The Class Actions Law Review: Australia

Introduction to the class actions framework

The relatively well settled class action landscape in Australia that has been around for nearly 30 years has seen a number of changes in the past few years, and 2021 was no exception both with significant judgments being handed down and with new regulations impacting funders. These changes have continued to see the pendulum swing back and forth between the desire for better consumer protection and access to justice, and the need for certainty and a measured, appropriate regime for defendants and the corporate world and one that does not result in excessive profits for funders and plaintiff stakeholders. There are regimes for class actions in the Federal Court of Australia and the Supreme Courts of Victoria, New South Wales and Queensland.2 They have all adopted the broad 'opt-out' model. Western Australia is in the process of introducing a class action regime; however, the 2019 Bill has still yet to be passed.3

A feature of the Australian class action regime is that until recently, Australian lawyers have not been permitted to charge 'contingency fees', that is, a fee based on a percentage of the amount recovered. This has seen a very sophisticated and significant third-party litigation funding market develop in Australia, which has attracted significant capital and driven up the number of class actions filed. However, one state, Victoria, passed legislation in late 2020 allowing lawyers to charge contingency fees in class actions in its courts. Just recently, the first case allowing a contingency fee to be charged by a law firm was approved by the court at 27.5 per cent.

Class actions in Australia are easily commenced on behalf of all class members, usually by a single representative who becomes the named applicant. There are really no limits on the nature of the applicant as is seen in some other jurisdictions (e.g., trade groups or other representative or public bodies or consumer organisations). The key threshold requirements are:

  1. at least seven people have claims against the same person;
  2. the claims arise out of the same, similar or related circumstances; and
  3. the claims give rise to substantial common issues of law or fact.4

The applicant may bring proceedings against several respondents even if not all class members have a claim against all 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.5

An important differentiator for Australia's class action framework is that there is no 'class certification' process. The lack of such a threshold has given rise to a number of competing class actions being filed in relation to the same wrongdoing, and that has led to skirmishes known as 'beauty parades' to determine which one or more of the overlapping class actions should proceed.

Australia's class action regimes 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' whether they consent to that or even know about the action.6 This is a point of distinction between Australia and some other jurisdictions that oblige class members to take the active step of opting in to a class action.

As a consequence of the applicant's own ability to define the class in the pleading commencing a class action in whatever manner they choose, we have also seen a practice develop where class actions are commenced on a 'closed-class' basis. In these instances, the class definition usually 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-group or limited-group class action is permissible.7 It is generally accepted that this model has contributed to funders' preparedness to fund class actions, and therefore to an overall increase in the number of closed class actions filed.

The class actions commenced since 1992 cover a wide variety of areas, including mass torts such as defective pelvic mesh implants, damage from extreme weather events such as bushfires and floods, failing buildings, shareholder claims, cartel cases, the Volkswagen diesel emissions scandal, responsible lending obligations, employment-related cases and human rights cases such as stolen wages from Aboriginal and Torres Strait Islanders. The recent trend in the Australian class action space has continued with a greater number of claims by investors seen in the securities or shareholder class actions space and consumer claims concerning financial products or services.8 We are also starting to see the emergence of class actions in the climate change and the ESG space.

The year in review

i Contingency fees – first ever orders made in Victoria

Scrutiny around litigation funding was again a major theme of 2021 and we saw regulations introduced at the federal government level seeking to rein in what some were seeing as excessive profits being made by funders and lawyers (see below).

However, 2021 also saw the first 'contingency fees' order made for a class action in an Australian jurisdiction. In June 2020, the Victorian Labor government introduced 'group costs orders', which enabled the law firm representing the plaintiff and group to receive, for their legal costs payable, a percentage of any award or settlement recovered, with the liability for this cost being shared by the plaintiff and all group members.9 Group costs orders are conditional on the law practice becoming liable to pay any costs order made against the plaintiff and group members in the proceeding. The law practice is also required to provide any security for costs of the defendant that the court orders the plaintiffs and group members to give. The court must first approve any group cost order.

Until this time, lawyers in Australia have been prohibited from charging contingency fees and could only recover their legal fees. This change saw a flurry of class actions filed in the Supreme Court of Victoria (the only court where the orders can be made) in June 2020, and the first decision considering a group costs order was not heard and judgment not delivered until September 2021 in Fox v. Westpac Banking Corporation; Crawford v. Australia and New Zealand Banking Group Limited [2021] VSC 573.

The court declined to make an order in that case, primarily because Nichols J formed the view that the group's existing arrangements, which were a traditional 'no win, no fee' costs arrangement with an adverse costs indemnity given by the plaintiff's law firm Maurice Blackburn, was preferable. Nichols J also remarked that for the court to exercise its discretion and make a group costs order, the court needed to be satisfied that the proposed order would be a 'suitable, fitting or proper way to ensure justice is done in the proceeding',10 and the effect on group members must be a primary consideration.11

However, while the very first application for a group costs order was not successful, the second application in the G8 shareholder class action was successful, with the court approving a group costs order in favour of law firm Slater & Gordon of 27.5 per cent of the recovery in the action.12 In that action, the plaintiff was able to successfully establish that while similar to the Fox/Crawford case, the law practice had commenced the case on a 'no win, no fee', that was an interim measure, and if a group costs order was not made, the firm would have to seek funding from a litigation funder, thus making the likely commission charged by a funder the appropriate comparator in determining whether to grant the plaintiff's application.

