May 25, 2011 Articles

The Next Hot Spot for Australia's Class-Action Industry

A new class-action procedure New South Wales will allow a broader range of claims to be brought as class actions and put the state on the class-actions radar.

By S. Stuart Clark, Ross McInnes, and Mikhail Glavac

When non-Australians learn about the features of Australia’s class-action regime, they are usually surprised by its plaintiff-friendly nature, which has made Australia the most common jurisdiction outside of North America for a corporation to face a class action. The encouragement of class-action litigation by the legislature and the courts alike continues, with no sign of abating. There are two recent developments that are worth noting.

First, in March 2011, a class-action procedure commenced in the Australian state of New South Wales. While based upon the existing federal class-action procedure, it is not identical, and it is perhaps even more plaintiff-friendly. This new procedure will allow a broader range of claims to be brought as class actions in Australia, and it will put New South Wales on the class-actions radar.

Second, in recent years, Australia’s class-action litigation has developed into a separate litigation industry with a number of well-known and well-credentialed players, including the litigation funders—which have now been endorsed by Australia’s High Court as a viable business—some well-known and high-profile plaintiff law firms, and some equally well-credentialed members of the defense bar. These class-action plaintiffs’ lawyers have developed a specialty in managing, pursuing, and defending this unique kind of litigation.

The Australian Legal System
Australia is a federation comprising six states and two self-governing territories. The Australian constitution specifies a range of matters that are the responsibility of the federal government, and the balance of legal issues remains the responsibility of the various state and territory governments. Australia has both a federal court system and a hierarchy of courts in each of the states and territories.

The Introduction of Class Actions at the Federal Level
Class actions were introduced into the Federal Court of Australia in 1992, when Part IVA was inserted into the Federal Court of Australia Act 1976 (Cth) (FCA Act). The introduction of class-action procedure was said to be justified by two overriding policy objectives, namely:

  • Improving access to justice. Class actions provide a remedy for persons whose loss is small and not economically viable to recover through an individual action.
  • Increasing the efficiency of the courts. Class actions allow common issues between plaintiffs to be dealt with in a single proceeding, rather than many individual actions.

 

Cth, Parliamentary Debates, House of Representatives, 14 November 1991, 3174–5 (Michael Duffy, Attorney-General); Law Reform Commission, Grouped Proceedings in the Federal Court, Report No 46 (1988) 34, 146; Dorajay Pty Limited v Aristocrat Leisure Limited [2005] FCA 1483, [98] (Stone J).

While the introduction of Part IVA did not immediately lead to an explosion in class-action litigation, use of the procedure has steadily increased. Australia is now the most likely place outside of North America for a plaintiff to bring a class-action law suit. S. Stuart Clark and Christina Harris, “Multi-Plaintiff Litigation in Australia: A Comparative Perspective,” 11 Duke Journal of Comparative and International Law 289, 289 (2001). A virtually identical class-action procedure was introduced in the state of Victoria in 2000. Supreme Court Act 1986 (Vic) Part 4A.

Features of the Australian Class-Action System
Part IVA was introduced as part of a ‘package’ of reforms that was, in part, intended to increase the level of product liability litigation in Australia. S. Stuart Clark and Christina Harris, “Class actions in Australia: (Still) a work in progress” 31 Australian Bar Review 63, 64 (2008). The result is a generally plaintiff-friendly procedure. Some of its notable features are:

  • The opt-out model. Any person falling within the class description is included in the action and bound by its outcome unless he or she takes active steps to opt out of the action. FCA Act s 33E.
  • No certification requirements. Unlike in the United States, there is no threshold requirement that proceedings be judicially certified as appropriate before a class action can commence. Clark, “Class actions in Australia,” supra, 67. It was considered that certification proceedings were expensive and would discourage the use of class actions and that the Federal Court’s power to strike out proceedings at any stage offered sufficient protection against vexatious or trivial litigation. Law Reform Commission, Grouped Proceedings in the Federal Court, Report No 46 (1988).
  • Substantial common issue of law or fact. Australian law merely requires that there be at least one “substantial” common issue of law or fact between class members. FCA Act s 33C(1)(c). Unlike in the United States, there is no requirement that common issues between class members predominate over the individual issues. Clark, “Class actions in Australia,” supra, 68.
  • Determination of individual and subgroup issues. The Australian rules expressly allow for the determination of subgroup or even individual issues as part of a class action.FCA Act ss 33Q-33R.
  • No juries. While the FCA Act allows parties to apply to the Federal Court for a jury trial, FCA Act s 39, such applications are, as a matter of practice, refused. Clark, “Multi-Plaintiff Litigation in Australia,” supra, 306–7.
  • The loser pays principle. Generally, in Australian civil procedure, the unsuccessful party is usually ordered to pay the costs of the successful party, including the lawyer’s professional fees and expenses. This is known as the “English rule” in the United States, where it is not generally applied. In a class action, only the lead applicant is liable to pay fees and entitled to recover costs. Colin Loveday and Andrew Morrison, “Chapter 6: Australia” [PDF] in Global Legal Group, The International Comparative Legal Guide to: Class & Group Actions 2011 (Global Legal Group, 2011) 33.

