Solicitors’ Common Fund Orders ruling

Overview:

In a significant ruling for class action practice in Australia, the High Court has unanimously held that the Federal Court cannot approve Solicitors’ Common Fund Orders (Solicitors’ CFOs) at the time of settlement or judgment where doing so would breach State laws prohibiting contingency fees.

This overturns the Full Federal Court’s earlier decision, which had found the Court did have power to make such orders.

The proceedings, Kain v R&B Investments Pty Ltd [2025] HCA 28, arose from class actions against Blue Sky Alternative Investments Ltd and former board member, CEO and the group’s former auditor, EY.

The two separate class action commenced were consolidated after Federal Court intervention proceedings had been commenced, and the solicitors for the applicants sought orders to allow them to be paid a percentage of any recovery – the Solicitors’ CFO – in addition to their legal costs and disbursements.

Key points:

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• The proceedings involved class actions against Blue Sky Alternative Investments, former directors, and EY as auditor.
• Solicitors had sought a CFO allowing them to be paid a contingency fee, i.e. a percentage of the recovery, not just legal costs.
• The NSW Legal Profession Uniform Law prohibits contingency fee arrangements.
• The High Court found that making a Solicitor CFO in these circumstances would effectively enforce a prohibited contingency fee, which the Federal Court has no power to do in NSW.
• The decision preserves state-based limits on solicitor remuneration and limits attempts to use CFOs to replicate Victoria’s Group Costs Orders regime in Federal Court proceedings.

Implications:

• Solicitor CFOs are not available in Federal Court proceedings where the law firm is operating under a state law that prohibits contingency fees.
• Victoria remains the only jurisdiction where law firms can seek percentage-based fees through Group Costs Orders.
• Likely to result in continued concentration of class actions in Victoria unless or until national reform occurs.
• Litigation funders remain unaffected – the Court reaffirmed CFOs in favour of funders are permissible.

Ashley Hill acted for former Blue Sky CEO Robert Shand in the class action. He instructed Michael Hodge KC and Georgina Westgarth of Counsel, in the High Court in March to argue the appeal.