The decision paves the way for further group costs orders to be made in class actions before the Supreme Court of Victoria, and provides group members certainty as to the costs they will pay in respect of actions where such an order is made.

We also expect that the popularity of the Supreme Court of Victoria will increase given that law firms, even when bringing a class action on the basis of a group costs order, are likely to be exempt from the litigation funding regulations (see below) and thus the conduct of the proceedings does not have to be constituted under the complex Managed Investment Scheme rules and regulations.

It is unclear whether other jurisdictions will follow Victoria and introduce contingency fees for class actions. While some Federal Court of Australia judges have expressed a view that contingency fees should be introduced or that there may be a basis for making effectively similar orders using existing powers and precedent, and several law reform commission reports at the state and federal levels have recommended contingency fees be permitted, it appears likely that such orders will not be made without legislative changes.

ii Scrutiny of litigation funding

Litigation funders continued to face a changing regulatory environment in 2021 in what was seen by some as the conservative government's efforts to rein in what were said by some to be excesses and excessive profits being made by funders and plaintiffs' lawyers.

In August 2020, over a lot of opposition, the federal government introduced new regulations for litigation funders. Broadly speaking, the new regulations require litigation funders operating in Australia to hold an Australian Financial Services Licence, which subjects them to additional disclosure and conduct obligations, and to conduct their funding of a class actions in accordance with the regulations applying to managed investment schemes, which, among other matters, requires the funder to appoint a responsible entity (similar to a trustee) to oversee the 'scheme' for the benefit of scheme members, to issue a product disclosure statement and be subject to the anti-hawking provisions in the Corporations Act.

Most commentators, even on the defendant's side, as well as the corporate regulator, ASIC, who is responsible for supervision of these regulations, say they are inappropriate for the litigation funding market. Many say it should be left to the courts to oversee the funding aspect of class actions as they do with all other aspects of class actions before them (i.e., appropriateness of settlements, information to group members and lawyers' fees, etc.).

Since the Managed Investment Scheme regulations require significant upfront costs and the navigation of complex financial disclosures prior to establishing the scheme, which is a precursor to commencing a class action, there was initially a marked slowdown in the filing of new proceedings in 2021 as funders waited to receive their licences and began to absorb the regulatory changes into their business models. Most of the leading funders in Australia have now lodged claims under the regulations and are coming to terms with the new requirements.

Then, in September 2021, the federal government proposed further legislative changes to litigation funding for class actions. The Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 (Cth) sought to introduce the following key changes:

  1. expressly empowering courts to be able to intervene in funding commissions as agreed between funders and consenting group members, requiring courts to endorse the method for distribution of claims proceeds as otherwise agreed by the funder and group members as fair and reasonable on specified factors;13
  2. introduction of a rebuttable presumption that a distribution method is not fair and reasonable if more than 30 per cent is paid to the funder;14 and
  3. requiring group members to consent to a funding agreement before a funder can impose fees or commission on them, which is intended to encourage bookbuilding.

The Bill also sought to apply to state supreme courts when exercising state and federal jurisdiction, which has caused some controversy about the constitutionality of the Bill.

With the risk of the Bill passing through Parliament, we saw a wave of class actions commenced in late 2021 and early 2022 so that those actions would obtain the benefit of grandfathering protection from the changes. While the Bill passed the lower house in November 2021, it was held up in the Senate as the government was unable to garner sufficient support to pass it prior to this year's election.

This hiatus has resulted in uncertainty and we are awaiting the outcome of a federal election due in the middle of 2022 to see if the proposed changes will pass or, if there is a change of government, whether there will be a winding back of the recent legislative changes which some commentators say were designed to stifle class actions and litigation funding.

iii Risks around common fund orders on settlement subsided

It is worth highlighting that, leaving aside the Bill mentioned above, the uncertainty there was around the availability of a 'common fund' type of order (where all group members pay a portion of the funder's commission and costs even if they have not signed any agreement with the funder) being made at the end of a proceeding has largely been resolved. The validity of common fund orders was questioned by the High Court of Australia in Lenthall,15 which outlawed the making of common fund orders at an earlier interlocutory stage.

At the time, many commentators and judges had their own views about the interpretation of the High Court's decision, and whether it closed off common fund orders for good, or simply confirmed the lack of power to make them at an early stage of class actions, as opposed to making common fund orders at the end of proceedings either for the purposes of the settlement of a class action or following judgment.

