The Benefits and Detriments of Class Actions?

The Benefits and Detriments of Class Actions? A Comparative Assessment of the Australian Approach Vis A Vis Other Overseas Jurisdictions and Funding.

By Colin Roberts

1.0.0 INTRODUCTION

A 'class action' in Australia is also known as a 'representative proceeding'. Like the conventional civil proceeding, a class action consists of a plaintiff and a defendant. This can be either in the Federal Court or the relevant State Supreme Court. Fundamentally, the difference between a class or other civil action, is that the action is where a group of plaintiffs have a single or multiple claims against a single or multiple parties. That is, the parties have been joined into a single proceeding.

The plaintiff parties may be represented by a single representative party, so the representative party initiates a claim on behalf of other persons against the defendants.¹ ²

Mason CJ, Deane and Dawson in Carnie v Esanda,³ considered a representative proceeding under Pt 8 r 13 (now repealed) of the Supreme Court Rules 1970 (NSW).⁴

Professor Vince Morabito has presented some interesting statistics regarding the growth of class actions over the last 25-years in Australia Morabito,⁵ ⁶ as at 31 May 2017, identified the filing of 513 class actions, of which:

Federal class actions = 402 (78%)
Queensland⁷ class actions = 2 (0.3%)
Other States = 109 (21.25%)

Growth of class actions between 1992 and 2019 has been at an average of 17.2% per annum. Due to lack of statistics up to 2026, we could estimate, on a compound rate, that at the end of 2026, the Federal = 888 and Queensland = 4.4 (say 5). It would be an interesting exercise to see how Morabito calculated his figures.

Even though Western Australia now has the Civil Procedure (Representative Proceedings) Act 2022, it differs only slightly from Queensland and that in part IVA of the Federal Court of Australia Act 1976. For our purposes and, that Queensland has more experience, we will be concentrating on the Acts and Rules in force in Queensland. On 1 March 2017, class actions were permitted in the Supreme Court of Queensland through a legislative regime substantially based on the federal regime.

The UCPR (Qld) r 60 provides:⁸

60 Inclusion of several causes of action in a proceeding

(1) A plaintiff or applicant may, whether seeking relief in the same or different capacities, include in the same proceeding as many causes of action as the plaintiff has against a defendant or the applicant has against a respondent.

(2) However, causes of action may be included in the same proceeding only if at least 1 of the following conditions is satisfied---

(a) if a separate proceeding were brought for each cause of action---a common question of law or fact may arise in all the proceedings;

(b) all rights to relief sought in the proceeding (whether joint, several or alternative) are in relation to, or arise out of, the same transaction or event or series of transactions or events;

(c) the court gives leave, either before or after the start of the proceeding.

UCPR (Qld) Part 1, Divisions 4 and 5⁹ refers all representative party and proceedings to the Civil Proceedings Act 2011 (Qld), part 13A.¹⁰

Part 13A of the Queensland Civil Proceedings Act 2011 (Qld) was modelled from the Federal Court of Australia Act 1976 (Cth) legislation with some variations. For example, in the text Class Actions in Australia by Adams, Betts and Grave,¹¹ an important difference is:

Unlike Part IVA of the Federal Court of Australia Act 1976 (Cth), Part 13A of the Civil Proceedings Act 2011 (Qld) does not contain a provision stating its application (whether it applies to causes of action arising before, on or after certain dates).

There are some differences with the equivalent Acts of New South Wales and Victoria, but they will not be included in this document, unless a comparison is relevant.

Section 103B of the Civil Proceeding Act 2011 (Qld),¹² provides that:

(1) A proceeding may be started under this part if---

(a) 7 or more persons have claims against the same person; and

(b) the claims of all the persons are in respect of, or arise out of, the same, similar or related circumstances; and

(c) the claims of all the persons give rise to a substantial common issue of law or fact.

