KIEFEL CJ, BELL AND KEANE JJ. The principal issue in these appeals is whether, in representative proceedings, s 33ZF of the Federal Court of Australia Act 1976 (Cth) ("the FCA") and s 183 of the Civil Procedure Act 2005 (NSW) ("the CPA") empower the Federal Court of Australia and the Supreme Court of New South Wales respectively to make what is known as a "common fund order" ("CFO"). Such an order is characteristically made at an early stage in representative proceedings and provides for the quantum of a litigation funder's remuneration to be fixed as a proportion of any moneys ultimately recovered in the proceedings, for all group members to bear a proportionate share of that liability, and for that liability to be discharged as a first priority from any moneys so recovered.
This issue was resolved in the affirmative against the appellants in these appeals by the courts below, in Matter No S154 of 2019 ("the Westpac appeal") by the Full Court of the Federal Court of Australia, and in Matter No S152 of 2019 by the Court of Appeal of the Supreme Court of New South Wales ("the BMW appeal"). Because the principal issue was resolved in favour of the respondents, two further issues arose for determination by the courts below: the first being whether the sections infringe Ch III of the Constitution and the principle in Kable v Director of Public Prosecutions (NSW) respectively, and the second being whether the sections are contrary to s 51(xxxi) of the Constitution.
Properly construed, neither s 33ZF of the FCA nor s 183 of the CPA empowers a court to make a CFO. Section 33ZF of the FCA and s 183 of the CPA each provide relevantly that in a representative proceeding, the court may make any order the court thinks appropriate or necessary to ensure that justice is done in the proceeding. While the power conferred by these sections is wide, it does not extend to the making of a CFO. These sections empower the making of orders as to how an action should proceed in order to do justice. They are not concerned with the radically different question as to whether an action can proceed at all. It is not appropriate or necessary to ensure that justice is done in a representative proceeding for a court to promote the prosecution of the proceeding in order to enable it to be heard and determined by that court. The making of an order at the outset of a representative proceeding, in order to assure a potential funder of the litigation of a sufficient level of return upon its investment to secure its support for the proceeding, is beyond the purpose of the legislation.
It follows that each appeal must be allowed. As a result, the further issues determined by the courts below and agitated again by the parties in this Court do not arise for determination.
There is considerable commonality of issues and arguments in the appeals; the relevant provisions of the FCA and the CPA are in all but identical terms. It is therefore convenient to deal comprehensively with the issues and arguments in the two appeals together, after first summarising separately the circumstances giving rise to each appeal and the reasons for decision of each of the courts below.
The Westpac appeal
Background
In October 2017, the first to fourth respondents commenced, on behalf of themselves and numerous group members, representative proceedings under Pt IVA of the FCA against Westpac Banking Corporation and Westpac Life Insurance Services Ltd (together, "Westpac"). In the proceedings, the first to fourth respondents allege that they relied on advice from Westpac's financial advisers to purchase insurance policies from Westpac Life. They contend that the financial advisers breached their statutory and fiduciary obligations to them (and group members) by failing to advise them of equivalent or more advantageous insurance policies offered by third‑party insurers. It appears that there may be in excess of 80,000 group members, each with a claim for damages in the range of $2,000 to $15,000.
The first to fourth respondents signed a funding agreement with the fifth respondent, JustKapital Litigation Pty Ltd ("JKL"), a litigation funder. Only a small number of group members had entered into a funding agreement with the fifth respondent before the first to fourth respondents applied to the Federal Court of Australia for a CFO. Notice of the application was given to group members. No reasoned objection to the making of a CFO was received from group members. The appellants objected to the making of a CFO.
The evidence was that only one litigation funder other than JKL had been approached by the first to fourth respondents, but discussions with that funder did not progress to negotiating terms on which funding might be provided for the litigation. No other funder had shown interest in funding the proceedings. Approximately $1.2 million had already been spent by JKL on legal costs, and the likely total legal costs disclosed in the retainer with JKL were between $6.5 and $9 million.
Section 33ZF(1) of the FCA (s 183 of the CPA being in all but identical terms) provides:
"In any proceeding (including an appeal) conducted under this Part, the Court may, of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding."
Subject to an undertaking by JKL to be bound to the funding terms, the primary judge (Lee J) made a CFO pursuant to ss 23 and 33ZF of the FCA.
The CFO stipulated, among other things, and subject to further order, that any judgment or settlement sum ("resolution sum") will be pooled, and that group members will be required to pay from that pool the lesser of:
(a) three times the total expenditure on legal costs, disbursements, adverse costs orders and fees of the costs referee paid by JKL; or
(b) 25 per cent of the net resolution sum;
and an additional amount for each appeal.
The payments to JKL were prioritised as the first payments to be made from any resolution sum.
The CFO departed from the order sought by the first to fourth respondents only insofar as his Honour ordered that JKL's commission be calculated by reference to the net rather than gross resolution sum. This was said to incentivise JKL to contain legal costs and to reflect the extent of the risk assumed by the funder.
Although the CFO set a commission rate for JKL, it was subject to the distribution "not exceeding any such amounts as the Court determines to be fair and reasonable in all the circumstances".
The previous undertaking given by JKL removed the right it enjoyed under its funding agreement to withdraw from the funding arrangement upon giving 14 days' notice to group members. JKL thus assumed, subject to further order, an obligation to fund the proceedings to their conclusion.
The appellants sought leave to appeal from the orders of Lee J to the Full Court of the Federal Court.
The Full Court
The Full Court (Allsop CJ, Middleton and Robertson JJ) granted leave to appeal but dismissed the appeal.
In the Full Court, Westpac argued that s 33ZF could not be construed as empowering the court to issue a CFO. The Full Court rejected this argument, holding that the primary judge was correct to conclude that the question of the power of the court to make a CFO had been resolved in the affirmative by the Full Court of the Federal Court in Money Max Int Pty Ltd v QBE Insurance Group Ltd.