This uncertainty has been resolved through successive judgments allowing common fund orders to be made on settlement, including in the Swann Insurance16 and Davantage17 class actions, among others.

iv Shareholder class actions on the decline

Securities class actions have for many years been a dominant feature of the Australian class-action landscape. This has in particular been a product of Australia's plaintiff-friendly class action framework coupled with a strict continuous disclosure regime which required companies to 'immediately' disclose all information that a reasonable person would expect to have a material effect on the price or value of the company's shares. Further, and unlike in other jurisdictions, plaintiffs in a securities class action in Australia had no onus to show that a failure of disclosure was intentional, negligent, fraudulent or dishonest – simply that material information had not been disclosed to the market.

The proliferation of securities class actions in Australia, and the strictness of its continuous disclosure regime was not without its detractors. In particular, critics expressed concerns about shareholder class actions not being in the public interest, being economically inefficient, and driving undesirable economic outcomes such as upward pressure on D&O insurance, the unwillingness of directors to take on roles on Australian boards, and creating a risk-averse decision-making environment within companies.18

In 2020, as part of its response to the covid-19 pandemic, the Australian government made what were to be temporary amendments to Australia's continuous disclosure regime19 in recognition of the challenges for companies to release reliable forward-looking guidance to the market during the covid-19 pandemic. The changes required claimants to prove fault for private and regulatory actions involving allegations of continuous disclosure contraventions. In 2021, those changes were made permanent.20 It is a move which has been roundly welcomed by business leaders in Australia but which has undoubtedly made securities actions substantially more difficult to successfully mount.

Aside from legislative reform, securities class actions have faced other headwinds, including a string of adverse judgments together with what appears to be a growing willingness of corporate defendants and their insurers to run matters to hearing, whereas the previous tendency was to settle.21 Most recently in the February 2022 decision of Iluka Resources22 (decided under the pre-reform continuous disclosure laws), the Federal Court of Australia rejected allegations that Iluka was unreasonably optimistic as to sales forecasts made in 2012 and that it was determined to ignore the dire state of the market for as long as possible. The loss, which follows two other recent adverse outcomes for shareholders in Myer23 (which found that although there had been a failure of disclosure, shareholders has suffered no loss) and Worley24 (where the plaintiffs failed to establish any breach) are likely to further embolden corporate defendants to take matters to trial, and to result in plaintiffs and litigation funders taking a more conservative approach as to which cases to bring.

Added to the above is the ongoing issue of competing class actions, which has particularly plagued securities class actions in recent years. The issue arises where multiple class actions are filed against the same respondent for the same or similar alleged wrongdoing. This has commonly occurred after high-profile corporate misconduct or 'stock drops'.

Australian courts have had to contend for some time now with how to best manage these competing class actions, including considerations about which action ought to proceed and which actions ought to be stayed, and which principles should be applied in coming to that decision – similar to the 'carriage motions' in Canada, but more commonly known in Australia as 'beauty parades'. After a significant period of uncertainty, in March 2021 the High Court clarified the principles to be applied in Wigmans,25 which made clear that there is no presumption that a class action commenced first in time shall prevail and that in competing class actions, where the interests of the defendant are not differentially affected, it is necessary for the court to determine which action going ahead would be in the best interests of group members. The majority declined to list exhaustive factors relevant to determining which action would be in the best interests of group members, observing that a court should determine the question 'by reference to all relevant considerations'. That said, the majority noted that the likely success of an action or quantum of recovery and which action after costs or the funder's commission would deliver the best outcome for group members would be relevant matters in determining the question.

v Rising prominence of alternative forms of class actions

At the same time as the growth of shareholder class actions has declined in Australia, other forms of class actions have risen in prominence. In particular, Australia has seen a substantial increase in the number of consumer, government and employment-related class actions.26

The rise in consumer class actions follows a public inquiry in 2018 into the Australian banking, superannuation and financial services industry, which has given rise to a raft of class actions seeking recovery for class members in relation to bank customers and superannuation clients, particularly related to the selling of insurance, and the overcharging of fees and interest. Aside from banks, insurers and superannuation firms, car manufacturers have been a particular target of consumer class actions arising from safety and other manufacturing defects. The growth in these 'retail' claims follows a greater willingness by litigation funders to fund these smaller claims which individually have a smaller value but which in the aggregate, see huge losses.

Claims against the government have also been on the increase, including a number of novel claims arising from climate change risks. This includes, for example, a claim against the federal government for failing to disclose climate change risks to investors in sovereign bonds,27 an action on behalf of Indigenous people in connection with the impact of climate change, including damage to sacred sites,28 and another class action opposing the granting of a coal mining licence on the grounds of an asserted duty of care to protect Australian children from the effects of climate change.29 Other class actions have included claims in respect of human rights violations against Indigenous Australians,30 in respect of data breaches,31 and for economic losses arising from alleged covid-19-related management failures.32

Employment-related class actions have been fuelled by developments in recent years in Australian employment law regarding, in particular, the test to determine whether an independent contractor is an employee, the characterisation of casuals and sham contracting. There have also been a surge of systematic underpayment claims involving large and established corporate defendants, including for example, McDonald's33 and the Commonwealth Bank of Australia.34 However, the High Court has in recent months delivered a number of important decisions which have clarified the legal tests for independent contractors and casual employees and which have placed primary importance on the formal written terms agreed between the parties and not on the substance of the working relationship, which can be very different.35 The impact of those decisions on the employment class action space will become clearer over the upcoming year.

