GPT Class Action Settlement Raises Concerns About Legal And Funding Fees Charged In Australian Class Actions

Key Points

The 7 November 2013 and 21 June 2013 judgments of the Federal Court in the GPT class action settlement1 signal that the fees charged by law firms to class members will be the subject of greater scrutiny at the settlement stage. A possible divergence between the Federal Court and the Victorian Supreme Court may be developing as to the extent to which litigation funders' fees will be permitted to be allocated at the settlement stage to unfunded group members. This may impact where class actions are filed in the future. The case signals the possible future adoption by the Federal Court of the US common fund approach to legal fees in class actions. Summary

The GPT class action was brought by shareholders alleging that GPT Management Holdings Limited and GPT RE Limited (collectively "GPT") had engaged in misleading conduct and breached its continuous disclosure obligations. The class action settled.

On 21 June 2013, the Federal Court approved the settlement sum of $75 million inclusive of interest and legal costs but refused to approve the sum of $9.3 million claimed in respect of the applicant's lawyer's legal fees and disbursements and the sum of $53,530.85 claimed in respect of the applicant/representative party's expenses in prosecuting the claim on its own behalf and that of group members. Both requests for approval were referred to a Registrar of the Court to conduct an assessment and report back to the Court. The Registrar reported back, and a further judgment was delivered on 7 November 2013 with $8.5 million awarded for legal fees and disbursements and $10,000 awarded for the applicant/representative party's expenses.

Further, the Court rejected the litigation funder's attempt to recover a percentage fee from group members who had not entered into funding agreements. However, an amount equivalent to the fee was deducted from the non-funded group members' recoveries and redistributed to all group members. Interestingly, the Court had no difficulty in requiring group members who had not entered into a retainer and costs agreement with the lawyers to be required to contribute pro rata to the legal fees once they were approved.

The GPT class action judgments signal the Federal Court's growing interest, and concern, as to how class action recoveries are divided up amongst lawyers, litigation funders, applicants, funded group members and unfunded group members.

Applicant's Lawyer's Legal Fees

Justice Gordon of the Federal Court stated that there were two aspects to the request for the approval of legal fees. The first was that the amount approved by the Court was to be shared on a pro rata basis by all group members irrespective of whether they executed a Legal Costs Agreement ("LCA"). The second aspect concerned the quantum of the professional costs and disbursements incurred by the applicant's lawyers for which the law firm sought approval from the Court.

The first issue deserves comment because the liability to pay legal costs in a class action in Australia was always thought to be...