Multiplicity of actions involving the same subject matter has become a common feature of the Australian class action landscape. These fall into three broad types: 

  1. “parallel” class actions where the classes are different but the subject matter of the litigation is the same;
  2. “competing” class actions where there is an overlap in the classes; and
  3. “sequential” class actions where one commences after an earlier one has concluded.

The NSW Supreme Court has recently ordered that the competing class actions arising out of the collapse of subprime lender Provident Capital be heard together, in an example of (2) above. In doing so, the Court acknowledged the inappropriateness of a fixed rule that no more than one class action should be permitted to proceed and that the court should make that determination.

Justice Ball’s decision in Smith v Australian Executor Trustees Limited; Creighton v Australian Executor Trustees Limited [2016] NSWSC 17 provides guidance as to the approach courts may take when determining how to run competing class actions, particularly in circumstances where there is a substantial overlap between the proceedings.

How are multiple class actions run in Australia?

Competing class actions are becoming increasingly common in Australia, with at least five sets of competing class actions before Australian courts in recent months,[1] feeding the significant rise in the number of class actions filed in Australia as well as increasing competition in the number of funders.[2]

In case managing competing class actions, the Court may take any of the following courses in reliance on the general power to control the conduct of class actions:

  1. allow the competing class actions to proceed separately;
  2. order a joint trial (with evidence in one usually being evidence in the other);
  3. order sequential hearings (possibly before the same judge);
  4. select one proceeding for trial and stay the other proceedings until the trial has concluded (in effect, a “test case”); or
  5. consolidate the actions into a single proceeding.

In Kirby v Centro Properties Ltd [2008] FCA 1505, which involved a series of parallel actions (ie type (1) above), Finkelstein J acknowledged the undesirability of separate trials arising from the same or similar issues, due to the time and costs involved and the potential for inconsistent decisions. Accordingly, his Honour found that, in deciding how to proceed, the determinative factor is what is in the best interests of the group members as a whole, which outweighs any consideration of whether the subsequent-in-time proceedings are vexatious or oppressive to the defendant.

The preference in Australia for the use of mechanisms other than formal consolidation of multiple class actions results from the prima facie position under the federal and state class action regimes that every proceeding commenced as a class action will continue as such unless an application is formally made to discontinue that status. This differs from the position in the United States and Canada, where proceedings are in each instance required to be judicially certified as appropriate to be brought as a class action, at which point counsel for the class is formally appointed by the Court.[3]

Provident Capital class actions

The Provident Capital class actions arose from the alleged failure of the defendant (as trustee) to exercise reasonable diligence in respect of Provident Capital’s portfolio, in breach of its duties under the Corporations Act 2001 (Cth).

The first proceeding was commenced by Slater & Gordon (on a ‘no win, no fee’ basis) in the Federal Court in December 2014 as an “open class,” representing all persons who invested in Provident Capital debentures on or after 22 December 2010 and who still held debentures on 18 September 2012. It is alleged that the defendant failed to ascertain whether Provident Capital’s assets were sufficient to repay the debentures, and ought to have ascertained that its assets were insufficient when the debentures became due.

The second proceeding was commenced in the NSW Supreme Court in June 2015 by Meridian Lawyers on behalf of a “closed class” of persons who invested in the debentures as at 29 June 2012 and who had entered into an agreement with litigation funder Litman Holdings. Those proceedings allege that the defendant did not do everything within its power to ensure Provident Capital remedied any breach known to it, which would have prevented the loss suffered by debenture holders.

The Slater & Gordon proceeding was transferred to the NSW Supreme Court in September 2015, after Middleton J found there was an “overriding need” for the proceedings to be determined in the same court. Following the transfer, the defendant sought orders that one of the class actions be stayed or, alternatively, that the proceedings be consolidated. It was accepted that there was an overlap between the group members in each proceeding.

Reasons for ordering joint trial

Justice Ball of the NSW Supreme Court concluded that the most appropriate order was for the trial of both actions to be heard together, on the basis that it was not in the interests of justice for the proceedings to continue separately with overlapping group members. His Honour stated:

Where there are common issues and a common defendant, the interests of justice strongly point to the proceedings being heard together, with evidence in one being evidence in the other, so as to reduce costs and avoid the possibility of inconsistent judgments (at [22]).

The Court commented in relation to the other options presented by the parties that:

  1. it was not appropriate stay one of the proceedings, as it was not possible at this stage to express a view as to each proceeding’s merits, and it was at least theoretically possible that one could succeed and the other could fail; despite the fact that individually each proceeding was properly brought; and
  2. consolidation orders should not be made without the agreement of all affected parties, as the continuing proceedings would be reliant on either a high degree of cooperation between counsel or on a decision of the Court to select one set of counsel over another.

In deciding that a joint trial was in the best interests of the group members as a whole, however, Justice Ball noted that settlements were a “notable” and “frequent” feature of class actions, and the fact that there were separate proceedings could present additional barriers to settlement, given:

  • it would be difficult to reach any settlement unless both proceedings settled at the same time (which could only happen if the plaintiffs’ lawyers reached a common position in relation to settlement);
  • the plaintiffs’ lawyers had not agreed on how the cases should be put; and
  • the different funding mechanisms (with one being run with a litigation funder and the other on a “no win, no fee” basis) would lead to difficulties in respect of the overlapping group members.

As such, in addition to ordering the joint trial, the Court also decided that it would not be in the interests of justice to permit both proceedings to continue with overlapping class members, and foreshadowed orders that overlapping group members select which of the two class actions in which they wished to participate. His Honour observed that both proceedings “offer true alternatives” because of the nature of the pleadings and the different funding models. As a result:

the choice [for group members] is not simply which legal advisors should be permitted to advance what is effectively the same proceeding…The choice that is made could have significant consequences for debenture holders. In those circumstances, and where the choice is not obvious, in my opinion, it is inherently undesirable for the court to make it on behalf of debenture holders. It seems to me that it is possible to devise a mechanism to permit a choice to be made by debenture holders which will ensure that AET does not ultimately have to deal with two proceedings brought on behalf of the same individuals (at [47]).

Implications for defendants

It is clear that the Court’s preference for ordering joint trials places a burden on defendants, who will still be required to defend two or more proceedings, including preparing multiple defences and responding to multiple discovery requests. This was acknowledged by Justice Ball, who noted the “difficult position” the defendant would be placed in if both class actions proceeded to trial. This burden is financially significant. Justice Ball’s reasoning suggests, however, that in the absence of any deficiencies on the merits, courts will tend towards ordering the joint hearing of overlapping class actions. We have already seen the joint trial of parallel actions in Centro. The Provident Capital judgment confirms that defendants to future competing class actions are unlikely to succeed in arguing that having multiple proceedings against the same defendant in relation to the same subject matter is itself vexatious or oppressive. Rather, it must be shown that there is no reasonable justification for having multiple proceedings, which tends toward only those proceedings where both the causes of action and group members are identical. Otherwise, it is likely that orders will be crafted to regulate the conduct of the multiple proceedings in the interests of justice as a whole which, as Justice Ball noted, strongly point to the proceedings being heard together.