Background
What is a class action?
A class action (also known as a “representative proceeding”) is a legal procedure that enables the claims of a number of persons against the same defendant or defendants to be determined in one proceeding.
In a class action, one or more persons (the “representative plaintiff” or “representative plaintiffs”) commences proceedings on his or her own behalf, and on behalf of 7 or more other persons (the “class” or “group”) who have similar claims that share questions of law or fact with the representative plaintiff (“common issues”).
There is no requirement that the common issues between group members predominate over the individual issues. Rather, there is merely a requirement that there be at least one substantial common issue of law or fact. In this sense, Australia’s highest court has described ‘substantial’ as meaning of substance rather than denoting a certain size. In effect, this means that, although mandatory, these requirements are not particularly onerous.
Generally, the group members do not have to actively participate in the litigation. The court hears the representative plaintiff’s case and makes a decision, including on the common issues. Unless the group members “opt out” before a date fixed by the court, they are bound by the outcome of the litigation.
Why were class actions introduced?
Class actions were introduced to ensure that groups of people who have suffered loss or damage, whatever the type of claim, will be able to pursue redress and do so more cheaply and efficiently than would be the case with individual actions.
What types of claims may be filed as class actions?
Class actions can be commenced in most areas of law where the court has jurisdiction. They have been commenced in relation to a wide range of issues, including by:
- consumers who have suffered personal injury through defective products;
- consumers induced by misrepresentations and misleading conduct;
- shareholders against listed companies for misleading or deceptive conduct and/or breaches of the continuous disclosure regime on the share market.;
- investors complaining of conduct by the promoters of various investments;
- consumers and businesses against cartelists; and
- individuals who have suffered loss, injury or damage as a result of a disaster including, for example, bushfires.
The group members can seek either equitable relief or make a claim for damages, even if the claim for damages requires individual assessment for modest amounts.
What type of relief may be sought?
The court may order a wide variety of relief in class actions. For example, it may determine an issue of law or fact, make a declaration of liability, grant any equitable relief, or award damages. In awarding damages, the court may either identify a specific amounts for individuals or particular classes of group members, identify methods of calculating a specific amount for individuals or particular classes of group members, or determine an aggregate amount without specifying how much must be paid to individual group members.
Punitive (exemplary) damages are rarely awarded in Australia.
How long does a class action take?
The time taken from commencement to a final decision in a class action depends on the particular case and the nature of the claim. It may take anywhere from six months to several years for a matter to be heard and determined.
Initiating Proceedings
Who can bring a class action?
Anyone with sufficient interest to commence a proceeding on his or her own behalf against a particular defendant or defendants can commence proceedings on behalf of a class. In addition, there are federal legislative provisions that allow the Australian competition regulator, the Australian Competition and Consumer Commission (ACCC), to pursue private enforcement (including by way of class actions) on behalf of persons who have suffered, or are likely to suffer, loss or damage by reason of conduct that contravenes those federal provisions.
In which courts may class actions be brought?
- Federal Court of Australia (since 1992)
- Supreme Court of Victoria (since 2000)
- Supreme Court of New South Wales (since 2011)
- Supreme Court of Queensland (since 2016)
- Supreme Court of Tasmania (since 2019)
- Supreme Court of Western Australia (since 2022)
Whilst each of the state regimes are modelled on the federal regime, there are subtle differences between each jurisdiction.
How is a class action initiated?
A class action is commenced by the representative plaintiff or representative plaintiffs filing an originating process in court. The originating process must:
- describe or otherwise identify the group members to whom the proceeding relates; and
- specify the nature of the claims made on behalf of the group members and the relief sought; and
- specify the questions of law or fact common to the claims of the group members.
While the claimants must describe the group in the originating process, there is no obligation to identify, name or even specify the number of group members.
Are there certification requirements? What are the threshold criteria?
There is no requirement that the proceedings be judicially certified as appropriate to be brought as a class action, however, before a class action can be commenced, three threshold criteria must be met:
- 7 or more persons have claims against the same person or persons;
- the claims of those persons are in respect of, or arise out of, the same, similar, or related circumstances; and
- all claims of those persons give rise to a substantial common issue of fact or law.
There is an assumption that the claim is validly brought unless the respondent brings an action seeking to strike out the claim for failure to meet the threshold requirements.