Procedure

Australia's federal class action regime commenced in March 1992 with the introduction of Part IVA of the Federal Court of Australia Act 1976 (Cth) (the FCA Act). Some, but not all, Australian states have since followed with regimes that mirror their federal counterpart.36

i Types of action available

The Australian class action regimes do not impose limits upon the causes of action that are permitted to found a class action. As long as the criteria for commencing a class action is met (discussed below), then a group of claims may form a class action. There are no limitations as seen in some other jurisdictions where only registered consumer groups or the like are permitted to bring claims. Accordingly, class actions encompass a wide variety of claims across a broad range of industries and walks of life.

That said, and as noted above, shareholder actions have been a dominant feature of the Australian class action landscape recently. This might be explained by the ongoing volatility in equity markets, together with sustained emergence of litigation funders. Shareholder claims have been attractive to litigation funders because of Australia's strict continuous disclosure regime and because group member losses are usually relatively easy to quantify. With all of that said, certain developments in 2020 may have taken some of the gloss off shareholder class actions for litigation funders. First, Australia's strict continuous disclosure laws were relaxed during covid-19, and at the time of writing the government has just announced those changes will be permanent – setting the bar higher for establishing wrongdoing. Further, the funded shareholder class action space has become a crowded marketplace, resulting in competition between funders and law firms for the right to take high-profile or large actions forward (discussed above). That competition exerts downward pressure on funding commissions and generally increases funders' financial risks because substantial funds may be invested in actions that never go forward, or where a large proportion of group members sign up with other funders thereby making an action less profitable. Notably, there was also, in October 2020, the first successful defence at trial of a shareholder class action when the Honourable Justice Gleeson found that ASX-listed Worley Limited had not engaged in wrongdoing when it issued overly optimistic earnings guidance for the 2014 financial year.37

Further, the types of class actions being brought (aside from shareholder claims) are becoming more diverse. Other actions include claims relating to product liability, consumer protection claims, employment, construction, mass tort claims, human rights violation claims and climate change-related claims. There has already been a number of covid-19 class actions filed – for example, an action has been filed against the Victorian government on behalf of businesses that have suffered losses to the Victorian government's alleged mishandling of hotel quarantine arrangements for persons coming from overseas, which resulted in an outbreak of the virus and widespread shutdowns.

ii Commencing proceedings

Class actions (referred to as 'representative proceedings' in Australian legislation) can be commenced where relatively straightforward criteria are met, as follows:

  1. at least seven people must have claims against the same person;
  2. the claims must arise out of the same, similar or related circumstances; and
  3. the claims must give rise to substantial common issues of law or fact.38

Assuming that these criteria are met, any person (a lead applicant) may commence a class action on his or her own behalf and on behalf of those whose claims arise out of the same, or similar or related circumstances and give rise to substantial common issues of law or fact.

The choice of lead applicant is an important feature of a class action, because the trial will generally be a trial of the lead applicant's case, along with issues of fact and law common to the group members. That said, there are no criteria or limits as to which member of a class may act as lead applicant, although once proceedings are under way the court may remove a lead applicant that it believes is not able to adequately represent the interests of group members.39 There may also be subgroups within a class action, representing particular groups with particular common characteristics within the larger group.

Notably, the Australian class action regimes have no requirement for US-style certification at the time of filing. This was a deliberate choice by legislators, who followed a view by the Australian Law Reform Commission at the time the first class action legislation was being contemplated by legislators that a certification procedure would impose an additional costly procedure 'with a strong risk of appeals involving further delay and expense'.40 Some commentators believe, however, that the absence of certification criteria has in reality led to high levels of protracted interlocutory disputes after proceedings have commenced.41 The government is currently looking at whether there should be any legislative changes in this area.

In any event, the threat of unsuitable class actions is addressed under the Australian regimes, in part, by the power of the court 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.42 However, this system arguably shifts the burden from the plaintiff having to prove that a class action is suitable to the defendant having to prove that the class action it faces is unsuitable.

Persons upon whose behalf claims are commenced (termed 'class members' or 'group members') are not parties to the proceedings. They do not need to be named or specified at the time of filing.43 Nor is the plaintiff (or lead applicant) required to seek the consent of a person before making that person a group member.44 Frequently, a group member will have no retainer with solicitors acting for the plaintiff, nor any legal representation at all in respect of the matter. Indeed, a group member may be oblivious to the fact that he or she is a group member for a considerable period after proceedings have commenced (in cases where they are not contactable – they may never know).

