By: Amanda Beattie and Gavin Davies

In a decision that is bound to disappoint plaintiff law firms but delight litigation funders, the High Court has quashed the Full Federal Court’s decision to allow solicitor’s CFOs in the Federal Court in the Blue Sky Class Action (see 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 (Kain)).

Background

At an early stage in the proceeding, the solicitors for the class flagged an intention to seek what has become known as a “solicitors’ common fund order” (Solicitors’ CFO), an order that would have allowed a self-funded plaintiff solicitors to be remunerated by receiving a percentage of the settlement or judgment sum (as distinct from a CFO made in favour of a funder, which is paid to a third-party litigation funder and are now commonplace in most jurisdictions).

The question before the Full Federal Court and then the High Court was whether the Federal Court of Australia Act 1976 (FCA Act) empowered the Court to make Solicitors’ CFOs.

Full Federal Court decision

In July last year the Full Federal Court held that sections 33V(2) and 33Z(1)(g) of the FCA Act conferred broad powers to make orders that were “just” in the context of class actions. It held that these provisions empowered the Federal Court to make a solicitor’s CFO, provided it was fair and reasonable in the circumstances.

In relation to the argument that Solicitors’ CFOs would constitute a breach of s 183 of the Legal Profession Uniform Law (LPUL), which prohibits solicitor costs agreements where remuneration is calculated as a percentage of the settlement or judgment sum, the Full Federal Court held that there was no inconsistency because the entitlement to a percentage of proceeds arises out of an order of the Court as opposed to the cost agreement.

Appeal to the High Court

In a decision handed down earlier this week, the High Court unanimously held that while the Full Federal Court was correct in finding that s 33V of the FCA conferred power on the Court to make a settlement CFO, it erred in finding that those orders could be made in favour of solicitors. Following a detailed examination of the provisions of LPUL (and similar legislation), the High Court held:

(a) that the prohibition in s 183 extends to any arrangement that effectively circumvents the statutory restriction, and

(b) that it could never be “just” to make an order that contravenes the LPUL.

Accordingly, the High Court allowed the appeal, finding that the Federal Court lacks the power to make a solicitor’s CFO, noting that the Federal Court cannot make such an order in favour of the law practice conducting the representative proceeding because to do so would be contrary to s 183 (Kain [35]).

The Court rejected an attempt by the Applicant’s solicitors to characterise the services they were providing as “risk services” which would not be captured by s 183, rather than legal services, finding that the distinction was artificial. The argument that the amount payable under a Solicitors’ CFO is unconnected to the cost agreement was also rejected on the basis that they are inextricably linked because the order gives effect to the proposed cost agreement (Kain [103]).

The Court also rejected attempt by the Applicants and the Association of Litigation Funders of Australia (which intervened in the proceedings) to reopen Brewster (BMW Australia Ltd v Brewster (2019) 269 CLR 574), a case which the High Court held that s 33ZF of the FCA does not empower the making of a “commencement CFO” (at an early stage of the proceedings) as distinct from a “settlement CFO” or a “judgment CFO”. The majority found that there is no basis to reopen the decision and that it should not be reopened merely to permit re-agitation of arguments that did not prevail in favour of a “commencement CFO” (Kain [68]).

What’s next?

The Full Court’s decision allowing Solicitor CFOs representative a significant shift in the funding environment for class actions in the Federal Court, but this week’s decision has reinstated the status quo. Absent legislative reform, the decision likely marks the end of the road for solicitor’s CFOs in the Federal Court meaning Victoria is likely to remain a favoured jurisdiction for plaintiff firms in light of the regime under the s 33ZDA of the Supreme Court Act 1986 (Vic) which allows solicitors to obtain a group costs order (effectively a Solicitors CFO) at the commencement of proceedings.

Stay up to date on Class Action updates

Complete the form below to subscribe to Wotton Kearney’s Class Action updates.