I INTRODUCTION TO CLASS ACTIONS FRAMEWORK
Class actions in Australia are also known as group (or grouped) proceedings. There are regimes for class actions in the Federal Court of Australia and the Supreme Courts of Victoria, New South Wales and Queensland.2 While there are some minor differences, the New South Wales, Queensland and Victorian regimes generally mimic that of the Federal Court, which was the first class action regime introduced in Australia in 1992.
In general terms, a class action can be commenced on behalf of all class members by a representative who becomes the named applicant to the proceedings. The legislative threshold requirements are as follows:
- a at least seven people have claims against the same person;
- b the claims arise out of the same, similar or related circumstances; and
- c the claims give rise to substantial common issues of law or fact.3
The applicant may bring proceedings against several respondents even if not all class members have a claim against all the respondents. As long as seven or more persons have claims against the same respondent, an applicant can join other respondents against whom some class members have claims but some do not.4
Class action regimes in Australia operate on an opt-out basis. As Justice Jessup of the Federal Court explained, ‘an applicant will define on whose behalf the proceeding is brought and, unless they opt out, all persons who fit within the relevant definition will be part of the class, and bound by any result.’5 No consent is required by class members who come within the definition to be included in the group. This is a point of distinction between Australia and some other jurisdictions that oblige class members to opt in to a class action.
However, as the applicant is free to define the class, many class actions in Australia have been brought on a ‘closed-class’ basis. In these instances, the class definition comprises those persons who have entered into a funding agreement with a third-party litigation funder, effectively requiring potential class members to ‘opt in’ by taking the positive step of executing a funding agreement. Although this appears to be inconsistent with the open class and opt-out model in the legislation, in 2007 the Full Federal Court held that a closed or limited group class action is permissible.6 It is generally accepted that this model has contributed to funders’ preparedness to fund class actions, and therefore to an overall increase in their number.
The most common category of class actions since the introduction of the Federal Court class action regime is product liability disputes (defective goods and services). Securities or shareholder class actions, claims concerning financial products or services, and consumer protection claims have comprised an increasing proportion of class actions in recent years.
II THE YEAR IN REVIEW
i New jurisdictions
In November 2016, legislation introduced a new class action regime in the Queensland Supreme Court, in largely similar form to the regimes in the Federal Court and New South Wales and Victoria.7 In October 2015, the Western Australia Law Reform Commission also recommended that Western Australia, which does not currently have a class action regime, introduce one. At this stage, it is unclear when legislation will be implemented.
ii Litigation funding
Prior to 2016, litigation funders were generally only able to recover fees from those class members who had entered into funding agreements with the funder. This was one of the primary drivers for the ‘closed class’ becoming the preferred model for funded class actions (although in open classes, the courts have typically approved equalising adjustments to payments to class members to spread the cost of the funder’s commission between funded and unfunded class members). However, the Full Federal Court has now approved for the first time an application for a ‘common fund’ order.8
In Money Max the court accepted that all class members must contribute to the litigation funder a percentage of any monies they receive as a result of the proceeding, irrespective of whether they have entered into a funding agreement with the litigation funder. This decision has the potential to encourage litigation funders to fund more open class actions, as they can safely presume that they will be able to recover monies from all class members, including those who did not execute a funding agreement.
Although this may appear to enable the funder to receive a greater amount than it would with equalisation adjustment mechanisms made on a case-by-case basis (as has been the practice to date), the court imposed some important safeguards. Critically, in granting the common fund order, the court held that it is appropriate for it to supervise litigation funding charges, as it does with legal costs. The court will review and approve the rate of funding commission proposed to be charged by the funder, and it is conceivable that the existing rates imposed by funders will not withstand court scrutiny. Indeed, the court suggested that in some cases, it may impose a cap on the total funding commission payable in order to avoid payment of an excessive amount, disproportionate to the risk assumed by the funder.9 The court also ordered that no amount payable by class members is to exceed the amount otherwise recoverable had no common fund order been made. This potential to limit the amount of the funding commission under a common fund order was the court’s response to the submission that class members will be worse off under a common fund order.10
The court in Money Max observed that a common fund approach to funding is consistent with broader policy considerations.11 The court commented on the difficulties posed by closed class actions, including the reduction in access to justice, barriers to settlement, the potential to exacerbate the risk of overlapping or competing class actions, and potential conflicts of interest. In the court’s view, the common fund approach would enhance access to justice by encouraging open class actions.