The opt-out nature of the Australian class action system

As outlined above, the class action regimes in Australia operate on an opt-out basis – meaning that all persons who fall within a pleaded class definition are members of the class and bound by any result unless they opt out. This is a point of distinction between Australia and some other jurisdictions that oblige class members to take a positive step and opt in to a class action. Group members who opt out of a class action cease to be bound by the outcome of the action but also become ineligible to receive any proceeds from it.

The opportunity to opt out is generally facilitated by the distribution of an opt-out notice to all group members, at an appropriate time after the proceedings have commenced.45 These notices generally provide group members with an explanation of the nature of the claims and class action processes generally. The notices also explain the effect of opting out, and how to opt out (by filing a prescribed notice with the court). Notably, opt-out rates are generally quite low. In the experience of the authors, opt-out rates of approximately 10–20 per cent are common, although they can be much lower.

An ongoing concern is the ability of group members to read and properly understand opt-out notices, and other notices provided to them at the direction of the court in the course of a class action, given their lack of prior involvement in the proceedings and frequent lack of familiarity with litigation and legal language. It is plausible that a reasonable proportion of opt-outs arise from a lack of understanding of the effect of opting out or misplaced concerns as to the risk of becoming liable for legal costs.

Limitation periods

Upon the commencement of a class action, the running of any limitation period that applies to the claim of group members is suspended or 'tolled'. The limitation period does not begin to run again unless either the group member opts out or the proceeding, and any appeals arising from the proceeding, are determined without finally disposing of the group member's claim.46

iii Procedural rules

The courts have been granted extensive case management powers in relation to the conduct of class action proceedings and the courts almost have a supervisory or guardian role to play in ensuring group members' interests are protected. For example, the Federal Court of Australia has:

  1. broad powers to discontinue representative proceedings;
  2. the power to substitute a lead applicant who is not adequately representing the interests of group members;
  3. the power to order that notice of 'any matter' be given to group members;
  4. the ability to decline or approve settlements; and
  5. the power to make any order it thinks appropriate or necessary to ensure that justice is done in the proceeding.47

Not surprisingly, the key procedural differences between conventional litigation and class action litigation involve protecting the interests of group members, or facilitating their rights. Those differences (some of which are discussed further below) include:

  1. an opt-out process to give notice to group members of their status as group members, and their right to opt out of the proceedings; and
  2. a settlement approval process, in which a judge reviews a prospective settlement to ensure it is fair and reasonable and in the interests of group members. As part of that process, group members are given notice of the settlement and the opportunity to object and appear before the judge at the settlement approval hearing, if they wish to do so.

The hearing of a class action generally involves the trial of common questions of fact and law as part of the trial of the lead applicant's claim. Following the initial trial, a process or mechanism to resolve the individual claims of group members is developed. This might take the form of a series of mini trials, or a 'claims resolution process', whereby an independent adjudicator (who, depending on the nature of the dispute, might be a lawyer or barrister, or an accountant) is appointed to review and determine group member claims with the benefit of the findings from the initial trial and usually in the most cost-effective and efficient manner.

iv Damages and costs

The costs regime in Australia has a number of significant differences from those in other jurisdictions. First, Australia has a loser-pays or adverse costs system, meaning the unsuccessful litigant is generally ordered to pay the majority of the legal costs of the successful litigant. Group members, but not the lead applicant, are generally immune from adverse costs orders.48 This difference operates as an obvious disincentive to be the lead applicant, given that it carries serious financial risk of adverse costs liability, which in large class actions is generally in the millions of dollars. This disincentive, which has been somewhat ameliorated by the proliferation of litigation funding in Australia, and difficulty in finding parties willing to act as lead applicants has not, as far as the authors are aware, substantially impeded the growth of class actions.

Plaintiffs must also usually contend with an application that they give security for the defendant's costs. Frequently, the plaintiff in a large class action will be ordered to put up security worth millions of dollars over the course of the litigation, which the defendant may call upon in the event that the plaintiff is ordered to pay the defendant's costs. Such security was traditionally given by way of money paid into court or a bank guarantee from an Australian trading bank. An alternative form of security has arisen whereby a large insurer provides an indemnity directly to the defendant for any adverse costs orders made against the plaintiff in favour of the defendant.49

The expense of litigation, the adverse costs risk and the burden of putting up security for the defendant's costs have resulted in the widespread involvement of litigation funding in class actions in Australia. Litigation funders generally contract with the lead applicant to finance the proceedings and take responsibility for putting up security for costs and paying any adverse costs orders in return for a share of the proceeds of any settlement or judgment. The rise of litigation funding has been somewhat controversial in Australia and has resulted in the inquiries into litigation funding outlined above.

