01 Jul 2013

Is Australia the new class action frontier?

by Stuart Clark, Ross McInnes

A plaintiff-friendly legal system, plaintiff law firms and litigation funders have combined to make Australia one of the hot spots for class actions.

The Australian class action regime has become a key feature of the Australian legal landscape. Barely a day goes by without the press reporting the threat of a new class action. Australia has also made its mark on the class-action stage worldwide, with its plaintiff-friendly regime and a thriving class action industry driven by an active litigation funding sector. As a result, outside of North America, Australia is the place where a corporation is most likely to find itself defending a class action.

First introduced in 1992, class actions were slow to take hold. However, lawyers acting for plaintiffs eventually began to recognise the benefits offered by the new class action procedure and the rate of filings increased. While there was an initial emphasis on product liability claims, a number of well-publicised and expensive defeats saw the leading plaintiffs’ firms transfer their attention away from product claims to focus on shareholder and financial services-based claims. More recently, the pendulum has started to swing back again with increasing interest in product liability-based class actions.

Class actions in Australia – A plaintiff-friendly model

The Australian class action regime comprises essentially identical rules in the federal court system and the courts of Australia’s two biggest states, New South Wales and Victoria. In any view, it is a more plaintiff-friendly procedure than the class action rules found in the United States.

First, the Australian class action procedure has no certification requirement – that is, there is no threshold requirement that the proceedings be judicially certified as appropriate to be brought as a class action. Once a class action has been commenced it continues until finally resolved by judgment or settlement, unless the defendant can convince the court to terminate the proceedings on certain limited grounds.

Second, there is no requirement that common issues predominate over the individual issues. In reality it is sufficient for the representative plaintiff to show that there is at least one substantial common issue of fact or law. It does not matter that the common issue or issues are insignificant when compared with the individual issues.

Third, the Australian rules, unlike those in the United States, expressly allow for the determination of “sub-group” or even individual issues as part of a class action. This means Australian courts have generally declined to discontinue a class action simply because it is more properly described as a mass of individual claims with some common connections. The classic example of this type of action is one involving a drug or medical device. In the United States, courts have been reluctant to allow such actions to proceed as class actions given the unique issues of causation usually raised by individual class members. As a consequence, an Australian representative plaintiff can commence a class action claiming damages for injuries allegedly suffered as a result of their use or exposure to an allegedly defective product – for example, a drug or medical device – notwithstanding the fact that there will be myriad individual facts and circumstances that must be taken into account before any individual group member can be found to be entitled to recover damages, let alone determine the quantum of those damages.

Fourth, a representative plaintiff can define the class members by description. This means that a person who meets the criteria set out in the class definition will be a class member unless they “opt out” of the proceedings. This is done by providing the Court with a written notice that the particular person wants to opt out by a specific deadline (which is set by the Court). If a class member fails to opt out by the specified date, they are a class member in the proceedings. Thus, a person may be a class member and thus bound by the outcome of the proceedings without their knowledge or consent, simply on the basis that they fall within a class definition that may be as broad as “ all Australian consumers who suffered personal injury as a consequence of their consumption of [a particular product]”.

The Australian courts have tried a number of class actions involving product liability claims to final judgment over the past few years. These include class actions involving medical devices and pharmaceuticals. In each case the trial proceed by way of a trial of the representative plaintiff’s claims by a judge sitting alone. However, each of these trials only finally resolved the claims of the representative plaintiff. In Courtney v Medtel Pty Limited & Others, for example, the Court found in favour of the representative plaintiff and made an award of damages in his favour. However, that trial and verdict, ultimately confirmed in the High Court of Australia (the country’s ultimate appellate court) only resolved the representative plaintiff’s claim. The parties were then faced with the prospect of either negotiating a “global settlement” or resolving each subsequent claim by way of a hearing or other method of adjudication. Not surprisingly, a negotiated “global settlement” was achieved. Where the defendant is successful at the trial of the representative plaintiff’s claim, final resolution is usually a little easier but still requires further proceedings or negotiation to finally resolve the matter.

Litigation funding

Two uniquely Australian initiatives have driven the growth of what is best described as the Australian “class action industry”. These are the plaintiff law firms styled on their US counterparts, a number of which now operate as publicly listed corporations and the recent emergence of the litigation funding enterprises.