What is the limitation period for bringing a class action? Can it be paused?
Limitation periods (that is, the maximum period of time which can elapse from the time of a cause of action arises until the commencement of court proceedings relating to that cause of action) exist but vary considerably depending on the cause of action. When a class action is commenced, the running of any limitation period is suspended and does not begin to run again until either the group member opts out of the proceedings or the proceedings are finally determined.
The Class
Class membership
A class action can have as many group members as satisfy the group definition and elect not to opt out. A group member definition may be drafted broadly in order to encompass a larger number of individuals (for instance by incorporating multiple models of a product manufactured by the same company). Where this occurs, it is common for there to be additional representative plaintiffs appointed for each "sub-group" within the class, in order to deal with issues which arise in relation to some, but not all group members.
Because group members are not parties to the litigation and it is only the representative party who needs to prove his or her case, group members do not have to take any action or play an active role in order to be part of the class, at least until a judgement or settlement occurs.
Notice requirements
Though group members are not required to take an active role, Australian law requires group members to be notified of various matters so that group members can make informed decisions concerning their rights. These include: the existence of proceedings (and their right to "opt out"), where the representative plaintiff withdraws (to be replaced by another representative), where an application for dismissal of the proceedings for want of prosecution is made, or where the parties propose to settle the proceedings. There are specific requirements for the form of notices given to group members. The content and manner of distribution will depend on the individual circumstances of the case.
Opt out
Each of the class actions regimes prescribe an opt-out system. At some pre-defined stage in the proceedings, the court will settle on the particulars of an 'opt out notice' which includes fixing a date by which group members may opt out of proceedings, by way of written notice to the court. If a claimant is within the class as defined but does not opt out before the fixed date, then they will be bound by any judgment of the court.
The court will make specific orders as to the form and media for publication of that notice, and the form of notice will depend on the case. Notice is sometimes given by way of press advertisements in national newspapers, by radio or television broadcast, or publication online or via social media. Direct notification is also used where possible.
The courts have also permitted classes to be defined in such a way that only persons who had signed up with a particular litigation funder (and their lawyers) could be a class member – in effect, a form of gate-keeping or informal opt-in system.
If people opt out, can they start their own proceedings?
If a group member decides to opt out of proceedings before the deadline, they will not share in any settlement or favourable judgment made by the court. However, the individual is then able to pursue an individual claim against the respondent on the same allegations made in the class action, and the normal rules of civil procedure will apply.
How are competing and/ or overlapping class actions managed?
This area of the law continues to evolve. As there is no "certification" regime in Australia, it is possible, and indeed frequent, for multiple class actions to be commenced (by different plaintiffs/ law firms) against the same defendant(s) in respect of similar conduct.
Overlapping class actions will generally be case managed in the same court (with a formal transfer protocol in place between the State-based Supreme Courts and the Federal Court) by the same judge.
There is presently no formal process for resolving competing or overlapping class actions and how the court addresses multiple class actions is a matter of discretion and case management which depends on the particular circumstances. The courts have taken a number of different approaches in the past, including allowing all proceedings to continue culminating in a joint trial, consolidating competing proceedings, and choosing one proceeding to continue whilst staying the others.
Procedure
What happens after a class action is commenced?
Once a class action has been commenced, it will continue until resolved unless the court determines that the proceeding should not continue as a class action. The principal basis for that determination is either that the action does not satisfy the mandatory criteria or that it is not otherwise in the interests of justice.
Class actions are heavily reliant on constant judicial management. Typically, class actions are periodically listed for “case management conferences” (also known as “directions hearings”) where the judge sets and oversees compliance with a court timetable to ensure that the proceedings is resolved as quickly and efficiently as is possible in the circumstances.
How is a class action defended?
Every class action is unique and, as a result, the way each class action is defended will depend on the particular facts and issues between the parties. Some class actions require interlocutory management, some are resolved at an early stage and some go to trial.
How are class actions managed?
Civil proceedings in Australia are generally heard by a judge sitting without a jury. Under the Federal Court's "docket system" a class action will be allocated to a judge from when it is commenced, who is then responsible for managing the case until final disposition. In class actions commenced in a State-based Supreme Court, proceedings are similarly allocated to a docket judge for case management, however it is uncommon for the same judge to then preside over the eventual trial.
