Damages by another name: recovering litigation funding costs in class actions


Posted By and on 12/03/24 at 8:53 AM

You’ve got to hand it to litigation funders. They continue to explore novel ways to ameliorate the significant cost of class action litigation.

In Hunt Leather Pty Ltd v Transport for NSW (No 4), the NSW Supreme Court determined that the litigation funding arrangement in that case did not constitute a recoverable head of damage for class members.

The case is decided in the context of case specific common questions. However, the judgment suggests that, notwithstanding the funder’s legal creativity, courts are unlikely to enable funders to recover their commission as a component of damages. At least, when viewed within traditional common law principles.

Litigation funding: a cost of doing business or a recoverable head of damage?

Class actions in Australia are typically backed by litigation funders. Otherwise, very few (if any) would get off the ground. Most class actions settle (subject to Court approval) and the funder will recover an agreed percentage of the settlement sum (usually in the range of 30-40%) as return for having borne the cost and risk of running the action. This is well trodden territory.

Litigation funding is viewed in terms of costs but has never been considered recoverable as a substantive component of the damages awarded. If it was classified as a recoverable head of damage, then the funding model would have an additional layer of in-built recovery protection. The attraction for funders and the plaintiff community is readily apparent.

When push comes to shove, common law principles prevail

At the heart of the dispute, and ultimately the judgment, was whether incurring a funder’s commission was a reasonably foreseeable, not remote and causatively linked outcome of the tortfeasor’s negligence. Perhaps not surprisingly, the Court was not prepared to break new ground on any of these traditional factors.

In reaching this decision, Cavanagh J. distinguished between costs resulting from the defendant’s misconduct and those arising from decisions made by the plaintiff, such as opting for litigation funding. His Honour determined that, although litigation funding is crucial for enabling many plaintiffs to access justice, these costs are not directly linked to the harm caused by the defendant’s actions. This finding highlights the idea that compensatory damages are meant to return the plaintiff to their state before the wrongdoing, not to reimburse the costs incurred from conducting the lawsuit. That component belongs to the world of costs.

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