E.4 Public Policy Contention
90 Closely connected to the last two points is the broader issue described in the submissions of the opposing respondents as "public policy" not only evident from the various statutory and regulatory prohibitions on contingency fees but also from observations in the case law about champertous agreements between solicitor and client being inimical to the proper discharge of the professional obligations of solicitors.
91 Mr Shand and Mr Kain submit that "common issues of policy" are reflected in the way in which the fiduciary character of the solicitors' duties, the nature of the solicitors' profession and conduct rules and the provisions of the LPUL all impact upon a consideration of what is "just".
92 Ernst & Young agree and then develop a somewhat broader contention. They point to the fact that s 183, and the rest of the LPUL, was drafted by the federal government under the auspices of the Council of Australian Governments between 2009 and 2011, but the prohibition of award-based contingency fees is deeply rooted and has a long history. At the time Pt IVA was enacted, maintenance and champerty was still a crime and a tort in States other than Victoria and award-based fee agreements were champertous. Even when various jurisdictions came to abolish the crime and the tort (or one but not the other), the circumstances in which a contract was to be treated as contrary to public policy or as otherwise illegal were unaffected. In most Australian States and Territories, the abolition of the crime and the tort of champerty was accompanied by the enactment of statutory prohibitions on award-based fee agreements. It is said that this history "reflects an uninterrupted policy to prohibit award-based fee agreements between solicitors and their clients".
93 The position was essentially the same in the United Kingdom, and in Wallersteiner v Moir (No 2) [1975] 2 WLR 389, the Court of Appeal rejected the submission that the abolition of criminal and civil liability for maintenance and champerty meant that contingency fees (including award-based fees) were lawful. Lord Denning MR explained that the reason why contingency fees were generally unlawful was not because they were criminalised, but because they were contrary to public policy and cited the following observations of Lord Esher MR in Pittman v Prudential Deposit Bank Ltd (1896) 13 TLR 110 (at 111):
In order to preserve the honour and honesty of the profession it was a rule of law which the court had laid down and would always insist upon that a solicitor could not make an arrangement of any kind with his client during the litigation he was conducting so as to give him any advantage in respect of the result of that litigation.
94 Reference was also made to Buckley LJ's consideration (at 405Gff) as to the public policy arguments for and against the availability of contingency fees in minority shareholder litigation and concluded that before such a system was introduced in England, it ought to be the subject of comprehensive consideration by a body such as the Law Commission and any change would have to be affected by an alteration in the relevant professional rules or by legislation (at 407A-C).
95 Similarly, in Trendtex Trading Corporation v Credit Suisse [1980] 1 QB 629, an interlocutory appeal involving an assignment of a cause of action after the 1967 abolition of the crime and tort of maintenance (including champerty), the Court of Appeal (Lord Denning MR, Bridge and Oliver LJJ) all agreed that officers of the court must not put themselves in a position where their own interests may conflict with their duties to the court by agreeing "contingency fees" (654A-B, 657H, 663E-F) and Lord Denning and Oliver LJ (with whom Bridge LJ agreed) made observations on the circumstances in which a contract is to be treated as contrary to public policy or otherwise illegal for maintenance and champerty (653B-E, 6570, 6680-H, 669F-G, 674E-F). Ernst & Young place particular reliance upon the observation of Oliver LJ (at 663C-F), where his Lordship noted there was a "clear requirement of public policy that officers of the court should be inhibited from putting themselves in a position where their own interests may conflict with their duties to the court by the agreement, for instance, of so called 'contingency fees'".
96 It is then said the "distinction drawn in Wallersteiner and Trendtex between agreements for award-based contingency fees and the general law of maintenance and champerty" is important in understanding Campbells Cash & Carry Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386, where Gummow, Hayne and Crennan JJ noted (at 429 [77], 433 [86]) that the abolition of the crime meant that any wider rule of public policy against maintenance and champerty (wider, that is, than the particular rule or rules of law preserved by the abolishing Acts) lost its footing. These observations are said to have limited force because the High Court was considering the notion of third-party funding rather than the "long history of the prohibition of award-based contingency fees nor the policies that underpin the prohibition".
97 It follows that at least in New South Wales, it is asserted, consistently with Clyne, it "remains contrary to public policy for a solicitor to bargain with their client for an interest in the subject matter of the litigation".
Consideration
98 The initial point is that it is difficult to understand how these public policy considerations go to statutory power, rather than discretion. In any event, even though public policy is often a slippery concept, in the present context it is necessary to tread especially warily.
99 A good starting point is recognising how things have changed; not only since the expressions of public policy relating to contingency fees relied upon by the opposing respondents, but even over the course of the last generation.