Common Questions and Trial
In most respects, a class action trial proceeds in the same way a single plaintiff trial is conducted. However, the existence of common questions and the plaintiff's role as a "representative" mean that the procedure differs.
Importantly, though there is no standard process for how a class action will proceed, it is common to determine the lead plaintiff's case first, in an attempt to answer "common questions" for all group members. In some courts, this may be preceded by a trial of preliminary issues of fact, or mixed fact and law.
Any decision in a class action (be that on preliminary issues, or common questions arising through determination of the lead plaintiff's case) is binding on all group members who did not opt out by the Court deadline.
How are non-common or individual issues dealt with?
Where the determination of the questions common to group members does not finally determine the claims of all group members and there are questions common to the claims of only some group members, the court may direct that those questions be determined by sub-groups or alternatively by appointing sample group members.
A sub-group empowers the court to establish a number of smaller representative proceedings, and determine common issues in those smaller proceedings, within the overarching representative proceeding which determines issues that are common to all group members.
In addition, the court can allow an individual group member to take part in the proceeding for the purpose of determining a question that relates only to the claim of that member. If the sub-group questions or the individual questions cannot be adequately dealt with, the court can direct that further proceedings be commenced
It is increasingly common for individual issues to be dealt with, following a binding court decision, by agreement, being in accordance with a "settlement scheme" negotiated by the parties (and approved by the Court).
Settlement
Approval of class action settlement
Settlement can occur at any point in the class action. However, once commenced, a class action may not be settled or discontinued without the approval of the court.
As part of the settlement approval, group members will be given notice of the settlement and the opportunity to object to the settlement by filing a notice of objection in court. The court will consider all of the notices of objection filed when determining whether to approve a settlement, and group members who have filed a notice may appear before the court during settlement approval and make submissions (with separate legal representation if they wish). It is worth noting that the court considers an absence of objections to be a factor in favour of determining that the proposed settlement is fair and reasonable.
In approving a settlement and determining whether it is a fair and reasonable outcome of the litigation for all group members, the court must form a view as to whether to approve a settlement on the material presented and as to the prospects of success and risk of loss considered to apply in the particular case, the advice provided by counsel. It must take an active role, as the approval of the court is a protective mechanism safeguarding the interests and rights of group members. The court will scrutinise whether any settlement or discontinuance of class actions has been undertaken in the interests of the group members as a whole and is not solely beneficial to the class applicant and respondent. The court may well reject a privately negotiated settlement if it is not satisfied that the outcome is in the interests of group members as a whole.
Administration of settlement
If a class action settlement is approved by the court, the parties will devise a settlement scheme to determine how each group member’s claim is to be assessed in order to calculate and deliver individual entitlements. A registration process must occur as part of settlement in order to identify the number and identity of group members taking part. Where group members do not register, they are still bound by an approved settlement (but will not be entitled to receive any payment). They cannot commence their own separate action if they do not like the terms of a Court approved settlement.
Judgment
What is the effect of judgment?
Each of the regimes stipulate that a judgment in a class action must describe or otherwise identify the group members who will be affected by it, and binds all such persons so described other than any person who has opted out of the proceeding. However, it does not determine each individual group member's claim. Rather, criteria for assessment are developed in light of the judgment and each group member's claim is then determined against that scheme.
What appeal rights exist (generally)?
In virtually all jurisdictions in Australia there is a right of appeal against the judgment of a trial judge. The procedure varies depending on the jurisdiction in which the original trial was conducted. Leave to appeal is usually necessary when the appeal is from an interlocutory judgment.
Even though appeals generally turn on questions of law, it is not uncommon for parts of the evidence used at trial to be reviewed during the course of an appeal. A party dissatisfied with the decision of a state or territory court of appeal or the Full Federal Court may seek leave to appeal to the High Court of Australia, the country’s ultimate appellate court. Appeals to the High Court are essentially restricted to questions of law. The High Court will grant leave to appeal only if it is convinced that there is a significant question to be determined.
In a class action, a representative plaintiff, or sub-group representative plaintiff, may appeal a judgement on behalf of all group members or all sub-group members within a specified period of time. If a representative plaintiff, or sub-group representative plaintiff does not appeal within the specified time, a group member has a further period of time in which to appeal. A group member does not have the option to opt out of an appeal.
