2014 saw significant local activity in the class action space, with plaintiff law firms aggressively generating interest in pursuing mass tort litigation.

The highpoint of 2014 was undoubtedly the settlement of the Black Saturday Kilmore East-Kinglake bushfires class action. Approved by the Victorian Supreme Court on 23 December 2014 (judgment was still pending following a lengthy trial when the litigation settled), the plaintiffs will receive $494 million for losses sustained in this bushfire, less costs, making it the largest class action settlement in Australian legal history.

The second largest settlement for 2014 came in the Great Southern litigation involving a failed investor scheme, again a compromise whilst a Victorian Supreme Court judgment was pending following a lengthy trial (and the largest class action settlement until the Black Saturday settlement). The settlement is now subject to a proposed scheme of arrangement. Again in the financial industry, whilst the February 2014 Federal Court Ruling that ANZ Bank charged exorbitant late payment fees might have emboldened the plaintiff law firm involved to continue with its class actions against numerous other banks, the April 2015 full Federal Court judgment which found for the ANZ Bank on all issues may cause both plaintiff lawyers and litigation funders to reflect on whether such speculative litigation is commercially worth pursuing (although a High Court appeal seems likely).

Plaintiff law firms appear to be closely monitoring company reporting and shareholder announcements, and one cannot help but sympathise with companies who are targeted in this fashion, with mass tort litigation proving a costly distraction both on an operational and financial basis. The scope of discovery alone in such disputes can be an incentive to explore settlement options.

The fact that the plaintiff’s legal costs in each of these actions will assess in the millions will no doubt encourage plaintiff law firms to pursue similar mass tort litigation opportunities. While class actions arising from fires and financial institutions (particularly continuous disclosure obligations) appear to be growth industries, there is no doubt that the “traditional” product liability class action (i.e., a pharmaceutical manufacturer and a drug or device supplied to the market with adverse effects leading to personal injury) will continue to have a significant footprint in the class action space locally and internationally. The Federal Court approved a settlement (for an undisclosed amount) involving a drug which was alleged to cause (at least in part) compulsive behaviours such as gambling and hypersexuality. There has also been a proposed settlement of a similar but separate class action, subject to receiving court approval. We also witnessed the Victorian Supreme Court approve a settlement in which Australian and New Zealand plaintiffs will receive $89 million as compensation for the burden of living with severe physical deformities said to be associated with their mothers using a particular drug during pregnancy.

In addition to the 2014 settlement highlights, it appears that the class certification requirements are easier to achieve locally than internationally. By way of example only, we observed two Federal Court class actions being allowed to proceed against several pharmaceutical companies (both settled in 2014 subject to Court approval), however comparable proceedings in the US were not able to proceed as class actions and instead were dealt with in tranches involving numerous US plaintiff law firms. Companies should look seriously at challenging at the outset whether a class can be certified when such mass tort litigation is threatened or issued.

For other matters, the courts have adopted a far more conservative approach. In the case of Treasury Wine Estates (Treasury), for instance, which has been targeted in two separate class actions arising from a 2013 write-down announcement, Treasury was successful in having the Victorian Supreme Court rule that a minor shareholder’s company, known as “MC I” (of which a practicing lawyer is the sole director and sole shareholder) could not continue as both the lead plaintiff and the solicitor on the record in the separate class action that his company had issued. Treasury was unsuccessful, however, in having the Victorian Supreme Court conclude that the class action was an abuse of process. On appeal, however, the Victorian Court of Appeal overturned the decision. The Court of Appeal, by majority, held that the class action was an abuse of process on the basis that the predominant purpose of the proceeding was enabling MC I’s sole director and sole shareholder to earn legal fees and said (at [13] to [14]):

“The nature of the cause of action – as a claim based on an alleged breach of disclosure requirements – is immaterial to MCI’s purpose. Its sole purpose has only ever been to create for itself – in this case, by acquiring a small parcel of shares – a cause of action to sufficient merit to induce the defendant company to pay Mr Elliott’s [the practicing lawyer, sole director and sole shareholder of MCI] fees.

It seems to us that this is a clear example of an abuse of process. The process of the Court do not exist – and are not to be used – merely to enable income to be generated for solicitors. On the contrary, they exist to enable legal rights and immunities to be asserted and defended. In the common form of class action, that is the sole purpose of proceedings. The members of the class wish to vindicate their rights. The fact that success will result in the solicitors’ fees being paid does not affect the proprietary of the proceeding”

(Citation/Footnote: Treasury Wine Estates Ltd v MCI [2014] VSC 351)

The Court went on to say (at [21]):

“ … there would have been very few cases in the history of Anglo-Australian litigation where a plaintiff has instituted a proceeding with the predominant purpose of enriching its solicitor, and indeed it would probably not have been a realistic possibility until the advent of the modern form of class action litigation during the last 20 years.”

(Citation/Footnote: Treasury Wine Estates Ltd v MCI [2014] VSC 351)

2015 is expected to see continuing interest in mass tort litigation, particularly in view of the settlements achieved in 2014, the ongoing influence of litigation funders, and the Productivity Commission still pondering the benefits of recommending the introduction of contingency fees. If contingency fees were to be introduced in any form, that may diminish the influence of litigation funders as plaintiff lawyers seek to increase their share of the costs, thereby mirroring the situation in the US where litigation funders have little influence on account of the fact that the US Plaintiff Bar self-funds and in the process recovers significant costs, often in frivolous consumer class action claims and the like (such claims may have some attraction to Australian plaintiff lawyers given the ever-increasing focus by regulators on product misrepresentation, and the fact that such claims would not be subject to tort reform). The prospect of additional financial incentives to litigate on a mass tort scale being rolled out is something that corporate Australia (insurance, financial, pharmaceutical or otherwise) should be very wary about given the appetite for class action litigation that already prevails, although decisions like the recent ANZ Bank full Federal Court decision will no doubt be welcomed by large corporates who might be targeted.