The Full Court reasoned that s 33ZF contains the "widest possible power", and, paraphrasing the language of s 33ZF, held that this power extends to "all procedures appropriate or necessary to deal with the matter on a just basis". It may be said immediately that this paraphrase is inaccurate in a significant respect. It elides the words of limitation "appropriate or necessary to ensure that justice is done in the proceeding".
The Full Court cited the principle of construction that wide statutory powers given to courts should not be read down absent clear indication in the statute's terms or context. The Full Court rejected Westpac's argument that ensuring justice in the proceeding did not extend to encouraging a litigation funder to support the proceedings. The Full Court held that Westpac's submission as to the scope of s 33ZF was:
"too narrow in restricting the order to the 'metes and bounds' of the proceedings, which we took to mean the pleaded issues for resolution. It is not an order restricted to a particular issue requiring resolution. It is 'justice' that is to be ensured in the proceeding. That is procedural or substantive justice; and the Court is to be satisfied that there is something in the proceeding that should be addressed in order to ensure that justice in the proceeding is done. There is no reason to limit that to the pleaded issues. There is every reason to view as wide enough [sic] to deal, in a fair way, with circumstances that will remove a risk to the prosecution and vindication of the group's rights.
... An early order ... can place the group action on a known and stable foundation, and reduce or eliminate the risk of the action not proceeding."
Once again, the Full Court, by eliding the words of limitation, gave an expanded scope to the section so as to bring within it a concern as to whether a sufficient incentive was presented to a third‑party funder to ensure that the proceedings would be pursued. In addition, Westpac's submission was understood by the Full Court to propose a limit upon the scope of the section by narrowing the phrase "justice is done in the proceeding" to the resolution of the pleaded issues. That was, with respect, to set up a straw man and then proceed to demolish it. As will be explained, the section can apply, on the natural and ordinary meaning of its words, to support any interlocutory procedural order necessary to ensure that the pleaded issues are resolved justly between the parties.
The Full Court addressed an argument advanced by Westpac to the effect that s 33ZF should be construed in conformity with the principle of legality so as not to allow interference with the proprietary rights of group members in the causes of action vested in them. It was held that a CFO conforms with, rather than undermines, the principle of legality. The Full Court concluded that a CFO "not so much takes away from, as supports and fructifies, rights of persons that would otherwise be uneconomic to vindicate".
Westpac's further argument that the court's general power under s 33ZF is constrained by other provisions of Pt IVA of the FCA was also rejected. It was held that, while other provisions of the Act also empower the court to deal with distribution of moneys (or proceeds), in particular ss 33V and 33Z, it does not follow that a CFO can only be made at the conclusion of a case when s 33V or s 33Z is engaged. The Full Court held that there is nothing in those provisions evincing a statutory intention to deprive courts of the power to deal with distribution of proceeds at an earlier point of time, provisionally, in order that the ends of justice be met.
The BMW appeal
Background
Mr Brewster, the first respondent, commenced representative proceedings in the Supreme Court of New South Wales against BMW Australia Ltd ("BMW") relating to the national recall of BMW vehicles fitted with defective airbags manufactured by Takata Corporation (or a related company). There are five other representative proceedings pending in the Supreme Court of New South Wales relating to vehicles recalled due to defects in their Takata‑supplied airbags (Honda, Mazda, Nissan, Subaru and Toyota).
As Mr Brewster alleges that BMW contravened the Trade Practices Act 1974 (Cth) and the Australian Consumer Law, the BMW appeal proceeds on the basis that the Supreme Court of New South Wales was exercising its federal jurisdiction.
In the BMW matter, the class may comprise over 200,000 members, each with what appears to be a distinctly modest claim for damages. The proceedings are funded by the second respondent, Regency Funding Pty Ltd ("Regency Funding"), a litigation funder. Only a small number of group members have entered into a litigation funding agreement with Regency Funding.
In August 2018, Mr Brewster applied for a CFO. Regency Funding, the solicitor firm for Mr Brewster, and Mr Brewster each offered to undertake to each other and to the Supreme Court to comply with their obligations under funding terms annexed to the proposed order. Regency Funding agreed to bind itself to maintain the litigation. Upon that undertaking the Supreme Court was asked to order that, subject to further order of that Court pursuant to s 183 of the CPA or its inherent jurisdiction, Mr Brewster and the group members be bound to pay from any resolution sum:
(a) the legal costs, disbursements and administration expenses expended by Regency Funding;
(b) remuneration to Regency Funding in the amount of 25 per cent of so much of the resolution sum as remains after payment of the abovementioned expenses (or such other sum as the Supreme Court considers reasonable at the time of the approval of a settlement or judgment); and
(c) any GST upon these amounts;
prior to the distribution of the resolution sum to the group members.
Mr Scattini, the solicitor for Mr Brewster, filed an affidavit in support of the application in which he gave evidence of his experience that litigation funders:
"often considered it was uncommercial to fund class action proceedings on an open class basis where large numbers of people had individually suffered relatively modest loss and damage ... due to the prohibitive transaction costs of funding such proceedings, the low expected return to each individual group member, and therefore the corresponding risk that the funder will obtain a very limited return. This meant it was effectively impossible to obtain funding for large consumer class action proceedings, such as the Takata Proceedings."
Evidently, the CFO was sought in those proceedings to assuage such a concern on the part of the litigation funder.
On the application of BMW, Sackar J removed into the Court of Appeal the separate question "[d]oes the Court have the power to make Order 1 sought in the Notice of Motion filed by the Plaintiff on 14 August 2018 (Common Fund Motion)?". The Court of Appeal heard the separate question in the BMW matter while sitting concurrently with the Full Court of the Federal Court hearing the Westpac matter.
The proceedings below
The Court of Appeal of New South Wales (Meagher, Ward and Leeming JJA) answered the question posed for separate determination in the affirmative, holding that the court has the power to make the CFO sought.
