High Court reinforces fee boundaries: Solicitor’s CFOs ruled out in class actions in NSW and all States where the solicitors’ rules do not permit contingency fees

In a judgment that reinstates the Supreme Court of Victoria as the preferred jurisdiction for class action lawyers, the High Court of Australia in in Kain v R&B Investments Pty Ltd; Ernst & Young (a firm) v R&B Investments Pty Ltd; Shand v R&B Investments Pty Ltd [2025] HCA 28 has ruled that solicitor’s common fund orders (Solicitor’s CFOs) are impermissible in jurisdictions that prohibit contingency fees – that is, all States and Territories other than Victoria. This decision marks a decisive rejection of attempts to replicate Victoria’s group costs order regime in class actions in the Federal Court of Australia.

The High Court confirmed that the Federal Court is permitted to make common fund orders (CFO) in favour of litigation funders at settlement or judgment of a class action. The same broad discretionary powers do not, however, permit an equivalent order in favour of a solicitor who has self-funded a class action. The ruling reinforces the divide between Victoria, where contingency based solicitor fees are permitted in class actions, and the rest of the country, where they remain strictly off-limits.

As a result of the decision, we expect to continue to see a greater number of class actions filed in Victoria compared to New South Wales and the Federal Court, as has been the pattern since July 2020.

Background

The decision arose from shareholder class actions brought in the Federal Court against the collapsed investment firm Blue Sky Alternative Investments Ltd (in liquidation), two former directors and its former auditor. After a carriage dispute, the Federal Court ordered the consolidation of competing actions and appointed Banton Group and Shine Lawyers as joint solicitors for the lead applicants.

Rather than relying on a third-party litigation funder, the solicitors proposed to self-fund the consolidated proceeding. In return, they would, at an appropriate stage of the proceeding, seek a Solicitor’s CFO. The proposed Solicitor’s CFO, if made, would allow the solicitors to receive a percentage of any settlement or judgment sum as remuneration for the value of their work and expenses incurred to conduct the proceedings and for their risks in funding the legal costs and disbursements[1]. This arrangement was disclosed in a proposed notice to group members and embedded in an amended costs agreement.

The question before the Federal Court and then the High Court was whether the Federal Court has the power under the Federal Court of Australia Act 1976 (FCA Act) to make such an order, where section 183 of the Legal Profession Uniform Law (NSW) (LPUL NSW) prohibits contingency fee arrangements for solicitors.

Federal Court decision

On 5 July 2024, the Full Court of the Federal Court held that sections 33V(2) and 33Z(1)(g) of the FCA Act empower the Federal Court to grant a Solicitor’s CFO upon, respectively, the settlement of, or judgment in, a class action proceeding.

In reaching this decision, the Full Federal Court reasoned that:

• the statutory provisions confer a broad discretion to make such orders as are ‘just’;
• a Solicitor’s CFO could be fair and reasonable, especially when disclosed to group members and approved by the Court; and
• section 183 of the LPUL NSW does not prohibit the making of a Solicitor’s CFO because the solicitor’s entitlement to a percentage of the judgment or settlement sum would be as a result of an order of the Court and not a payment under a costs agreement.

The Full Court’s decision represented a significant shift in the funding environment for class actions in the Federal Court, resulting in a special leave application to the High Court.

High Court decision

In a unanimous judgment delivered on 6 August 2025, the High Court confirmed the discretionary powers in sections 33V(2) and 33Z(1)(g) of the FCA Act permit the Federal Court to make a CFO at settlement or judgment stage. However, overturing the decision of the Full Court, the High Court concluded that neither provision empowers the Federal Court to make a Solicitor’s CFO where section 183 of the LPUL NSW or equivalent applies.

