Court approves landmark GCO settlement in favour of group members

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This judgment was the first occasion on which the Supreme Court of Victoria considered the power to vary a group costs order (GCO) pursuant to s 33ZDA(3) of the Supreme Court Act 1986 (Vic) in the context of a settlement approval application. The proceeding was a ‘guidance case’ brought by Slater and Gordon (S&G) in November 2020, and the first class action where a GCO was made under s 33ZDA of the SC Act (in February 2022 at a rate of 27.5%). The class action settled in March 2024 for the sum of $46.5 million. In terms of the settlement, Watson J: approved the proposed settlement as fair and reasonable; appointed S&G as the administrator of the Settlement Distribution Scheme; and approved administration costs of $350,000 (and, in doing so, held that “[p]roperly construed an order under s 33ZDA does not extend to administration costs”).

As this was the first occasion where the Court considered possible variation of a GCO in a settlement approval context, Nichols J appointed a contradictor and S&G were granted leave to intervene on the question of whether the GCO should be varied. In summary, no party submitted that the GCO rate should be varied: the plaintiffs did not seek to vary the GCO rate; S&G contended it should remain the same; no class member objected to the rate; and, during the hearing, the contradictor accepted there were no grounds to reduce the GCO rate.

S&G initially provided limited evidence (on a confidential basis), but ultimately tendered further evidence that his Honour found was of assistance in determining whether to vary the GCO. The evidence tendered by S&G, which his Honour noted would “generally be of assistance” in future such applications, included:

• Information regarding the hours worked by the legal practice on the proceeding. In this case, the hours worked by S&G staff totalled approximately 13,000 hours.

• The actual costs incurred by the firm for labour, overheads, disbursements, financing costs and insurance (if any). Although S&G did not do so, his Honour suggested that actual costs could be determined by calculating “the professional costs on an hourly rate basis and removing the practice’s average profit margin”.

• The costs which would have been charged by the firm on an hourly rate basis. S&G’s professional fees on an hourly rate basis (inclusive of GST but excluding any allowance for uplift) would have been approximately $5.8 million (also noting that S&G expended on disbursements (inclusive of GST) approximately $3.3 million).

• Appropriate financial metrics, including the return on investment and internal rate of return.

His Honour set out several principles relevant to the exercise of the power under s 33ZDA(3) of the SC Act – including most relevantly:

• The power to amend a GCO should only be exercised if the Court is satisfied that circumstances now mean that an amendment is appropriate or necessary to ensure that justice is done in the proceeding. Whilst the language of s 33ZDA(3) of the SC Act contains no express limitation, such a limitation arises by necessary implication from the structure of s 33ZDA and the conditions on the original exercise of power under s 33ZDA(1).

• Close attention should be paid to the reasons for the original GCO.

• The Court should ensure that costs payable to the lawyer under the GCO remain proportionate in that they continue to represent an appropriate reward in the context of the effort and investment of the legal practice, the duration of the proceeding and the risks which were undertaken under the GCO.

• Where the outcome of a proceeding falls within the range of estimates relied upon by the legal practice in support of its application for the original GCO or where the outcome falls outside those estimates but not substantially so, this will weigh against amending the GCO percentage on account of a lack of proportionality.

Ultimately, his Honour concluded that he was “comfortably satisfied” that there was no basis to vary the GCO in this matter (and noted there were “substantially higher settlement outcomes which would similarly not have warranted” variation of the GCO rate). His Honour reached this conclusion for various reasons, including: 

1. the GCO rate was reasonable having regard to the effort S&G devoted to the proceeding, and the associated risks; 

2. the benefits of certainty and transparency in making the GCO, upon which the Court had placed considerable weight, did not support any exercise of the power to vary the GCO; 

3. a comparison with litigation funding was a “very strong factor militating against” varying the GCO (and the evidence on this point was “even stronger” at settlement than when the GCO was initially made); 

4. the various financial metrics indicated that S&G’s ‘return’ was reasonable and appropriate; and 

5.  the absence of any party or the contradictor submitting that the GCO be varied was a factor which weighed “significantly in the balance in favour of leaving the percentage”.

Allen & Anor v G8 Education Ltd (No 4) [2024] VSC 487 (28 August 2024)

Supreme Court of Victoria, Watson J, 28 August 2024
Plaintiffs’ Solicitors: Slater & Gordon
Defendant’s Solicitors: MinterEllison
Plaintiffs’ Funder: N/A

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