In a case of fewer than seven persons, Section 103I Civil Proceedings Act 2011,¹³ and Section 33L of the Federal Court of Australia Act 1976:¹⁴

[the] Court may, on such conditions (if any) as it thinks fit:

(a) order that the proceeding continue under this Part; or

(b) order that the proceeding no longer continue under this Part

The above quotes now provide us with the statutory authority to commence a class action.

2.0.0 THE REASONS TO COMMENCE A CLASS ACTION

Why would a party or parties commence a class action?

The ALRC Report 134¹⁵ in 2018 noted that 'class actions were less than one percent of litigations in the Federal court in 2017-18.'

I refer again to Morabito¹⁶ whereby he listed the types of claims pursued in class actions from 1 June 1992 to 31 May 2017. The top six are:

Claims by investors = 99 (19.2%) Settled 73%
Claims by shareholders = 81 (15.7%) Settled 64%
Product liability claims = 70 (13.6%) Settled 58%
Claims by employees = 56 (10.9%) Settled 64%
Mass tort claims = 54 (10.5%) Settled 70%
Consumer protection claims = 47 (9.1%) Settled 26%

Note: Federal 75%, and States 25%

It is noted that consumer protection claims are the most likely to be completed to the judicially approved settlement agreement stage,¹⁷ with an overall average of 978 days.¹⁸

The ALRC Report 46¹⁹ studied new procedures to deal with multiple wrongs. The issues of the report were:

reducing the cost of court proceedings to the individual
enhancing access by the individual to legal remedies
promoting efficiency in the use of court resources
ensuring consistency in the determination of common issues
making the law more enforceable and effective.

The ALRC Report 46, outlined some advantages on a cost-basis of litigation when necessary and worthwhile. It could help reduce the cost to each member of a group as well as promote efficiency in the administration of justice, and 'not to encourage abuse or the pursuit of the trivial'²⁰.

The later ALRC Report 89 was a four-year inquiry into the advantages and disadvantages of the then adversarial system of proceedings. One of the 138 recommendations was that: the Attorney General should commission a review of Pt IVA of the Federal Court of Australia Act 1976 (Cth).²¹

Returning to the question of why would a party or parties commence a class action?

The first reason would be the case whereby a group, large or small (greater than seven) of customers of large corporation or government had reason to litigate against the large identity, such as to seek a legal remedy. A David and Goliath situation. Perhaps the amount claimed by each group member was not economically viable to litigate individually, where costs are likely to exceed the return. Therefore, cost effectiveness. The class action is a means to access justice, where otherwise it would just not be possible.
To litigate an action as a group effectively.
The avoidance of inconsistent judgements that may occur if the claims are pursued individually.
The provision of courts to provide resolution of claims of common questions of fact and law.
Combining a group of claimants together to achieve increased bargaining power. And
The probability of achieving settlement.

As we are concentrating on Queensland now, the Federal Court of Australia Act 1976 (Cth) is not applicable in commercial litigation intrastate. However, should the class action be in the domain of the Federal Courts, such as the defendant or plaintiff being under a Commonwealth jurisdiction, then the Federal Act is relevant. This may be the case when the defendant or plaintiff is a government body such as Centrelink or the Australian Tax Office, or the representative party may be the Australian Competition and Consumer Commission ('ACCC') on behalf of a group as a matter of public interest.

With the above points in mind, there is the matter of funding to be considered.

3.0.0 FUNDING

Funding can be achieved by each group member paying their share as in any conventional litigation. This may be possible and desirable when the group and the case is manageable and not too complex. However, if the group is large, with known and unknown group members, and the case is complex and difficult, then the group may need to access third party, or private litigation funding ('PLF') or plaintiff solicitor's funding. It is noted that many class actions would not have been possible without funding.

'It is acknowledged that funders play an important role to group members' access to justice, but it is also recognised that there may be some risk that the funders may exert some influence over the proceedings to its own end, or even not meet their funding obligation, however, security of costs can overcome this.'²²

In Murphy v Gladstone Ports,²³ a class action under Pt 13A Civil Proceedings Act 2011,²⁴ Crow J 'considered that the risk of the indemnity being unenforceable is negligible.' And was satisfied with the proposed security provided by a third part funder.

