Australia's federal class action regime commenced in March 1992 with the introduction of Part IVA of the FCA Act. Some, but not all, Australian states have since followed with regimes that mirror their federal counterpart.22i 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 recent Australian class action landscape. 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.23
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 the Australian legislation) can be commenced where relatively straightforward criteria are met, as follows:
- at least seven people must have claims against the same person;
- the claims must arise out of the same, similar or related circumstances; and
- the claims must give rise to substantial common issues of law or fact.24
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.25 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'.26 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.27 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.28 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.29 Nor is the plaintiff (or lead applicant) required to seek the consent of a person before making that person a group member.30 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.31 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.32iii 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:
- broad powers to discontinue representative proceedings;
- the power to substitute a lead applicant who is not adequately representing the interests of group members;
- the power to order that notice of 'any matter' be given to group members;
- the ability to decline or approve settlements; and
- the power to make any order it thinks appropriate or necessary to ensure that justice is done in the proceeding.33
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:
- 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
- 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.34 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.35
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 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:
- 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);36
- giving group members the opportunity to make objection to the settlement if they consider it not in their interests; and
- having the court review the proposed settlement to ensure it is fair and reasonable and in the interests of group members.37 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,38 although it is relatively rare. 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),39 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.The class closure process – scaled back in 2020
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 have 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 (and 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.
However, decisions in the Supreme Court of New South Wales and in the Full Court of the Federal Court of Australia in 202040 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. 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. However it is likely 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.
Still, there seems a reasonable prospect that legislation may be enacted that reinstates the power to make registration and class closure orders prior to settlement. The Joint Committee Report recommended as much, given the benefits that flow from class closure including the facilitation of settlements and the promotion of the finality of disputes.