The Australian class action landscape has undergone significant change in the last five years and that will continue in 2021 and beyond.
Corrs’ class actions team has identified 10 developments it expects to see this year.
1. A temporary reduction in the number of new filings
Litigation funders are now required to hold an Australian Financial Services Licence and comply with the managed investment scheme regime. Just as we saw a run on class action filings in the lead up to the implementation of the regime in August 2020 as promoters rushed to beat the new requirements, we will now see a softening in new filings as funders re-calibrate to comply with the new requirements.
We also expect to see another short run on filings once funders become compliant (and then file the cases they have been unable to move forward while stepping though compliance rings).
2. A continued push for legislative reform
There have been four inquiries into class actions and litigation funding in the last seven years, with very few recommendations adopted to date. One key reform that has recently been enacted is to continuous disclosure laws (point 10 below). We expect to see a continued push for further legislative reform focussed on striking what is perceived to be a fairer balance between the interests of funders, group members and defendants.
3. Ongoing uncertainty around common fund orders (CFOs)
While it is now clear that CFOs are not available at an early stage of the class action process, the power of the Court to make such orders late in the piece or after settlement has not been expressly addressed by the High Court, leaving some residual uncertainty. If special leave is granted in the 7-Eleven class action, it may be that the High Court is able to address this issue definitively, but is doubtful that 7-Eleven will get through the special leave gate.
It is also possible that the Federal Government may legislate to permit the Federal Court to make CFOs, but that too is uncertain. Faced with uncertainty about CFOs, expect funders to go back to book-building, which will increase the cost of the litigation. The increase will be worn variously by the stakeholders: the parties, their lawyers, the funder, the group members, and insurers.
4. A rise in litigation finance
Faced with licensing barriers and uncertainty about CFOs, funders will continue to refocus their attention on providing litigation finance to plaintiff law firms, and away from the more familiar Australia model of funding claimants (at least in class actions). With the introduction of ‘group costs orders’ in the Supreme Court of Victoria (point 5 below), funders have a captive audience for litigation finance.
5. More filings in Victoria
With plaintiff law firms now able to obtain court approval for US-style contingency fee arrangements (known here as ‘group costs orders’) in class actions filed in the Supreme Court of Victoria, we can expect to see that Court emerge as a popular forum for all class actions capable of group-wide damages assessment.
The first group costs order application will be determined in the coming months. Stakeholders will be watching that application closely. If group costs orders are readily available at an early stage of proceedings in the Supreme Court of Victoria, class action promoters – be they plaintiff law firms or litigation-funders-turned financiers – may reason that the Supreme Court of Victoria is a more attractive option than the Federal Court of Australia in cases where a choice of forum in available (such as most shareholder claims).
That said, the decision-making calculus will change again if the Federal Government is willing and able to implement the Parliamentary Joint Committee’s recent recommendation to confer exclusive jurisdiction on the Federal Court with respect to the civil matters, commenced as class actions, under the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001.
6. A reduction in the number of competing class actions
Faced with the uncertainty of selection/multiplicity hearings and CFOs, we are not going to see as many competing class actions. Indeed, increasingly we think multiplicity contests will be limited to uncommon scenarios, such as when an obviously weak plaintiff law firm or funder is the first mover, or when group-wide damages are very large (in such cases, a second mover may well consider that it is worth the risk to try).
With less competition, returns to group members may fall and first movers will be at a significant advantage. As much as the courts might seek to discourage this, those prosecuting class actions will be incentivised to rush to court.
7. A reversal of roles as traditional defendant firms take on roles for plaintiffs
Traditional ‘defendant only’ firms will elect to take on plaintiff roles in major class actions for the benefit of institutions and businesses (as opposed to personal injury victims and retail clients).
8. Contradictors will become more prevalent
Contradictors have become common place at both the interlocutory and settlement stages of class actions and we can expect to see that trend continue, particularly in relation to applications for group costs orders and CFOs.
9. A pandemic of class actions
We have already seen a number of class actions filed against the Victorian Government by aggrieved businesses seeking compensation for financial losses, and individuals seeking compensation for personal injury. It is also no secret that at least five law firms are exploring potential class actions by businesses against business interruption insurers. We have no doubt that the pandemic will produce further class actions this year.
10. Little impact from the relaxation of continuous disclosure laws
The Federal Government has recently announced that it will move to amend the Corporations Act to make permanent the temporary changes that were made to continuous disclosure laws at the height of the COVID-19 pandemic. If passed, companies and their officers will only be liable for breaches of the continuous disclosure provisions if they acted with the ‘fault’ element of ‘knowledge, recklessness or negligence’.
The proposed reform will also plug the existing loophole which allows for continuous disclosure claims to be brought under misleading or deceptive conduct provisions to avoid the fault element. While the changes may bring some comfort for directors, we doubt they will have any real impact on the number of new shareholder class actions. The ‘fault’ element is not a high hurdle, and issues of knowledge or recklessness are ordinarily in play in most shareholder claims already – particularly in the context of non-disclosure.
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.