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Review of Australia’s Class Action Regime – a Mechanism for Corporate Accountability

The class action regime in Australia is currently under review by the Australian Law Reform Commission (ALRC), following referral from the Federal Attorney-General, the chief law officer in Australia. The referral to the ALRC was announced on the back of rising class action proceedings throughout Australia, along with the increased prevalence of litigation funding by third party financiers.

Background

Current drivers for class actions

There is no suggestion that class actions are an inappropriate avenue for the prosecution of claims involving common issues across multiple applicants. Like other jurisdictions, the class action mechanism has become an avenue for corporate accountability, particularly in relation to allegations involving failure to disclose material information to the market. This has included the exploration of new risks such as the following:

1. Data breaches, an area which will likely secure increased attention following the commencement of Australia's mandatory data breach reporting obligations on 22 February 2018.1 For example, a Sydney based plaintiff law firm is currently preparing a class action relating to a data breach software firm PageUp, used by companies for job applications. This potentially involves more than 2 million active users across 190 countries.2

2. Climate change. For example, the Commonwealth Bank of Australia recently had an action commenced against it for failure to properly consider the effect of climate change on its business.3 This action was subsequently discontinued, but indicates a new willingness to consider such actions by plaintiff legal representatives.

3. Supply chain risk, starting with an increase in employment related class actions. For example, workers at BHP's Mount Arthur Coal Mine are commencing a class action alleging underpayment and misclassification by BHP subsidiaries and their labour hire contractors.4 This type of action is likely to increase with the introduction of reporting requirements under Australia's anti-slavery legislation, due to become law before the end of the year.5

Another issue on the horizon is likely to arise from the fourth industrial revolution.6 Failure to adequately take into account and plan for the unprecedented economic, technological and social changes currently affecting business could easily become the next class action driver.

Concerns

While the legitimacy of a class action regime is not in dispute, concerns have been raised in Australia in relation to the class action process and whether further regulation or rules are required. This has been considered by a number of different bodies over recent years, including the Victorian Law Reform Commission and the Productivity Commission.

One of the issues that has arisen is the lack of a statutory or regulatory mechanism for the Courts to manage competing class actions. The Federal Court of Australia has recently demonstrated some frustration with competing class actions, and has on occasion taken a creative approach to managing the issues. Of note, the broad principles of practice and procedure within s.37M of the Federal Court Act 1976 (Cth) have recently been used as a basis for managing three competing class actions.

In GetSwift,7 Lee J was faced with three competing securities class actions which generally agitated very similar issues arising from an alleged breach of continuous disclosure rules. Justice Lee considered:

how the Court deals with competing commercial enterprises which seek to use the processes of the Court to make money and the role of the Court in ensuring the use of those processes for their proper purpose and informed by considerations including: (a) the statutory mandate… to facilitate just resolution of disputed claims according to law and as quickly, inexpensively and efficiently as possible; and (b) the furtherance of the Court's supervisory and protective role in relation to group members.8

In doing so, Lee J showcased a proactive approach to resolving issues in what he described as the use of "safeguard" or control mechanisms to ensure the class action procedure was not being abused. In order to prevent this, Lee J permanently stayed two of three class actions because he was concerned about multiplicity, bringing the administration of justice into disrepute, and that otherwise allowing the actions to proceed would amount to an abuse of the Court process.

Justice Lee considered that a number of factors needed to be considered, including:

1. What experience and resources the legal practitioners had available to them;

2. The merits of each pleading and the representative applicant;

3. The number of group members who had signed up to the funding agreements;

4. Estimated costs and the returns to group members;

5. The consequences of a stay, closure or declassing order in each proceeding.9

At least for the GetSwift case, Lee J considered that most elements were neutral across the actions, and was swayed by the funding model which directly linked returns to the litigation funder to the amounts it invested in the litigation.10

This ruling has significant implications for entities facing competing class actions, which has become increasingly common in the securities arena. However, there is no consistent approach to management of the issue, and the Australian Courts have taken a varied approach to the issue.11