Another important 2016 court decision likely to have a significant impact on shareholder or securities class actions is HIH Insurance Limited (in liquidation) & Ors.12 One of the unresolved issues in shareholder class actions had been whether shareholders were required to prove that they relied on the company’s alleged misleading statements prior to purchasing shares on the market. In the United States, this issue has been addressed by the ‘fraud on the market’ theory, which creates a rebuttable presumption of shareholder reliance on a company’s material public statements.
On 20 April 2016, a single judge accepted, for the first time, what is known as the ‘indirect market based theory of causation,’ which enables class members to claim damages for the share price inflation attributable to material non-disclosed or misleading information without needing to prove direct reliance, when they purchased their shares on-market, on that non-disclosure or misleading statement by a company. While the decision in HIH was not a class action and has not been tested at the appellate level, the reasoning is arguably directly applicable to class actions brought by shareholders.
Class actions in the Federal Court are regulated by Part IVA of the FCA Act 1976 (Cth), Division 9.3 (Grouped proceedings) of the Federal Court Rules 2011 (Cth) and a number of practice notes that provide further direction in relation to matters of practice and procedure. In 2016, the Federal Court issued a new practice note regulating class actions commenced under Part IVA.13
In the Supreme Court of Victoria, class actions are regulated by Part 4A of the SC VIC Act, Order 18A (Group Proceedings) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic), and various practice notes. In the Supreme Court of New South Wales, the regime is regulated by Part 10 of the CPA NSW and practice notes issued by the court. In the Supreme Court of Queensland, the regime is regulated by Part 13A of the CPA Act QLD and practice notes issued by the court. The state regimes broadly reflect the Federal Court legislation.
This chapter is primarily concerned with class actions commenced under these class action provisions. There are, however, other procedures that allow the court to deal with related claims, including the general power to join one or more persons as applicants or respondents in any proceeding,14 and representative proceedings.15
i Types of action available
Since the introduction of class action regimes in Australia, numerous cases have been commenced pursuant to causes of action falling broadly within the following categories:16
- a personal injury through food, water or product contamination;
- b personal injury through defective products;
- c actions under the Migration Act 1958;
- d shareholder class actions;
- e investor class actions;17
- f anti-cartel class actions;
- g natural disaster class actions;
- h consumer class actions;
- i environmental class actions;
- j human rights class actions; and
- k trade union class actions;18
The limitation period that applies to a class action is determined by the cause of action pleaded in the originating process. For example, certain of Australia’s product liability laws require that a product liability action against manufacturers must commence within 10 years of the time the manufacturer supplied the goods with safety defects.
Limitation periods do not continue to run for class members while their claim is included in a class action before the court. This is designed to obviate the need for class members to commence an individual proceeding to protect themselves from expiry of the relevant limitation period in the event that the class action is dismissed on a procedural basis without judgment being given on the merits.19 The limitation period does not begin to run again until:
- a the class member opts out of the proceeding; or
- b any appeals arising from the proceedings are determined without finally disposing of the class member’s claim.20
ii Commencing proceedings
The class actions regime in Australia is often perceived by practitioners in other jurisdictions as quite liberal. Proceedings can be commenced without the consent of class members and, unlike procedures in the United States, there is no need for the class action to be certified by the court before it can proceed. However, the court has power, on application or of its own motion, to order that proceedings no longer continue if it is satisfied that it is in the interests of justice to do so.21
If the threshold requirements have been met,22 then a representative in the class will have ‘sufficient interest’ to commence a proceeding on behalf of the group or class.23 A class action can be commenced by a person by filing an originating application that sets out:
- a the class members either by name or characteristic;
- b the nature of the claims and the relief claimed by the applicant on its own behalf and on behalf of the class members; and
- c the common questions of law or fact that are said to arise in the action.