An individual who has had an individual issue determined by the court may appeal from a judgment in respect of that issue.
A respondent may appeal from a judgement against all group members or sub-group members.
Litigation Funding and Costs Recovery
Can a defendant obtain security for costs?
Where an application is made by a defendant, the Court has discretion to order that the representative plaintiff provide security for costs to ensure that there are sufficient funds available to meet a costs order against them. If the class action is backed by a litigation funder, specific disclosures must also be made to the Court about the funding arrangements.
Can the successful party recover its costs (class actions)?
The loser-pays rule applies in Australian class actions – the unsuccessful party is usually ordered to pay the costs of the successful party.
These costs include not only court filing fees, copying charges and other out-of-pocket expenses, but also the lawyer’s professional fees. In this context, a reference to costs is not a reference to the total or actual costs incurred by the successful party. Recoverable costs are generally calculated by reference to a court scale, which invariably limits the amount a successful party can claim for disbursements and services performed by their lawyers.
Responsibility for payment of costs may also be agreed between the parties as part of, or separate to, an offer of settlement. The parties may agree on a precise sum for costs payable or a mechanism to determine that sum (for instance, assessment by an independent third party).
What is the representative plaintiff’s liability? Do the group members need to contribute?
In a class action, only the representative plaintiff is liable to pay costs and is entitled to recover costs. In addition, if the court has made an award of damages in a class action, the representative plaintiff may apply to the court for reimbursement of costs that exceed the amount recoverable from the other party. If the court is satisfied that these additional costs have been reasonably incurred, it may order the excess paid out of the damages awarded.
The courts have also permitted classes to be defined in such a way that only persons who had signed up with a particular litigation funder (and their lawyers) could be a class member – in effect, a form of gate-keeping or informal opt-in system.
How are costs calculated?
Costs are either agreed or assessed. This will usually occur at the end of the proceedings. The quantum of any costs recovered and the calculation of those costs will vary considerably depending upon the nature of the class action and the issues that were litigated.
Third-party litigation funding
A third-party who has no direct interest in the outcome of the litigation agrees to fund the litigation in return for a share of any favourable judgment or settlement. If the representative plaintiff is unsuccessful, the litigation funder does not receive any return on its investment.
Typically, third-party funders sign up a portion of but not the entire class. This means that some group members are getting a “free ride”. It is generally accepted that this is unfair and the burden of litigation should be borne by all those who derive a benefit. Over the years, the courts have taken different approaches to resolving this problem, including requiring all group members to contribute towards the costs of the litigation, regardless of whether they have signed up with the third-party funder. This area of the law continues to evolve.
Contingency fees in the Supreme Court of Victoria
Contingency fees are a method of billing for legal services through a percentage of the amount recovered by the litigation rather than through time-based or costs scale billing. Under a contingency fee arrangement, no fee is charged if the litigation is unsuccessful.
Prior 2020, there was a blanket prohibition on lawyers charging contingency fees in any Australian jurisdiction. In June 2020, the Supreme Court of Victoria was given the power to order that lawyers representing the plaintiff be allowed to recover a contingency fee.
Under the new section, a lead plaintiff is able to apply to the Court for an order that his or her legal costs be paid in the form of a contingency fee and for those costs be shared between the plaintiff and all group members (referred to as a Group Costs Order). The Group Costs Order will also specify the percentage of the litigation proceeds to which lawyers will be entitled. The Court is able to make such an order if it is satisfied that it is appropriate or necessary to ensure that justice is done in the proceeding. The Court is required to exercise additional supervisory jurisdiction over class action claimants and those bringing and funding such actions.
The section stipulates that, if a Group Costs Order is made by the Court and the class action is unsuccessful, the plaintiff's law firm is liable to pay any costs of the proceeding awarded to the defendant.
The section also allows the Court to order that the plaintiff's law firm give security for the defendant's costs on behalf of the plaintiff.
While the section does not expressly state at what point in the proceedings a Group Costs Order can be made, it does permit the Court to amend an existing Group Costs Order during the course of the proceeding, including amending the percentage of the award (specified in the Group costs order) which determines the contingency fee. This suggests that an order can be made before a settlement or judgment is reached in the proceedings.
This was a major change to the way in which Australian plaintiff litigators operate, and moves Australia closer towards a model that has long been utilised in "no cost" legal systems, principally the United States.