BMW Australia Ltd v Brewster; Westpac Banking Corporation v Lenthall [2019] HCA 45

What the court decided

The appeals concerned section 33ZF of the Federal Court of Australia Act 1976 (Cth) and section 183 of the Civil Procedure Act 2005 (NSW) [1]. The two provisions are in almost identical terms [5]. Each allows the court to make any order it thinks "appropriate or necessary to ensure that justice is done in the proceeding" [9]. As the joint reasons described it, a common fund order is characteristically made early in the proceeding and fixes the funder's remuneration as a proportion of any recovery, borne by all group members and paid first from that recovery [1].

In the Westpac proceeding in the Federal Court, Lee J made a common fund order under sections 23 and 33ZF [10]. The Full Court granted leave to appeal but dismissed the appeal [17]. In the BMW proceeding in the Supreme Court of New South Wales, a separate question about power was removed into the Court of Appeal, which answered it in the affirmative [30]–[31]. In each proceeding only a small number of group members had signed funding agreements [7], [26].

The High Court allowed both appeals [95]–[96]. In the Westpac appeal Lee J's orders were set aside and the application for a common fund order dismissed with costs [95]. In the BMW appeal the separate question was answered "No" [96]. Kiefel CJ, Bell and Keane JJ gave joint reasons [1]. Nettle J and Gordon J each wrote separately and agreed in the orders the joint reasons proposed [128], [170]. Gageler J and Edelman J dissented and would have dismissed both appeals [121], [175].

The joint reasons held that, properly construed, neither section empowers a court to make a common fund order [3]. The sections empower orders about how an action should proceed to do justice, which is a different question from whether it can proceed at all [3], [47]. The text authorises orders that help the court decide the issues between the parties, and whether a funder is given enough inducement to support the proceeding is outside it [50]. An order directed to the funder's incentive is not brought within section 33ZF by structuring it as provisional or interlocutory [54]. The joint reasons said that neither the earlier Full Court decision on which the Full Court below relied nor the respondents' arguments answered the textual limits on the power [18], [58].

The joint reasons treated each section as a supplementary source of power [60]. Where the cost of identifying group members is too high compared with the value of the claims, the solution the legislation contemplates is to halt the representative proceeding, not to make a common fund order [65]. The legislation gives no criteria for fixing a funder's remuneration, even provisionally [66].

On free riding, the joint reasons said the cost can be spread equitably by a funding equalisation order that reduces unfunded group members' awards [86]. In their view such an order is available when a settlement is approved and, where a matter runs to judgment, may be made under section 33ZF or section 183 [89]–[90]. The same could not be said of a common fund order [90]. The joint reasons said that, as each appeal was allowed, the constitutional questions decided below did not arise [2], [4].

Nettle J favoured the view that section 33ZF is only a supplementary power and that its context weighs strongly against a construction that would permit a common fund order [124]–[125]. Gordon J held that courts do not have power to make a common fund order [135]. Her Honour noted that no party suggested the scheme did not allow a funding equalisation order [169].

Gageler J would have held that a common fund order is capable of meeting the statutory test [106]. In his Honour's view, that test extends to justice between the representative party and group members [109]. Edelman J would also have held that the power exists, including on an interlocutory basis [232]. His Honour considered that a funding equalisation order involves no necessary assessment of the reasonableness of the funder's remuneration [185]. Both dissenters would have rejected the constitutional objections [119], [174].

Why it matters

For solicitors in class actions in the Federal Court or the Supreme Court of New South Wales, the decision means a common fund order is not available under section 33ZF or section 183 [3], [90]. The joint reasons indicated that funding equalisation orders are available on a settlement and, after judgment, under those sections [89]–[90].

The joint reasons reached their conclusion without relying on the principle of legality, or on confining justice in the proceeding to the substantive issues between the parties [48]. The decision did not settle what orders the settlement approval provisions permit for a funder's remuneration. The joint reasons treated the conclusion of the proceeding as the appropriate occasion for orders sharing the cost burden [68]. They also saw no reason why amounts taken from unfunded group members' awards should be directed to the funder [87].

The decision construed only the Commonwealth and New South Wales provisions [1]. The Victorian position must be checked against the current text of the Victorian legislation.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.