A potential class member can be located outside Australia as long as the cause of action forming the basis of the claim contains the appropriate jurisdictional connection with Australia. Under the Victorian legislation, however, the court has power to make an order excluding a class member if the court decides that the person does not have a sufficient connection to Australia, or for any other just reason.24 The importance of this is discussed in the section below regarding cross-border issues.
In many instances, class actions are commenced with the support of a litigation funder, due in large part to the associated costs and risks of such litigation. In Australia court rules expose unsuccessful litigants to the risk of substantial adverse costs orders by which the unsuccessful party must, generally speaking, pay the successful party’s legal fees and expenses. In 2006 the High Court of Australia confirmed the legitimacy of third parties funding litigation, or agreeing to indemnify litigants for costs, in exchange for a percentage of any recovery.25 Recent data suggest that between 2010 and 2016 almost 50 per cent of class actions filed in the Federal Court were backed by a third-party funder.26
In unfunded cases, plaintiff law firms sometimes represent class members on a conditional fee arrangement, where no legal fees are charged unless the outcome is successful. The fees are calculated on an ordinary time and cost basis, and may include an ‘uplift fee’.
At present, lawyers in all Australian jurisdictions are prohibited from charging clients a percentage of any damages awarded in the proceedings. The Australian Productivity Commission has recommended removing this prohibition on ‘damages-based’ or contingency fees by lawyers (other than in relation to criminal and family law matters) provided that comprehensive disclosure requirements and consumer protection measures are implemented.27 Some of the larger plaintiff law firms agitate for this recommendation to be legislated, contending that they would then be able to fund class actions for a lower percentage commission than is typically charged by litigation funders.
iii Procedural rules
Class actions are generally case managed by an individual judge (referred to in the Federal Court as the ‘docket judge’) or a group of judges. Practitioners and the court are expected to conduct proceedings as quickly, inexpensively and efficiently as possible.28 The courts have significant powers to supervise the litigation, including a broad power to make any order the judge thinks is ‘necessary’ to ensure that justice is done in the proceedings.29
At a certain stage in the proceedings, the court will fix a date by which class members may opt out of the proceedings. The form and content of the opt out notices are approved by the court.30 If class members do not opt out by the specified date, then they are deemed to be members of the class action, even if they do not see or receive a copy of the opt out notice and were unaware of the existence of the class action.
In recent cases, opt out notices have been closely scrutinised by the court at the settlement approval stage of the proceeding. In Kelly v. Willmott Forests Ltd (in liquidation) (No. 4)31 Justice Murphy of the Federal Court refused to approve a settlement because, among a number of other factors, the opt out notice failed properly to explain to class members that they would lose their rights to raise individual claims or defences regarding their exposures to a lender if the settlement was approved.
In Australia, discovery (or disclosure) plays an important part in providing access to information required to determine the issues in dispute. In the Federal Court, parties are usually required to produce documents in a party’s control that are directly relevant to an issue in the proceedings and of which the party is aware after a reasonable search. However, discovery is only available if it will facilitate the just resolution of the proceeding as quickly, inexpensively and efficiently as possible. Likewise, in the state supreme courts, the ambit of discovery has been narrowed. In applying for discovery the parties are required to detail:
- a the reason why disclosure is necessary for the resolution of the real issues in dispute;
- b the classes of documents in respect of which disclosure is sought; and
- c the likely cost of such disclosure.32
Despite these rules, discovery continues to be a significant burden, which typically falls on the respondent. Class members – who are not parties – are not required to give discovery during the initial phase of the proceedings, which typically only deals with common questions of law and fact.
The timing of discovery will vary depending on a number of factors, including the jurisdiction in which the proceedings are brought and the type of case, but is usually after the close of pleadings as these bear on the scope of discovery required.
It is also important to be aware of differences in terminology between jurisdictions. For example, in the United States ‘third-party discovery’ is a broad term that encompasses depositions (for which there is no equivalent procedure in Australia) as well as discovery and disclosure of documents.