100 Outside insolvency litigation, until the turn of the century, there was little litigation funding (as we now know it) in this country. Several factors coalesced to encourage the growth of third-party funding: the introduction of court procedures that overcame perceived deficiencies in Chancery-style representative proceedings thus facilitating the effective grouping of claims, such as under Pt IVA; the introduction, since the 1970s, of a miscellany of statutory causes of action allowing individuals to obtain statutory compensation in the event of contravening conduct of various types; an increased focus upon, and awareness of, consumer rights; and what Gleeson CJ described as the "remorseless mercantalisation of legal practice" which now reflects "the dominance of the culture of the market, with its tendency to reduce society to the single dimension of producers and consumers": Gleeson CJ, Some Legal Scenery (Conference Paper, Judicial Conference of Australia, 5 October 2007) 8.
101 The first of these factors most obviously reflected an express recognition of policy objectives far removed from the medieval origins of maintenance and champerty. These ancient concepts reflected norms arising in the 11th and 12th centuries that infused the law with the attitude that forgiving transgressions was a virtue, and unnecessary recourse to law courts was discountenanced: see Ari Dobner, "Litigation For Sale" (1996) 144 U Pa L Rev 1529, 1545. They also were bound up with the conception of the champertous officious intermeddler (a characterisation reflected in the judgment of Callinan and Heydon JJ in Fostif, who stressed that the purpose of court proceedings is not to provide a means for third parties to make money (at 486-488 [266])).
102 But as was explained by the Australian Law Reform Commission (ALRC), in its seminal December 1988 report entitled Grouped Proceedings in the Federal Court upon which Part IVA of the Act was largely, but not wholly, based (at 44):
The main objective of [the class action regime]…is to secure a single decision on issues common to all and to reduce the cost of determining all related issues arising from the wrongdoing. To achieve maximum economy in the use of resources and to reduce the cost of proceedings, everyone with related claims should be involved in the proceedings and should be bound by the result.
103 Consistently with this, in describing the general objectives of the Bill which inserted Part IVA in the Act, the then Attorney-General stated that it would:
[P]rovide a new representative action procedure in the Federal Court. The new procedure will enhance access to justice, reduce the costs of proceedings and promote efficiency in the use of court resources…The Bill gives the Federal Court an efficient and effective procedure to deal with multiple claims. Such a procedure is needed for two purposes. The first is to provide a real remedy where, although many people are affected and the total amount at issue is significant, each person's loss is small and not economically viable to recover in individual actions. It will thus give access to the courts to those in the community who have been effectively denied justice because of the high cost of taking action. The second purpose of the Bill is to deal efficiently with the situation where the damages sought by each claimant are large enough to justify individual actions and a large number of person wish to sue the respondent. The new procedure will mean that groups of person, whether they are shareholders or investors, or people pursuing consumer claims, will be able to obtain redress and do so more cheaply and efficiently than would be the case with individual actions.
Commonwealth, Second Reading Speech, House of Representatives, 14 November 1991, 3174-3175 (Attorney-General)
104 Then, as Lee J explained in Perera v GetSwift Limited [2018] FCA 732; (2018) 263 FCR 1 (at 10-15 [15]-[29]), by a series of faltering steps, we have reached the position where open class proceedings grouping the claims of all persons affected by an alleged wrong are now the norm and there is a mature competitive market in which funders and solicitors are in competition for carriage of class actions which they subjectively perceive as having prospects of success (and hence bring the prospect of delivering a commercial return). This is the world any considerations based on public policy must now confront. That world was recognised by the ALRC in its 2019 report which recommended permitting solicitors to charge contingency fees, limited to class actions, with aims "to provide for a greater return to group members" and "further enable medium-sized class action matters to proceed", while noting that "as class actions are strictly supervised by the Federal Court, representative plaintiffs and group members remain protected from paying a single yet disproportionate or unreasonable fee": see ALRC, Integrity, Fairness and Efficiency - An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report 134, 24 January 2019) 185 [7.3] (ALRC Report 134).
105 Given the abolition of the tort and crime of maintenance and champerty, the reality of a highly developed market for litigation funding of class actions, the perceived value of open class actions providing redress for wrongs, the existence of "uplifts" based upon success, and the recent introduction of GCOs in Victoria, statements made in decisions prior to these related developments, which might suggest a policy-based aversion to remuneration of solicitors in exchange for funding class action litigation require, at the very least, re-examination. No matter how distinguished the judge, the views of the 54th Master of Rolls (Lord Esher) in 1896 or the 58th (Lord Denning) in the 1970s and early 80s as to prohibitions of modalities of solicitors' remuneration might, with no intended disrespect, be regarded as being of limited present assistance.
