29 Apr 2021

Door shut for declassing motion in Richmond Valley Council v Jardine Lloyd Thompson

By Greg Williams, William Atfield, Christabel Richards-Neville and Lara Gauss

The threshold requirements for bringing a class action in Australia are not particularly onerous. Defendants face an uphill battle in persuading courts to "declass" a class action on the basis of insufficient common issues between the representative plaintiff and class members.

In a class action in Australia, one or more persons (the representative plaintiff) commences proceedings on his or her own behalf, and on behalf of seven (7) or more other persons who have similar claims (the class) that share questions of law or fact with the representative plaintiff (the common issues). 

There is no requirement that the common issues between class members predominate over any individual issues that need to be resolved in the proceeding.  Rather, there is merely a requirement that there be at least one substantial common issue of law or fact shared between the representative plaintiff and the class.  The courts have described ‘substantial’ as meaning of that an issue is "real or of substance" rather than denoting a certain size or significance to the overall claim. In effect, this means that, although mandatory, the threshold requirements for commencing a class action are not particularly onerous.

There is also no certification requirement for class actions in Australia. In this way, the Australian class actions regime differs from that commonly experienced by defendants in some jurisdictions (such as in the United States), where it may be common to engage in extensive preliminary skirmishes as to whether a claim should proceed as a class action and if so in what form. 

Defendants in Australia often wish to understand when, if ever, the claim against them will be subjected to scrutiny by the court to determine whether it is an appropriate vehicle for a representative claim. In particular, to those unfamiliar with the Australian class action system, it may appear as though a claim brought against them has very few common issues appropriate to be determined through a class action.

In the early days of class action litigation in Australia, defendants had moderate success when seeking orders that the proceeding no longer continue as a class action due to a lack of common issues between the class members.  Whilst defendants are still able to bring such claims, in practice the prospects of most class actions being "declassed" are very small, as a recent Supreme Court of NSW decision shows. 

Richmond Valley Council v JLT Risk Solutions Pty Ltd [2021] NSWSC 383

The Supreme Court of New South Wales has reiterated the low threshold required to commence a class action in Australia, and the difficulty defendants’ face when contending that a class action has insufficient common issues to proceed. 

In this recent decision, JLT (an insurance broker) brought a motion to declass the proceeding on the grounds that the Richmond Valley Council had failed to identify a substantial common question of law or fact that applied to its own claims as well as the class members' claims.

Justice Hammerschlag dismissed the declassing motion, identifying a number of substantial common questions appropriate to go to trial, including the dispute as to whether JLT owed to the group the obligations and duties they asserted, having regard to the terms of the broking services contracts and the effects of the deed.  In doing so, Justice Hammerschlag reiterated that:

  • the gateway requirements to commencing a class action are "deliberately undemanding";
  • a representative proceedings must give rise to at least one common question of law or fact, but it is not necessary that the proceedings resolve the claims of all group members; and
  • the common question of law or fact should not be merely trivial, but does not need to be "that which is large or of special significance or which may have a major impact on the litigation".

Conclusion

The lesson for defendants is clear: the threshold requirements for bringing a class action in Australia are undemanding.  The decision is a timely reminder that the claims of all group members in a class action need not be the same as that of the representative plaintiff.  Those claims only need to give rise to at least one not insubstantial common question of law or fact.  Ultimately, before contemplating a declassing application, defendants ought to be aware of the low success rate of declassing applications in Australia, and the undemanding threshold requirements for a class action to proceed. Defendants ought to carefully consider whether seemingly disparate claims have a sufficiently common issue to proceed.

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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.