The Court of Appeal concluded that "there is no occasion to doubt the conclusion or reasoning in Money Max in any respect relevant to the existence of power". The Court noted that s 183 is worded "in the utmost generality" and ought not be narrowly construed.
The Court of Appeal rejected BMW's invocation of the principle of legality, observing that s 183 is located in a legislative regime which envisages an adjustment to the rights of persons with a cause of action because they may be made group members without their consent. Once it is accepted that the property rights of group members have already been interfered with in Pt 10 of the CPA, it would be incongruous to apply the principle of legality to narrow the protections put in place by Parliament to regulate the regime.
The Court of Appeal also rejected BMW's attempt to invoke the principle in Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia. BMW had argued that the CPA confers only "one power" to deal with the distribution of any resolution sum (contained in ss 173, 177 and 178) so that s 183 must be confined by the restrictions in those provisions. The Court of Appeal observed that ss 173, 177 and 178 relate to proceedings being determined consensually or at the time of judgment. In contrast, there is no temporal limitation in s 183 and nothing to suggest that it does not extend to interlocutory orders made prior to settlement or judgment. Further, even if ss 177 and 178 confer only a "single power" to distribute amounts paid by way of damages, a CFO made on an interlocutory basis does not qualify or preclude the exercise of that power at the conclusion of the proceedings.
The Court of Appeal held that the submission advanced by the first respondent to the effect that the power to make a CFO represented the culmination of the "original intent" underlying Pts IVA and 10 "goes too far". The Court held that, in any event, there was a general presumption that the legislation is "always speaking" in that the application of the provision could vary over time.
The submissions of the parties
In this Court, the appellants submitted that a CFO is an order of an extraordinary nature in that an application for a CFO requires the court to act, in effect, as a remuneration tribunal for litigation funders. It was submitted that an order made to maintain the viability of litigation is not one that ensures that justice is done "in the proceeding" because it does not advance the determination of the parties' legal rights and obligations. It was said that the principle of construction identified in Owners of "Shin Kobe Maru" v Empire Shipping Co Inc cannot be deployed to construe ss 33ZF and 183 more liberally than their text and context permit.
The appellants argued that it is significant that on an application for a CFO, the court is required to fix a rate of return for the litigation funder without the benefit of practical criteria for doing so - the absence of such criteria being a contextual indication that neither s 33ZF nor s 183 was intended to authorise the involvement of the court at the outset of proceedings to promote the prosecution of the proceedings.
The appellants sought to invoke the principle in Anthony Hordern and submitted that Pt IVA of the FCA and Pt 10 of the CPA contain provisions that regulate in detail the court's powers in respect of the distribution of proceeds in representative proceedings, and that the limitations in these provisions cannot be circumvented by invoking the general power in s 33ZF or s 183.
BMW submitted that a CFO made at an early stage in the proceedings has an inherently infirm factual foundation because it cannot be known whether the pleadings will change, whether the matter will settle or go to trial, and, if the latter, how long the trial will take. Accordingly, it is not possible for a court to determine at an early stage what is "appropriate or necessary to ensure that justice is done in the proceeding".
The respondents emphasised that ss 33ZF and 183 are framed in the broadest terms. The principle in Shin Kobe Maru means that ss 33ZF and 183 should not be read down in the absence of clear indication in the terms or context of these provisions. It was submitted that the Full Court in the Westpac matter was correct to conclude that Parliament intended that courts would over time develop new procedures in response to the circumstances in which Pt IVA of the FCA or Pt 10 of the CPA was to work; and that task would be unduly inhibited by a narrow construction of s 33ZF or s 183.
The respondents submitted that the phrase "to ensure that justice is done in the proceeding" in each section is not limited to deciding the issues in dispute between the parties. A CFO was said to do "justice" in two ways. First, it helps remove a risk to the prosecution and vindication of group members' rights by placing the proceeding on a more stable foundation. Secondly, it promotes justice by ensuring that the benefits and burdens of the litigation are shared equally between group members. It was said in support of this contention that the law of restitution already recognises the right of some persons who intervene to assist others, without legal compulsion, to recover moneys outlaid and, in some cases, to earn reasonable remuneration, as in the context of salvage. As to this contention, it may be said immediately that to point to the recognised entitlement to recompense for services actually rendered for the benefit of another does not advance the case for the making of orders in advance of the rendering of any service where the value of the service can only be a matter of surmise.
The respondents argued that the Anthony Hordern principle is inapplicable. While Pt IVA of the FCA and Pt 10 of the CPA contain specific provisions that expressly empower the court to make orders regarding the distribution of any resolution sum, those provisions do not limit s 33ZF or s 183. It was argued that:
(a) The provisions of the FCA and the CPA relating to distribution of a resolution sum deal with orders made after a determination of liability. They say nothing about orders made on an interlocutory basis.
(b) The making of a CFO does not undermine those provisions because any payment to the litigation funder remains subject to the approval of the court at the time of judgment or settlement.
(c) In any event, the provisions of the FCA and the CPA relating to the distribution of any resolution sum are not an exhaustive statement of the court's powers in relation to that subject matter.
The construction of ss 33ZF and 183
The determination of the true construction of s 33ZF of the FCA and s 183 of the CPA requires consideration of the text of these provisions in their context and having regard to the mischief that Pt IVA of the FCA and Pt 10 of the CPA were intended to remedy. The scope of each of ss 33ZF and 183 is "not confined by matters not required by [their] terms or context; however, the terms must be construed and the context considered". And context must be regarded in its widest sense to include the state of the law prior to the enactment of these sections.
There can be little doubt that when Pt IVA of the FCA was enacted, the Parliament could not have been understood to contemplate that s 33ZF might be invoked to support a CFO. That must be so because, at that time, an agreement to maintain legal proceedings by another in return for a piece of the action was unlawful under the laws against champerty in States other than Victoria. But the question here is not about the intention with which these sections were originally enacted; rather, the question is whether, given the breadth and generality of their language, and the absence now of any objection on the ground of champerty, the making of a CFO falls, on a fair construction, within their terms.
