One of the most significant class action judgments has been handed down.

Lawyers have warned of a possible “rush” to the courts to file class actions after the full Federal Court gave the green light to controversial common funds, allowing anyone affected in a lawsuit to be included in a payout and requiring them to hand a commission to funders.

The decision , in a matter involving insurer QBE brought by litigator Maurice Blackburn, is the most significant handed down since the court approved litigation funding in 2006, said Herbert Smith Freehills partner Jason Betts.

Mr Betts warned that the judgment would encourage the filing of larger class actions – as the larger the class the greater the return to funders – and that business will carry the cost.

“It may also promote a ‘rush to the courthouse’ by class action promoters – especially newer players – seeking to capture the class before their competitors can,” he said.

There was a risk that this would occur at the expense of “proper due diligence on the merits of the class action, often linked to the book-building process”, he warned.

Under the ruling, the court will allow costs sharing and a commission to the litigation funder on all of the group members that benefit, regardless of whether or not they signed an agreement. Safeguards include that the court will determine the commission rate and may impose a cap on the total.

Mr Betts said that it may mark the end of “closed classes” which include only those who have signed up with the litigation funder.

A “big unknown” was how the court will decide the level of commission that should go to the funder, he said. Fewer “copycat” proceedings was among possible advantages, but he warned that businesses would carry the cost of bigger and better-funded class actions.

“The court appears to accept that burden as the price of greater levels of access to justice.”

‘Wrong way to go’

Jones Day’s head of class action defence in Australia, John Emmerig, said reform was “urgently needed” to turn the ruling around, saying that common fund orders were “the wrong way to go”.

“Funders drive the class action market and they stand to make a lot of money from the QBE decision,” he said.

“If this development stands … it will ultimately be at the expense of class members and bring with it a bigger burden on the entire system.

“Class actions will get larger, harder to resolve and we will see an increase in poorly considered and poorly investigated claims being filed as funders engage in a race to the registry to get their class action filed first to try and ‘capture the ground’ because common fund arrangements cut out the need for funders to spend time book-building before they file.”

Maurice Blackburn has championed the win as one that will drive down costs for claimants and increase access to justice. The win follows a previous failed attempt by the firm to get court approval for a common fund in a shareholder class action against Allco .

The parties to the matter must now file submissions on the “precise form of the orders and the undertaking, including the funding terms”, before the court rules on the fund.

Victorian court fielding more claims

On Thursday, Victorian Supreme Court chief justice Marilyn Warren said that the court was “increasingly attracting large-scale litigation to our jurisdiction, including investor-based, consumer and personal injury class actions, and claims for disaster damages”.