The common mechanism is normally whereby, the PLF pay the legal costs (solicitors, barrister and disbursements), which are refunded, and receive a commission from the amount received as damages. This is typically based on a percentage.

There were historic rules preventing third parties from funding litigation. Known as champerty. However, today, these rules are not so strictly applied in the jurisdictions of England and Wales, Canada, the US and Australia. In Australia, there is no public policy objection.

In a subsequent appeal, Gladstone Ports v Murphy,²⁵ the defendant (now appellant) argued that the funding agreements were unenforceable and champertous or amounting to maintenance and sought the primary judge to refer the question to the Court of Appeal pursuant to r 483(2) UCPR (1999).

483 Order for decision and statement of case for opinion

(2) The Supreme Court, other than the Court of Appeal, may also state a case for the opinion of the Court of Appeal.

This referral was not made. However, the decision of Crow J was affirmed, and the appeal was dismissed with costs.

There have been two points of view about private litigation funding.

Those against the concept of funders, particularly solicitor funders, are opposed because of the undesirable possibility of 'legal entrepreneurialism',²⁶ and an abhorrence of US-style litigation. (We will discuss the United States' class actions later in this document).

Those against argue that funders will only back cases they can win, thus, ignoring cases that are high-risk. In addition, funders would only take on matters that would return a significant sum. Thereby, ignoring low-income matters.

In response to this fear, we return to the ALRC Report 134.²⁷ The Report addressed an overview of the litigation funding market, the regulation of litigation funders and solicitors' fees and conflicts of interest.

On the regulation of litigation funders, the ALRC made six recommendations. Recommendation 12 mentioned above, and importantly, Recommendation 14²⁸ which provides:

Part IVA of the Federal Court of Australia Act 1976 (Cth) should be amended to provide that:

- third-party litigation funding agreements with respect to representative proceedings are enforceable only with the approval of the Court;

- the Court has an express statutory power to reject, vary, or amend the terms of such third-party litigation funding agreements;

- third-party litigation funding agreements with respect to representative proceedings must provide expressly for a complete indemnity in favour of the representative plaintiff against an adverse costs order; and

- Australian law governs any such third-party litigation funding agreement the funder submits irrevocably to the jurisdiction of the Court.

With regard to solicitors' fees and conflicts of interest, the ALRC 134 made six recommendations.²⁹ In brief, the relevant recommendations are:

Recommendation 17:

"For solicitors acting for the plaintiff, statutes should permit solicitors to enter into 'percentage-based agreements' - with limitations."

Recommendation 18:

Part IVA of the Federal Court of Australia Act 1976 (Cth) should be amended to include a statutory presumption that solicitors who fund representative proceedings on the basis of percentage-based fee agreements will provide security for costs in any such proceedings in a form that is enforceable in Australia.

Recommendation 19:

Part IVA of the Federal Court of Australia Act 1976 (Cth) should be amended to provide that:

- percentage-based fee agreements in representative proceedings are permitted only with leave of the Court; and

- the Court has an express statutory power to reject, vary, or amend the terms of such percentage-based fee agreements.

According to Morabito,³⁰ between 1 June 2012 and 31 May 2017, 74 out of 160 (46.2%) class actions were funded.

The Parliamentary Joint Committee on Corporations and Financial Services ('PJC') made 31 recommendations,³¹ of which the prominent recommendations are:

Recommendation 4

The committee recommends the Australian Government seek to ensure that state and territory Supreme Courts with class action procedures adopt a protocol with the Federal Court of Australia similar to the Protocol for Communication and Cooperation Between Supreme Court of New South Wales and Federal Court of Australia in Class Action Proceedings and the Protocol for Communication and Cooperation Between Supreme Court of Victoria and Federal Court of Australia in Class Action Proceedings.

Recommendation 8

The committee recommends Part IVA of the Federal Court of Australia Act 1976 be amended so that litigation funding agreements with respect to class actions must expressly provide a complete indemnity in favour of the representative plaintiff against an adverse costs order.

