Key points
- Ordinary group members are generally shielded from adverse costs orders in most class action structures.
- The lead applicant bears the primary costs exposure and is usually indemnified by a funder or ATE insurer.
- Even in successful proceedings, a portion of the settlement is used to cover the plaintiff’s own legal costs.
- Courts have power to make costs orders against parties who act unreasonably or pursue hopeless claims.
- Settlement approval hearings include court scrutiny of the legal costs to be deducted from the settlement fund.
Are ordinary group members exposed to adverse costs?
In most funded class actions, ordinary group members do not face adverse costs orders if the case is lost. The structure — whether a funded model with a litigation funder paying costs, or a conditional fee model — is designed to insulate group members. The lead applicant is the named party who formally bears costs risk and should have that risk covered by a funding or insurance arrangement.
What happens to costs if the case settles?
Settlement agreements typically provide for the defendant to pay a lump sum — which is then divided between the law firm’s costs, the funder’s commission, and the group members’ net compensation. The court must approve both the settlement and the costs deduction structure. Courts have intervened to reduce legal fees and funder commissions that were not proportionate to the benefit delivered to group members.
Indemnity costs orders
In rare cases, a court may order that a party pay costs on an indemnity basis — a higher standard than the usual party-party basis. This typically arises where a party has behaved improperly, rejected a settlement offer that proved more generous than the judgment, or commenced proceedings without reasonable prospects of success. Group members are almost never personally exposed to indemnity costs orders.
This article is general information only and does not constitute legal advice. ClassActions.com.au is an independent information service and is not a law firm. If you believe you may have a legal claim, consult a qualified Australian legal practitioner.