Respondents in Australia are also at an increasing risk of facing multiple or competing class actions. However, courts do have powers to manage the conduct of multiple proceedings, including:
- a ordering a joint trial;
- b allowing competing class actions to run separately but be case managed together;
- c consolidating class actions into one set of proceedings; and
- d running one set of proceedings to trial, while ordering a stay of the remaining proceedings.33
In the recent decision in Smith, Justice Ball addressed the problem of two competing class actions with overlapping class members by ordering a joint trial and proposing orders that class members should choose to opt out of one of the proceedings. The court concluded that a class member who had not opted out of class action A by a specified date would be taken to have opted out of class action B.
The courts also have power to order that questions of liability be decided separately from questions of quantum, and usually make such orders.
Notwithstanding initiatives to streamline discovery and other case preparation steps, recent data suggest that over the past 12 years, the average time taken to reach a settlement in a class action is three years.34
iv Damages and costs
Civil proceedings in Australia are generally heard by a single judge sitting without a jury. The judge therefore is the trier of both fact and law.
In the event an applicant is successful in a class action, the fundamental principle governing the award of damages, in respect of any legal wrong, is that they are compensatory35 (the measure depends on the cause of action). The assessment of damages is therefore guided by the loss suffered by the class members. In the context of class actions, the court has the power to award:
- a damages in specified amounts for class members, sub-group members or individual class members; or
- b damages in an aggregate amount without specifying amounts awarded in respect of individual class members.
In addition to compensatory damages, courts can make an award for exemplary ‘punitive’ damages.36
The usual costs orders are for the successful party’s legal fees and expenses (costs) to be payable by the unsuccessful party, based on the principle that costs ‘follow the event’.37 Practice shows that successful parties are usually able to recover between 60 per cent and 70 per cent of their actual legal costs from the losing party. The Australian position in relation to costs is distinct from the United States, where the general rule is that parties must pay their own costs.
Class actions are frequently resolved through settlement. Not surprisingly, settlement has been described as one of the most important stages in a class action.38
A settlement or discontinuance of the substantive claims has no legal effect until it is approved by the court.39 Generally, the court will not approve a settlement unless it is satisfied that the settlement is fair and reasonable having regard to the interests of the class members who will be bound by it, including by not preferring one group of class members over another.
Class members are bound by any judgment or settlement entered into in the class action unless they have opted out of the proceeding. Judges are taking an increasingly active role in scrutinising proposed settlements. In assessing the reasonableness of a settlement, the court will assume a ‘protective role in relation to the interests of class members, akin to a guardian or the role the court assumes when approving an infant’s compromise.’40 In Willmott Forests Justice Murphy took the unusual step of appointing a contradictor to represent the interests of class members who were not clients of the applicants’ lawyers at the settlement approval stage.41
In Williams v. FAI Home Security Pty Ltd (No. 4) (2000) 180 ALR 459, Justice Goldberg set out a number of factors relevant to the court’s consideration of an application for settlement approval:
- a the amount offered to each class member;
- b the prospects of success in the proceeding;
- c the likelihood of the class members obtaining judgment for an amount significantly in excess of the settlement offer;
- d the terms of any advice received from counsel and any advice from any independent expert in relation to the issues that arise in the proceeding;
- e the likely duration and cost of the proceeding if it continued to judgment; and
- f the attitude of the class members to the settlement.
Justice Murphy rejected the settlement in Willmott Forests on reasonableness grounds where the settlement required, among a number of things, differential treatment of groups of class members and broad releases of the respondents.
In another recent settlement, Justice Beach approved a settlement that included a release in favour of the respondent company and its related entities, although he expressed some concern that a release of related entities had not been flagged in the opt out notices issued to class members some 14 months earlier.42 Justice Beach ultimately accepted that such releases were ‘a common feature’ of commercial settlements, and that settlements would be unlikely to be achieved without them.
IV CROSS-BORDER ISSUES
Respondents in class actions in Australia may be companies with global operations, or that sell products overseas, or have shares traded on an exchange open to overseas investors. Not surprisingly, class actions involve cross-border considerations.
As to service and evidence preparation, Australia is a signatory to a number of agreements, treaties and conventions, which contemplate international cooperation or engagement, including the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters 1965 and the Hague Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters. Australian courts often require assistance from foreign courts and vice versa. Such assistance comes in different forms, such as service of originating documents, assisting with depositions, obtaining documentary evidence, and enforcement of judgments.
