Key points
- Group members pay nothing during the proceeding — all costs are borne by the law firm or litigation funder.
- If the case is lost, group members typically bear no legal costs (subject to the terms of the funding agreement).
- If the case succeeds, a percentage of each group member’s compensation funds legal costs and funder returns.
- The court must approve all fee and commission deductions before they apply to group members.
- The percentage deducted varies by case — common fund orders set a uniform rate across all group members.
How does conditional fee funding work?
Law firms running class actions on a conditional basis agree not to charge fees unless the matter resolves favourably. They risk their own costs — counsel fees, court filing, expert reports — in exchange for a higher uplift on their normal hourly rate if successful. This model is commonly combined with after-the-event insurance to cover the risk of an adverse costs order.
What is a common fund order?
A common fund order (CFO) requires all group members — including those who did not sign a funding agreement — to contribute a percentage of their compensation to the funder or law firm. This prevents a ‘free rider’ problem where some group members benefit from the litigation without contributing to its costs. Courts assess whether the rate is fair and reasonable before making a CFO.
What does the court approve?
Under Part IVA of the Federal Court of Australia Act 1976, the court must approve any settlement. As part of that process it scrutinises legal fees, funder commissions, and the deduction methodology to ensure the outcome is fair to all group members. Courts have rejected or reduced fee structures they consider excessive.
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.