The growth in litigation funding has coincided with increased debate as to the traditional doctrines of maintenance and champerty. As noted above, in 2020, Victoria became the first Australian jurisdiction to permit lawyers to charge contingency fees in Victorian class actions. It seems reasonably likely that other jurisdictions will eventually follow, otherwise Victoria may become the epicentre for class actions. The introduction of contingency fees is intended to increase access to justice by allowing plaintiff law firms to compete with third-party litigation funders, which typically fund class actions on the basis that they will receive a percentage of any amounts recovered in the proceeding.

v Settlement

The large majority of class actions settle before trial. The settlement of any class action must be approved by the court. The settlement process under the Australian class action regimes is relatively involved, because the settlement binds group members who may have had little or no involvement in the matter up to that point. The regime has therefore been designed to help ensure their interests are adequately protected. The settlement process usually involves:

  1. giving notice to group members of the settlement (this may give information such as the settlement amount or give an indication of the expected returns to group members);50
  2. giving group members the opportunity to make an objection to the settlement if they consider it not in their interests; and
  3. having the court review the proposed settlement to ensure it is fair and reasonable and in the interests of group members.51

Senior counsel for the plaintiff will generally provide a confidential opinion to the court as to the reasonableness of the settlement given prospects of success, litigation and recovery risks, and the lead applicant's solicitors will generally lead evidence as to how much of the settlement sum will go towards the payment of legal costs and litigation funder commissions (if involved), and how much will be paid to group members.

The court has the power to reject settlements outright, and has done so.52 In the alternative, the court may adjust features of a settlement to make it fairer and more reasonable to group members. For example, in Petersen Superannuation Fund Pty Ltd v. Bank of Queensland Limited (No. 3),53 the Federal Court approved a settlement between the plaintiffs and the defendants but substantially reduced the entitlement to costs of the lawyers for the plaintiffs and the commission of the litigation funders to be paid out of the settlement proceeds, so that a higher proportion was paid to group members. This approach reflects concerns as to the proportion of settlement sums generally being paid to lawyers and litigation funders, in comparison to the sums received by lead applicants and group members. In that respect, the new Federal Court of Australia Practice Note dated 20 December 2019 warns that:

the parties, class members, litigation funders and lawyers may expect that . . . the Court will, if application is made and if in all the circumstances it is fair, just, equitable and in accordance with principle, make an appropriately framed order to prevent unjust enrichment and equitably and fairly to distribute the burden of reasonable legal costs, fees and other expenses, including reasonable litigation funding charges or commission, among all persons who have benefited from the action.

More recently, in 2021 Justice Murphy in the Federal Court of Australia refused to approve a settlement that would have resulted in a payment to the lead applicants of A$25,000, a payment to the applicants' law firm of A$1.75 million, with nothing paid to group members.54

The class closure process – scaled back in 2020, but developments likely in 2022

One difficulty with the opt-out system is that having an open-ended class of group members who fall within pleaded class criteria but may or may not be contactable or willing to engage with the class action process can make settlement difficult. The need to identify a finite group eligible to share in any settlement has given rise to what is referred to as a 'registration' or 'class closure' process.

Registration processes were not contemplated by the legislation but have arisen as a matter of practice. This process also developed so that defendants had a better idea of the universe of persons who will be bound by any settlement, the value of their claims and those who will not be bound. They were generally (but not always) ordered in advance of a mediation and required group members who wish to be eligible to share in the proceeds of any settlement to take a positive step and register – usually by completing and submitting a paper or online form with registration details. Those who registered were eligible to receive a share of any settlement reached at mediation or within a fixed period following mediation, often referred to as the 'settlement period'. Those who did not register (or who had opted out) were not eligible to receive a share of any settlement reached at mediation. However, if the matter did not settle at mediation or during the settlement period, the registration process usually ceased to have effect, meaning those who did not register become once again eligible to receive a share in any settlement.

Decisions in the Supreme Court of New South Wales and in the Full Court of the Federal Court of Australia in 2020 have rejected this registration or class closure process in advance of any settlement as going outside the relevant intent of the class action legislation and the court's powers.55 In particular, the courts were critical of the 'harsh and draconian' outcome of shutting out group members who failed to register, which was said to be at odds with the open class action model prescribed by the Australian legislation.

In 2022, the Full Federal Court will determine whether the Federal Court decisions rejecting class closure prior to settlement have been determined correctly, and it seems reasonably likely that the issue will end up before the High Court.56

However, in the interim, pending the Full Court appeal, it appears that class closure orders can still be made after settlement or judgment, but not in advance of a mediation or otherwise in order to facilitate a potential settlement.

Cross-border issues

As with conventional commercial litigation, class actions frequently involve cross-border issues. Defendants outside Australia may be, and have been, prosecuted, although court approval is necessary to effect service on overseas defendants. For example, in Caason Investments Pty Limited v. Cao,57 a shareholder class action, the court approved the service of court documents on three former company directors in the United States and one former director in Hong Kong under the Hague Service Convention.58 Group members may be overseas residents, although in Victoria the court can exclude class members who do not have a sufficient connection to Australia.

