By: Amanda Beattie and Natasha Chand

The first settlement involving a group costs order (GCO) was approved last week.¹ This marks the next stage in the GCO process, which commenced just over 4 years ago when the new provisions were introduced in Victoria.

GCOs – a recap

Under s 33ZDA of the Supreme Court Act 1986 (Vic), the court is permitted, on application by the plaintiff, to make a contingency fee order in favour of its lawyers if it is satisfied that it is “appropriate or necessary to ensure that justice is done in the proceeding”. Early decisions by the Court made it clear that if the judge is satisfied that a GCO is required to ensure a class action is pursued, then subject to financial considerations, the GCO will be regarded as necessary and appropriate. It is also clear that the Court does not consider it necessary to demonstrate that a GCO is the “best option”, but rather, it is a matter of considering all the circumstances of the case.

All about the numbers

The Court’s approach

It is clear that there is no one-size-fits-all in terms of the percentage awarded, and the Court has granted orders that range from 14% to 40% since GCOs were introduced. Ultimately, the exercise of the Court’s power under the provisions is a matter of discretion, however, the Court has shown that it is willing to exercise that discretion in a range of situations. These include where funders have agreed with the plaintiff firm(s) to enter into a conditional back-to-back costs sharing agreement with plaintiffs if a GCO is made and where the plaintiff firm has proposed a GCO on a “sliding scale” basis.

The Court has also placed emphasis on the simplicity and transparency that GCOs provide for group members. In the A2 Milk class action, the Court had regard to a range of facts including comparisons with likely third party funding rates, the quantum in dispute, the nature and complexity of the proceeding, and the fact that a GCO would fairly distribute the burden of legal costs across all group members.²

Unsurprisingly, defendants have not taken an active approach in application, which is in keeping with observations made by the Court about the narrow interest defendants have in such applications, which likely only extends to the ability of plaintiff law firms to provide security for costs.

GCOs in the settlement approval process

On 28 August 2024, Justice Watson handed down judgment in the G8 Education class action, approving the proposed settlement of $46.5 million, which included a GCO of 27.5%, being $12,787,500 of the settlement sum. This was the first GCO made under the new power and the first occasion on which the Court was required to consider the exercise of power pursuant to s 33ZDA(3) in the context of an approval of a settlement.³

In approving the settlement, Watson J considered whether an amendment should be made to the GCO. Although it was unlikely that the GCO would be altered, as no submissions were made by any party seeking amendment to the GCO and it was in the mid-range, the Court did note the importance of s 33ZDA(3), which allows it to consider the proportionality of a GCO as, and when, new information becomes available in the proceeding. The Court further noted that “the absence of any party or contradictor contending for an amendment of the rate does not relieve the Court of its burden in a settlement approval context to consider whether or not the GCO should be amended”.⁴ In fact, in the recent Ansell decision, when ordering a GCO of 40%, the Court flagged the possibility of the GCO being altered at settlement pursuant to s 33ZDA(3), which provided a “crucial safeguard”.⁵

In considering whether the GCO should be amended, Watson J considered:

1. the power to amend itself, which only arises where the Court is satisfied that was ‘appropriate or necessary’ to ensure justice in the proceeding
2. the fact that this is not an occasion for a hearing de novo regarding the appropriateness of the GCO itself
3. the fact that the power to amend should only be exercised if circumstances now mean that an amendment is appropriate or necessary
4. that close regard should be given to the reasons for the making of the original GCO, and
5. the proportionality of the costs payable under the GCO to the lawyer “in that they continue to represent an appropriate reward in the context of the effort and investment of the legal practice, the duration of the proceedings and the risks which were undertaken under the group costs order”.⁶

Watson J emphasised the last point, stating that GCOs are often made early in proceedings and sometimes inevitably on the basis of imperfect information. At the finalisation of a proceeding, the Court is afforded the opportunity to consider whether the remuneration provided for by the GCO remains proportionate and appropriate after the uncertainties of the proceeding are eliminated. That said, his Honour also noted that the Court should avoid falling into any hindsight bias as part of the process. In contemplating this point, Watson J also considered evidence of the costs incurred by Slater and Gordon on an hourly basis, as well as return on investment and internal rate of return data.

That evidence was not initially provided, but his Honour insisted upon it being provided after the settlement approval hearing so that it could be taken into account in his decision. It will be interesting to see if that approach is taken in all cases, especially in circumstances where his Honour made it clear that he was assisted by it in his determination. His Honour also noted that “[a]s the Court develops its jurisprudence regarding the circumstances in which it is appropriate to amend a group costs order it will generally be of assistance for the law practice, where it can, to provide evidence of that kind”.⁷

The road ahead

The decision has given parties a roadmap for how approval is likely to be approached in future cases and suggests, as expected, the Court may exercise its discretion to reduce the amount where the rates are on the high end.

^[1] Allen & Anor v G8 Education Ltd (No 4) [2024] VSC 487 (G8 Education).
^[2] Thomas v The a2 Milk Company Ltd [2023] VSC 768.
^[3] G8 Education [58].
^[4] G8 Education [62].
^[5] Warner v Ansell Limited [2024] VSC 491 [62].
^[6] G8 Education [63].
^[7] G8 Education [85].