PUBLIC INTEREST COSTS ORDERS IN FEDERAL CLASS ACTIONS: TIME FOR A NEW APPROACH.

• Date: 01 April 2022
• Author: Petrovski, Bill

Contents I Introduction II Class Actions, Public Interest Litigation and the Judicial Discretion to Award Costs A The Essential Characteristics and Policy Goals of Class Actions B Costs Orders under the English Rule III Public Interest Costs Orders A Comparative Perspectives on the Concept of Public Interest Litigation B The High Court's Decision in Oshlack v Richmond River Council IV Synergies between Class Actions and Public Interest Litigation V Public Interest Costs Orders in pt IVA Proceedings A Woodlands v Permanent Trustee Co Ltd B Qantas Airways Ltd v Cameron [No 3] C DBE17 v Commonwealth [No 2] D Turner v MyBudget Pty Ltd [No E Cumaiyi v Northern Territory [No 2] F Commentary VI Main Lessons from the Canadian Experience with Express Legislative Powers to Make Public Interest Costs Orders A Legislative Provisions B Judicial Interpretation of These Legislative Provisions C Our Recommended Provision VII Conclusion I Introduction

[T]he problem is that a representative party is exposed to the risk of an order to pay the costs of a respondent or respondents (the amount of which will usually be increased by the very fact that the proceeding is a representative one), without gaining any personal benefit from the representative role. So there is little or no incentive for a person to act as a representative party. Unless the person's potential costs are covered by someone else, there is a positive disincentive to taking that course. (1)

The comments set out above were made by Wilcox J of the Federal Court of Australia in 1995, three years after pt IVA of the Federal Court of Australia Act 1976 (Cth) ('Federal Court Act')--Australia's first and most important legislative class action regime--came into operation. (2) In our view, these comments still carry significant practical relevance in 2022, notwithstanding the fact that, in the last few years, a majority of pt IVA proceedings have been supported by commercial litigation funders ('funded class actions'). (3) These funders have invariably agreed to protect lead plaintiffs from adverse costs orders, including any security-for-costs orders granted to class action defendants during the course of the litigation. (4) And more recently, after-the-event ('ATE') insurance has been taken up for this purpose in pt IVA proceedings--mostly in unfunded class actions, (5) although funders are increasingly using this type of insurance cover in class actions that they support. (6)

But what if an aspiring lead plaintiff is not able to secure ATE insurance cover or the support of a litigation funder? In its 1988 report on grouped proceedings, the Law Reform Commission ('LRC') recommended the establishment of a special fund that would help lead plaintiffs meet the significant costs of grouped proceedings, including adverse costs orders. (7) Whilst pt IVA was substantially based on the grouped proceedings regime recommended by the LRC, this recommendation was not implemented by the Commonwealth government, and no explanation was provided for this omission. (8) Speaking at a seminar organised by the Federal Court in 2009, one of the principal authors of the LRC's report--the aforementioned Murray Wilcox--observed that in light of the many demands on public funds, it would no longer be reasonable to expect the creation of a public fund to provide financial support to lead plaintiffs in pt IVA proceedings. (9)

Yet it is important to provide an answer to the crucial question posed in the preceding paragraph, particularly in light of the following circumstances:

1 the significant costs incurred by formal parties to class action litigation; (10)

2 the fact that the involvement of litigation funders in pt IVA proceedings is decreasing and is likely to continue decreasing (especially for overseas based funders) in the near future due to the requirement, introduced by the Commonwealth government in August 2020, that litigation funders must be licensed under both the Australian Financial Services Licence regime and the Managed Investment Scheme regime; (11)

3 the fact that many meritorious class actions are not backed by funders solely on the basis that they do not satisfy the requirements of the business models employed by these entities; (12)

4 the very limited interest that litigation funders have generally displayed for class actions filed on behalf of vulnerable or disadvantaged persons; (13)

5 the very high cost of, and the very limited number of suppliers of, ATE insurance; (14) and