Recommendation 9

The committee recommends the Federal Court of Australia not approve a litigation funding agreement unless the agreement provides a complete indemnity for adverse costs.

Recommendation 10

The committee recommends Part IVA of the Federal Court of Australia Act 1976 be amended to include a statutory presumption that a litigation funder in a class action provide security for costs.

Recommendation 17

Includes:

the total amount of the funding commission (and per cent of the gross settlement sum) that the litigation funder would be paid, as the case may be:

pursuant to its contractual entitlements under the litigation funding agreements;

following a funding equalisation order (if one is sought);

following a common fund order (if one is sought); and

following any other order to share costs across class members.

the total costs broken down into legal fees, counsel's fees, expert fees and their disbursements;

any costs orders paid in the proceedings;

payments to representative plaintiffs (their claims and recognition payments);

other reimbursements and payments, including pursuant to cy-près orders;

Recommendation 18:

Recommends that the Federal Court of Australia's Class Actions Practice Note be amended to include guidance on scenarios in which a conflict of interest is likely to arise, including:

where there is a material conflict between the interests of the representative plaintiff and those of some sub-groups of class members, including between those with different sorts of interests or claims, and between those who have signed up with the litigation funder and/or the representative plaintiff's solicitor and those who have not;

where the proposed return to the class members does not appear to be in accordance with the possible prospects of success;

where an issue arises as to whether some class members should be included or excluded from claiming settlement proceeds where they did not register in time pursuant to some registration process ordered by the Federal Court of Australia to identify the number, identity and claims of class members;

where there is an application, or an order has been made, for a common fund order or a funding equalisation order, or an equivalent order; and

where it is proposed that the solicitors for the representative plaintiff are to be appointed as the administrator of the settlement and where there may be other means available

Recommendation 31

The committee recommends that, irrespective of whether none, some, or all of the committee's recommendations regarding the Federal Court of Australia's class action regime are adopted and implemented, the federal, state and territory governments work towards achieving consistency in class action regimes across jurisdictions.

These recommendations, if implemented, should minimise the fears that doubters may have against class action funding in Australia.

4.0.0 CLASS ACTIONS IN FOREIGN JURISDICTIONS

4.1.0 Class Actions in the USA

Rule 23 of the Federal Rules of Civil Procedure (US),³² covers class actions in the United States of America ('US'). Rule 23(a) sets out the prerequisites for a class action:

(a) PREREQUISITES. One or more members of a class may sue or be sued as representative parties on behalf of all members only if:

(1) the class is so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class;

(3) the claims or defences of the representative parties are typical of the claims or defences of the class; and

(4) the representative parties will fairly and adequately protect the interests of the class.

Prerequisites 1 and 2 are similar to the Sections 33C(1)(a) Federal Court of Australia Act 1976 (Cth) ('FCA')³³ and 33C(1)(c). The fourth is similar to 33T 'Adequacy of representation'.

Rule 23(b),³⁴ Types of class actions:

(b) TYPES OF CLASS ACTIONS. A class action may be maintained if Rule 23(a) is satisfied and if:

(1) prosecuting separate actions by or against individual class members would create a risk of:

(A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class;

(B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests;

The ALRC Report 134,³⁵ states that, "meaningful comparison with much of that country's class action jurisprudence is difficult, not least because of the fundamental difference between the costs regimes (the absence of the loser-pays principle in most litigation in the United States) and the tradition of charging on a contingency fee basis.'

Grave, Adams and Betts,³⁶ say that the Australian courts have not referred heavily to US jurisprudence.

4.2.0 Class Actions in England and Wales

According to Grave, Adams and Betts, 'there is not currently a class action procedure outside of the general representative rules.' Continuing:

'As in Australia and the United States, to qualify for a Group Litigation Order something more than common circumstances must be established -- alternative procedures must be less efficient and there must be commonality between claims that overwhelms individual-fact sensitivity.'

