Class action costs: Who pays the price?

Last updated on July 1st, 2025

Going to court is not for the faint-hearted and few of us have deep enough pockets to do it on our own. Class actions bring individuals together to seek redress without the fear of losing everything. But if you’re not paying for them, who is? And what does that mean for you in terms of compensation?

How are class actions funded?

Class actions are filed in the Federal Court or one of five state Supreme Courts on behalf of a lead or representative plaintiff against a person or organisation. Group members who have joined a class action, either by not opting out or actively engaging, are not named in the proceedings and do not bear any of the risks or costs except on the rare occasions they are self-funded.

Few individuals, however, would choose to risk losing everything, even if the chance of a significant settlement was high. Finding a lead plaintiff to start a claim would be almost impossible, so most class actions are funded in one of two ways:

• • No win, no fee – The legal firm running the class action carries the risk by agreeing to waive fees unless the case is successful. This usually means a significant uplift in those fees to mitigate the risk.
  • Litigation funding – A funder pays the representative’s legal fees, indemnifying them against adverse costs and providing security. In return, they are reimbursed for all associated costs and receive a percentage of the settlement.

 

 

Most plaintiff firms have relationships with funders, so the risks and associated costs – as well as any rewards – will be shared. More than 40 class actions have settled for $50 million or more, with the majority of those funded class actions.

What about contingency fees?

In 2020, the Victorian Supreme Court enabled lawyers to recover a contingency fee, rather than simply bill hours or other associated costs.

Also known as group cost orders (GCO), they enable legal firms acting for the lead plaintiff and group members to recover legal costs as a percentage of the settlement amount. Lawyers argue this provides greater transparency, simplicity and certainty for all parties.

The Federal Court’s decision to allow contingency fees in 2024 has further cemented the practice, which has proved lucrative in the United States.

In its judgement, the court said the arrangement would require the fully informed consent of the applicants and the class members, with adequate notification for class feedback.

Lawyers said it would “increase access to justice, while also increasing competition in the funding market... ultimately for the benefit of the applicants and group members”.

Who pays for legal expenses?

It is expensive to hire a lawyer, let alone take a case to court. In Australia, the loser pays, so if a class action claim is unsuccessful, the plaintiff will have to bear their own costs as well as the defendant’s.

And the costs add up – everything from legal fees to court filing fees and other out-of-pocket expenses. These are calculated against a court scale, so there is a limit to the amount a successful party can claim for legal fees and services, but the amounts are substantial.

 

 

As legal firms or third-party litigation funders, or a combination thereof, are usually the ones underwriting the class action, individuals – whether lead plaintiff or group members – do not have to pay legal expenses.

These will, however, be deducted from any settlement and are significant, with many criticising the amount paid to law firms and funders in successful class actions.

How do the costs affect any potential settlement?

A survey by the Menzies Research Centre (MRC) found that 75 percent of Australians believe parties other than the claimants benefit the most from class action settlements, with MRC executive director David Hughes calling for a cap on payouts to big law firms and litigation funders.

The findings come on the back of settlements where large slices were awarded to the lawyers and funders involved, including:·

• • $30 million to litigation funders LLS Fund Services and $15 million to Shine Lawyers for a $180 million settlement over Aboriginal stolen wages
  • Litigation funder Galactic awarded more than $24 million from a $98 million settlement against 7-Eleven
  • A law firm claiming the entire $11 million settlement against the operator of retirement communities as legal costs, leaving the applicants nothing

Of the 1600 people surveyed by MRC, 74 percent believed the “no-win, no-fee" model was the most appropriate way to fund class actions, while 43 percent supported crowd funding via campaigns and 31 percent were in favour of self-funding where possible. Only 24 percent believed litigation funding was appropriate.

Lawyers argue that courts determine whether a settlement is appropriate and if it is in the best interest of the group members as a whole. They, or their funders, are also carrying the risk and will have to pay all costs if the case is unsuccessful.

 

 

What does that mean for you?

If you are the lead plaintiff in a class action, you are involved in the settlement negotiations and will generally receive a bigger slice of the settlement for the time and inconvenience involved.

If you are a group member, however, your slice is likely to be much smaller. For example, the settlement of up to $127 million for two class actions against Volkswagen, Audi and Skoda for emissions cheating was believed to net group members an average of $1400 each.

 

 

More recently, legal firms involved in a $170 million class action settlement against Allianz for selling so-called junk insurance were awarded 25 percent – $42.5 million – of the deal, while group members were expected to receive modest returns.

While you could argue that any payout is money for jam, given that you aren’t required to do anything and take no risks as a group member, you shouldn’t join a class action expecting to get rich. But if you are looking to address a wrong, it is a great way to hold big companies to account and get some form of justice.

Can we help?

If you think you have an issue worthy of a class action, make a complaint with us. We can help identify if you’re part of a bigger group.