Class Actions And Contingency Fees

1 Written By: B. Carroll 5th June 2009 WRITTEN ACCESS

TO

B Y:

B.

JUSTICE

CARROLL IN AUSTRALIA

ARE THERE DANGERS INVOLVED FOR CITIZENS AND THE LEGAL PROFFESION IN THE PROVISIONS OF CLASS ACTIONS AND IN CONTINGENCY FEE SCHEDULES?

‘[w]hen disputes occur, people have recourse to a judge; and to do this is to have recourse to justice, because the object of the judge is to be a sort of personified Justice. Also they look for a judge as an intermediary between them (indeed in some places judges are called ‘mediators’) in the belief that if they secure a mean they will secure what is just. So justice is a sort of mean, in as much as the judge is one... What

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INTRODUCTION

There are many ways in which to access justice in Australia, depending upon which litigation and legal support best suits each legal issue on its own merits,is a complex decision.

This paper shall

examine aspects of utilising contingency fees and class actions in Australia, the dangers that have been raised and the benefits also that can arise out of accessing this legal procedural mechanism and fee structure to achieve justice. Firstly examined will be the class action litigation and framework that is in place in Australia, with a brief overview of the dangers that 1

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are inherent in utilising such litigation in this area. The next part of the paper shall outline the two-way use of contingency fees by citizens and legal practitioners. In which areas of litigation fields’ contingency fee arrangements are found, and whether there are any dangers to citizens and the legal profession in using contingency fees schedules as a method of procuring clients and obtaining legal services. Taken as a whole, it is important to have numerous spheres of engaging access to justice for citizens. For having alternative methods and mechanisms to accessing justice, is to cater for the variation of differing legal issues that diverse individuals are faced with in Australia’s contemporary society.

Though all new mechanisms are

seemingly controversial initially, in time the legal and judicial profession will hopefully adjust to positive changes that enable society to access justice adequately within the legal system.2

C L A SS A C T I O N S

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2 3

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‘Class actions are political in the sense that they [class actions] are a public example of large numbers of ordinary citizens- whether they be consumers, shareholders, cartel victims or others- in conflict with large corporations or government. They bring to the fore fundamentally differing Class action proceedings have been part of the Australian Federal Court since 19924, and part of the Victorian Supreme Court since early January 2000.5 This procedural provision of legal action is to enable multiple citizens6 to engage in litigation where it would otherwise be prohibitive to recover compensation individually.7

The use of class

action litigation has developed slowly in Australia, owing to initial little interest, and that this was likely because of unfamiliarity with its purpose and potential.8 There has been much debate of class actions as a successful framework to access justice in Australia. This debate has arisen out of the historical narrow interpretation by judiciary of the parliamentary aims of class action regime. The aim of the provisions set out in the Federal Court of Australia Act and the Supreme Court of Victoria Act were to ‘provide a real remedy where, although many people are 4 5 6

,

That, where 7 or more people having claims against the same person, and where those claims are in respect of or arise out of similar or related circumstances. 7 Nichols & Gordon, op. cit., p.6. 8 Cameron & Murphy, op. cit., p.399.

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affected and the total amount at issue is significant, each person’s loss is small and not economically viable to recover in individual actions.’9 This narrow interpretation contributed in particular to substantial critique of judicial decisions that have had harmful consequences, where representative class proceedings have failed in the past against multiplerespondents. Moabite10 identified that difficulties have arisen with plaintiffswhom have sought to proceed with class actions against multiple respondents, due to the narrow interpretation of s 33C(1) by the Federal Court.

Morabito's in length details of the Phillip Morris

principal,11 where the class members of the representative action were ruled to not have common issues arise with each respondent.

This

particular case highlights a danger of when a judicial response to enacted legislation deviates from the reasoning of it enactment. From the outset of representatives’ actions courts have interpreted the commencement rules restrictively to discontinue complex class actions due to an apparent inefficiency or and inappropriateness’ for being class actions. Barry Lipp states that ‘a denial of access to justice to tort claimants who are unable to bring their claim in another forum and it militating against efficiency.’12

This is viewed in relation to

courts disinclination to deal with mass torts in a class action 9 10 11 12

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environment, which directly leads to claimants not being able to, and denied as such, to accessing justice. Lipp concluded that the inflexible barrier of interpretation to commencement requirements has restricted meritious claims, causing them to “fall at the first hurdle”.13 CONTINGENCY FEES

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‘[a]ll Australians, regardless of means, should have access to high quality legal services or effective dispute resolution mechanisms necessary to protect their rights and interests.’14

Contingency fees are an alternative payment arrangement for billable hours of professional legal services.

