“Vastly superior outcomes” – Morabito’s empirical study of Group Costs Orders

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Earlier this year, Professor Vince Morabito of Monash University’s Business School released his latest in-depth empirical report on class actions in Australia, this time looking at Victoria’s Group Costs Order (GCO) regime. Enacted in 2020 under section 33ZDA of the Supreme Court Act 1986 (Vic), GCOs allow legal costs to be a percentage of any award or settlement, shared among all group members. This change, recommended by the Victorian Law Reform Commission (VLRC), was designed to reduce the significant financial barriers victims of mass wrongs face in order to pursue justice.

“The GCO rate constitutes the only deduction from the gross settlement sum”

The Morabito Report notes that unlike traditional funding arrangements where multiple deductions are made from the settlement sum, the GCO rate is the sole deduction, ensuring a higher proportion of the settlement is distributed to class members. The report also highlights that this structure more closely aligns the interests of solicitors and clients, promoting fairer outcomes. Morabito’s analysis suggests a median GCO rate in shareholder class actions of 24%, with rates ranging from 14% to 40%.

Data provided in this report shows that since the introduction of GCOs, the median funding commission has decreased from 24.9% to 22.7%, which suggests that the availability of GCOs has exerted downward pressure on funding commissions, making litigation more affordable for plaintiffs. Additionally, this report notes that hybrid funding arrangements, where both GCOs and litigation funders are involved, have become more common, showing that by introducing a greater funding mix into the pool of options available to plaintiffs, competitive market pressures have indeed helped drive down legal costs and return more to group members affected by mass wrongs, as per the intended policy outcome of introducing GCOs to support class actions.

“The GCO regime provides a vastly superior outcome for class members”

Professor Morabito highlighted in his report that the most crucial factor contributing to GCO’s being a superior funding model to traditional third-party litigation funded cases, is that the GCO rate constitutes the only deduction from the gross settlement sum. This, he notes, stands in stark contrast to funded class actions in which the funding commission is only one of – and often the largest – deduction to be made, with further deductions often including legal costs, settlement administration costs and, on some occasions, After-the-Event Insurance.

Professor Morabito’s work also showed a significant fact that 15 out of the 16 GCOs that had been released at the time of the report, would guarantee class members a higher proportion of the gross settlement sums or awarded damages than the minimum 70% that the former Morrison Government sought to secure for them via a Bill it introduced in the Commonwealth Parliament in 2021.

This report found that empowering judges has been effective in managing GCO applications, and that judicial scrutiny of GCO applications has been rigorous, particularly in cases involving competing class actions, where courts have employed a multiplicity process to determine the most advantageous GCO rate for group members. Prof. Morabito noted this competitive element has resulted in lower GCO rates, benefiting class members by reducing the cost burden.

As Prof. Morabito observed, the positive trends in the number and diversity of class actions filed, coupled with the reduction in funding commissions, highlight the success of this legislative reform in the first three-and-a-half years of its life. 

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