106 While it is correct that Oliver LJ in Trendtex thought it was a "clear requirement of public policy that officers of the court should be inhibited from putting themselves in a position where their own interests may conflict with their duties to the court" by entering into a champertous agreement, his Lordship recognised, in speaking of public policy and maintenance and champerty generally, unless the law is capable of keeping up with modern thought, it must die in a lingering and discredited old age. In the end, the law of maintenance depends upon the question of public policy, "and public policy is not a fixed and immutable matter. It is a conception which, if it has any sense at all, must be alterable by the passage of time" (at 663E-F). In this regard, it is notable that percentage-based fee agreements for solicitors and counsel, termed "damages-based fees", have been generally permitted in England and Wales since 2013 (having previously been restricted to employment matters) following the recommendations of Lord Justice Jackson in his Review of Civil Litigation Costs: Final Report (December 2009): see Courts and Legal Services 1990 (UK) s 58AA.
107 Although it is unnecessary to decide (as it is a matter going to discretion rather than power), for our part, leaving aside the public policy prohibiting champertous bargains between solicitor and client, we would need some persuasion that it is contrary to the public policy of the common law of Australia for this Court to exercise power sanctioning and providing for just remuneration to solicitors for providing services to participants in a class action, which include but extend beyond the provision of pure legal work, on a contingency percentage basis. There is much to be said for the notion that there is no longer a coherent basis for a rule of public policy that precludes solicitors being remunerated in class actions on the same basis as litigation funders where providing overlapping services (namely, taking on risk, including as to adverse costs, in relation to class action litigation benefitting numerous other persons).
108 Two related points should be made in relation to the availability and experience of GCOs.
109 First, if, as it is urged upon us, it is relevant to power that a different rule of public policy now applies in New South Wales as compared to Victoria, one would be faced with the prospect that a different outcome, in terms of this Court's power to make a Solicitors' CFO would pertain depending upon whether an application was determined in the Victorian or New South Wales Registry of this Court. As the applicants correctly submit, this shows the illogicality of finding that a common law public policy rule precludes the making of a Solicitors' CFO as a matter of power.
110 Secondly, even when public policy is properly considered when one comes to discretion, its consideration must involve much more than a recognition of the historical aversion to contingency fees as between solicitor and client. As is explained in the Victorian Law Reform Commission report Access to Justice - Litigation Funding and Group Proceedings (March 2018), which preceded the introduction of GCOs, the considerations driving public policy in this area in the third decade of the 21st century include improving access to justice, lowering barriers to competition and reducing the overall cost to claimants of bringing mass litigation, balanced against the reality that many lawyers already are faced with managing conflicts and ensuring they continue to act independently under existing "No Win No Fee", and deferred fee arrangements.
111 As is well known, since GCOs were introduced in Victoria in 2020, solicitors have been able, in limited circumstances, to fund the litigation as well as act for a representative plaintiff in a class action, and to receive a fee contingent upon, and proportional to, the final damages award or settlement.
112 As John Dixon J explained in Bogan v Smedley [2022] VSC 201 (at [93]):
[T]he purpose of s 33ZDA is to confer on the court the power to affect the manner in which legal costs in the proceeding are calculated and funded. This is central to the question of whether a proceeding can and will viably provide the opportunity for group members to seek vindication of their rights. Enabling a law practice to charge [proportionate fees for class actions], can promote access to justice by removing the disincentive to representative plaintiffs of disproportionate exposure to financial risk compared to the value of their own claim, to reduce costs to group members by having a single fee, and to provide transparency and simplicity.
(Emphasis added)
113 To the extent relevant, the GCO regime, at least at this stage of its development, has assisted the just resolution of the disputes (constituted by the grouped claims) as inexpensively as possible from the perspective of group members. One of Australia's foremost academics specialising in class action litigation, Professor Vince Morabito, in his recent report, Group Costs Orders and Funding Commissions (Report, January 2024) (at 27-8), has provided data demonstrating that in contrast to a model where a class action settlement is subject to separate and cumulative deductions for litigation funding costs and legal costs and disbursements resulting in a 51% average median percentage of settlement returned to group members in funded finalised class actions between 2013 to 2018, the expense imposed upon group members in class actions where there is only one deduction, by way of GCO, is likely to be much less: see ALRC Report 134, 83 (Table 3.7). This is demonstrated in the following table showing a range of ordered GCO rates and median GCO rates for class actions in different circumstances (see Vince Morabito, Group Costs Orders and Funding Commissions, 20):
Number Range of GCO rates Median GCO rate
No competing class actions 9 (56.2%) 22-40% 24.5%
Competing class actions 3 (18.7%) 22-24% 24%
Competing class actions where GCO application considered as part of carriage motion 4 (25%) 14-24.5% 21.2%