In Johnstone v HIH Ltd, Tamberlin J rightly said that the power conferred on the court by s 33ZF is not limited to the actual determination of the matter in question in the proceeding, "but extends to encompass all procedures necessary to bring the matter to a fair hearing on a just basis". Section 33ZF has been invoked to support a wide range of procedural orders such as reinstating group members after they exercised the right to opt out under s 33J, requiring discovery from group members, regulating multiple class actions, and making a "funding equalisation order" ("FEO") to redistribute settlement funds from unfunded group members to all group members.
The power conferred by s 33ZF is broad, but it is essentially supplementary. And the words of limitation should not be ignored. In McMullin v ICI Australia Operations Pty Ltd, Wilcox J said:
"In enacting Pt IVA of the [FCA], Parliament was introducing into Australian law an entirely novel procedure. It was impossible to foresee all the issues that might arise in the operation of the Part. In order to avoid the necessity for frequent resort to Parliament for amendments to the legislation, it was obviously desirable to empower the Court to make the orders necessary to resolve unforeseen difficulties; the only limitation being that the Court must think the order appropriate or necessary to ensure 'that justice is done in the proceeding'.
... The criterion 'justice is done', involves consideration of the position of all parties. An order preventing unfairness to a particular party may be necessary to ensure justice is done in the proceeding."
While it has rightly been acknowledged that the power conferred by each of s 33ZF and s 183 is broad, it is one thing for a court to make an order to ensure that the proceeding is brought fairly and effectively to a just outcome; it is another thing for a court to make an order in favour of a third party with a view to encouraging it to support the pursuit of the proceeding, especially where the merits of the claims in the proceeding are to be decided by that court. Whether an action can proceed at all is a radically different question from how it should proceed in order to achieve a just result.
In the resolution of this issue, textual and contextual considerations must be addressed together with considerations of purpose. These considerations all point to the conclusion that ss 33ZF and 183 do not empower the making of a CFO. That conclusion can be reached without reliance upon any implication to narrow the scope of their operation, whether by reference to the principle of legality or otherwise. Nor is it dependent upon acceptance of the appellants' attempt to invoke the approach to construction for which Anthony Hordern stands as authority. Nor is it necessary to accept that the task of ensuring "that justice is done in the proceeding" is confined to the resolution of the substantive issues in dispute between the parties.
Textual considerations
The orders contemplated by s 33ZF and s 183 are orders which may be thought to make certain that justice is done in the proceeding. An order the purpose of which is to ensure that the proceeding is able to go forward is not such an order. As was said by Wigney J in Blairgowrie Trading Ltd v Allco Finance Group Ltd:
"the only real rationale for making the order at this stage is to ensure the commercial viability of the proceeding from the perspective of the litigation funder. That has nothing to do with ensuring that justice is done in the proceeding."
The focus of the power conferred on the court by the text is upon ensuring, that is, making certain by the order, that justice is done in the proceeding as between the parties to it. As a matter of the ordinary and natural meaning of these words, they authorise an order apt to advance the effective determination by the court of the issues between the parties to the proceeding. Whether or not a potential funder of the claimants may be given sufficient financial inducement to support the proceeding is outside the concern to which the text is addressed.
The text of each of s 33ZF and s 183 assumes that an issue has arisen in a pending proceeding between the parties to it, and that the proceeding will be advanced towards a just and effective resolution by the order sought from the court. The construction of ss 33ZF and 183 for which the respondents contend departs from this assumption. The making of a CFO does not assist in determining any issue in dispute between the parties to the proceeding; it does not assist in preserving the subject matter of the dispute, or in ensuring the efficacy of any judgment which might ultimately be made as between the parties; it does not assist in the management of the proceeding in order to bring it to a resolution. Nor does it assist in doing justice between group members in relation to the costs of litigation.
Court approval of arrangements with a non‑party in order to enable a proceeding to be pursued at all could only be said to be appropriate or necessary to ensure that justice is done between the parties to the proceeding if one were to assume that maintaining litigation, whatever its ultimate merit or lack thereof, is itself doing justice to the parties. That would be to make an assumption about process for its own sake rather than the outcome of the process. Such an assumption cannot be attributed to the legislature having regard to the text of ss 33ZF and 183.
The making of a CFO is not apt to ensure that justice is done in the proceeding by regulating how the matter is to proceed; to the contrary, an application for a CFO is centrally concerned to determine whether the proceeding is viable at all as a vehicle for the doing of justice between the parties to the proceeding. That is a question outside the concerns of ss 33ZF and 183. As Wigney J explained in Blairgowrie in a passage that warrants citation at length:
"The requirement in s 33ZF that the order be 'appropriate or necessary' would ordinarily require, as a first step, the identification of a particular issue or problem in the proceeding that needs to be addressed. There would ordinarily have to be some specific reason or justification for making an order under s 33ZF. An order is unlikely to be either appropriate or necessary unless it is directed at resolving some issue or problem that has arisen or would, but for the order, arise.
The particular issue or reason for making the order under s 33ZF must also be one that has arisen in, or relates to, 'the proceeding'. The section is not concerned with theoretical issues, or difficulties that may exist beyond the metes and bounds of the particular proceeding. It is not directed, for example, at resolving theoretical or practical problems concerning litigation funding that might occur in representative proceedings generally. Nor is it concerned with issues or problems concerning the rights or interests of third parties, such as litigation funders. Justice 'in the proceeding' would not ordinarily involve any consideration of the commercial interests of a litigation funder unless they gave rise to some issue or problem that has, or is likely to have, some direct impact on the proceeding.
