The Price of Justice – Who Really Wins Class Actions?

It is widely accepted that access to justice is a valued pillar of the Australian Justice System. It provides citizens, who would otherwise be unable to cover the costs of a solicitor, with the opportunity to instruct a solicitor from Legal Aid at a subsidised fee.

In complex matters, legal fees can accumulate rapidly as medical or industry experts and barristers become involved in a case. In addition to this, an adverse costs order may be made against the losing party meaning that that party needs to cover the legal fees for the successful party. It is plainly obvious that many individual citizens cannot afford these costs without assistance.

Class actions provide an opportunity for a group or ‘class’ of society who are affected by the same issue to commence legal action against a corporation or government body. The cost of these matters is significant and can limit the opportunity for any amount of compensation to be awarded in their favour. Although beneficial in many areas of law, Legal Aid does not provide assistance for class actions.

The concept of litigation funding was developed in Australia and has since been paralleled overseas. Litigation funders pay the upfront legal fees and receive a percentage of the settlement money should the class action be successful. It is an unusual business model which sees these organisations receive a considerably large payout in comparison to each individual member of the class action. The dangers of this sort of business have been reflected in the recent Court decision between the Department of Defence and the residents of three communities.

In November 2016, a class action was filed on behalf of 500 residents in Williamtown, New South Wales after toxic chemicals in firefighting foam run-off from the nearby RAAF base had contaminated the ground and water on their properties. These chemicals, commonly referred to as “PFAS” are substances that have historically been used at Defence bases because of their ability to extinguish liquid fuel fires. They have a dangerously long-lasting presence in the environment and scientists are yet to determine their half-life.

The media frenzy that followed this development resulted in two additional class actions being filed. The second was for the community of Oakey in Queensland. These people were suffering from the same toxic contamination problems because of the proximity to Defence bases and the nature of the chemicals themselves. The presence of PFAS in the blood level of a five-year-old girl in Oakey was recorded as 30 times the national average.

The third class action to be filed against the Department of Defence came from the community living near the Tindal RAAF base just outside of Katherine in the Northern Territory. All three class actions were backed by the same litigation funding company.

Earlier in 2020, the Department of Defence offered to settle all three class actions for a total of $212.5 million. Although seemingly triumphant, the relief of the win was short-lived for the members of these communities.

The first class action, comprising of 500 individuals from Williamtown, were awarded $54 million, totalling $108,000 each. Although on paper that seems like a large amount, the residents were still stuck with their contaminated land and undrinkable water, and most unfortunately without enough compensation to leave their properties.

The people of Oakey from the second class action, who were given an estimated payout of $200 million, only received $16.4 million in the settlement. This amount was to be shared amongst 450 individuals, equating to around $36,000 each. A far cry from the $444,000 each that was originally predicted.

The legal fees for these proceedings totalled $30 million and the litigation funder received $51.5 million from the settlement. Meaning that only 60% of the settlement proceeds went to the affected members of the communities.

The loosening of legal reform has resulted in the frequency of class actions increasing significantly in recent years. In addition to this, the use of litigation funders has also increased considerably. In another class action that was commenced against the Bank of Queensland, $12 million was awarded to the customers who had had their retirement savings misappropriated. This was another situation where the success was short lived. The lawyers and litigation funder billed the group $11.75 million, a figure that was regarded as “plainly disproportionate” according to Justice Murphy. His Honour went on to say that the Court system “should not be undermined by proceedings that disproportionately benefit the funder and/or solicitor rather than the litigants”.

As litigation funders are a relatively new branch of the Australian Justice System, there is currently little regulation upon their operation. In the case against Bank of Queensland, Justice Murphy stated that one-third of the settlement money must be set aside for the claimants. Similar percentage caps on fees or settlement monies will likely be introduced in the coming years as a result of the parliamentary inquiry into litigation funding and the regulation of the class action industry, which is due to hand down its findings in a report on 7 December 2020.