In the past few years, there has been increased interest and hype in and around class actions in Australia. Barely a week will pass without there being some media reference to a new potential class action. There are a number of factors at play including the complex interplay between regulators, plaintiff law firms, litigation funders and the increased number of courts with class action procedures and specialist lists.
In the past five years, an average of over 15 class actions have been commenced in the Federal Court of Australia every year in comparison to an annual average of just over 14 over the preceding 17 years.1 While this number does not appear to reflect a dramatic increase in the commencement of actions, it does not account for the changes in the establishing legislation of the Supreme Court of Victoria and the Supreme Court of NSW in 2000 and 2011 respectively to incorporate class action procedures akin to the Federal Court. Currently, the Supreme Court of NSW has eight class actions before it2 and the Supreme Court of Victoria has 14, with four settlements pending.3
New Zealand courts have shown themselves to be open to facilitating them in the absence of legislation or rules to govern procedure. Agitation for the enactment of a representative procedure in the form of the Class Actions Bill 2008 and proposed amendments to the High Court Rules has stalled, and been overshadowed somewhat by the ability to obtain a representative order under r 4.24 of the High Court Rules,4 a relatively low threshold.5
Another significant factor in driving class action activity in Australia is the presence of litigation funders. A litigation funder is a non-lawyer or corporation who identifies a potential claim and enters into agreements with potential claimants to enable them to commence litigation and receive monies from defendants through settlement or judgment, a portion of which will be assigned to the litigation funder.
Litigation funders have been around in Australia since the 1990s. However, a High Court decision in 2012,6 which led to subsequent amendments to the Corporations Act 2001,7 meant that litigation funders in Australia no longer occupy an ambiguous status. Beyond general obligations under corporate law and a requirement that they must have adequate arrangements for managing conflicts of interest, litigation funders are subject to barely any specific supervisory, reporting or operational requirements.
Litigation funders have established themselves as significant players in class action litigation in Australia. As of November 2014, a total of 49 representative proceedings in the Federal Court received the financial support of commercial litigation funders.8
The litigation funding industry is proving to be lucrative. In the 2014-2015 financial year, roughly 12 litigation funders operating in Australia generated $30 million in profits. Their annual growth is projected to double in the next five years (from 6.2% to 13.3%). Bentham IMF Limited (Bentham), the largest litigation funder in Australia, claims it has more than $2 billion in its investment portfolio after only 14 years of being listed on the ASX.9 Bentham claims to have funded 149 Australian cases with 3% lost, 23% withdrawn, 64% settled, and 9% won. Bentham has demonstrated the potential of litigation funders to be a common presence in promoting class actions and in particular, a prominent feature of some of the largest class action settlements in Australian legal history. For example, Bentham funded proceedings brought against Centro Properties and Centro Retail by investors which reached an overall settlement of $200 million for a breach of an obligation to continuously disclose debts of the company.
Each litigation funder has a funding policy which provides guiding principles in evaluating the suitability of claims to fund. Class actions facilitate both the identification of so-called targets and perceived quick gains. Class actions involving financial products and shareholder (disclosure) claims have apparently provided handsome profits for litigation funders. There is ongoing debate about the public interest benefits of such class actions.
The actions of pro-active regulators in the competition, financial services and corporate space have also influenced class action activity by prompting litigation that rides on the coat tails of investigations or proceedings commenced by these regulators.
While the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission have not gone so far as to propose co-ordinated approaches to claims where plaintiff law firms are engaged to act for the injured class under the supervision of regulators,10 ASIC chairman Greg Medcraft has endorsed securities class action litigation, saying it was "very good at equalling up the tables" and was "a good market-driven solution", with the proviso that the class actions needed to be "done responsibly".11
The eagerness of regulators to commence proceedings for pecuniary penalties under competition, consumer or corporations legislation provides a mechanism by which plaintiff law firms can attract potential claimants, evaluate the success of any private claim on the back of admissions or evidence led by corporations in regulatory proceedings and apply pressure for early settlement of claims due to high media exposure of the regulators' actions.
There seems little doubt that class action activity is being fuelled by the dictates of litigation funders and inspired by vigilant regulators. There seems to be no sign that Australia's appetite for class action litigation will be satiated any time soon.
- V Morabito, An empirical study of Australia's class action regimes: Third report, page 8.
- See overview of current class actions before Supreme Court of NSW http://www.supremecourt.justice.nsw.gov.au/Pages/sco2_class_action/sco2_class_action.aspx, accessed on 24 January 2016.
- See overview of current class actions before the Supreme Court of Victoria http://www.supremecourt.vic.gov.au/home/law+and+practice/class+actions/ accessed on 24 January 2016.
- Schedule 2, Judicature Act 1908.
- Class Action: a new frontier, Law Talk Issue 840, New Zealand Law Society at https://www.lawsociety.org.nz/lawtalk/lawtalk-archives/issue-840/class-action-litigation-a-new-frontier
- International Litigation Partners Pte Ltd v Chameleon Mining NL (Receivers and Managers Appointed)  HCA 45.
- Corporations Amendment Regulation 2012 (No.6) (Cth).
- V Morabito An empirical study of Australia's class action regimes: Third report, page 3.
- H Low, Litigation funder Bentham IMF’s profits surge, Australian Financial Review, 29 August 2014 at http://www.afr.com/business/legal/litigation-funder-bentham-imfs-profits-surge-20140828-jcze7 accessed on 23 January 2016.
- S Danckert, Judges say watchdogs and class action lawyers could unite forces, Sydney Morning Herald, 2 September 2015 at http://www.smh.com.au/business/consumer-affairs/judges-say-watchdogs-and-class-action-lawyers-could-unite-forces-20150902-gjdf37.html accessed on 23 January 2016.
- M Legg, ASIC's nod to class actions may backfire, The Australian, 12 April 2012, http://www.theaustralian.com.au/business/opinion/asics-nod-to-class-actions-may-backfire/story-e6frg9if-1226324318161 accessed on 24 January 2016.