The criterion 'justice is done' also suggests that the particular issue or problem must somehow relate to the just hearing and determination of the claims, or the enforcement of the rights or subject matter in issue in the proceeding. That may involve a question of procedure, or it might involve a question involving the substantive rights and interests of the parties. A requirement that justice is done also suggests that the proposed order must be fair and equitable. That will ordinarily involve a consideration of the position of all parties".
It can be seen that the reasons of Wigney J did not seek to confine the scope of s 33ZF to the final determination of the ultimate issues between the parties. Of course, interlocutory orders apt to move the proceeding towards a just conclusion between the parties are within the scope of the sections. But to emphasise, as the respondents do, the interlocutory nature of the CFOs of present concern by pointing to their provisional effect is to highlight that the CFO is directed to whether the litigation funder is given sufficient financial incentive to enable the proceeding to proceed at all. An order directed to that concern is not brought within the scope of s 33ZF by the expedient of structuring it as a provisional or interlocutory order.
As to the practical effect of a CFO, BMW and the first to fourth respondents in the Westpac appeal argued that a CFO must be taken as a whole, or as a "package deal". That package includes provisions for meeting and sharing the costs of the representative proceeding. But it remains true to say that a central feature of the package is that the litigation funder assumes the financial risk of the failure of the claims by the representative parties in return for a commission fixed (provisionally at least) at a certain level to be paid by each group member out of the proceeds of the litigation. This last issue may be dealt with by the making of a FEO and will be discussed below.
Money Max
As Wigney J accepted in Blairgowrie, the broad power conferred by s 33ZF is not to be read down by making implications or imposing limitations which are not found in the express words of the provision.
In Money Max, the Full Court of the Federal Court treated the decision of Wigney J in Blairgowrie as distinguishable on the facts of the case. In addition, the Full Court in Money Max addressed the concern by Wigney J as to the "difficulty of setting a funding commission rate at a stage when the reasonableness of that rate could not be known" and suggested that that difficulty might be met by providing in the CFO that the funding commission rate will be as approved by the court, with approval to occur at a time when the "[c]ourt is armed with better information, including information as to the quantum or likely quantum of settlement".
The Full Court in Money Max did not come to grips with the observations made by Wigney J as to the textual limitations upon the power conferred by s 33ZF. Neither the reasons in Money Max, nor the arguments of the respondents in this Court, provide a satisfactory answer to them.
The difficulty attending the making of a CFO at the outset of the proceeding goes beyond the practical difficulty identified in Money Max. Contrary to the view of the Full Court in that case, the problems that attend the fixing of the rate of the funder's remuneration at the beginning of the proceeding are not concerned solely with the factual and prudential aspects of the exercise of the discretion conferred by s 33ZF; they also involve the conceptual difficulty of an absence of criteria to guide the exercise of discretion by the court. In addition, there is the incongruity of reading such a power into s 33ZF or s 183 when other provisions of Pt IVA and Pt 10 make specific provision apt to accommodate that task but which operate at the conclusion of the proceeding. This incongruity is discussed in the course of considering the context in which these provisions appear.
Contextual considerations
In Wong v Silkfield Pty Ltd, Gleeson CJ, McHugh, Gummow, Kirby and Callinan JJ compared the provisions of Pt IVA of the FCA to the pre‑existing procedures pursuant to which representative proceedings could be brought, and their Honours observed that Pt IVA "provides its own more detailed regime". The statutory context, in which each of ss 33ZF and 183 appears, shows that each section is a supplementary source of power. It is not to be supposed that each section does much the same work as other provisions of Pt IVA of the FCA and Pt 10 of the CPA, or that each was intended to meet the exigencies of litigation not adverted to at all by those other provisions.
Two aspects of the regimes in which ss 33ZF and 183 appear deserve particular attention: first, the extent to which the legislation contemplates the involvement of the court in deciding whether an action should proceed; and secondly, the extent to which the legislation provides for meeting and sharing the cost of representative proceedings between group members.
Should a proceeding proceed?
As to the first of these considerations, it is to be noted that Pt IVA and Pt 10 make specific provision for the role of the court in determining whether representative proceedings should or should not proceed and for the circumstances in which that intervention by the court may occur.
Part IVA of the FCA and Pt 10 of the CPA recognise that group proceedings may not "stack up" on a cost/benefit analysis. In that regard, s 33M(b) of the FCA (which is to the same effect as s 165(b) of the CPA) states that the court may stay a proceeding or direct that it no longer continue under Pt IVA where, on an application by the respondent:
"the [c]ourt concludes that it is likely that, if judgment were to be given in favour of the representative party, the cost to the respondent of identifying the group members and distributing to them the amounts ordered to be paid to them would be excessive having regard to the likely total of those amounts".
In addition, s 33N of the FCA states that the court may, on application by the respondent or of its own motion, order that the proceedings no longer continue under Pt IVA if it is satisfied that it is in the interests of justice to do so because, among other things, "the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members", or "it is otherwise inappropriate that the claims be pursued by means of a representative proceeding".
These provisions are legislative recognition that, at some point, the cost of identifying group members may simply be too high or too difficult compared to the value of the claims. If that is the case, the solution contemplated by the legislation is to halt the representative proceeding, not to make a CFO because the process of book building is proving too expensive or too difficult.
Meeting and sharing costs
An application for a CFO invites the court to order the establishment of a complex relationship between group members and a litigation funder with whom the group members would otherwise have no relationship at all. There is no indication in either the FCA or the CPA of any criteria for determining whether such a relationship should be established, and if so, the terms on which that might occur. Importantly, neither the FCA nor the CPA provides any criteria for the fixing, even provisionally, of a rate of remuneration for the litigation funder that is "appropriate or necessary".
The court, in attempting to fix, even provisionally, a rate of remuneration at the outset of the proceeding must necessarily engage in a speculative exercise. In Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd, Gummow, Hayne and Crennan JJ observed that "to ask whether the bargain struck between a funder and intended litigant is 'fair' assumes that there is some ascertainable objective standard against which fairness is to be measured", and that this assumption was not well founded. In addition, the circumstance that the CFOs sought in the present cases were provisional is itself an indication both of the speculative nature of the exercise in which the courts are invited to engage, and that the concern driving the application for the order is the concern of the litigation funder to be sufficiently incentivised to assume the financial risks involved in supporting the litigation.