Australian lawyers are prohibited from entering into contingency fee arrangements with their clients under which their professional fees are calculated by reference to the amount of any judgment or settlement received by the client. However, the prohibition only applies to lawyers. Litigation funders are not so constrained, and have found a very profitable role in the class action market.

Litigation funding agreements are commercial arrangements under which the funder agrees to pay the fees and out of pocket expenses of the lawyer representing the plaintiffs. The funder will also agree to satisfy any adverse costs orders that may be made against an unsuccessful class plaintiff as a consequence of Australia’s “loser pays” rule. In return for accepting this risk, the funder will take a portion of any judgment or settlement, usually one-third to two-thirds, calculated after the cost of the proceedings have been reimbursed.

It has proved to be a popular enterprise – particularly in light of the financial success of a series of shareholder-based class actions which delivered very significant profits to the litigation funders. Australia is now home to a number of publicly listed litigation funders, as well as numerous private enterprises. A number of overseas funders have also entered the domestic market. Australian plaintiff law firms have combined with funders from the United States and other jurisdictions to pursue claims, and principals associated with some of Australia’s leading plaintiff lawyers have ventured into the litigation funding business themselves as shareholders.

Renaissance of product liability litigation in Australia

The impact of litigation funding on the class action industry has been profound, and the class action landscape has moved well beyond anything that was imagined when the regime was introduced in 1992.

Over the past 20 years the subject matter of Australian class actions has varied. Although traditionally a forum for settling mass tort or product liability disputes, the start of the new millennium saw a trend towards class actions being commenced to settle shareholder and financial services disputes.

Some predicted that interest in product liability class actions would wane. However, in the last few years Australia has seen a renaissance of product liability claims with recent filings focusing on medical devices and prescription medications. There are two possible reasons for this.

First, the major plaintiff firms and litigation funders have focused their attention on the shareholder and financial services claims to become the dominate players in that field. This has left a gap in the market for emerging firms to pursue product liability claims. The up-skilling of a greater number of firms in class action litigation has resulted in more claims being commenced by different plaintiff law firms.

Second, ongoing tort reform in Australia has continued to reduce the availability of personal injury, motor vehicle and industrial claims. As a consequence, an increasing number of plaintiff lawyers, particularly the larger firms, have turned their attention to exploring product-based class actions.

Australia as the class action jurisdiction of choice

The Australian class action industry is ever-expanding, with some of its key players extending their interests to overseas jurisdictions. For example, the leading litigation funder, IMF (Australia) Ltd, is funding litigation commenced in a number of other jurisdictions. It has also established a wholly owned subsidiary – Bentham Capital LLC – in New York. Slater & Gordon, one of Australia’s leading plaintiff law firms in the class action industry and a publicly listed corporation, has also extended its reach in the international arena, purchasing a large plaintiff law firm in the United Kingdom.

As members of the Australian class action industry expand their international reach, there has been a corresponding increase in the presence of international participants in the local industry. This may be due to the plaintiff-friendly regime. It could also be attributed to developments in other jurisdictions, for example, the recent ruling of the Supreme Court of the United States of America which limited the ability of non-US investors to pursue claims for compensation from foreign companies through the American legal system. This has resulted in Goal Group Ltd, a London-based class action consultancy firm which recently opened an Australian office, estimating that the income from class action settlements in Australia will reach US$3.4 billion annually by 2020. There can be little doubt that the Australian class action industry will look to extend this newfound foreign interest to products claims.

Quo vadis?

Class actions are still a (relatively) new feature of the Australian legal landscape, and are yet to see their full potential. That said, the class action industry has matured rapidly over the last 20 years, and is now a significant feature on the Australian legal landscape.

As class actions come of age in Australia, the country’s courts have the potential to become the jurisdiction of choice outside the United States for plaintiffs, lawyers and funders promoting class actions. The potential implications for the global business community led to the US Chamber of Commerce’s Institute for Legal Reform entering the debate in Australia earlier this year, arguing in favour of greater regulation of Australia’s litigation funders as one way to curb the growth of the class action industry. This is not something that will be resolved in the short term and manufacturers and distributers would be wise to follow developments in Australia closely.


This article was first published in The International Who’s Who of Product Liability Defence Lawyers 2013

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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.