Be alarmed be very alarmed: class action reforms mooted

By Jocelyn Kellam and Stuart Clark.

Key Points:
The suggested changes run counter to the legislative aims of the class action procedure and would sweep away the remaining safeguards that protect defendants.

In 2006, the Victorian Law Reform Commission (VLRC) was asked to review that State’s civil litigation system. Specifically, the Civil Justice Project was asked to consider how to reduce the cost, complexity and speed of civil proceedings. As part of that review, it has considered class action proceedings. Victoria is the only Australian State to have a specific class actions procedure in its Supreme Court.

On 28 May 2008 the VLRC issued its Civil Justice Review Report, which includes recommendations it says would make class actions in Victoria cheaper, simpler and fairer. 

Our conclusion is different. We think that the recommendations give manufacturers and distributors of goods real cause to be alarmed. While at this stage the recommendations are limited to Victoria, it seems that what is intended is to reform class actions in a way that would make even more plaintiff-friendly than the United States. What safeguards there are for defendants in the current class action framework would be removed.

What are the recommendations?

The VLRC has identified access to justice to remedy mass wrongs, including through class action procedures in the Victorian Supreme Court as a priority area for review. The recommendations include:

• removing any legal requirement that all class members have individual claims against all defendants, provided that all class members have a legal claim against one defendant.
• making clear that a class may comprise only those who have consented to the conduct of proceedings on their behalf.
• conferring on the Court discretion to order cy-près-type remedies (explained below)
• setting up a new funding body, the Justice Fund, to facilitate access to justice by (a) providing financial assistance to parties with meritorious civil claims and by (b) providing indemnity for any adverse costs order or order for security for costs made against the party assisted by the fund. In return, the Justice Fund would be entitled to a share of any settlement or judgment.
• consideration being given to the introduction of proportionate and other types of fees in class action proceedings, specifically fees based on the work actually done with a multiplier.

Why the proposals are wrong

There are many criticisms that could be made of these proposals. In summary, our main concerns are:

• Preservation of the existing legal requirement that all class members have legal claims against all defendants in class action proceedings is essential to ensuring the efficient conduct of class action litigation. It is a cornerstone of the present regime. The requirement that each group member should have a claim against each respondent operates to ensure some degree of commonality in class actions and should be preserved in the interests of efficiency and ensuring fairness for all parties. Individual issues of fact and law are exacerbated in a class action involving numerous group members and multiple defendants.

As Clayton Utz' submission to the VLRC said:

"Congruence in the type and attachment of alleged causes of action as between group members and defendants is more than a statutory nicety. A party brought into a class action as a respondent, but in respect of a different claim by different group members, faces the prospect that its claim will not be determined in a speedy, just and efficient manner. However, by reason of its joinder, that respondent will incur costs associated and generated by their mere (long term) presence in the proceedings."

• Allowing a class to comprise of a select group who have consented to being class members has the disadvantage that plaintiff lawyers will have ability to cherry-pick the clients with the greatest possible success. It would be counter to the objective of promoting efficiency in the use of court resources if multiple class actions could be brought by self-aggregated groups each differently represented. While it is possible that such multiple actions could be consolidated and/or heard together, the multiplicity of actions seems contrary to the underlying philosophy of class actions.
• Cy-près means "as near as (possible)". It embodies the idea that where something cannot be carried out exactly, then it should nevertheless be carried out in substance, as close as possible to the desired result. In the context of class actions, for example, it allows a court to award "approximate justice" and to make orders, for example, price rollback relief or an award to a nominated organisation where all injured persons cannot be identified. In the US, application of the doctrine has been criticised. For example, Judge Richard Posner of the US Court of Appeals for the Seventh Circuit has criticised cy-près awards as having a punitive effect.

We have a number of difficulties with this recommendation. First, it would enable the courts to make what are subjective public policy determinations as to where moneys might allocated. As we said in our submission to the VLRC, it seems to us that this is more properly a matter for the legislature.

Further, the VLRC has proposed that the court's powers be largely unfettered. For example, the VLRC has said that the court’s power should not be limited to distribution of money only for the benefit of persons who are class members or who fall within the class description, and the court’s general discretion to make such orders should not be limited to any proposal or agreement of the parties to the class action proceeding.

• Any establishment of a civil Justice Fund must only encourage litigation. It is not clear how such a fund will prevent the inefficiencies and difficulties associated with legal aid funding in the past. Further, until recently, with the High Court's recognition of commercial litigation funding as permissible, no win-no fee and uplift costs agreements were the normal method of funding a class action in Australia. While some plaintiff lawyers also used other strategies to maximise the amount they could charge under the professional conduct rules, these prohibitions and caps have prevented Australian plaintiff lawyers from receiving the enormous fees reportedly earned by plaintiff lawyers in class actions in the United States. Adoption of the VLRC's proposals would provide a windfall for plaintiff lawyers, increasing the incentive to bring more speculative actions.

Is there a need for reform?

The Civil Justice Report proceeds on the unstated assumptions that there is a need to reform the law, that there are lacunae in the current regulations and that civil justice funding is presently inadequate. This is yet to be demonstrated.

The VLRC's proposals have been criticised as "read[ing] like a wish list for plaintiff lawyers" and "would make Victoria a veritable nirvana for plaintiff lawyers" - indeed, Dr Cashman has agreed that the proposed changes would attract class actions to the State of Victoria. In our view, the changes that have been suggested run counter to the legislative aims of the class action procedure and would sweep away the remaining safeguards that protect defendants.

We do not think that there is any need for reform. Judicial statements have been made to the effect that the class action mechanism is not to be construed narrowly so as to make it difficult to commence class actions or place barriers in the way of so doing. As a result, when key procedural issues have come before the courts (relating to the definition of the group, the role of the class applicant, identification and notification of group members concerning commonality, funding and security for costs, the court's power to terminate class actions, and court approvals of settlements), the court has been willing to facilitate the bringing of class actions, except in a very limited number of cases where they were manifestly inappropriate.

For further information, please contact Jocelyn Kellam and Stuart Clark.