Overview of Australia’s class action system

Class actions are a well-established dispute resolution mechanism in Australia, under both State and Federal regimes. The threshold requirements for bringing a class action are low: class actions require only that seven or more group members have claims against the same person(s), which are in respect of, or arise out of, the same, similar or related circumstances and give rise to at least one substantial common issue of law or fact. There is no requirement to have the class certified before the action can proceed.

Australian class actions employ an opt-out model, whereby individuals who fall within a group definition are automatically bound by any judgment or settlement unless they formally opt out of the proceedings. Notwithstanding this, courts have permitted “closed” classes, which may occur when the definition of group members specifically limits the group by criteria such as those individuals who have entered into an arrangement with a particular litigation funder.

Any settlement in a class action requires court approval, which involves consideration of whether the proposed settlement is a fair and reasonable compromise of all group members’ claims.

Litigation funding and common fund orders

Third party litigation funders

Third party litigation funding is permitted in Australia, with third party funders most commonly seen in class actions.

Litigation funding has recently attracted attention for being relatively “unregulated” in Australia, but the Australian Law Reform Commission (“ALRC”) has recently made a series of recommendations[1] in relation to funders in the context of the Federal class actions regime, including that:

–      third party litigation funding agreements with respect to class actions should be enforceable only with the approval of the Court;

–      there should be a statutory presumption that third party funders funding representative proceedings will provide security for costs; and

–      the Court should be expressly empowered to award costs against funders who fail to comply with the overarching purpose of facilitating the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible.

Common fund orders

Common fund orders are court orders which require all group members to contribute to the funding of the class action out of any judgment or settlement, regardless of whether they have signed a litigation funding agreement with a funder in which they agree to make such a contribution. Such orders are usually sought to provide funders with certainty that they will be able to recover their relevant commission from all group members.

While two recent decisions, in the Federal Court and the New South Wales Court of Appeal, had upheld the courts’ powers to make such orders, on December 4, 2019, Australia’s highest court, the High Court of Australia, held on appeal from those decisions that the legislative provisions previously relied upon for the making of common fund orders do not empower courts to make such orders.[2]

With the power to make common fund orders now removed by the High Court, it is possible that legislation will be introduced in the future specifically authorising the making of common fund orders.

Contingency fees

Contingency fee arrangements (whereby solicitors’ fees are determined as a percentage of any amount recovered in the litigation) are not currently available in Australia. However, the ALRC has recently recommended the introduction of contingency fees in limited circumstances under the Federal regime, on the basis that such arrangements may result in greater certainty as to fees and therefore potentially greater returns for group members. The ALRC’s recommendations include that:

–      contingency arrangements in class actions should be permitted only with  the court’s approval;

–      there should be a statutory presumption that solicitors acting on contingency will provide security for costs; and

–      an action funded by solicitors on contingency should be precluded from being funded by a third party (litigation funder who is also charging on a contingent basis).

A bill has recently been introduced in the state of Victoria which would allow plaintiff firms in class actions to be paid contingency fees, subject to the discretion and supervision of the Supreme Court of Victoria.

Key areas of class action activity in Australia

Shareholder and investor

Shareholder class actions are amongst the most common in Australia, with a marked increase in their incidence in recent years (driven in part by the availability of litigation funding). Such claims typically relate to the circumstances in which securities are acquired and sold. In particular, claims will often revolve around alleged misleading and deceptive conduct and/or breaches of continuous disclosure obligations which are said to have caused or contributed to group members’ loss (e.g. a decline in share price).

Shareholder class actions have historically ended in settlement rather than proceeding to final judgment. The first shareholder class action final judgment was handed down only recently, in October 2019 (TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Limited). Significantly, this decision confirmed that shareholders may be entitled to recover damages for breaches upon the basis of “indirect market-based causation”, without needing to establish direct and personal reliance.

Examples of shareholder class actions in recent years in Australia include claims against:

–      an international construction contractor alleging breaches of continuous disclosure provisions, including in relation to a failure to notify the market of cost overruns in relation to major construction projects;

–      an entity specialising in the ownership and management of shopping centres alleging a failure to disclose the full extent of debt obligations and possible risk of inability to refinance those obligations; and

–      a global winemaking and distribution entity alleging breaches of continuous disclosure obligations regarding a $160 million write-down of its US operation and in relation to the release of an allegedly unrealistic profit guidance.

Consumer

Consumer protection and product liability class actions are another well-established category. Claims in such cases commonly relate to products allegedly having safety defects, not being of merchantable quality or not being fit for their purpose. Claims may also be made in respect of misleading or deceptive advertising of a product.

Consumer-related class actions in recent years in Australia include claims in the medical devices, pharmaceuticals, flammable construction materials and automotive industries.

Likely areas of future activity

Ongoing activity in shareholder/investor class actions

Significant activity in shareholder class actions is expected to continue, particularly following the Federal Court’s recent acceptance of indirect, market-based causation.  Such activity is likely to also be fuelled by the findings released in 2018 by the Royal Commission into Misconduct in the Banking Superannuation and Financial Service Industry. In particular, current class actions include claims against:

–      an ASX-listed entity covering shares worth around $10 billion in today’s market relating to shareholder losses allegedly linked to market disclosures;

–      a financial services entity in relation to an alleged failure to disclose market sensitive information; and

–      an Australian bank in relation to allegedly irresponsible home loan lending.

Growth in employment-related class actions

Class actions in the employment sphere are a relatively more recent phenomenon but are expected to become increasingly common. One particular area of recent growth is the alleged misclassification of the status of individuals (e.g. misclassification of an employee as a contractor, or misclassification of a full/part-time employee as a casual employee) which has flow-on effects for worker entitlements. Current employment-related class action activity includes:

–      a claim against an ASX-listed entity alleging that workers were misclassified as casual, rather than full/part-time, employees;

–      foreshadowed action against an Australian hospitality entity in relation to alleged systematic underpayment of workers; and

–      foreshadowed action in relation to an allegedly systematic culture of excessive and unsafe working hours in Australian hospitals.


[1]     Australian Law Reform Commission Report 134, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders Final Report, December 2018.

[2]     BMW Australia Ltd v Brewster [2019] HCA 45.

Author

Kathleen Jeremy is an associate in the Baker & McKenzie Dispute Resolution team based in Sydney.