The US is commonly seen as the home of class action litigation, with thousands of claims brought every year and new securities class actions averaging one a day in 2017. However, in recent years Australia has well and truly embraced the class action culture and established itself as one
of the leading markets globally for such lawsuits.
Securities proceedings dominate the scene; notable shareholder examples include the shareholder action against GetSwift over its alleged breach of continuous disclosure rules, the high-profile AMP shareholder class actions, and Quintas’ shareholders bringing a claim alleging inflated profit statements. Product liability claims are not far behind in prominence, with key product fault issues including the Takata air bag actions against multiple car manufacturers and the action brought against Essure over failed contraceptive implants.
The development of the market is now beginning to spread to less conventional areas with increasing numbers of competition, employment, and environmental class action claims. However, two dominating trends have drastically changed the Australian market in the last few years and threaten to throw into question the validity of the market itself – the role litigation funders play and the current allowance of competing claims.
Third-party funding
The entrance of third-party funders into Australia is considered the main accelerant for the rapid market change in the disputes space. Currently unregulated, local and international funders are driving market innovation and competition in the space, and allowing greater access to justice regardless of claimants’ personal wealth.
Ben Phi, name partner at claimant class action boutique Phi Finney McDonald, argues that litigation funding has had a profound and positive effect on Australian class actions. ‘By providing capital and assuming litigation risk, funders have allowed class actions to be commenced which would otherwise have been economically impossible.
‘As commercially minded third parties, funders can identify issues or problems with claims in the course of their due diligence, improving the quality of cases before the courts. Increased competition has started, finally, to push down funding prices to the benefit of claimants.’
However, funders are also accused of putting pressure on commission rates, encouraging the misuse of the legal system and court resources, and exerting control over proceedings. All this increasingly highlights conflict of interest issues and ultimately casts doubt on the legitimacy of case outcomes.
The Australian Law Reform Commission (ALRC) recently proposed that third-party funders should be required to obtain a bespoke litigation funding licence to operate in Australia.
These permits to fund, it is argued, would ensure honesty and efficiency across services and communication, establish arrangements and procedures in cases of conflict of interest and risk management issues, and require funders to be regularly audited. Other options suggested by the commission include potentially making funders subject to cash flow rules and examining the character and qualification requirements of individual funders.
Competing claims
Competing class action claims are increasingly common with multiple proceedings being brought against a single defendant involving similar or the same allegations. The area has become so prominent that some claims are breaking records.
In mid-2018, financial services company AMP was staring down the barrel of five competing shareholder class actions (one in the New South Wales Supreme Court and four others in the Federal Court of Australia) relating to the same issue following the fees-for-no-service scandal revealed in the financial services royal commission.
While the four claims filed in the Federal Court have recently been consolidated into a single claim in the Supreme Court of New South Wales, the trend of multiple class action claims is not going away any time soon with firms becoming increasingly focused on this specialist area and boutique class action outfits springing up more frequently than ever.
As Jason Betts, a Sydney-based disputes partner at Herbert Smith Freehills, states: ‘The recent phenomenon of competing class actions over the same subject matter claim continues to grow, and it is more important than ever for organisations to understand the legal landscape in which competing class actions arise and how they are dealt with by the courts.’
Other approaches besides consolidating claims have also been taken in an attempt at tackling the competing class phenomenon. One example can be seen in the decision taken by the Federal Court in the GetSwift shareholder action, in which it permanently stayed two out of three competing class actions, with the final one proceeding.
Some view the move as a useful path for managing complex competing claims, while others highlight the lack of consistency in the market’s approach to the problem. ‘The GetSwift decision’, Betts says, ‘has implications for access to justice, the economics of the litigation funding model and the efficiency of the legal system and therefore the potential legal costs borne by defendants.’
Although the current activity in the Australian market is seen as problematic in some quarters, or suggestive that further controls are required, Phi says the increase in actions is producing an increasing body of interlocutory judgments based on judges exercising their broad discretionary powers.
‘While there has been some discussion of legislative reform, the current statutory class action regime gives the courts ample case management powers to deal with and manage this competition,’ he says. ‘The result is a thoughtful, incrementally developed, guide to class actions practice; one that balances the rights of defendants with the access to justice imperatives of the class actions regime, whilst also ensuring that judicial resources are used efficiently and effectively.’ While litigation funders and competing claims have undoubtedly shaped the market, both are also on the verge of potential change. The ALRC is examining both the potential regulation of litigation funders and their influence over proceedings (including efforts to improve information disclosure between funders and law firms to the courts and clients), as well as proposing reform to class action laws, which will limit potential competing claims and increase the court’s role in the management of the proceedings.
With the prevalence of class actions looking to only grow, and proposed changes looming on the horizon, Betts sums it up well: ‘One thing is certain; the class action space in Australia will be very interesting over the next 12 months.’