Lord Justice Jackson in his final report on Review of Civil Litigation Costs (the Jackson Report).³⁷ In this report, Jackson LJ concluded: P43

I do not consider that full regulation of third-party funding is presently required. I do, however, make the following recommendations:

(i) A satisfactory voluntary code, to which all litigation funders subscribe, should be drawn up. This code should contain effective capital adequacy requirements and should place appropriate restrictions upon funders' ability to withdraw support for ongoing litigation.

(ii) The question whether there should be statutory regulation of third-party funders by the FSA ought to be re-visited if and when the third-party funding market expands.

(iii) Third-party funders should potentially be liable for the full amount of adverse costs, subject to the discretion of the judge.

The ALRC Report 134,³⁸ Further states that:

The development of the jurisprudence of England and Wales, Australia, and Canada has followed similar paths towards broad acceptance of the legitimacy of third-party litigation funding, although Australia has released the shackles rather more definitively than has occurred in the other two jurisdictions.

4.3.0 Class Actions in Canada (for interest)

'Canadian provinces typically have a process to deal with competing class actions and ensure only one action with respect to a dispute continues. The class action procedures are contained in the provincial statutes,' ALRC Report 134.³⁹ However, 'the court must be satisfied of at least four criteria to approve a third-party funding agreement:

(1) the agreement must be necessary in order to provide access to justice;

(2) the access to justice facilitated by the TPF agreement must be substantively meaningful;

(3) the agreement must be a fair and reasonable agreement that facilitates access to justice while protecting the interests of the defendants; and

(4) the third party funder must not be overcompensated for assuming the risks of an adverse costs award because this would make the agreement unfair, overreaching and champertous.

5.0.0 THE BENEFITS AND DETRIMENTS OF CLASS ACTIONS

The following table gives the advantages and disadvantages of class actions. Some of the components are taken from the text Australian Annotated Class Actions Legislation,⁴⁰ quoting Giles v Commonwealth [2014] NSWSC 83, Garling J.⁴¹

BENEFITS	DETRIMENTS
Cost effective in cases with one or more defendants where there is commonality of conduct;	In early stages, numbers and identity of group members, damages and timing are unknown.
Access to justice where, for cost reasons, individual cases where costs/return ratio is too low.	The greater the number participants, the increase in irrationality in damages estimation for early settlement.
Effective means for a court to determine questions of common facts and law as a on a representative of a group, rather on an individual basis.	Un-named plaintiffs lose control of the proceedings.
Administration of Justice efficiency.
Mitigation of injustice through inconsistent judgements or awards.
Rights of claimants to pursue as a group, and defendants to effectively act individually.
The availability to opt-in or opt-out, and all members (known and unknown) can determine their liability or award with finality.
Group bargaining power to achieve settlement.
The avoidance of inconsistent judgements that may occur if the claims are pursued individually.

6.0.0 BIBLIOGRAPHY

A Articles/Books/Reports

Adams, Betts and Grave, Class Actions in Australia (Thomson Reuters, 3^rd ed, 2022).

Australian Law Reform Commission, Grouped Proceedings in the Federal Court (Report 46, 1988).

Australian Law Reform Commission, Managing Justice: A Review of the Federal Civil Justice System (Report 89, 1999).

Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC Report 134, December 2018).

Byrne Corey, 'Environmental Class Actions in Australia: A Coming Storm?' (2020) 37 EPLJ 186.

Jackson Report, Review of Civil Litigation Costs (2009) quoted in ALRC 134.

Legg and McInnes, Australian Annotated Class Actions Legislation, LexisNexis Butterworths, 2^nd ed, 2020).

Morabito, An Empirical Study of Australia's Class Action Regimes, Fifth Report: The First Twenty-Five Years of Class Actions in Australia (July 20, 2017).

Parliamentary Joint Committee on Corporations and Financial Services, Litigation funding and the regulation of the class action industry (Final Report, December 2020).

B Cases

Carnie and Another v Esanda Finance Corporation Limited (1995) 182 CLR 398.

Giles v Commonwealth [2014] NSWSC 83, Garling J Quoted in 'Australian Annotated Class Actions Legislation'.