Australian courts have the power to decline to exercise jurisdiction when an alternate forum is more convenient to hear the claim (forum non conveniens). In the class action context, a respondent facing a competing class action in an overseas jurisdiction may seek a stay of the Australian proceedings. However, these issues are yet to be tested in the context of class actions.
As noted in Section III.ii, supra, in Victoria the court can exclude class members who do not have a sufficient connection to Australia. This may serve to protect the interests of class members who are overseas and may not receive an opt-out notice. This is particularly important if the result of the class closure process and opt-out orders is that ‘do nothing’ class members’ rights are lost.
Settlements or orders following judgment may be carefully drafted to prevent double dipping by class members who are, or may be, involved in more than one class action, and also to ensure that settlement in relation to that class is valid and binding in other jurisdictions.
Cross-border issues may also arise in the context of discovery. A party to an Australian proceeding, whether based in Australia or overseas, may be required to discover relevant documents (in accordance with the rules referred in Section III.iii, supra) whether those documents are in Australia or elsewhere.
The fact that compliance with an order for discovery might render a party subject to the risk of a prosecution under foreign law (for example, data protection laws) is a relevant consideration for the court in the exercise of its discretion to make an order for foreign discovery, but is not a reason in and of itself not to make the order.43 In fact, the Federal Court recently ordered respondents to produce documents held in France despite the fact that production of the documents could be in breach of the ‘French blocking statute’ – a law that makes the communication of documents in overseas proceedings a criminal offence.44
V OUTLOOK AND CONCLUSIONS
We anticipate that the presence of domestic and foreign litigation funders in Australia will continue to grow in 2017. The lack of specific regulation for funders, the recent Full Court approval of common fund orders, and the overall plaintiff friendly nature of the class action regime, are transforming Australia into an attractive jurisdiction for litigation funders.
A current trend is the increasing number of plaintiff law firms who are prepared to commence class actions. Thirty-five new class actions were filed between 1 July 2015 and 30 June 2016 represented by 19 different law firms.45
Existing class actions set to attract significant attention in 2017 include:
- a a class action against Ford for the car company’s alleged failure to rectify faults in the PowerShift transmission fitted to Ford Fiestas, which has been set down for trial commencing 11 June 2018;
- b a class action against listed plaintiff law firm Slater and Gordon Limited, the world’s first publicly traded law firm, which is facing a shareholder class action promoted by rival firm Maurice Blackburn; and
- c the Manus Island class action, which is scheduled to commence a three to six-month trial on 1 May 2017,46 a case against the Australian government and contractors around Australia’s policy of detaining asylum seekers in Papua New Guinea.
1 Beverley Newbold is a partner, Julia Avis is a special counsel and Rafael Aiolfi is a lawyer at MinterEllison.
2 See discussion at Section III, infra.
3 Section 33C of the Federal Court of Australia Act 1976 (Cth) (FCA Act), Section 33C of the Supreme Court Act 1986 (Vic) (SC Vic Act), Section 157 of the Civil Procedure Act 2005 (NSW) (CPA NSW) and Section 103(B) of the Civil Proceedings Act 2011 (QLD) (CPA QLD).
4 Cash Converters International Limited v. Gray (2014) 223 FCR 139.
5 Madgwick v. Kelly (2013) 212 FCR 1 at .
6 Multiplex Funds Management Ltd v. P Dawson Nominees Pty Ltd (2007) 164 FCR 275.
7 Part 13A CPA QLD came into force on 1 March 2017.
8 Money Max Int Pty Ltd (Trustee) v. QBE Insurance Group Limited  FCAFC 148 (26 October 2016) (Money Max).
9 Money Max, above, at  to  and  to .
10 Money Max, above, at  to .
11 Money Max, above, at  to .
12  NSWSC 482 (HIH).
13 Class Actions Practice Note (GPN-CA), 25 October 2016.
14 Rule 9.2 of the Federal Court Rules 2011 (Cth), Rule 6.19 of the Uniform Civil Procedure Rules 2005 (NSW) and Rule 9.02 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) and Rules 65 and 69 of the Uniform Civil Procedure Rules 1999 (Qld).
