What Kain v R&B Investments means for anyone in a class action

The short version

On 6 August 2025 the High Court decided that the Federal Court cannot order that a law firm running a class action be paid a percentage of the settlement. Litigation funders can still receive court-approved commissions. Solicitors cannot obtain a percentage-based recovery through a solicitors’ common fund order in the Federal Court, and New South Wales law continues to prohibit contingency fee arrangements.

If you are a group member in a class action, this decides who takes a slice of your money and how big that slice can be. If you are thinking about starting one, it decides how the action can realistically be paid for. It is worth ten minutes of your attention, because it is the kind of ruling that changes what you will be offered without anyone necessarily explaining why.

What the case was actually about

The proceedings arose out of the collapse of Blue Sky Alternative Investments. Investors sued the company, several of its former directors, and its former auditor, Ernst & Young.

The applicants’ solicitors were funding the case themselves rather than using a litigation funder. They asked the Federal Court to make what is called a solicitors’ common fund order: an order that, at settlement or judgment, they be paid a percentage of the total recovery, on top of and separate from their legal costs. Every group member would contribute to that percentage, whether or not they had signed anything with the firm.

The Full Court of the Federal Court held that it had the power to make such an order. Three parties appealed to the High Court.

What the Court decided

Two things, and the second is easy to miss.

First, the Federal Court does have the power to make common fund orders. Sections 33V(2) and 33Z(1)(g) of the Federal Court of Australia Act 1976 let the Court make orders that are “just” about how settlement money is distributed, and a common fund order can be one of them. That much was confirmed unanimously.

Second, that power does not extend to an order in favour of the solicitors. Section 183 of the Legal Profession Uniform Law (NSW) prohibits a law practice from entering a costs agreement under which the amount payable is calculated by reference to the amount of an award or settlement. Contingency fees, in other words. The Court’s reasoning was that an order which produced the very outcome the legislation prohibits could not be a “just” order. The prohibition could not be worked around by having the Court impose the arrangement rather than the client agree to it.

So the answer turned on the words of the statute rather than on any view about whether percentage fees are good or bad policy.

Two things the Court expressly did not disturb. It did not reopen BMW Australia Ltd v Brewster, which held that common fund orders cannot be made at the start of a proceeding. And it did not touch the position of litigation funders, who are not law practices and are not subject to the Uniform Law. A funder can still be awarded a court-approved commission at settlement or judgment.

The part almost nobody joins up

There is a second High Court decision from 2025 that matters here, and the two are rarely read together.

Victoria is the exception to the national position. Under its group costs order regime, the Supreme Court of Victoria can order that a plaintiff firm be paid a percentage of the recovery. That regime is real, and it has drawn class actions to Victoria.

But in Bogan v The Estate of Peter John Smedley (Deceased) [2025] HCA 7, decided earlier the same year, the High Court held that a group costs order made by the Supreme Court of Victoria is incapable of enforcement in another court, and that the existence of such an order is a relevant consideration when a court decides whether to transfer a proceeding elsewhere.

Read together, the two decisions close a loop. A percentage arrangement is not available to a New South Wales solicitor in the Federal Court, and a percentage arrangement obtained in Victoria does not simply travel with the case if the case moves.

What this means if you are a group member

The decision does not alter the general position that group members ordinarily face no adverse costs exposure merely because they remain group members. A group member in a class action still carries no costs risk. Under section 43(1A) of the Federal Court of Australia Act, and section 181 of the Civil Procedure Act 2005 (NSW), the Court cannot order costs against you except on issues specific to your own claim. If the action fails, you pay nothing.

What has changed is who can be paid out of your settlement, and how. Before Kain, there was a live prospect of plaintiff firms taking a percentage in the Federal Court in the same way funders do. That prospect is gone. What comes out of a settlement in New South Wales now is: the solicitors’ assessed legal costs, possibly with an uplift; a funder’s court-approved commission if there is a funder; and the cost of administering the distribution scheme.

One practical consequence. A percentage arrangement is not always worse for a group member than an hourly one — sometimes it is considerably better, because it caps what the lawyers take at a known share. Removing the option does not automatically mean more money reaches the group. It means the deduction is calculated a different way, and it makes the costs assessment at settlement approval more important than it was.

If you receive a settlement notice, the scheme attached to it will set out every deduction. That is the document to read, and if the numbers do not make sense for someone in your position, group members have a right to be heard before the Court approves it.

What this means if you are considering starting one

The funding conversation is now narrower and clearer. In New South Wales there are three ways a class action gets paid for, and one of them is unavailable.

A litigation funder pays the costs and indemnifies the lead applicant against adverse costs, in return for a court-approved commission. A conditional costs agreement lets the solicitors act on a no-win-no-fee basis, recovering assessed costs plus an uplift of up to 25 per cent if the action succeeds, which suits smaller groups a funder would not engage with. And a percentage of the recovery is not available, whatever anyone tells you.

That last point is worth holding onto. The High Court’s decision indicates that, in New South Wales, solicitors cannot obtain a percentage-based return through a solicitors’ common fund order in the Federal Court. Anyone considering a class action should obtain advice about the funding model being proposed and how deductions will be calculated.

The question to ask

Whichever side of a class action you are on, the useful questions are the same three, and they have not changed:

1. What will be deducted from the settlement before the group is paid, and in what order?
2. Who approves those deductions, and when do group members get to see them?
3. What happens to the person whose name is on the proceeding if it fails?

Kain changes the answer to the first question in New South Wales. It does not change the fact that you should ask it.