The provisions of Pt IVA of the FCA and Pt 10 of the CPA expressly provide for the making of orders distributing any proceeds of a representative proceeding. As will be seen, the occasion for the making of such an order is the conclusion of the proceeding. At that stage, if the group members happen to be indebted to a litigation funder for its support of their claims, the value of the litigation funder's support to the group members will be capable of assessment and due recognition. That stage is the appropriate occasion for orders for meeting and sharing the cost burden of the litigation because the value of the litigation and the extent of the burden will have been rendered certain. In contrast, an application for a CFO at an early stage of a proceeding necessarily involves speculation on the part of the parties and the court in respect of these matters; and attention to matters of concern to the litigation funder which may not be shared by, and may well be contrary to the interests of, group members.
It is reasonably to be expected that legislation intended to enlist the court in a task of this kind would make specific provision in that regard. That it has not done so is itself some contextual indication that the power to make such an order is not to be discerned in "gap‑filling" provisions such as s 33ZF or s 183. It has been accepted, in that regard, that s 33ZF cannot be understood as "a vehicle for rewriting" Pt IVA of the FCA.
It was submitted on behalf of the first respondent in the BMW appeal that the topics addressed in ss 168, 169, 170 and 177 of the CPA (which are to the same effect as ss 33Q, 33R, 33S and 33Z of the FCA respectively) also fall within the scope of s 183. According to this submission, Pt 10 of the CPA is "redundant where it is convenient". That submission is not helpful in seeking to come to grips with the meaning to be given to the words of limitation "appropriate or necessary to ensure that justice is done in the proceeding". Further, it exalts the role of s 183 (and s 33ZF) above that of a supplementary or gap‑filling provision, to say that it may be relied upon as a source of power to do work beyond that done by the specific provisions which the text and structure of the legislation show it was intended to supplement. The work which the respondents require s 183 (and s 33ZF) to do is beyond the scope of the other provisions of the scheme. As will be seen, those other provisions are engaged upon a different occasion and address materially different circumstances from those that are involved in the making of a CFO. Section 183 (and s 33ZF) cannot be given a more expansive construction and a wider scope of operation than the other provisions of the scheme. To accept this submission would be to use s 183 (and s 33ZF) as a vehicle for rewriting the scheme of the legislation.
As will be seen, the provisions of Pt IVA of the FCA and Pt 10 of the CPA do not involve the court in any predictive exercise, or in a concern as to whether a litigation funder may be sufficiently satisfied with the prospective return on its investment to assume the financial risk of pursuing the litigation. Much less do those provisions or the extrinsic materials reveal a concern that a desire on the part of a litigation funder to avoid the effort and expense of book building is a matter of concern for the court.
The provisions of Pt IVA of the FCA and Pt 10 of the CPA envisage the identification of all group members so far as that is possible. That identification facilitates the distribution of any proceeds of the proceedings, whether derived from a settlement or a favourable judgment. Section 33J of the FCA (which is to the same effect as s 162 of the CPA) is in the following terms:
"Right of group member to opt out
(1) The Court must fix a date before which a group member may opt out of a representative proceeding.
(2) A group member may opt out of the representative proceeding by written notice given under the Rules of Court before the date so fixed.
(3) The Court, on the application of a group member, the representative party or the respondent in the proceeding, may fix another date so as to extend the period during which a group member may opt out of the representative proceeding.
(4) Except with the leave of the Court, the hearing of a representative proceeding must not commence earlier than the date before which a group member may opt out of the proceeding."
Under s 33J of the FCA, the court must fix a date before which a group member may opt out of a representative proceeding. Because that date will usually fall before the outcome of the action is known, the problem of "free riding" by group members who would seek to opt in to the proceeding only after a favourable outcome is achieved is addressed. As this Court has noted, the opt out model adopted by Pt IVA of the FCA and Pt 10 of the CPA is designed so that a representative proceeding may continue even if group members are unaware of it; and group members "are under no obligation to identify themselves". That said, both legislative schemes do allow identification of all group members (as far as is possible) in order to distribute any proceeds. That this is so is apparent from ss 33V, 33X(3)‑(4), 33Z and 33ZA of the FCA. Reference to the terms of these provisions confirms that the legislative scheme contemplates that the occasion for the making of orders in relation to distribution of the proceeds of the action is its successful completion.
Section 33V (which is in like terms to s 173 of the CPA) provides:
"Settlement and discontinuance - representative proceeding
(1) A representative proceeding may not be settled or discontinued without the approval of the Court.
(2) If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court."
Sections 33V of the FCA and 173 of the CPA expressly contemplate the making of an order at the conclusion of the proceedings.
Section 33X(1) (s 175(1) of the CPA is in materially the same terms) provides that notice must be given to group members of the commencement of proceedings and of their right to opt out before the date fixed under s 33J(1) (s 162(1) of the CPA). Section 33X(3) and (4) (s 175(3) and (4) of the CPA are in materially the same terms) provide:
"(3) If the Court so orders, notice must be given to group members of the bringing into Court of money in answer to a cause of action on which a claim in the representative proceeding is founded.
(4) Unless the Court is satisfied that it is just to do so, an application for approval of a settlement under section 33V must not be determined unless notice has been given to group members."
The same point may be made in relation to s 33Z of the FCA (which is to the same effect as s 177 of the CPA, save that s 33Z(1)(g) has no equivalent in s 177(1)). Section 33Z provides:
"Judgment - powers of the Court
(1) The Court may, in determining a matter in a representative proceeding, do any one or more of the following:
(a) determine an issue of law;
(b) determine an issue of fact;
(c) make a declaration of liability;
(d) grant any equitable relief;
(e) make an award of damages for group members, sub-group members or individual group members, being damages consisting of specified amounts or amounts worked out in such manner as the Court specifies;
(f) award damages in an aggregate amount without specifying amounts awarded in respect of individual group members;
(g) make such other order as the Court thinks just.