15 Federal Court Rules 2011 Division 9.2 (Representative Proceedings) and General Civil Procedure Rules 2015 (Vic) Order 18 (Representative Proceedings).
16 Murphy, Justice Bernard, ‘The operation of the Australian class action regime’ (FCA)  FedJSchol 43
17 Claims by investors complaining of conduct by the promoters of various investments.
18 Underpayment claims, disputes about employer conduct in obtaining workplace agreements.
19 Explanatory Memorandum to the Federal Court of Australia Amendment Bill 1991 (Cth).
20 Section 33ZE(2) of the FCA Act, Section 33ZE(2) of the SC Vic Act, Section 182(2) of the CPA NSW, and Section 103Z of the CPA QLD.
21 Section 33N of the FCA Act, Section 166 of the CPA NSW, Section 33N of the SC Vic Act and Section 103K of the CPA QLD.
22 See Section I above.
23 Sections 33C–33D of the FCA Act, Section 33C of the SC Vic Act, Sections 158(1) and (3) of the CPA NSW, and Section 103C of the CPA QLD.
24 Section 33KA of the SC Vic Act.
25 Campbells Cash and Carry Pty Ltd v. Fostif Pty Ltd (2006) 229 CLR 386; Mobil Oil Australia Pty Ltd v. Trendlen Pty Ltd  HCA 4.
26 Morabito, V, An Empirical Study of Australia’s Class Action Regimes Fourth Report: Facts and Figures on Twenty-Four Years of Class Actions in Australia (2016).
27 Australian Government Productivity Commission, Access to Justice Arrangements, Inquiry Report No. 72 (2014) ch 18.
28 Sections 37M-N of the FCA Act, Sections 56 and 57 of the CPA NSW, Part 2.1 of the Civil Procedure Act 2010 (Vic) and Section 5 of the Uniform Civil Procedure Rules 1999 (QLD).
29 Section 33ZF of the FCA Act, Section 33ZF of the SC Vic Act, Section 173 of the CPA NSW, and Section 103ZA of the CPA QLD.
30 GPN-CA above footnote 13, at .
31  FCA 323 (Willmott Forests).
32 Division 20.1 of the Federal Court Rules, Part 21 of the CPA NSW and Order 29 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic). The disclosure regime in Queensland is governed by Division 1, Chapter 7 of the Uniform Civil Procedure Rules (QLD), under which the duty to disclose applies to documents that are directly relevant to an allegation in issue on the pleadings.
33 These options have recently been discussed by Justice Ball in Smith v. Australian Executor Trustees Limited; Creighton v. Australian Executor Trustees Limited  NSWSC 17 (Smith).
34 Morabito, above footnote 26, at .
35 Whitfeld v. De Lauret & Co Ltd (1920) 29 CLR 7; Johnson v. Perez (1988) 166 CLR 351.
36 Lamb v. Cotogno (1987) 164 CLR 1.
37 Laguillo v. Haden Engineering Pty Ltd  1 NSWLR 306.
38 Willmott Forests, above footnote 31, at .
39 Section 33V of the FCA Act, Section 33V of the Civil Procedure Act 2010 (Vic), Section 173 of the CPA NSW, and Section 103R of the CPA QLD.
40 Willmott Forests, above footnote 31.
41 Section 33V of the FCA Act, Section 33V of the SC Vic Act, Section 173 of the CPA NSW, and Section 103R of the CPA QLD.
42 Newstart 123 Pty Ltd v. Billabong International Ltd  FCA 1194.
43 ACCC v. Prsymian Cavi E Sistemi Energia SRL (No. 7)  FCA 5. Leave to appeal against this decision was denied by White J in Nexans SA RCS Paris v. ACCC (2014) FCA 255.
44 See orders dated 2 June 2016 in Newstart 123 Pty Ltd v. Billabong International Limited VID143/2015.
45 King & Wood Mallesons, The Review – Class Actions in Australia 2015/2016.
46 Slater & Gordon media release: World Day of Social Justice: Trial of Manus Island.