The recent High Court decision to toss a solicitor’s common fund orders will apply to every jurisdiction outside of Victoria, which lawyers have warned could place greater pressure on the one state and be harmful to applicants across the rest of Australia.
In a unanimous decision, the High Court of Australia’s full bench found it would be “illicit” to allow the Federal Court of Australia to make a solicitor’s common fund order (solicitor’s CFO) because of the cost conditions under NSW’s Legal Profession Uniform Law.
The decision concerned an appeal from a judgment of the full court of the Federal Court, which addressed a reserved question in the Blue Sky class action on whether solicitors – who bore the risks and costs of the proceedings, as a litigation funder would – could be paid no more than 30 per cent of the final judgment or settlement sum.
The judgment dealt with the question in two parts: whether the Federal Court had the power to make the solicitor’s CFO and whether the power extended to making such an order in circumstances where the law practice was the litigation funder.
High Court Chief Justice Stephen Gageler said the full court was correct to answer in the affirmative to the first part, because the power conferred on the Federal Court to “make such orders as are just with respect to the distribution of any money paid under settlement” was broad enough to include a settlement CFO.
However, Chief Justice Gageler said it was incorrect to answer in the affirmative for the second part of the question, having instead found it would not be “just” under the Federal Court Act because it would contravene section 183 of the Legal Profession Uniform Law (NSW) (LPUL).
That section provides that contingency fees are prohibited, with law practices barred from entering into a costs agreement that is calculated by reference “to the amount of any award or settlement or the value of any property that may be recovered”.
Below Chief Justice Gagelar’s reasons, Justices Michelle Gordon, Simon Steward, Jacqueline Gleeson and Robert Beech-Jones said the CFO order could be made in favour of a litigation funder.
“If the solicitor’s CFO were made, the court would be giving effect to an agreement that was entered into contrary to section 183 of the LPUL and would be enabling the solicitors to recover amounts which they are disentitled from recovering,” the High Court determined.
“It cannot be ‘just’ to make an order that gives effect to an agreement that was unlawfully entered into and to enable a solicitor to recover amounts to which they are not entitled. Put another way, the court cannot authorise what the LPUL forbids.”
The charging of a contingency fee is prohibited in all jurisdictions but the Supreme Court of Victoria, which is empowered to make a group costs order (GCO) under the Supreme Court Act 1986 (VIC).
A GCO provides that costs payable to the law practice representing the plaintiff and group members in a group proceeding be calculated as a specified percentage of the amount of any award or settlement recovered in the proceeding, and liability be shared among them.
As opposed to the solicitor’s CFO, which is applied in addition to the law practice’s usual recovery of costs and disbursements, a GCO made in Victoria is the “sole mechanism for the recovery of all legal costs”.
Melissa Gladstone, partner at Herbert Smith Freehills Kramer (HSF Kramer), said this “entrenches a jurisdictional imbalance”.
“Group members are located all over Australia – sometimes in other countries – and almost every state has a mirrored regime. It’s unfortunate that jurisdictions are not chosen with a focus on longstanding criteria like the location of the parties or the substance of the alleged wrong,” Gladstone said of the High Court decision.
“While contingency fees do not have a sound policy foundation to start with, having jurisdictions chosen on the basis of where a contingency fee is available is arbitrary.”
Gladstone added that the judgment could encourage the trend of class actions being filed in Victoria, despite the solicitor CFO applicants warning the Federal Court that this could lead to “forum shopping” and the possibility that lead applicants will need to find litigation funding.
The High Court judgment also raised the “interesting and challenging question” of whether a Victorian lawyer could still argue the GCO is available to them by applying the analysis of what is “just” against the backdrop of Victoria’s “permissive regime”, Gladstone said.
Mirroring these concerns, Mullins partner Ashley Hill said it would be interesting to see whether the High Court decision “has any bearing on the popularity of Victoria” as a class action jurisdiction.
The hope of any jurisdictional equality lies in whether legislatures in each state and territory respond to the judgment, he added.
“It is inevitable that legislative changes must follow if lawmakers want to see uniformity across all states and territories for class action litigation,” Hill said.
“The decision may prompt calls for national reform to create greater consistency in class action funding regimes. Until then, Victoria maintains its distinct advantage for potential plaintiff law firms.”
The case: 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.
Naomi Neilson is a senior journalist with a focus on court reporting for Lawyers Weekly.
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