Gladstone Ports Corporation Ltd v Murphy Operator Pty Ltd [2020] QCA 250.

Murphy & Ors v Gladstone Ports Corporation Ltd [2019] QSC 12.

C Legislation

Civil Proceedings Act 2011 (Qld).

Federal Rules of Civil Procedure (US).

Federal Court of Australia Act 1976 (Cth).

Supreme Court Rules 1970 (NSW) r 13 (repealed).

Uniform Civil Procedure Rules 1999 (Qld).

¹ Federal Court of Australia Act 1976 (Cth) s 33C(1). (FCA).

² Civil Proceedings Act 2011 (Qld) s 103B(2).

³ Carnie and Another v Esanda Finance Corporation Limited (1995) 182 CLR 398, 3.

⁴ Supreme Court Rules 1970 (NSW) r 13 (repealed).

⁵ Vince Morabito, An Empirical Study of Australia's Class Action Regimes, Fifth Report: The First Twenty-Five Years of Class Actions in Australia (July 20, 2017) <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3005901>.

⁶ Ibid, 24.

⁷ Queensland is used in this article because of availability of data; however, it is assumed that Western Australian data is similar.

⁸ Uniform Civil Procedure Rules 1999 (Qld) r 60.

⁹ Ibid rules 74A to 77F.

¹⁰ Civil Proceedings Act 2011 (Qld), part 13A.

¹¹ Ken Adams, Jason Betts and Damian Grave, Class Actions in Australia (Thomson Reuters, 3^rd ed, 2022) 87, 88.

¹² Civil Proceedings Act (n 2) s 103(B)(1).

¹³ Ibid, ss 103I.

¹⁴ Federal Court of Australia Act 1976, (n 1) 33L.

¹⁵ Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC Report 134, December 2018).

¹⁶ Morabito (n 5) 27.

¹⁷ Morabito (n 5) 30.

¹⁸ Morabito (n 5) 31.

¹⁹ Australian Law Reform Commission, Grouped Proceedings in the Federal Court (Report 46, 1988) 13.

²⁰ Ibid 61.

²¹ Australian Law Reform Commission, Managing Justice: A Review of the Federal Civil Justice System (Report 89, 1999) 81.

²² Ibid, Recommendation 12, 11.

²³ Murphy & Ors v Gladstone Ports Corporation Ltd [2019] QSC 12, 63.

²⁴ Civil Proceedings Act 2011 (n 2).

²⁵ Gladstone Ports Corporation Ltd v Murphy Operator Pty Ltd [2020] QCA 250.

²⁶ Class Actions in Australia (n 10) 29.

²⁷ ALRC Report 134 (n 14).

²⁸ Ibid, 10.

²⁹ Ibid, 11.

³⁰ Morabito (n 5) 33.

³¹ Parliamentary Joint Committee on Corporations and Financial Services, Litigation funding and the regulation of the class action industry (Final Report, December 2020) xxiii, xxiv, xxvi, xxxi. <https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/Litigationfunding>.

³² Federal Rules of Civil Procedure (US) r 23.

³³ Federal Court Act (n 1) ss 33C(1)(a), 33C(1)(c).

³⁴ Federal Rules of Civil Procedure (US) (n 31) r 23(b).

³⁵ ALRC 134 (n 14) 11.

³⁶ Adams, Betts and Graves (n 10) 152.

³⁷ Review of Civil Litigation Costs (2009) (The Jackson Report) quoted in ALRC 134 (n 14) 43.

³⁸ ALRC 134 (n 14) 52.

³⁹ Ibid, 103.

⁴⁰ Michael Legg and Ross McInnes, Australian Annotated Class Actions Legislation, LexisNexis Butterworths, 2^nd ed, 2020) 5.

⁴¹ Giles v Commonwealth [2014] NSWSC 83, Garling J Quoted in 'Australian Annotated Class Actions Legislation' (n 39).

The Benefits and Detriments of Class Actions? A Comparative Assessment of the Australian Approach Vis A Vis Other Overseas Jurisdictions and Funding.

By Colin Roberts