The ALRC

The ALRC had previously expressly rejected a certification approach, as it considered that there was "no value in imposing an additional costly procedure, with a strong risk of appeals involving delay and expense, which will not achieve the aims of protecting parties or ensuring efficiency".12 However, when tasked with re-considering the class action regime, the ALRC identified the prevalence of competing class actions as an area of concern. Of note, the ALRC felt that the frequency of competing class actions undermined the objectives of the class action regime, which is aimed at achieving the efficient and cost effective use of resources by enabling a single decision on common issues.13

In releasing its Discussion Paper, the ALRC explored issues associated with:

1. The significant increase in the time and cost involved in defending multiple proceedings;

2. Increased court resources required to manage the competing claims; and

3. In some circumstances, the erosion of funds available to the applicants as compensation (for example, where there is a limited pool of insurance money available to the parties).

Despite initially rejecting the proposition in 1988, the ALRC now appears minded to explore the adoption of a model similar to the one in Canada to manage these claims.

Adopting the Canadian Approach?

In the Discussion Paper, the ALRC has outlined Ontario's approach to competing class actions, whereby there is a mechanism to determine which lawyer will have carriage of a class action in instances of competing class actions, and permanently staying other proceedings which bring the same claim.14

In Ontario, the Court has the power to consider a carriage motion on the motion of a party or a class member, or it may stay a proceeding on its own initiative.15 When deciding a carriage motion, the Court will consider access to justice, the best interests of the members, and fairness to defendants.16

The ALRC considers that the Canadian approach would be useful for Australia, as it may resolve some of the issues associated with multiple class actions.17 As part of its recommendations, the ALRC proposes that the Federal Court of Australia Act 1976 (Cth) be amended to provide powers to the Court to stay competing class actions except in certain circumstances, and that appropriate changes be made to the Class Action Practice Note to facilitate this.18

Conclusion

The Commonwealth is reviewing class actions in Australia, including the issue of multiple class actions . The ALRC appears attracted to a model similar to that adopted in Ontario, Canada, despite initially recommending against such an approach in the 1980s. While the Commonwealth is not bound to follow the ALRC's recommendations, the current proposals are on the back of a number of inquiries and reviews which have considered class actions and litigation funding over the last few years.

Corporations and insurers should watch this space with interest, with the ALRC's final report due in December 2018 and a government response likely in 2019.


  1. Privacy Amendment (Notifiable Data Breaches) Bill 2016, which amended the Privacy Act 1988 (Cth).
  2. See: https://www.centenniallawyers.com.au/pageup-data-breach/
  3. Guy Abrahams v Commonwealth Bank of Australia (Federal Court of Australia, No. VID879/2017)
  4. See: http://www.yourfairgo.com.au/mining/
  5. Modern Slavery Bill 2018 (NSW).
  6. https://www.weforum.org/focus/fourth-industrial-revolution
  7. Perera v GetSwift Limited [2018] FCA 732 (GetSwift).
  8. Ibid [3].
  9. Ibid [169], [306]-[324].
  10. Ibid [320], [328]-[329].
  11. For example: Cantor v Audi Australia Pty Ltd (No 2) [2017] FCA 1042; TW McConnell Pty Ltd v SurfStitch Group Ltd [2017] NSWSC 1755; McKay Super Solutions Pty Ltd (Trustee) v Bellamy's Australia Ltd [2017] FCA 974.
  12. Australian Law Reform Commission, Grouped Proceedings in the Federal Court, Report 46, December 1988, [147].
  13. Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third Party Litigation funders, Discussion Paper, June 2018 [6.4].
  14. Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third Party Litigation funders, Discussion Paper, June 2018 [6.22]-[6.26].
  15. Class Proceedings Act, SO 1992, s.13.
  16. Mancinelli v Barrick Gold Corporation (2016) ONCA 571 [13].
  17. Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third Party Litigation funders, Discussion Paper, June 2018 [6.26].
  18. Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third Party Litigation funders, Discussion Paper, June 2018, Proposals 6.1 and 6.2.