22 Oct 2010

Could Government class action reforms make NSW the next hot-spot for class actions?

Proposed changes to NSW's class actions laws could see it leap-frog the Federal and Victorian court systems to become the most popular forum for class actions in Australia.

The draft Civil Procedure Amendment (Supreme Court Representative Proceedings) Bill 2010 is based on Part IVA of the Federal Court of Australia Act 1976 but it is not exactly the same. It is those differences which could make NSW even more plaintiff-friendly than the Federal Court.

It would allow class actions to be brought where claims are based only in negligence and for breaches of NSW statute, and will not require a federal cause of action. These claims not only are those in respect of a cause of action arising on or after the commencement of this section, but also in respect of historical causes of actions "with the leave of the Court".

Comment is due by 10 November 2010.

The three significant aspects of the proposed class action reforms

The three significant differences are:

  • class actions may be brought on behalf of a defined, limited group of identified individuals, not only an open, generally-specified class;
  • class actions may be taken against several defendants – even if not all group members have a claim against all the defendants; and
  • the Supreme Court can distribute the undistributed part of a fund of damages to charities or public interest beneficiaries.

Why the proposals should concern all businesses

There are two main problems with these proposals:

First, they seem to give the Court largely unfettered powers to order the establishment of a fund of money to be distributed to group members and also to establish a scheme for money remaining in the fund (or any part of it), that cannot practicably be distributed to group members, to be applied cy-près, which means "As near as (possible)". In effect, this could spur the growth of class actions, if the US is any guide. There, the growth of "coupon litigation" (class actions for claims involving very small amounts, where it is difficult to identify members of the class, and the administrative costs of any settlement are prohibitive) has led to minimal returns for class members, but significant returns to plaintiff lawyers.

Secondly, the proposals would allow class actions against several defendants – even if not all group members have a claim against all the defendants. A party brought into a class action as a respondent, but in respect of a different claim by different group members, will incur costs associated and generated by its mere (long-term) presence in the class actions, but is less likely to have the case against it determined in a speedy, just and efficient manner. In short, it is more likely that you will be joined to a class action, and could pay more to defend yourself.

Litigation funding reforms - still to be considered

The NSW Government is also considering making what it calls "minor changes" to deal with the growth of the litigation funding industry. These could include ensuring:

  • legal practitioners are aware that their responsibility is to the plaintiff and not to the litigation funder;
  • disclosure of litigation funding arrangements to the court; and
  • giving the court the power to issue cost orders to relevant third parties.

No details of these have been released, and it is unclear if there will be a consultation process either.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.