Managing downstream class action risk during a regulatory investigation

Regulatory investigations in Australia can mark the start of a broader civil exposure lifecycle: the same conduct prompting regulatory action can also lead to a follow-on class action on behalf of customers, shareholders and other affected groups. Plaintiff class action firms routinely leverage commercial regulators’ information gathering and enforcement work to develop class action claims.

Australian companies face a potent combination of proactive commercial regulators and a buoyant class actions market. Recent Australian Institute of Company Directors analysis indicates that key regulators’ activity has doubled since 2020, and external legal spend for Australian businesses has tripled since 2010. According to a recent report, ASIC’s investigations have doubled in the past five years. The ACCC commenced 17 new court proceedings in 2024-25. Other regulators, including the Office of the Australian Information Commissioner and the Australian Prudential Regulation Authority, are increasingly proactive in enforcement activities. At the same time, new class action filings continue; around 79 new actions were filed in 2024/25, with particular activity across consumer, government, employment and securities claims. 

In this environment, decisions made upstream – in the investigation or enforcement phase – can materially shape downstream class action risk. This article highlights seven key risks and strategic issues to consider early in that lifecycle. 

1. Admissions and findings will frame any follow-on class action

Admissions and findings of fact in certain ACCC matters, and findings of fact in certain ASIC matters, can be deployed as prima facie evidence in subsequent private proceedings, including class actions (see CCA, ss 83 and 137H; ASIC Act s 12GG). 

These can arm class action claimants with a powerful evidentiary baseline in a follow-on class action. Claimants may vigorously deploy admissions and adverse findings in support of their class action case theory.

However, while significant, admissions and findings of fact in a prior proceeding will not be determinative in a subsequent class action. The Court will still need to be satisfied that the facts and admissions are correct. This was highlighted recently in ASIC v RAMS Financial Group Pty Ltd [2025] FCA 1087, where the lead applicant in a class action against RAMS sought to intervene in parallel ASIC penalty proceedings, arguing that the Court’s acceptance of facts agreed between RAMS and ASIC could prejudice the class action. The Court refused the intervention on the basis that nothing in the regulatory proceeding would finally determine facts in the class action – the lead applicant and group members would still “have their day in Court” (at [61]). 

2. Plaintiffs may obtain materials disclosed to the regulator 

Expect plaintiff firms to seek examination transcripts, ‘books’ and other documents provided to the regulator, via statutory pathways, subpoenas or non-party discovery. For example, ASIC may provide examination transcripts and related books to a plaintiff firm carrying on or contemplating a proceeding related to the examination (ASIC Act, s 25). 

Courts recognise the efficiency in permitting claimants to access these materials, subject to legal professional privilege and certain restrictions on their use. Statements in transcripts may be hearsay unless an exception applies (s 76, ASIC Act). Confidentiality will not typically prevent plaintiff firms from accessing these materials in the absence of suppression or non-publication orders, which are difficult to obtain. If the materials sought are subject to the Harman undertaking, the Court may grant leave. 

Additionally, in the Supreme Court of Victoria – the second most popular forum for Australian class actions – a defendant is obliged to give early discovery of all “critical documents” of which they are aware (CPA, s 26; SC CC1 Commercial Court (Second Revision)). Claimants may press for disclosure of key documents identified in the regulatory context at the very start of the class action proceeding.

3. Privilege claims may be challenged – and can be waived

Reports and analysis generated at the time a regulatory issue emerges can have mixed purposes – legal advice, breach reporting, fact-finding, root cause identification, insurance considerations, and other purposes. 

Legal professional privilege (LPP) will only attach where the dominant purpose of a confidential communication is to obtain legal advice or for use in litigation or other proceedings, not where that purpose is merely one (non-dominant) purpose. Even if a regulator is prepared to accept LPP claims, those claims may not survive challenge in any downstream class action. 

Where reports and other materials are subject to LPP, deploying them in a regulatory context creates a risk of waiver. Once waived, privilege cannot protect documents in a downstream class action. Limited waiver arrangements can preserve privilege if carefully implemented – for example, the Full Federal Court in ASIC v McLeod [2024] FCAFC 174 held that disclosure to ASIC under a Voluntary Disclosure Agreement did not (without more) waive privilege. However, caution is still required. Care should also be taken to assert LPP claims over examination transcripts and other documents to the extent they disclose legal advice.

Finally, it is important to remember that other privileges beyond LPP – such as privilege against self-incrimination, without prejudice privilege or parliamentary privilege – might also influence what evidence is available in a downstream class action.

4. To disclose or not to disclose?

When regulatory exposure arises, listed entities should carefully consider their disclosure risk. Failing to comply with continuous disclosure obligations, or making misstatements about regulatory matters, can expose an entity to a downstream shareholder class action.

The decision as to whether (and how) to disclose the existence of a regulatory investigation or enforcement action to the market is rarely straightforward. There are often reasons why a listed entity might not disclose these matters. Where there is uncertainty around scope, timing and potential regulatory outcomes, disclosure can risk painting an inaccurate and incomplete picture of the state of affairs. Confidentiality may also be a factor. Not all matters warranting regulatory attention will necessarily result in enforcement action, let alone result in a financially significant outcome with the potential to have a material effect on share price or value. 

However, the position can rapidly evolve as an investigation progresses. 

5. Consider if penalties can be redirected to group members

In ASIC proceedings, consider whether any pecuniary penalty ordered by the Court might be redirected to compensate group members in a related class action, rather than paid to the Commonwealth. 

Section 1317QF of the Corporations Act requires the Court to consider the effect that making a penalty order will have on the amount available to pay compensation or refunds to affected persons, and to give preference to making an appropriate amount available for compensation and refunds. 

In the Noumi class action, the Federal Court made orders permitting a $5m penalty to be paid into Court. Subsequently, the Court permitted that amount to be distributed to certain group members as part of the class action settlement (see ASIC v Noumi Limited (No. 5) [2025] FCA 1524). 

This option will not be available in all cases. While there is limited judicial commentary, it is likely only to be available where the defendant lacks the means to pay both a penalty and compensation. 

6. Remediation can mitigate – or sharpen – class action risk

Where a program has been undertaken to remediate group member loss, the prospect of a class action for damages based on the same conduct may be less attractive to funders and plaintiff firms. 

The key is the alignment between the remediation methodology and the theory of loss in any class action. If a potential class remains under-remediated, a class action may still be viable. 

Partial or under-remediation can backfire – inviting accusations that “you knew and underpaid”. It may also assist to identify viable group member cohorts. Courts will not generally prevent a class action from continuing merely because some remediation has occurred (e.g. see Stack v AMP Financial Planning Pty Ltd (No 2) [2021] FCA 1479).

7. The passage of time complicates downstream litigation

Large commercial regulatory matters can run for years before any follow-on class action resolves. 

Staff turnover, fading institutional memory and loss of access to key witnesses (including individuals examined by regulators) can impair the quality of evidence available to mount a class action defence. It is important to consider in the regulatory phase what evidence and information can be gathered and preserved to assist in a later class action phase, when it may no longer be available.

Further, the composition of the legal team (including instructing solicitors, external law firms, and Counsel) can also change over time. Overall litigation strategy and goals may also evolve as years go by and the matter progresses. 

What this means for businesses

Decisions made during the regulatory phase can have significant consequences for the trajectory of any future class action, and a coordinated, holistic approach can narrow the scope of potential downstream exposure. 

When a regulatory investigation emerges with plausible downstream class action risk, consider involving class action specialists at an early stage.