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Case Study on Cost Agreements in Class Actions

18th January 2023

Wills v Woolworths Group Ltd [2022] FCA 1545

A ‘Cost Agreement’, in class actions, is a contract between the representative of the class with their solicitors. Typically, such an agreement must include an estimate of the costs and how they would be calculated, or, alternatively, the fixed amount that would be charged. A case that considered how cost agreements in class actions would operate is the Woolworths class action, which involved a class action was brought on behalf of its shareholders who claimed to have suffered losses as a consequence of the breach of its continuous disclosure obligations.

The case had settled and had to be approved by the court. The first question considered by the court was the commission that the funder would be entitled. In the settlement agreement between the group members and the litigation funder, the funder was to receive a commission of $7.4 million (which was 1/6th of the settlement sum of $44.5 million). However, a significant number of group members registered after the settlement agreement was entered to participate in the distribution of the settlement sum. The addition of these new group members diluted the overall sum and reduced the funder’s commission to $4.7 million. In order to recover the original higher sum, an application was filed to amend the agreement in a way similar to a Common Fund Order (CFO). His Honour Justice Beach, however, rejected the application as a CFO was never previously sought or indicated to be sought.

The other question considered by His Honour related to the legal costs and disbursements that the solicitor firm would be entitled to under the cost agreement, who had proposed that costs higher than the costs they had initially estimated. The Legal Profession Uniform Law (LPUL) places a disclosure obligation that lawyers must provide new estimates to costs when there are significant changes to the previously provided estimate. In this class action, the cost estimates differed by 1.6% ($220,000). His Honour determined that a difference of 1.6% was not significant and therefore did not warrant a disclosure.

His Honour also noted that since a cost agreement would not be wholly voided by non-disclosure, and rather would only be void from the date on which the significant change occurred but was not disclosed, the solicitors would have been entitled to most of their costs even if they were found to have not complied with their disclosure obligations.

Gerard Malouf and Partners has commenced class action proceedings against Hino Motors and Mercedes-Benz before the Supreme Court of Victoria. GMP Law does not have a funder. GMP Law intends to seek Group Costs Orders (GCO) in these class actions, and where a GCO is made the court will approve a percentage of the amount of compensation or damages to be deducted and paid to the lawyers conducting the case.

This document is intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive nor does it constitute legal advice. We attempt to ensure that it is current but we do not guarantee its currency. You should seek legal or other professional advice before acting or relying on any of the content.

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