The key findings are:

• Solicitor’s CFOs are unlawful in NSW
  The High Court disagreed with the Full Federal Court’s analysis regarding the confined ambit of section 183 of the LPUL NSW. The High Court concluded that having regard to the object of the LPUL NSW (being to protect clients of solicitors and members of the public, amongst other things), a payment ‘under’ a costs agreement has an expansive meaning, is not limited to payments stipulated, or expressly provided for, in a costs agreement and encompasses an agreement or protocol which establishes a regime for seeking a Solicitor’s CFO.
• The Federal Court’s discretionary powers relating to settlement and judgment of class actions are constrained by State and Territory schemes regulating the legal profession
  Sections 33V(2) and 33Z(1)(g) of the FCA Act do not empower the Court “to make an order for payment from the settlement or judgment fund which is prohibited by law or gives effect to an agreement that is otherwise unlawful”[2]. The High Court clarified that it is not ‘just’ to make an order that would involve a contravention of the Legal Profession Uniform Law. Therefore, the Federal Court lacks power to order a Solicitor’s CFO in NSW and like jurisdictions where the solicitors’ rules do not permit contingency fees.
• Solicitor’s CFOs are contingency fees in substance
  For the purposes of section 183 of the LPUL NSW (and equivalent sections in other States), there is no material distinction between amounts paid for costs and disbursements and amounts received as commission or other payments for ‘risk services’. If the proposed payment has a connection with the performance of the legal services by the legal practitioner (which inevitably will be the case in solicitor funded class actions), it is captured by section 183. In other words, legal practitioners cannot overcome the prohibition on contingency fees by categorising the payment as something other than for costs and disbursements.
• No reopening of Brewster
  The Court declined to revisit its earlier decision in BMW Australia Ltd v Brewster (2019) 269 CLR 574, where it determined that the Federal Court does not have the power to order CFOs at an early stage of proceedings. The current case was distinguished as dealing with CFOs at settlement or judgment.

Implications

In those matters where funding is not available, the Supreme Court of Victoria will remain the jurisdiction of choice for plaintiff law firms due to its unique position arising under section 33ZDA of the Supreme Court Act 1986 (Vic). Section 33ZDA allows for group costs orders, functionally equivalent to Solicitor CFOs, at the commencement of proceedings if the Court is satisfied that it is ‘appropriate or necessary to ensure that justice is done in the proceeding’.

We expect the judgment will lead to renewed calls for legislative change to permit contingency fee arrangements in class actions in all States and Territories [as was recommended, in a limited form, in a report of the Australian Law Reform Commission dated December 2018 (ALRC Report)][3].Historically, a criticism has been that the inconsistent approaches and unavailability of contingency fees other than in Victoria frustrates the overarching objective of the Federal Court class action regime, namely, access to justice (particularly in relation to smaller actions) and is out of step with the position in United Kingdom, Canada and USA.

The Federal Labour government has not articulated a formal position on these issues (unlike the Coalition which proposed reforms, including greater regulation of funders).In 2022, the then Attorney-General, Mr Dreyfus indicated, in the context of the recommendations in the ALRC Report that he has ‘for many years been sceptical of contingency fee arrangements’ and shares the concerns of the Law Council of Australia as to the ethical issues this raises for plaintiff law firms[4].These comments mirror the conclusions in a federal Parliamentary Joint Committee on Corporations and Finance Services report published in December 2020.

For a number of reasons, it is unlikely there will be a change in the medium term:

• There has been a steady growth in product liability and consumer class actions over recent years, such as for example, the Toyota class action and the Woolworths and Coles action. Going forward, we expect this to continue, together with privacy related claims arising from the recent changes to the privacy laws, and environmental claims. Such claims will rarely, if ever, not have a link with Victoria. Therefore, the argument that claimants with smaller claims (such as consumers) are prejudiced because there is a disincentive for class action lawyers to pursue them will carry less weight in the context of these claims. The possible exceptions are employment related claims and claims against local government agencies.
• An increasing number of funders are entering the Australian market, which is considered a safe investment due to the established class action regimes. Funders are not adversely impacted by the judgment. In fact, the judgment will be considered a positive for those stakeholders as the High Court has now confirmed that funders (unlike plaintiff law firms) are able to obtain a common fund order at settlement and judgment stage in Federal Court proceedings.
• Earlier this year, the High Court confirmed that soft class closure orders are permitted in class actions in the Supreme Court of New South Wales[5]. This provides another level of certainty for funders where previously there were conflicting judgments on this issue.