(2) In making an order for an award of damages, the Court must make provision for the payment or distribution of the money to the group members entitled.
(3) Subject to section 33V, the Court is not to make an award of damages under paragraph (1)(f) unless a reasonably accurate assessment can be made of the total amount to which group members will be entitled under the judgment.
(4) Where the Court has made an order for the award of damages, the Court may give such directions (if any) as it thinks just in relation to:
(a) the manner in which a group member is to establish his or her entitlement to share in the damages; and
(b) the manner in which any dispute regarding the entitlement of a group member to share in the damages is to be determined."
Similarly, s 33ZA of the FCA (which is in materially identical terms to s 178 of the CPA) provides:
"Constitution etc of fund
(1) Without limiting the operation of subsection 33Z(2), in making provision for the distribution of money to group members, the Court may provide for:
(a) the constitution and administration of a fund consisting of the money to be distributed; and
(b) either:
(i) the payment by the respondent of a fixed sum of money into the fund; or
(ii) the payment by the respondent into the fund of such instalments, on such terms, as the Court directs to meet the claims of group members; and
(c) entitlements to interest earned on the money in the fund.
(2) The costs of administering a fund are to be borne by the fund, or by the respondent in the representative proceeding, as the Court directs.
(3) Where the Court orders the constitution of a fund mentioned in subsection (1), the order must:
(a) require notice to be given to group members in such manner as is specified in the order; and
(b) specify the manner in which a group member is to make a claim for payment out of the fund and establish his or her entitlement to the payment; and
(c) specify a day (which is 6 months or more after the day on which the order is made) on or before which the group members are to make a claim for payment out of the fund; and
(d) make provision in relation to the day before which the fund is to be distributed to group members who have established an entitlement to be paid out of the fund.
(4) The Court may allow a group member to make a claim after the day fixed under paragraph (3)(c) if:
(a) the fund has not already been fully distributed; and
(b) it is just to do so.
(5) On application by the respondent in the representative proceeding after the day fixed under paragraph (3)(d), the Court may make such orders as are just for the payment from the fund to the respondent of the money remaining in the fund."
Section 33ZJ (which is in relevantly the same terms as s 184 of the CPA) provides:
"Reimbursement of representative party's costs
(1) Where the Court has made an award of damages in a representative proceeding, the representative party or a sub-group representative party, or a person who has been such a party, may apply to the Court for an order under this section.
(2) If, on an application under this section, the Court is satisfied that the costs reasonably incurred in relation to the representative proceeding by the person making the application are likely to exceed the costs recoverable by the person from the respondent, the Court may order that an amount equal to the whole or a part of the excess be paid to that person out of the damages awarded.
(3) On an application under this section, the Court may also make any other order it thinks just."
In relation to s 177(1)(e) of the CPA in particular, which is equivalent to s 33Z(1)(e) cited above, it was argued on behalf of BMW that the reference to an "award of damages" encompassed any recovery of money including for debt and equitable compensation. It was said that the occasion for the exercise of the powers expressly conferred by s 177(1)(e) is the time for the making of final orders for any form of pecuniary relief as between the parties to the proceeding and as between the group members. Against this it was said that s 177(1)(e) does not apply to any funds recovered from the defendant, but only amounts consisting of damages strictly so‑called. Upon this contention was advanced the further argument that because s 177(1)(e) does not make comprehensive provision for the distribution of all moneys recovered from the defendant at the conclusion of the proceeding, there is work for s 183 to do in supplementing s 177(1)(e) so as to comprehend moneys other than damages. And so it was said, if s 183 can have this operation at the conclusion of the proceeding, why should it not be available to support an interlocutory order at the outset of the proceeding?
This argument does not carry the respondents very far. Whether or not the powers expressly conferred by s 177(1)(e) are sufficiently comprehensive to authorise the distribution of damages, s 173(2) of the CPA is plainly intended to operate at the conclusion of the proceeding. In addition, s 173(2) readily comprehends sums of money recovered otherwise than by way of damages.
Considerations of purpose
Access to justice
The objectives of Pt IVA of the FCA were identified by the Australian Law Reform Commission ("the ALRC") prior to its enactment. They were two‑fold: first, to enhance access to justice for claimants by allowing for the collectivisation of claims that might not be economically viable as individual claims; and secondly, to increase the efficiency of the administration of justice by allowing a common binding decision to be made in one proceeding rather than multiple suits. Part IVA of the FCA, and later Pt 10 of the CPA, which emulated Pt IVA, pursued these objectives through the regime for representative proceedings tailored to address these defects in the law. Sections 33ZF and 183 do not empower the courts to rewrite Pt IVA and Pt 10 respectively in order to pursue other objectives in different ways.
The defects in the existing law targeted by the ALRC in order to improve access to justice simply did not include the absence of sufficient incentive for litigation funders to fund litigation. That is significant given that the ALRC was alive to the possibility that a representative proceeding might be funded by third parties. The possibility that a group proceeding might not be brought because a litigation funder could not see the prospect of a sufficient return to support the proceeding cannot be said to be one of the "unforeseen difficulties" referred to by Wilcox J in McMullin. The ALRC's report did not advert to the possibility of enlisting the aid of the court to fix, even provisionally, the terms on which financial support for the bringing of a proceeding might be secured. It would have been a large step in terms of policy to enlist the court charged with responsibility for the determination of the merits of the claims brought in a proceeding, in the making of arrangements to allow the proceeding to be pursued. It is hardly surprising then that the Parliament refrained from taking that course.
