The ‘race to the registry’ in competing class actions has become a common phenomenon in the shareholder space. The response of the Courts has been to hold what has become known as a ‘beauty parade’ – the ‘most attractive’ proceeding winning the right to continue against the defendant(s).
Most recently, the Supreme Court of New South Wales was required to decide which plaintiff would have the right to prosecute a significant class action against AMP. The Court’s judgment dated 23 May 2019 provides useful guidance as to the factors to be considered.
Following evidence given by AMP’s executives to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in April 2018, five competing class actions were commenced against the company in the period 9 May 2018 to 7 June 2018.
The class actions variously alleged that AMP had breached its continuous disclosure obligations and engaged in misleading and deceptive conduct. Those allegations focussed on AMP’s failure to disclose to the market that it had charged its customers fees for financial advice and related services where no services were provided.
The five class actions were brought by:
- Ms Wigmans;
- Fernbrook (Aust) Investments Pty Limited;
- Komlotex Pty Limited;
- Wileypark Pty Limited; and
- Mr Georgiou.
The Wigmans proceeding was the first to be commenced (albeit by a matter of hours) in the Supreme Court of New South Wales. The remaining matters were commenced in the Federal Court and transferred to the Supreme Court. The proceedings were at various stages of preparation (the Wigmans proceeding being the most advanced).
Given the multiplicity of proceedings arising from the same subject matter, applications were filed seeking (in effect) a determination by the Court as to which one (or more) of the class actions should continue and on what terms. The plaintiffs in the Fernbrook and Komlotex proceedings also filed an application (which was not opposed by AMP) seeking the consolidation of their proceedings.
In her judgment dated 23 May 2019, her Honour Ward CJ (in Eq) noted that although the beauty parade process had ‘unedifying aspects’ (for example, insofar as she was asked to make assessments of the comparative skills and experience of the legal teams), she was nevertheless bound to determine the applications before her. In doing so, she was required to consider a variety of factors.
The Court’s decision
Factors for consideration
Beauty is in the eye of the beholder. Each of the plaintiffs relied on different factors to distinguish their claim, summarised as follows:
Ms Wigmans emphasised:
- the ‘first mover advantage’;
- an additional (unconscionable conduct) cause of action in her proceeding;
- the extended definition of group members in her proceeding;
- the advanced progress of her proceeding; and
- the staged funding model provided by Burford (this was said to provide an incentive to the funder to achieve the highest recovery for group members).
- its ‘no win, no fee’ funding model (that is, the proceeding would be conducted without a litigation funder but with after-the-event insurance);
- the experience of its solicitors; and
- its funding structure.
Upon consolidation of the Fernbrook proceedings, payments would be made to Slater & Gordon (Fernbrook’s solicitors) and Therium (Fernbrook’s funder).
- the size of its group (including the ‘informed choice’ that its institutional group members were said to have made); and
- the experience of its funder (IMF) in the analysis of financial data and provision of project management services (said to be “at no cost” to group members).
Mr Georgiou emphasised:
- that his estimate as to legal costs had been appraised by a costs consultant and involved the lowest solicitors’ rates (which would likely result in the highest recovery for group members); and
- that those responsible for the matter at his funder (Augusta) were qualified solicitors and this presented an advantage over funder decision-makers (who do not owe paramount obligations to the Court).
Her Honour, having regard to the approach undertaken by the Court in Perera v GetSwift Ltd, undertook a multifactorial analysis to determine which of the proceedings should be allowed to continue and which should be stayed.
A number of factors were considered by her Honour.
First, her Honour considered the competing funding proposals, costs estimates and net hypothetical return to members. Ward CJ (in Eq) saw pros and cons with each funding model. However, her Honour ultimately saw the ‘no win, no fee’ model of the Komlotex proceeding as most favourable because it “balances the potential incentives and disincentives by putting the risk of the litigation squarely with the solicitors but incentivising additional work (which might be likely to produce a higher settlement sum) by reference to an uplift on fees to be achieved only when the stipulated threshold for a resolution sum is achieved”.
Her Honour next considered the parties’ proposals as to security for AMP’s costs, finding that the Wigmans and Komlotex proceedings offered the most favourable proposals for security.
Insofar as the nature and scope of the causes of action advanced by the plaintiffs and the size of the respective classes to the representative proceedings were concerned, these factors understandably did not weigh heavily in the equation.
In relation to the extent of book building, her Honour considered that the weight sought to be placed by Wileypark on this factor was contrary to observations made by the Court in the Perera v GetSwift Ltd regarding book building. Her Honour gave this factor no weight.
As to submissions made by the parties regarding the respective experience and/or abilities of the solicitors or funders, her Honour considered there was no sensible basis upon which to differentiate between the parties. Further, no weight was attached to the various complaints made by the parties as to the conduct of the other competing proceedings.
Her Honour also did not regard the fact that the Wigmans proceeding was the most advanced to be significant (as the remaining proceedings would be able to catch up).
Ultimately, Ward CJ found that the Komlotex and Fernbrook proceedings should be consolidated and proceed in favour of the other proceedings. Ultimately, the factor which her Honour found the most persuasive was the funding model – namely, a ‘no win, no fee’ model that involved no funding commission. This meant, based on the modelling undertaken, that the net return for group members in those proceedings would probably be the highest.
Against that background, her Honour made orders that the proceedings other than the consolidated Komlotex/Fernbrook proceeding be stayed, on the condition that the plaintiffs pay $5 million as security for AMP’s costs.
Time will tell whether an appeal against her Honour’s judgment is lodged by the unsuccessful parties.
In the meantime, the decision reflects the proposition that in the event of competing class actions, each aspect of the competing proceedings will need to be considered on its merits.
Having said that, the nature of the funding models and returns to group members are likely to be key considerations for the Court when confronting competing class actions. The Court was more interested in these matters than arguments regarding the respective experience and abilities of the lawyers. The latter is likely to be a factor only where one party can point to a significant disparity in relevant skills and experience.