Yesterday, the Chief Judge in Equity, her Honour Justice Ward handed down a decision finally ending the skirmish between five law firms who all filed competing class actions against AMP last year.
Her Honour found that the consolidated Komlotex/Fernbrook proceeding (to be run only by Maurice Blackburn) presented itself as the most attractive vehicle for potential group members and permanently stayed the remaining three proceedings. Her Honour weighed up a number of factors, but ultimately found that the 'no win, no fee' model proposed by Maurice Blackburn offered the highest hypothetical rate of return for the class, as opposed to the other actions, which were all backed by litigation funders.
The decision confirms that the financial interests of shareholders are paramount.
Background to AMP proceedings
AMP's appearance at the Banking Royal Commission last year resulted in a fall in its market value by approximately $2 billion. On 9 May 2018 Quinn Emanuel filed the first securities class action in the Supreme Court announcing in a media release that it had the potential to be one of Australia's largest shareholder claims. That same night, Phi Finney McDonald filed its class action against AMP in the Federal Court. With AMP's admissions of their less than scrupulous conduct in the Banking Royal Commission presenting too sweet an opportunity for class action lawyers and funders alike to miss, by 7 June 2018, another three law firms (Maurice Blackburn, Slater & Gordon and Shine Lawyers) had filed class actions in the Federal Court.
All of the class actions allege AMP breached its continuous disclosure obligations under the Corporations Act 2001 (Cth) and ASX Listing Rules by failing to disclose information to the market which would have had a material effect on the price or value of its shares, as well as allegations that they committed misleading or deceptive conduct in the issue of false statements to the market.
The Full Federal Court made the decision last year to transfer the four class actions filed in the Federal Court to join the other AMP class action in the Supreme Court. Our earlier article, which can be accessed here, gives a detailed background of that decision.
In December 2018 her Honour Justice Ward heard from each of the law firms as to why their particular class action should be chosen to proceed. On the second day of that hearing, Maurice Blackburn and Slater & Gordon informed the Court that they had consolidated their class actions, leaving only four remaining. The class action run by Maurice Blackburn and Slater & Gordon is the only one of the four to not be backed by a litigation funder.
Implications of the decision
The Chief Judge found that the multiplicity of proceedings was, in this case, not an abuse of process, but was rather an issue to be determined by reference to case management principles. In line with this approach, her Honour found that staying all but one of the actions was consistent with the overriding purpose of s 56 of the Civil Procedure Act 2005 (NSW) to facilitate the just, quick and cheap resolution of the real issues in dispute.
With reference to the factors Lee J put forward in the first instance GetSwift decision, her Honour addressed the following in deciding which class action should remain on foot:
Competing funding proposals, costs estimates and net hypothetical return to members;
Proposals for security;
Nature and scope of the causes of action advanced;
The experience of the legal practitioners (and funders) and availability of resources;
State of progress of proceedings;
The conduct of the representative plaintiffs to date;
Size of the respective classes; and
The extent of any bookbuild (i.e. signed funding agreements with group members).
Her Honour placed the most weight on factors (1) and (2) in choosing the Maurice Blackburn action, and was firm in her opinion that the process of seeking to adjudicate between the abilities of experienced lawyers was "unedifying". Her Honour found factors (3) and (4), in respect of the nature of the causes of action and the experience of legal practitioners, to be broadly neutral in the circumstances, placed little weight on factors (5) and (6) and placed no weight on factors (7) and (8).
The judgment rejected Quinn Emanuel's assertion that the class action filed 'first in time' should succeed, and, in line with previous decisions in this area, this conclusion was formed by a consideration of what was in the best interests of the group members.
Competing class actions
Her Honour's approach in staying all but one of the actions is not unexpected.
On 20 November 2018 the Full Federal Court upheld a first instance decision in Getswift ordering a permanent stay in two of three competing class actions on such that only one of those class actions can proceed (our article exploring this decision can be found here). This approach was adopted by Justice Moshinsky in December last year, who stayed two of three competing class actions against BHP, with the most influencing factor being which class action would offer the greatest return to shareholders.
It is also not unexpected that her Honour was minded to place the greatest emphasis on the financial return for the class.
Her Honour referred to the decision of the Full Federal Court in GetSwift, identifying the proceeding with a funding and costs model most likely to "motivate the applicant’s solicitor and funder to work assiduously to achieve the best outcome for the applicant and group members and to take reasonable risks in that regard.”
While her Honour was careful to warn against a precedent that a 'no win, no fee' proposal would always provide the best return for investors, her decision does suggest that funders may be overlooked in circumstances where the proposed action is likely to be lucrative and attractive to a number of law firms. The judgment also noted the disparity in the fee proposals put forward by the funders in this case compared with what is traditionally charged in class actions (the fees in this case being much higher). In seeking to explain this disparity, the expert retained by the Plaintiff postulated that funders may be caught up in a 'race to the bottom', "whereby they gain control of cases by accepting smaller commissions than their competitors, then earn profits and minimise risks by settling cheaply and quickly."
In circumstances where we have seen at least 78 (almost all funded) shareholder class actions filed in the Federal Court since 2002, the AMP decision is unlikely to make a dent in shareholder class action popularity in Australia. That said, the decision may give funders reason to pause before investing in proposed class actions where one (or several) has already been filed. The decision may also result in a rise in 'no win no fee' backed class actions, which bypass funders completely.