Australian courts have the power to decline to exercise jurisdiction when an alternative forum is 'more convenient' to hear the claim. However, that power is exercised with 'extreme caution' and only if it can be demonstrated that the local forum is 'clearly inappropriate' for the determination of the claim.59

There are numerous instances where class actions in international jurisdictions have led to or influenced the commencement of class actions in Australia and vice versa. For example, the class actions in the United States against chemical manufacturers 3M, DowDuPont, Chemours and others in relation to allegedly toxic polyfluoroalkyl firefighting foam (or PFAS) have resulted in the institution of similar class actions in Australia against the Australian Department of Defence in relation to its use of the same foam. In other examples, in 2015, class actions in Australia were launched against Volkswagen (and other defendants) following the exposure of the global diesel emissions issue and after a similar class action was launched against Volkswagen in the United States, and class actions are currently under way against Johnson & Johnson in Australia in relation to deficient pelvic mesh products.

There were also a number of jurisdictional-style challenges brought in 2022 around whether overseas persons can be part of a class action proceeding before an Australian court.

In a shareholder class action against mining giant BHP Billiton, there was a challenge to the ability for group members who reside outside of Australia, which includes a significant number of institutional investors, to be part of a class action within Australia. BHP has submitted, among other matters, that Part IVA of the FCA Act does not apply extraterritorially and has not been drafted to apply extraterritorially. BHP argues this means that those persons should be named as parties or excluded to overcome a risk that an overseas group member might be able to bring a separate claim in another jurisdiction following having also participating in the Australian class action.

These arguments have been rejected at first instance60 and on appeal to the Full Court of the Federal Court of Australia.61 BHP has recently been granted special leave to appeal to the High Court of Australia, but a hearing date is yet to be set.

In the Ruby Princess class action, Carnival Cruises as the respondent challenged the status of group members who signed contracts governed by the laws of the United Kingdom and the United States (with the latter also having an anti-class action clause). The Federal Court at first instance rejected the respondents' argument about the fairness of the terms within those agreements, and alternatively held that the claims under the Australian Consumer Law were valid in that there was a substantial connection to NSW.62

The respondents have appealed the judgment to the Full Court of Federal Court of Australia, which was heard in early February, and judgment is reserved.

These judgments will have a big impact on the extraterritorial reach of Australian class actions to include class members from around the world – similar to issues that we are seeing play out in some European countries.

Outlook and conclusions

Australia has continued to see growth and maturing of the class action specialist area in the past year, particularly in relation to litigation funders, which have had to adapt to a changing regulatory landscape. There were also a number of landmark decisions, most notably the first group costs order in the Supreme Court of Victoria in the G8 shareholder class action, and a further decision on shareholder class actions in Illuka, which again shows the complexities and difficulties in bringing and winning shareholder class actions around earnings forecasts.

Developments to watch in 2022 include:

  1. whether the proposed legislation further regulating litigation funding of class actions will be re-agitated or pulled back by any new government following the federal election which is due to take place in May;
  2. seeing what effect there will be on the bringing of shareholder class actions with the making permanent of the changes to the law around the continuous disclosure obligations of companies and effectively requiring proof of intent now, particularly given the change in risk around shareholder class actions which are increasingly being litigated; and
  3. how the High Court in the BHP appeal will approach the issue of extraterritoriality of the class action regime within Federal Court of Australia Act 1976 and whether overseas group members can be part of Australian class actions.

Footnotes

1 Robert Johnston is a partner, Nicholas Briggs is a special counsel and Felicity Karageorge is a senior associate at Johnson Winter & Slattery.

2 See discussion at Section III.

3 Civil Procedure (Representative Proceedings) Bill 2019 (WA).

4 Section 33C(1) of the Federal Court of Australia Act 1976 (Cth) (the FCA Act), Section 33C(1) of the Supreme Court Act 1986 (Vic) (the SC Vic Act), Section 157(1) of the Civil Procedure Act 2005 (NSW) (CPA NSW) and Section 103(B)(1) of the Civil Proceedings Act 2011 (QLD) (CPA QLD).

5 Cash Converters International Limited v. Gray (2014) 223 FCR 139.

6 Madgwick v. Kelly (2013) 212 FCR 1 at [151].

7 Multiplex Funds Management Ltd v. P Dawson Nominees Pty Ltd (2007) 164 FCR 275.

8 In the 2018–2019 financial year, 37.5 per cent of funded class actions were brought on behalf of shareholders: see Vince Morabito and Michael Duffy, 'An Australian Perspective on the Involvement of Commercial Litigation Funders in Class Actions' (2020) 3 New Zealand Law Review 377, 389.

9 Supreme Court Act 1986 (Vic) s.33ZDA.

10 Fox v. Westpac Banking Corporation; Crawford v. Australia and New Zealand Banking Group Limited [2021] VSC 573 [31].

11 ibid.

12 Allen v. G8 Education Ltd [2022] VSC 32.

13 Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 (Cth) Sch 1, item 7 (s601LG(3)).

14 Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 (Cth) Sch 1, item 7 (s601LG(5)).

