Funders in the firing line – security for costs ordered in class action for Fair Work Act breach claims25 October 2019 | Procedure
The Federal Court has the power to order a litigation funder to provide security for costs despite the matter arising under the “no costs” jurisdiction of the Fair Work Act 2009 (Cth), and after consideration of the discretionary factors relevant to security applications, such an order was made.
- The court’s power to order a non party to provide security for costs.
- The relevance of the Fair Work Act 2009 (Cth) (FW Act) no cost regime to a security for costs application against a litigation funder.
These were two applications by which security was sought for the respondents’ costs. Each proceeding had a common applicant. Each sought the recovery of unpaid entitlements allegedly owing under the FW Act to workers at the Mount Arthur Coal Mine (the Mine). The Mine sought orders for security for its costs against the litigation funder (the Funder) for each set of representative proceedings.
The Mine argued that a rule has developed over time which provides that litigation funders are usually required to pay adverse costs in unsuccessful funded litigation. Given that such an order may be made, then security for this potential obligation should also be able to be ordered against such funders.
The Funder in these proceedings argued that notwithstanding the usual rules as to security for costs, there is no power to award security against a non-party funder, and even if there was such a power, it should not be invoked in proceedings such as these where a ‘no costs’ regime (under the FW Act) applies.
The Decision at Trial
The Federal Court concluded it was both within power and appropriate to make an order for security for costs against the Funder directly.
In relation to the issue of the power to make the order sought, the Federal Court rejected the Funder’s argument that there was no power outside s56 Federal Court of Australian Act 1976 (Cth) (Act) to award security to anyone other than a party to the proceedings. It was held that the Court had implied power, as a superior court, to make such an order, and that in any event, it also had power under s23 & s33Z of the Act to order the Funder to provide security for the respondents’ costs. In relation to the relevance of the FW Act ‘no costs’ regime, the Federal Court held that no section of the FW Act qualifies or confines any statutory or non statutory power of the court to order against costs against a non party.
Having established that there was power to make an order against the Funder, the court had to consider whether, as a matter of discretion, it should do so. Two arguments were considered: firstly, whether it was inappropriate to order security be provided in ’no costs’ jurisdiction proceedings; and secondly, whether it would be inequitable to do so given that the Funder was unlikely to be able to recover its costs against the respondents if it was successful.
The first argument was rejected. It was held that there was no compelling argument that the protection in s570 of the FW Act should extend to non party funders who are using such claims to obtain a commercial advantage. The second argument was more powerful, but not decisive or successful. Any unfairness to the Funder through an inability to recover its costs if successful on the claim could be covered by the pricing it offered for the litigation funding services.
No other discretionary factors (such as the possible stultification of the litigation, or the public policy consideration of the effect of the order on the availability of future funding for industrial class actions) persuaded the court to refuse the order for security for costs against the (non party) litigation funder.
The respondents established they were entitled to adequate security for their costs, which had been agreed at a combined amount of $3.1M.
Implications for you
This decision may impact the availability and the cost of litigation funding in class actions, particularly in the industrial relations area, which may previously have been perceived to be a no risk area. The court seems determined to level the costs playing field especially where funders are using the court's processes to obtain a commercial benefit from their funding operations.