 33V(2).”

His Honour cited a judgment made by Justice of the High Court, Michelle Gordon: “Courts do not have the power to make a [CFO]. A CFO is not an order that is appropriate or necessary to ensure that justice is done in a proceeding.”

Along with statements made by several other HCA justices, O’Callaghan J referred Chief Justice Susan Kiefel, Justice Virginia Bell and Patrick Keane: “Their Honours said that there is ‘no reason why the amount taken from unfunded group members’ awards should be directed to the litigation funder, much less that an order to that effect should be made at the outset of the proceeding’.

“The funder has no right to that money under contract or under equitable principles.”

In a LinkedIn post, Banco Chambers — whose members Jonathon Redwood SC and Ryan Jameson appeared as court-appointed contradictors — said that the judgment “contributes to the increasingly divergent lines of authority on this issue in Australia”. 

The commission of $12 million, as set by the FEO, represents a “material reduction” in the amount sought by the funder, the chambers added. 

Vicky Antzoulatos, joint head of class actions at Shine Lawyers, spoke to Lawyers Weekly and noted that the firm believes the decision is “incorrect, and likely to be overturned on appeal”.

“A majority of judges in the Federal and State Supreme Courts have found they have the power to make a common fund order at settlement approval stage of a class action,” she explained.

“The decision is unfortunate as it will lead to further uncertainty in this area that will only really be removed with the legislation of common fund orders that has been foreshadowed by the Australian Law Reform Commission and others,” stated Ms Antzoulatos.

Alicia Hill, accredited commercial litigation specialist and principal at MST Lawyers, commented: “This judgment adds to the divergent decisions that have been made about the power to make common fund orders in class actions, despite High Court consideration of this issue in BMW v Brewster, in the context of the making of these orders in the preliminary stages of proceedings.”

“It highlights the desirability of either legislative clarification of this issue, or a definitive High Court determination, to establish the availability, or otherwise, of such orders to continue to streamline the running of these actions in future and promote certainty.”

Andrew Watson, national head of class actions at Maurice Blackburn Lawyers, added: “[The] judgment emphasises the ongoing uncertainty around the Federal Court’s power to make CFOs and highlights the significant advantages for claimants of the Victorian GCO regime.”

“We look forward to the federal government providing a comprehensive response to the ALRC report on class actions and litigation funding, which includes certainty on CFOs and contingency fees for lawyers.”

Lawyers Weekly reached out to the parties involved in the proceedings but did not receive comments by the time of filing the story.