The increasing incidence of class actions in Australia has occurred in a range of different contexts, such as:
shareholder class actions (for example the Multiplex, Centro and Aristocrat actions);
cartel class actions (for example the Air Cargo and "Vitamins" actions);
product liability class actions (for example Vioxx and diet drugs); and
financial services and planners class actions (for example the Westpoint cases).
Federal Court of Australia class actions: Commencing proceedings
The requirements to commence a class action in the Federal Court are set out in section 33C of the Federal Court of Australia Act 1976 (Cth), which provides that where:
- seven or more persons have claims against the same person; and
- the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and
- the claims of all those persons give rise to a substantial common issue of law or fact;
- a proceeding may be commenced by one or more of those persons as representing some or all of them.
The “claims against the same person” requirement has been read as meaning that all class members must have a claim against all respondents, but that the claims need not be identical, nor ultimately successful against all respondents. In cases against multiple respondents this has been a stumbling block but may be overcome through the inclusion of an injunction or declaration.
The “same, similar or related circumstances” requirement has been interpreted liberally so that some relationship between the claims of each of the class members must exist, but they do not need to be identical.
Equally, the “substantial common issue of law or fact” requirement is not an onerous one, as “substantial” does not indicate a large or significant issue but instead is “directed to issues which are ‘real or of substance’”. The idea is that the common issue not be trivial or contrived.
Section 33D(1) of the FCAA states that:
"A person referred to in paragraph 33C(1)(a) who has a sufficient interest to commence a proceeding on his or her own behalf against another person has a sufficient interest to commence a representative proceeding against that other person on behalf of other persons referred to in that paragraph."
The purpose of section 33D(1) is to overcome the common law standing rule that says A may not bring a damages action on behalf of B against C. It also has the effect that the representative party must be a member of the group to be able to initiate proceedings.
Requirements of originating process
Section 33H provides for the inclusion of specific matters in the originating process for a class action as follows:
"(1) An application commencing a representative proceeding, or a document filed in support of such an application, must, in addition to any other matters required to be included:
(a) describe or otherwise identify the group members to whom the proceeding relates; and
(b) specify the nature of the claims made on behalf of the group members and the relief claimed; and
(c) specify the questions of law or fact common to the claims of the group members.
(2) In describing or otherwise identifying group members for the purposes of subsection (1), it is not necessary to name, or specify the number of, the group members."
Consequently a class action may be unable to proceed if the group or the common questions cannot be adequately defined.
Discontinuing a class action
Under section 33N, the court of its own motion or on application by the respondent may order that the proceeding not continue as a representative proceeding where it is in the interests of justice to do so because:
the costs that would be incurred if the proceeding were to continue as a representative proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or
all the relief sought can be obtained by means of a proceeding other than a representative proceeding under this Part; or
the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members; or
it is otherwise inappropriate that the claims be pursued by means of a representative proceeding.
Therefore the threshold requirements of section 33C may be easily met, but a court may still use its discretion under section 33N to order the discontinuance of a representative proceeding. However the Court will employ case management techniques to try and assist the proceedings to continue, at least until the resolution of the substantial common issues.
Section 33M also provides for the discontinuance of representative proceedings where, if judgment were to be given in favour of the representative party, the cost to the respondent of identifying the group members and distributing to them the amounts ordered to be paid to them would be excessive having regard to the likely total of those amounts.
The right to opt out
The Act adopts an opt-out procedure for group members to inform the court that they do not wish to be part of the proceedings. An opt-out class action is commenced without the express consent of the "absent" class members. If a group member falling within the defined class does not opt out then they are bound by the outcome of the proceedings under section 33ZB.
The opt-out approach may be contrasted with an opt-in class action where a group member must expressly consent to participation in the class suit. Only those group members who opt in are bound or entitled to the benefit of the judgment on the common questions.
Under section 33X(1)(a), the right to opt out is given effect by the requirement that group members receive notice of that right and of the commencement of the proceedings.
Since the Full Federal Court decision in the Multiplex class action, it is now possible to have a “limited group” class action provided the group is formed before proceedings are commenced. The group cannot be defined to allow putative group members to opt into the proceedings once they have been commenced.
Section 43(1A) provides that the Court may only award costs in representative proceedings against the representative party, and not the group members.
In practice the costs obligation is often undertaken by a litigation funder who indemnifies the representative party, and other group members who sign up for funding, in exchange for a share of any recovery.
Under section 33V of the Act, a representative proceeding may not be settled or discontinued without the approval of the Court. Further, section 33X(4) says that unless the Court is satisfied that it is just to do so, an application for approval of a settlement must not be determined unless notice has been given to group members.
Other class action procedures
In Victoria the almost identical procedures to the Federal Court Act have been adopted in Part 4A of the Supreme Court Act 1986 (Vic).
Order 6 Rule 13 of the Federal Court Rules continues to provide for representative proceedings based on the former practices of the Court of Chancery in the United Kingdom. The rules provide that "Where numerous persons have the same interest in any proceeding the proceeding may be commenced, and, unless the Court otherwise orders, continued, by or against any one or more of them as representing all or as representing all except one or more of them".
In New South Wales the Uniform Civil Procedure Rules 2005 provides for representative proceedings in rule 7.4. Rule 7.4 was originally in the same form as the Federal Court's Order 6 rule 13. Rule 7.4 was subsequently amended, effective 9 November 2007, and now applies to:
(a) any matter in which:
(i) numerous persons have claims against the same person;
(ii) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and
(iii) the claims of all those persons give rise to a substantial common issue of law and fact; or
(b) any matter in which numerous persons have the same liability.
Rule 7.4 is therefore similar to section 33C of the Act. However the NSW Rules do not address the other procedural steps in class actions in the same detail as the Act.