Under a standard

agreement of terms of engagement, the client will be liable to pay all fees and disbursements in relation to the matter of “action” on its completion.

There are limitations to contingency fees increasing

access to justice, as this is not a payment method to assist defendants. The US style of a client paying a percentage of their settlement in an action is illegal in Australia.

13 14 15

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The engaged lawyer/firm in general wait until their client has received a successful lump sum payment, before settling the account for the conduct of the “action”. If a claim is successful, the litigation costing of fees and disbursements are also able to be partly recovered from the other party. Though a pre-dominate danger is, if a claim fails, the client may be liableto pay both the engaged solicitors fees and disbursements and the costs and disbursements of the other party. This should in most cases be avoidable as a matter is only to be taken on if it has reasonable prospects of succeeding. With engaging professional legal services the client must accept advice to the conduct of the “action”, so asto work towards its success. If these directions are not followed, termination of agreement can occur and the client is liable for all costs that havearisen thus far in the action. This is a contractual arrangement for the legal professional to protect, in a small way, their costs in relation to time and efforts spent on a matter. Common

areas

of

legal

issues

where

contingency

fees

arrangements are often usedare in general civil litigation, work-cover, motor vehicle accidents and public liability. But also legal firms will use the contingency fee structure for defamation, employment and industrial law and unfair dismissals and professional negligence. These

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are all areas that the state and commonwealth funded legal aid commissions are not used to fund citizens’ legal pursuits. The Access to Justice Advisory Committee states they are not convinced that contingency fees are the answer to the problem of the already over-burdened legal system.16 Where it is that the state and commonwealth funded legal aid commission of South Australia will provide free advice with minor civil matters, but at the same time regards

Divorce,

Family

property

settlements,

Traffic

offences,

Conveyancing, Probate or claims on deceased estates, Complaints against

lawyers,

Complaints

against

Police,

Defamation

cases,

Neighbour and Fencing Disputes, Bankruptcy Act matters , Applying for or defending Restraining Orders, Unfair Dismissal applications, Minor Civil Claims, Victims of Crime Compensation and Commercial matters are all outside of the commissions normal scope of funding guidelines and criteria.17 This leaves a large group of citizens seeking access to justice within a legal mechanism, who are unable to afford normal methods of procuring legal assistance and which are also outside state assistance. 16

Access to Justice Advisory Committee (1994), Access to Justice: An Action Plan, AGPS, Canberra. Ch. 6 “Contingency Fees”, p. 35. 17 Legal Services Commission of South Australia web site, available at

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These citizens are left with the option of self representation or seeking out legal assistance under an alternative arrangement. Contingency fee arrangements alleviate the costs disincentive of taking legal action to access justice for many citizens.

C O N C LU S I O N 18

‘The result of the access-to-justice approach is a “contextual” conception of the law... The role of legal scholarship, and indeed the role of lawyers generally thus become much more complex, but also much more fascinating and realistic. To exemplify, it does not limit itself to describing the rules, forms and procedures applying to the acts of initiating a judicial proceeding or an appeal; it must also consider the costs to be borne, the time required, the difficulties

Thinking back to the classical interpretation of justice by Aristotle, it does appear to be a resounding reflection of the common law framework, that contemporary society does envisage judges are to be a provider of justice. When members of the judiciary are found to not follow this societal preconception and expectation held in them, by incorrectly interpreting the law, access to justice is severely restrained. However the notion of it being every citizen’s fundamental right to

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access justice, access to courts and the “justice of the judiciary”, in reality is costly and out of many citizens reach. Even though there havebeen numerous highly critical academic reviews of the use of class actions and contingency fee schedules for obtaining access to justice in Australia. It must be clearly noted that in all areas of legal remedies and all litigation methods, there is inherent danger to both public citizens who are seeking to access justice and the legal profession who raise their hand to help citizens’ access justice.

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REFERENCE LIST