Published 12-11-2020
| Article appears in November 2020 Issue

Court Overturns Decision on Security for Fair Work Class Action Costs

12-11-2020

The Australian Industry Group has expressed its disappointment at the ruling of the full bench of the Federal Court in overturning the decision of Justice Michael Lee that compelled litigation firms to provide security for costs in Fair Work class actions.

Justice Lee had ordered Augusta Ventures – a UK-based litigation funder- to provide security up-front for the costs likely to be expended by the relevant employers in defending a class action.

The decision in the Turner v Tesa Mining case was regarded as a landmark ruling because it could act to deter some of the growing number of class actions being launched under the Fair Work Act.

In this case, the applicant brought representative proceedings in the Federal Court on behalf of employees who had worked at the Mount Arthur Coal Mine through two labour-hire firms from 2012 to 2018.

The proceedings alleged that a number of employees were wrongly being treated as casual employees by the labour-hire firms and sought compensation for unpaid entitlements as well as orders for pecuniary penalties.

The labour-hire firms sought security for costs directly against the funder of about $1 million each, which Justice Lee granted. However, Federal Court Chief Justice James Allsop ruled that an order could not condition, or threaten to condition, the rights of the applicant and the group members’ rights because of a prospective liability of AVL for cost

Ai Group chief executive Innes Willox said it the decision by the full bench was disappointing, but the court did not rule out Augusta Ventures being required to pay the employers’ costs at the conclusion of the litigation, if the claims were rejected.

Mr Willox said Justice Allsop highlighted the absence of regulation that required foreign litigation funders to have proper capitalisation or sufficient funds in Australia.

“This could impact upon employers being able to recover their costs in class action litigation and this regulatory gap needs to be addressed without delay,” Mr Willox said.

He said comprehensive litigation funding legislation needed to be implemented requiring licence holders to:

Have sufficient capital in Australia;
Act in the best interest of plaintiffs at all times;
Fully disclose funding arrangements to plaintiffs and the court;
Ensure that any returns are reasonable, having regard to Returns on Invested Capital (ROIC) being earned at the relevant time for other classes of investments with similar risks; and
Pass, on an ongoing basis, a “fit and proper person” test.
"A parliamentary inquiry is currently looking at the need for reforms to class action and litigation funding laws, and Ai Group has put forward a comprehensive reform plan,” Mr Willox said.

"An Australian Law Reform Commission report last year on Class Actions Proceedings and Third-Party Litigation Funders reported that, in cases involving litigation funders, the median return to plaintiffs is only 51 per cent of the amount awarded, while in cases not involving litigation funders the median return to plaintiffs is 85 per cent.  This highlights that the current arrangements are not benefiting plaintiffs and that reforms are urgently needed."

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