On 5 July 2024, the Full Federal Court of Australia, led by Justices Murphy, Beach, and Lee, reached a landmark decision affirming the court’s power to issue solicitors’ “common fund orders” (CFOs); an order that a portion of any awarded settlement or judgment be allocated for compensating the lawyers representing class action claimants. The ruling – in R&B Investments Pty Ltd (Trustee) v Blue Sky (Reserved Question) (2024) (Blue Sky Decision) – marks a significant development in the context of class action litigation in Australia.

The decision follows the earlier precedent set by the Full Federal Court in Elliott-Carde v McDonald’s Australia Limited (2023), which established that the Federal Court could issue common fund orders at the settlement phase under section 33V(2) of the Federal Court of Australia Act 1976 (FCA Act). This provision allows litigation funders to claim a percentage of the settlement proceeds as compensation for their financial support.

Historically, the Supreme Court of Victoria has been favoured by class action lawyers since the introduction of legislation in 2020 allowing for “group costs orders” (GCOs) that entitle solicitors to receive a percentage of any recovery. The implications of the Blue Sky decision and the Elliott-Carde ruling suggest a potential resurgence of class action filings in the Federal Court. However, various factors may influence this shift.

The Federal Court has yet to clarify the conditions under which a solicitors’ CFO will be granted. This uncertainty may lead class action firms to prefer, at least for the time being, the predictability offered by GCOs in the Victorian Supreme Court.

Stakeholders in the legal community will be closely observing the ramifications of the Blue Sky decision and the Elliott-Carde ruling on class action practices across various jurisdictions in Australia, particularly as this evolving landscape could lead to new funding structures and legal cost management strategies in collective actions.