Australian Corporate Lawyer - Autumn 2017

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Australia has become the jurisdiction outside
the United States in which a company is most
likely to face a class action.
• There has been a spike in shareholder
class actions in recent years. This spike is,
however, wholly attributable to multiple
claims in respect of the same conduct.
• The renaissance of product liability cases
has continued. Although initially driven by
medical devices and pharmaceutical claims,
the recent trend has been driven by claims
in the automotive industry.
• The number of natural disaster class
actions, specifically flood and fire cases,
continues to grow.
• Although there has been a slight dip
in consumer claims in recent years,
they remain fertile ground for class
action promoters.
Blackmail settlements
are not common
The vast majority of class actions are settled,
but almost one-third are dismissed or
discontinued with no money changing
hands. This suggests that so-called ‘blackmail
settlements’ (companies paying to settle
unmeritorious claims) are not as common as
some suggest.
Australia is a regional outlier
Class action activity in Australia has not been
mirrored in other parts of the region or the
rest of the world. Indeed, it is often said that
Australia has become the jurisdiction outside
the United States in which a company is most
likely to face a class action.
Representative and group actions in various
forms are slowly gaining traction in New
Zealand, Hong Kong, China and Singapore
– often without the benefit of a formal class
actions regime. In Japan, as is the case in
many European jurisdictions, class actions
are limited to claims brought by registered
consumer organisations.
Class actions in those jurisdictions are not
currently seen as presenting the same
business opportunities for lawyers and funders
as in Australia. The most likely places for that
to change in the medium term are Hong Kong
and New Zealand.
What does the future hold?
The Australian class actions landscape is at an
important crossroads. While increasing filings
have been a cause for concern for some time,
the checks and balances built into the system
have prevented filings from surging out of
control. That remains the case for the moment,
however there are signs that the market may
be changing in a way that will result in a
continued increase in both class action filings
and more speculative claims.
Those signs include:
• The number of new law firms looking
to bring class actions, and to bring class
actions that compete with existing claims,
is indicative of the increasing effect of
lawyer entrepreneurialism in the class
action market. All indicators are that this will
become an even more significant factor in
the years to come.
• The fact that the Australian litigation
funding market is largely unregulated and
that it has become accepted that funders
will be involved in making commercial
decisions in respect of the class actions they
fund is making Australia an attractive target
for funders around the world. Although
regulation of funders was recommended
by the Productivity Commission, as
time passes without any indication that
that recommendation will be adopted,
Australian class actions are becoming more
and more attractive to offshore funders.
• What’s more, funders are seeking orders
from the courts that would see them
receive a commission from the total amount
recovered in a class action, and not just
from the class members who have signed
funding agreements through a ‘book build’
process. This approach has been recently
approved by the Full Federal Court, but not
in the form sought by the funders. Rather
than locking in a funding commission from
an early point in the proceeding, the Court
has retained the power to approve the
commission rate at a later stage and has
suggested (at least in the case before it) that
it would make the aggregate commission
subject to a cap. We are yet to see how this
will impact the funding arrangements and
conduct of future matters, but the ability
to do away with the book-build phase may
result in a race to be first to file – which, in
turn, will result in class actions being filed
before they are properly investigated (and
therefore to more speculative class actions
being filed).
• These issues would, of course, be
compounded if lawyers are permitted to
charge contingency fees. The opportunity
for lawyers to be remunerated by reference
to a percentage of the outcome is likely
to make class actions an even more
attractive proposition for entrepreneurial
plaintiff lawyers and will most likely result
in even more firms looking to get a slice
of the action. Moreover, the availability of
contingency fees is likely to also encourage
a race to be first to file.
Depending on how these trends and issues
develop, the complexion of the class actions
landscape may change significantly in the
coming years. This has the potential to
significantly increase class action risk for
Australian companies. Some of that risk could
be moderated by legislative reform - however,
at this stage, all legislative reform in this space
has been directed at facilitating class actions
and litigation funding on the basis that both
facilitate access to justice. It is likely to take
overwhelming evidence that the effects of
lawyer and funder entrepreneurialism have
completely overshadowed the objectives of
the class action regimes before parliament will
act to rein things in.
Ross and Jenny co-authored Allens' report
entitled Class Action Risk 2016, which provides
a framework for a holistic and data-based
assessment of class action risk. The report can
be downloaded from: http://www.allens.com.
au/pubs/class/papclass19aug16.htm
VOLUME 27, ISSUE 1 – AUTUMN 2017
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