Problems Running Nonfederal Class Actions
The Federal Court only has such original jurisdiction as is vested in it by laws made by Federal Parliament. FCA Act s 19. This means that class-action plaintiffs must find a cause of action grounded in federal law to gain access to the Federal Court and run an action under Part IVA. Re Wakim; Ex parte McNally (1999) 198 CLR 511.With the absence of clear statutory rules concerning class-action litigation in many states, practitioners have generally opted to bring such actions in the Federal Court wherever possible. Australian Law Reform Commission, Review of the Federal Civil Justice System, Discussion Paper No 62 (1999), [10.9]. In practice, the Federal Court has a broad jurisdiction to hear class actions, as much of Australia’s product liability, corporations and consumer protection law is governed by federal statute. Clark, “Multi-Plaintiff Litigation in Australia,” supra, 306.

Historically in New South Wales, as in most other states, class-action plaintiffs who could not access the Federal Court had to base their claims on the traditional representative procedure provided by the Supreme Court Rules. Uniform Civil Procedure Rules 2005 (NSW) r 7.4 (repealed). In practice, use of the procedure was limited because the requirement for all the plaintiffs to have the same interest in the proceedings disqualified many claims. Markt & Co Ltd v Knight Steamship Co Ltd [1910] 2 KB 1021. It did not permit class actions of the type allowed under Part IVA, where a common issue existed but substantial issues, such as the quantum of damages suffered, still had to be proven by plaintiffs individually. Esanda Finance Corporation Ltd v Carnie (1992) 29 NSWLR 382, 390 (Gleeson CJ).

In 2007, the Supreme Court Rules were amended to allow representative proceedings to be run in a broader range of circumstances than was previously possible. However, the newly expanded procedure was unsatisfactory as it lacked detail and did not provide the Court with sufficient direction to deal with the issues arising in complex class-action proceedings. Michael Legg, Vanessa McBride, and S. Stuart Clark, “The New South Wales Representative Proceeding: A Class Action Half-Way House” 8 University of Western Sydney Law Review 176, 202 (2008).

The Introduction of Class Actions in New South Wales
With the Courts and Crimes Legislation Further Amendment Act 2010 (NSW), which inserted the new Part 10 into the Civil Procedure Act 2005 (NSW), New South Wales finally replaced its representative procedure with a formal, comprehensive class-action regime. Part 10 commenced on March 4, 2011, and is modelled on Part IVA, with two important differences that make it even more plaintiff-friendly:

  • The limited group. Class actions may be brought on behalf of a defined, limited group of identified individuals, not only an open, generally specified class. Civil Procedure Act 2005 (NSW) s 166(2). This gives legislative force to a decision of the Federal Court in which it was held that a class could be limited in such a way that only persons who had entered into a formal agreement with a particular litigation funder (and their lawyers) could be class members. Multiplex Funds Management Ltd v P Dawson Nominees Pty Ltd (2007) 164 FCR 275.
  • Multiple defendants. Class actions may be taken against several defendants, even if not all group members have a claim against all the defendants. Civil Procedure Act 2005 (NSW) s 158(2). This overcomes a limitation in the federal regime that only permits actions to be pursued against multiple defendants where all group members have a claim against all respondents.

The introduction of a dedicated class-action regime is particularly significant because New South Wales is the most populous Australian state and has the largest state economy. Unsurprisingly, it is also the largest legal market, and its capital, Sydney, is the most popular place in which to initiate Federal Court class-action proceedings. Forty-six percent of all the class actions run under Part IVA have been filed in the New South Wales Registry of the Federal Court alone. Vince Morabito, Department of Business Law and Taxation, Monash University, An Empirical Study of Australia’s Class Action Regimes First Report: Class Action Facts and Figures [PDF] (2010) 16.

The new state procedure has the potential to allow a broader range of claims to be brought as class actions, such as pure negligence and contract claims that cannot be pleaded in the alternative under a federal statute. Clark, “Multi-Plaintiff Litigation in Australia,” supra, 289, 306. It may also change class-action dynamics, as jury trials and exemplary or punitive damage awards are more likely under state law.

Class Actions and Litigation Funding
Compared to the equivalent regimes at the federal level and in Victoria, Part 10 will get a head start from a well-established class-action “industry.” This industry is thriving in Australia, thanks to the introduction of litigation funding and the development of specialist class-action lawyers.

Plaintiff law firms now have almost 20 years of class-action experience. Well-known plaintiff law firm Slater & Gordon has listed on the Australian Stock Exchange. It continues to be a major player in the class-action industry. For plaintiff law firms, sources of litigation funding are more readily available than they have been in the past.

The litigation funding model is simple—individuals (or corporations) are given an opportunity to participate in a class action at no cost and at no risk. In exchange, the litigation funder will fund the action and receive a percentage of any settlement or judgment (typically 25–40 percent). The funder will also receive the benefit of any costs awarded to the plaintiffs. This model means that class-action litigation has become an investment, which, like all investments, has a level of risk and return. The litigation funders undertake a detailed and considered approach to their investing and have funded a steady stream of class actions in the last couple of years.

In Australia, a contingency agreement between a lawyer and client that provides for the lawyer to receive an agreed proportion of a judgement is illegal. Clark, “Class actions in Australia,” supra, 88–89. However, nonlawyers are not similarly constrained, and third-party litigation funding has filled this void and developed into a lucrative commercial activity. Indeed, Australia is home to two of the world’s few publically listed litigation funders, notably including major industry player IMF (Australia) Ltd. Clark, “Class actions in Australia,” supra, 89.

Summary
The introduction of a class-action procedure into New South Wales will increase the options available to class-action plaintiffs. Coupled with a robust class-action industry, New South Wales will surely become the next “hot spot” for class-action litigation in Australia.

Keywords: litigation, class actions, Australia, New South Wales

S. Stuart Clark, Ross McInnes, and Mikhail Glavac – May 25, 2011


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