"You get to a stage where even if a 60 per cent of their claim offer was made [by Appco], you would be in a situation where people are getting less than a quarter, on the analysis, of their claim.

"And that raises real issues about the ability for the court to regard any settlement, in these circumstances, fair and reasonable in the interests of group members."

Settlements will be 'increasingly difficult'

The comments by the foremost class action judge in Sydney, who himself ran large-scale class action cases as a barrister, raises potential obstacles for the wave of litigation that has swept the no-cost employment jurisdiction in the past few years.

Adero has been at the forefront of claims in this area, heading three class actions over charity worker underpayments and lodging $325 million of class actions in the mining industry on behalf of casual labour hire workers.

John Emmerig, head of litigation at Jones Day, said when legal fees and funder commissions end up near or above half a settlement sum, "that clearly signals the system is not working".

"These sorts of cases are going to get increasingly more difficult to settle – which is in no one’s interest – unless something changes," he said.

"And that something needs to be legislative reform to regulate the returns that funders can make in promoting class action litigation."


Concerns have also been raised about Adero's funding agreement for its mining class actions and the Australian Securities and Investment Commission this year started investigating the deal over employers' claims that it was "misleading and deceptive".

Australian Industry Group has argued the Augusta Ventures deal buried details of its 250 per cent return on legal costs in the back end of a complex, 50-page document and was unlikely to be understood by claimants.

'This is not commercial litigation'

In the Appco hearing, Justice Lee told Adero's counsel Dr Kristine Hanscombe, QC, the Harbour Litigation funding arrangement "troubles me".

"You're inevitably going to end up in a situation down the track where you've got people with relatively modest claims being in a situation where, even if they were entirely successful, they're going to enjoy the benefit of less than half their claim."

The $90 million Appco matter involves some 950 group members, but Dr Hanscombe told the court the "overwhelming majority" of workers' claims were modest.

"They are the people that you see selling charity raffle tickets outside the supermarket, wearing a branded polo shirt. Their entire remuneration is commissions. They don't have any wage. This is the only way they can have access to any recompense."

Justice Lee said that was "exactly" his concern.


He said the "old idea" of a funder getting a 40 per cent cut or four times legal costs was "fantastic in the true sense of that word" when applied to low-paid claimants.

"I mean, the fact is this is not commercial litigation," he said.

Dr Hanscombe said she would "give consideration" to the judge's concerns.

Adero Law principal Rory Markham said Harbour Litigation had been the only funder to back the Appco case at the time but that since 2016 there had been a "real reduction" in funding commissions due to the entrance of new investors.

He said a 20 to 30 per cent funder return was now likely to be acceptable by the courts.

"Funders, including Harbour Litigation, are very mindful of the court’s role and do seek to achieve settlements that support the principals of access to justice."