15 BMW Australia Ltd v. Brewster; Westpac Banking Corporation v. Lenthall [2019] HCA 45.

16 Asirifi-Otchere v. Swann Insurance (Aust) Pty Ltd (No. 3) [2020] FCA 1885.

17 Evans v. Davantage Group Pty Ltd (No. 3) [2021] FCA 70.

18 Parliamentary Joint Committee on Corporations and Financial Services (the Parliamentary Joint Committee Report), Chapter 17.

19 Corporations (Coronavirus Economic Response) Determination (No. 2) 2020.

20 Treasury Laws Amendment (2021 Measures No. 1) Act 2021.

21 In fact, largely because the matters tended to settle, Australia did not have any superior judgments in a shareholder class action until 2019.

22 Bonham as Trustee for the Aucham Super Fund v. Iluka Resources Ltd [2022] FCA 71.

23 TPT Patrol Pty Ltd v. Myer Holdings Limited [2019] FCA 1747.

24 Crawley v. Worley [2020] FCA1522 but overturned on appeal on 11 March 2022 [2022] FCAFC 33.

25 Wigmans v. AMP Limited & Ors [2021] HCA 7.

26 See The Review, Class Actions in Australia, King & Wood Mallesons.

27 O'Donnell v. Commonwealth of Australia (Federal Court of Australia Proceedings VID482/2020).

28 Pabai Pabai & Anor v. Commonwealth of Australia (Federal Court of Australia Proceedings VID622/2021).

29 Sharma & Ors v. Minister for the Environment (Cth) (Federal Court of Australia Proceedings VID607/2020).

30 Dawson & Ors v. Commonwealth of Australia (Federal Court of Australia Proceedings SAD154/2019).

31 Evans v. Health Administration Corporation & Anor.

32 5 Boroughs NY Ptd Ltd v. State of Victoria & Ors.

33 Elliot-Carde& Anor v. McDonald's Australia Limited (Federal Court of Australia Proceedings VID762/2019).

34 Finance Sector Union of Australia v. CBA (Federal Court of Australia Proceedings NSD39/2022).

35 See Workpac v. Rossato [2021] HCA 23 (in relation to casual employment); and ZG Operations Australia Pty Ltd v. Jamsek [2022] HCA 2 (in relation to independent contractors).

36 As noted above, there are there are regimes for class actions in the Federal Court of Australia and the Supreme Courts of Victoria, New South Wales and Queensland.

37 Crowley v. Worley Limited [2020] FCA 1522.

38 Section 33C of the FCA Act, Section 33C(1) of the SC Vic Act, Section 157(1) of the CPA NSW and Section 103(B)(1) of the CPA QLD.

39 See, for example, Section 33T of the FCA Act.

40 Australian Law Reform Commission Report Grouped Proceedings in the Federal Court No. 46 (1988).

41 See D Grave et al., Class Actions in Australia (2nd Edition) at 131.

42 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.

43 Section 33H of the FCA Act.

44 With limited exceptions: see Section 33E of the FCA Act.

45 Section 33X of the FCA Act.

46 Section 33ZE of the FCA Act.

47 See D Grave et al., Class Actions in Australia (2nd Edition) at 384.

48 See, for example, Section 43(1)(a) of the FCA Act, Section 33ZD of the SC Vic Act and Section 181 of the CPA NSW.

49 See, for example, DIF III Global Co-Investment Fund, LP & Anor v. BBLP LLC & Ors [2016] VSC 401.

50 See Section 33X of the FCA Act.

51 See Section 33V of the FCA Act.

52 See, for example, ASIC v. Richards [2013] FCAFC 89 (12 August 2013) and Peterson v. Merck Sharp & Dohme (Aust) Pty Ltd (No. 6) [2013] FCA 447.

53 Petersen Superannuation Fund Pty Ltd v. Bank of Queensland Limited (No. 3) [2018] FCA 1842 (23 November 2018).

54 Baker & Anor v. Woolworths Limited (Federal Court of Australia proceedings NSD2004/2019).

55 Hadelhurst v. Toyota Motor Corporation Australia Ltd t/as Toyota Australia [2020] NSWCA 66; Owners – Strata Plan No 87231 v. 3A Composites GmbH (No. 3) [2020] FCA 748; Furnell v. Shahin Enterprises Pty Ltd [2021] FCA 73.

56 In Parkin v. Boral Limited (Federal Court of Australia Proceedings NSD602/2020).

57 Caason Investments Pty Limited v. Cao [2012] FCA 1502.

58 Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters.

59 Oceanic Sun Line Special Shipping Co Inc v. Fay [1988] HCA 32; (1988) 165 CLR 197, 241.

60 Impiombato v. BHP Group Limited (No. 2) [2020] FCA 1720.

61 BHP Group Limited v. Impiombato [2021] FCAFC 93.

62 Karpik v. Carnival plc (The Ruby Princess) (Stay Application) [2021] FCA 1082.

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