Group costs orders – The way of the future?

The Victorian Supreme Court’s decision in Fox v Westpac Banking Corporation; Crawford v Australia and New Zealand Banking Group Limited[1] was the first determination of an application seeking a group costs order in Australia.

Whilst the Plaintiffs’ applications were ultimately unsuccessful, the Court decided to adjourn the applications (rather than dismiss them altogether) in order to allow the Plaintiffs an opportunity to re-apply to the Court at a later date.

Background

Section 33ZDA of the Supreme Court Act 1986 (Vic) (the Act) introduced the group costs order regime in July 2020 in an effort to enhance access to justice. It is currently the only mechanism of its kind in Australia.

Section 33ZDA of the Act permits a plaintiff’s solicitors to be remunerated with a percentage of the total amount of any award or settlement if ordered by the Court. As a result, the plaintiff’s liability to pay their own legal costs is dependent on the recovery of an award or settlement. It is intended to be an alternative to litigation funding, particularly in the context of class actions.

The proceedings

Each of the proceedings were group proceedings (or class actions) pursuant to Part 4A of the Act concerning ‘flex commission’ arrangements in retail lending to consumers purchasing motor vehicles.

Alannah Fox and Bridget Nastasi brought claims against Westpac Banking Corporation and its subsidiary St George Finance Ltd (Fox proceeding), while Steele Crawford brought claims against Australia and New Zealand Banking Group Limited (ANZ) for loans taken with the Esanda car finance business, and against Macquarie Bank Limited and Macquarie Leasing Pty Ltd (Crawford proceeding) (referred to collectively as the Plaintiffs).

The Plaintiffs alleged that under the flex commission arrangements, car dealers were authorised by the relevant banks to set their own interest rates for loans that the banks provided to consumers and introduced to them by the dealers, by setting the rates charged to consumers higher than the base rate set by the banks. Where a higher interest rate was set, the dealer was paid a commission calculated as a proportion of the difference.

The Plaintiffs argued that these arrangements, which were not disclosed (or required to be disclosed) to customers, incentivised the dealers to set higher interest rates than they would otherwise have set. The dealers were alleged to have been acting on behalf of the lenders and engaging in conduct that was, among other things, unfair within the meaning of section 180A(1)(b) of the National Consumer Credit Protection Act 2009 (Cth).

The Plaintiffs in each case sought a group costs order pursuant to section 33ZDA of the Act to the effect that the legal costs payable to the solicitors for the Plaintiffs and group members (Maurice Blackburn) be calculated as a percentage of the amount of any award or settlement that may be recovered in the proceedings. The Plaintiffs in each case also sought that the percentage be 25% (subject to further orders) and that liability for payment of the legal costs be shared among the Plaintiffs and all group members.

Decision

The Court found that whether a group costs order is ‘appropriate’ or ‘necessary’ depends on a broad assessment of the relevant facts and the evidence. Critically, primacy is given to the interests of group members.

In this case, the Court held that the Plaintiffs had not satisfied the required statutory criteria to ensure that justice was done in the proceedings. In reaching this conclusion, the Court considered the funding arrangements which were already in place with the Plaintiffs’ lawyers (being essentially a ‘no win, no fee’ arrangement). The Court held that those arrangements could not be considered to be an ‘interim arrangement’, even if the Plaintiffs’ lawyers had intended it to be.

In order to be successful in seeking a group costs order, the Plaintiffs would have needed to satisfy the Court that a group costs order would be more advantageous than the funding arrangements already in place. Put another way, the Plaintiffs needed to prove that the group members would have been better off under a group costs order as opposed to the existing funding arrangements.

Ultimately, the Court was not satisfied that the evidence relied on by the Plaintiffs discharged the onus of proving the group members would be better off under a group costs order. However, rather than dismiss the applications altogether, the Court decided to adjourn the applications in order to allow the Plaintiffs an opportunity to re-apply to the Court at a later date.

Key takeaway

The key takeaway for class action plaintiffs (and their solicitors) is to closely consider the funding arrangements that are already in place and determine whether the plaintiffs would be better off under a group costs order.

Interested parties should also keep an eye out to see whether other Australian jurisdictions also implement group cost order legislation in the future.

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Authored by:

Scott Couper, Partner
Tegan Harris, Senior Associate
Isabelle Quinn, Associate

[1] [2021] VSC 573.