On 21 December 2020, the Parliamentary Joint Committee on Corporations and Financial Services released its report on Litigation funding and the regulation of the class action industry. This 450-page report was the culmination of a well-publicised, seven-month inquiry which featured five public hearings and received 101 submissions. The report made 31 recommendations, which we've already summarised. In 2021, we'll provide you with a series of articles that addresses the most significant recommendations. This is part one. It deals with the management of multiple and competing class actions.
So what are multiple and competing class actions? Multiple class actions occur when two or more class actions represent different group members. This will require at least one class action to be brought on a "closed basis", which means that the lead plaintiff only represents claimants who have entered into funding agreements and legal retainers with a particular team of lawyers and litigation funders. Competing class actions arise when the class actions each purport to represent the same group members. This occurs when more than one of the class actions is brought on an "open basis", which means that the lead plaintiff of the class action purports to represents all claimants. For an open class action, most claimants will not have entered into funding agreements and legal retainers with a particular team of lawyers and litigation funders.
We've been monitoring how the courts handle multiple and competing class actions. We think they're problematic because:
- they expose defendants to the additional costs and inconvenience of defending the same claim multiple times;
- they consume court resources by requiring courts to manage multiple proceedings on the same topic;
- they provide a lesser return to group members because each class action will replicate the work of the other to some degree, which means more costs are incurred than would otherwise be the case; and
- closed class actions raise concerns about access to justice because only the claimants who were willing to enter into funding agreements and legal retainers will obtain redress.
On top of all this, they also create expensive delays. On several occasions, the courts have been required to select which of several class actions should proceed. This process, which is colloquially called a "beauty parade", occupies several hearing days and extensive evidence and submissions. The decision of the court may then be appealed multiple times, even as far as the High Court! This isn't surprising when there can be as many as five class actions and the law firm and litigation funder that win the "beauty parade" have the opportunity to share in tens of millions of dollars of fees and commissions. Some have tried to defend this process by saying it leads to greater competition between law firms and litigation funders which places downward pressure on the fees and commissions they charge. Although this seems correct as a matter of logic, one must wonder whether it really justifies the legion of detriments already mentioned. The inquiry into Litigation funding and the regulation of the class action industry didn't think so. In its report, it said the "increased prevalence of competing class actions in Australia is concerning given the costs, delay and complexity added to the resolution of the substantive claims of class members" and further, they "add unnecessary cost, delay and complexity for plaintiffs and defendants". So what's going to be done?
The report of the inquiry makes three recommendations.
First, it recommends that the legislation, which governs class actions in the Federal jurisdiction, be amended to give the Federal Court an express power to resolve competing and multiple class actions. Significantly, it recommends that the "power should maintain the Federal Court of Australia's discretion to allow more than one class action to continue".
Second, it recommends that the Federal Court's class actions practice note be amended to require the Court to:
- hold a selection hearing to determine which of the competing or multiple class actions should proceed;
- select a class action which advances the claims and interests of class members in an efficient and cost-effective manner; and
- order a standstill in that proceeding for 90 days, so that any other competing or multiple class actions can be appropriately considered and filed. The report also suggests that any group member recruitment conducted during this 90 day period should be disregarded by the Court when selecting which action or actions should proceed in order to discourage jockeying for position during the standstill period.
Third, it recommends that all State and Territory Supreme Courts adopt a protocol with the Federal Court which is similar to the two protocols that currently exist between the Federal Court and the Supreme Courts of NSW and Victoria. Those two protocol say that if multiple or competing class actions are filed in both the Federal Court and Supreme Court of NSW or the Federal Court and Supreme Court of Victoria, then a joint case management hearing may be convened. After this hearing, the judges representing each court "will then confer and… determine the appropriate management of the competing class actions".
If implemented these recommendations will streamline and improve the process by which disputes about multiple or competing class actions are resolved. However, in our view, they could go further for two reasons.
First, the recommendations do not prevent "beauty parades" and the accompanying costs and delays. Instead, they expressly permit them to continue. Clayton Utz's submission to the inquiry proposed that "beauty parades" be replaced by the court making a decision "on the papers" (i.e. without a hearing) and that there be strict page limits on the material that parties can submit to the Court.
Second, the recommendations expressly allow the Court to permit "more than one class action to continue". This means the problems of multiple and competing class actions, such as costs being multiplied and a defendant having to deal with several claims that are essentially the same, will continue. Clayton Utz's submission proposed a legislative change that requires a court to select only one class action to deal with the same subject matter.
The management of multiple and competing class actions will keep developing not only due to these recommendations but because there is currently a case before the High Court dealing with the issue. We will keep you updated about this important area.