It may well be that some claims cannot attract funding, either because of a want of interest among group members or because litigation funders' assessments of the prospects of the claims lead them to decline the risk. But there is no suggestion, either in the legislation or in the relevant extrinsic materials, that it was thought to be a defect in the law requiring a remedy that all claims, no matter how dubious their merits or paltry the likely monetary recovery, were not being brought before the courts. Similarly, the possibility that claims are not brought because they do not "stack up" financially for group members or litigation funders is not a reason for concern that the legislation is not operating as it should.
Common fund orders and funding equalisation orders
To the extent that one aspect of the motivation for seeking a CFO is said to be to facilitate the equitable sharing of the costs of a representative proceeding, Pt IVA of the FCA and Pt 10 of the CPA recognise that the representative party ought not (necessarily) bear the entire costs of the proceeding. These provisions allow the courts to prevent the practice of "free riding" by unfunded group members who might seek to take the benefit of the costs and risks assumed by the representative party and funded group members.
It may be accepted that the concern to prevent "free riding" is relevant to doing justice as between group members who are parties to the proceeding. But the equitable sharing of the expense of the proceeding may be achieved by the making of a FEO that reduces unfunded group members' awards by an amount equivalent to that paid by funded group members to the litigation funder. The cost of litigation is thus borne equitably between all group members. Group members necessarily stand in a relationship to one another as a result of the statutory scheme; the claims in the proceeding are litigated on behalf of all of them, and orders in the proceeding bind all of them. Subject to the creation of sub‑groups and the determination of individual questions, the statutory scheme treats them as one group. It is, therefore, just that the costs of the proceeding be spread amongst the members of that group.
In contrast, 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 rather than on the occasion contemplated by s 33ZJ(2) of the FCA and s 184(2) of the CPA. Unfunded group members have no contractual or other relationship with the funder. Nor have they any liability to the funder. The funder has no right to that money under contract or under equitable principles.
A CFO is thus not the obvious solution to the problem of "free riding". A CFO is apt to impose an additional cost on the group by requiring more money to be paid to the litigation funder than would otherwise be the case. The equitable spreading of the cost is, in fact, better achieved by the making of a FEO, which takes, as its starting point, the actual cost incurred in funding the litigation. While it must be accepted that the burden of the amounts that funded group members have agreed to pay to the funder under their agreements with the funder must be distributed fairly, a FEO is apt equitably to distribute those amounts whereas a CFO seeks to impose an additional cost by imposing new obligations on the unfunded group members.
A FEO is clearly available where a settlement is reached. A settlement must be approved by the court, and, in approving a settlement, the court must be satisfied that it is "fair and reasonable to all group members". A settlement that allows some group members to ride for free would not be fair and reasonable to the other group members.
Secondly, where a matter runs to judgment (rather than being settled), a FEO may be made under s 33ZF or s 183. That is because justice would not be done in the proceeding if it resulted in unfunded group members gaining a windfall by avoiding costs which others bore for their benefit. A FEO prevents that outcome by redistributing those costs. It falls squarely within the terms of ss 33ZF and 183. The same cannot be said of a CFO.
Book building: to build or not to build?
The process of book building involves "identification [of group members], contact, awareness creation and enrolment". Waye and Morabito state that book building is ordinarily done by "using the media and web communications with a view to persuading potential class members to register their interest or to enter into retainer and funding agreements". The authors cite a number of webpages set up by plaintiff law firms to advertise the class actions that they are running. The use of webpages to advertise class actions has been noted in case law. Whether a litigation funder should not be required to incur expenditure (eg advertising) to seek to build its enterprise is not a concern that any provision of Pt IVA of the FCA or Pt 10 of the CPA invites the court to address.
The making of a CFO at an early stage of the proceeding may provide some assurance, even if only provisional, to a litigation funder of a particular level of return on its investment and so relieve the litigation funder of the expense and effort of canvassing the level of public interest in the proposed proceeding and making its assessment of the commercial viability of the proceeding in light of the likely balance of risk and reward.
The applications for the CFOs proposed in these appeals were prompted, as the Full Court in the Westpac matter appreciated, and as is apparent from the evidence of Mr Scattini in the BMW matter, by a desire to obviate the expense and difficulty involved in building a book. That motivation is understandable, particularly in circumstances where there may be little interest on the part of the potential group members in pursuing the claim. But while access to justice may be expected to be improved in a general way by the availability of litigation funding, it does not follow that the making of a CFO is necessary or appropriate to ensure that justice is done in a particular proceeding in accordance with Pt IVA of the FCA or Pt 10 of the CPA.
To the extent that a CFO may allow a litigation funder to avoid the burden of the process of book building by enlisting the court's aid, there is no warrant to supplement the legislative scheme by judicial involvement to ease the commercial anxieties of litigation funders or to relieve them of the need to make their decisions as to whether a class action should be supported based on their own analysis of risk and reward. Until 2016, open class actions were brought and resolved without recourse to CFOs. A suggestion that book building is an exercise in "wasted costs" ignores the reality that group members will have to take action at some stage to obtain the actual payment of any monetary relief to which they have established an entitlement.
Orders
In the Westpac appeal, the appeal to this Court should be allowed. Orders 3 and 4 made by the Full Court of the Federal Court of Australia on 1 March 2019 should be set aside, and in their place it should be ordered that:
(a) the appeal be allowed;
(b) orders 1 and 2 made by Lee J on 28 September 2018 be set aside and, in their place, the application for a common fund order be dismissed with costs; and
(c) the respondents must pay the appellants' costs of the appeal.
The respondents must pay the appellants' costs of the appeal to this Court.
In the BMW appeal, the appeal to this Court should be allowed. The orders made by the Court of Appeal of the Supreme Court of New South Wales on 1 March 2019 and 22 March 2019 should be set aside, and in their place it should be ordered that:
(a) the question stated for separate determination be answered: "No"; and
(b) the first respondent must pay the applicant's costs of the application for, and hearing of, the separate question.
The first respondent must pay the appellant's costs of the appeal to this Court.