6 the fact that where plaintiff solicitors fund class actions, by agreeing not to be paid by the lead plaintiffs unless a favourable outcome has been secured on behalf of the class, they are not required to also provide lead plaintiffs with an indemnity for costs. (15) This requirement only exists in Victorian class actions--as a result of a legislative amendment to the Victorian counterpart to pt IVA that came into effect in June 2020--and it applies where the solicitors for the lead plaintiffs have been authorised by court order to receive a specified percentage of any monetary compensation secured on behalf of the class members. (16)

The scenario depicted above raises the desirability of courts presiding over class actions having the power or discretion, where the class action litigation exhibits an important characteristic, to:

1 refrain from awarding costs against unsuccessful lead plaintiffs; or 2 award a lower amount in costs to successful class action defendants than would otherwise be the case; or

3 make an order at the early stages of the litigation that imposes a ceiling on the total amount of costs that may be awarded against the lead plaintiffs in the event of a loss for the class members ('maximum costs orders').

The characteristic in question is that the class action proceeding raises matters of public interest--or, to put it differently, that the class action in question can properly be characterised as a form of public interest litigation. In this article, the term 'public interest costs orders', used by the Australian Law Reform Commission ('ALRC') in 1995, (17) will be employed to capture the three categories of costs orders set out above.

Examples of legal proceedings, other than class action proceedings, that have been judicially recognised in Australia or overseas as dealing with matters of public interest or importance include litigation:

1 concerning protection of the environment; (18)

2 raising constitutional or legal questions concerning the liberty of individuals who were unable to take action on their own behalves to determine their rights; (19)

3 concerning tobacco advertising; (20)

4 concerning the ability of disabled persons to fly with a major commercial airline in Australia without the extra cost of a carer; (21)

5 challenging a decision by the Office of Police Integrity not to investigate an allegation by a minor that police had assaulted and racially abused him; (22)

6 challenging the failure of an operator of a public transport service to use coaches that were wheelchair accessible; (23)

7 dealing with the inability of a person requiring a wheelchair to fly with a commercial airline because that airline's limit on passengers requiring wheelchair assistance for that flight had been reached; (24)

8 clarifying the interpretation and application of provisions in the Superannuation Act 1976 (Cth) (25) and the Sex Discrimination Act 1984 (Cth), (26) as well as provisions in the Migration Act 1958 (Cth) that sought to discharge some of Australia's 'important international obligations, including under the Convention Relating to the Status of Refugees 1951'; (27) and

9 raising constitutional challenges to voter eligibility requirements, mandatory retirement, and criminal code provisions authorising the physical disciplining of children. (28)

As we will show in the remainder of this article, class actions which have been judicially accepted as having raised matters of public interest have frequently encompassed some of the most disadvantaged members of society.

The main purpose of this article is to recommend the addition to pt IVA of a modified version of the provision recommended by the Victorian Law Reform Commission ('VLRC') in 2018 in relation to litigation costs in class actions. (29) The VLRC recommended the addition of a provision that specified that in making an adverse costs order, or a security for costs order in [Victorian] class actions, the Court may take into account, among other factors:

(a) the function of class actions in providing access to justice

(b) whether the case is a 'test' case or involves a novel area of law

(c) whether the class action involves a matter of public interest. (30)

The VLRC explained that the rationale for this provision was to reduce the risk that lead plaintiffs in Victorian class actions that concern, among other things, a matter of public interest would be required to pay some of the costs of their opponents. (31) The VLRC envisaged that this type of class action litigation may be seeking non-monetary relief, or monetary relief in an amount 'that is too low to attract the financial support of a litigation funder or lawyer'. (32) Thus, reducing the risk of an adverse costs award was intended to encourage more claimants to assume the daunting role of lead plaintiff and encourage third parties to support class actions that they would otherwise not have been willing to fund because of the risk of adverse costs. (33)

The VLRC explained that this provision was based on a provision found in Ontario's class action legislation, which has been operating since 199 3. (34) Whilst not expressly mentioned by the VLRC, similar provisions are contained in the legislation regulating class actions in Saskatchewan (35) and Nova Scotia (36) and in Alberta's rules of court, (37) and the VLRC's recommended provision is actually more similar to the Saskatchewan and Alberta provisions than the Ontario provision. To our surprise, this...