What Is a Common Fund Order (CFO)?
Read this article to find out what a Common Fund Order (CFO) is and how recent Court rulings have changed how they operate.
A common fund order (CFO) is a court order. This court order requires group members in a class action to pay their proportionate share of a funder’s commission. This is taken out of the proceeds of a judgment or settlement.
Essentially, this means that all the members of a class action must pay a commission to the lawyers who lead the case. The payments are from the fund’s received from a case’s judgment or settlement.
The High Court of Australia has recently ruled on Common Fund Orders. Their ruling affecting that litigation funders are not able to claim a proportion of any settlement\judgement as a return on their investments. They can only recoup:
- Costs of litigation
- Any commission payable in respect of those group members who entered into a funding agreement.
Whether a class action case has a common fund order, and the terms of the order, are up to the judge. The class action litigation must demonstrate, and the judge must find that the order sought is “appropriate or necessary to ensure that they find justice in the proceedings”. Furthermore, evidence will be necessary to support and inform the terms of a Common Fund Order.
How have Common Fund Orders changed?
In December, the High Court ruled that neither the Federal Court nor the NSW Supreme Court had the powers to make Common Fund Orders (CFOs) sought in two separate class actions, each early in the litigation. HCA ruled in these cases that the ‘lower’ courts can not make a common fund decision. Since common fund orders became a popular way for litigation funders to make class case financially viable, this was a significant shift in class action law.
The Brewster case suggested that litigation funders would seek other ways than using CFOs to make a class action plan financially feasible or not to bring a class action in any way. However, changes occurred that didn’t make Brewster as important as it first seemed.
Availability of CFOs
A CFO is an order requiring group members to pay the class action case funder ‘s fee on settlement or judgement proceeds. That they’ve entered the funding deal with a litigation organisation offering to pay a fee. Cost is typically a proportion of the decision ‘s total settlement or interest.
In the early stages of court proceedings, filing for CFOs before Brewster was common for class action plaintiffs. When the court accepted the appeal, the court must appoint a CFO at the time of the judgement. The court also reserved the right to review the proposed funding committee. The court did not name a CFO, but rather made sure to make a potential pick. Nevertheless, these orders gave some assurance to litigant donors that the Commission they wanted would make the CFO and also trust that if successful, they would earn a return on their litigation investments.
On the basis of the minimal cases to date, CFOs are still available during settlement. However, at the earlier stages, a litigation funder is cannot be confident that one will be made during settlement.
Daniel is a legal intern at Lawpath, working in the content team. He is currently studying a Bachelor of Laws and a Bachelor of Economics at the University of Technology Sydney. He is interested in the areas of public, commercial and workplace law.