The Australian class action landscape is in a state of flux. Prior to the federal election earlier this year, reforms targeting litigation funding and other aspects of the class action regime continued to loom large; such reforms being primarily aimed at curbing the unprecedented rise in the number of class action filings. But with the election of the new Labor government, the tide has clearly shifted back to a more modest approach to regulation.
Labor has previously made it clear that it opposed many of the Coalition’s reforms. In particular, the proposed presumption of unfairness for settlements returning less than 70 per cent to group members;[1] the permanency of the changes to Australia’s continuous disclosure regime;[2] and the changes requiring litigation funders to comply with laws regulating managed investment schemes (MIS).[3] As such, it appears likely that the reforms on these issues will either be reversed or abandoned in the near future.
The government will have less work to do in winding back the MIS reforms, following the recent Full Federal Court decision in LCM Funding Pty Ltd v Stanwell Corporation Limited.[4] There, the court overturned its 2009 decision,[5] and held that funded class actions are not MISs for the purpose of Chapter 5C of the Corporations Act 2001 (Cth). It remains to be seen whether litigation funders are still required to hold an Australian Financial Services Licence, though that is unlikely, and this decision will still reduce the regulatory burden and associated costs for litigation funders in Australia.
Nevertheless, several other key issues remain of interest going forward, particularly those that are the subject of the Australian Law Reform Commission’s 2019 report (ALRC Report), including:
- contingency fee agreements;
- so-called “common fund orders”; and
- class closure orders.
Contingency fee agreements
In considering the available mechanisms for funding class actions, the ALRC Report recommended permitting plaintiff law firms to enter into contingency fee agreements with representative plaintiffs.
Also known as ‘percentage-based fee agreements’, these agreements involve the solicitors providing their services in exchange for a percentage of the amount recovered in the litigation. Such fee structures are standard practice in the United States but are subject to a blanket prohibition across the legal profession in Australia.
In Victoria, however, an exception to the general prohibition was legislated in July 2020, with the introduction of section 33ZDA of the Supreme Court Act 1986 (Vic). This provision was the first of its kind in Australia and gives the Court power to approve the charging of contingency fees in class actions, by way of a ‘group costs order’.
The main argument raised in favour of contingency fees in class actions is that they would increase access to justice, particularly for small or medium-sized actions, which are typically not commercially viable for litigation funders. It is also said that they would provide greater returns for group members over third-party funded actions, given the absence of the litigation funder’s commission from the costs of bringing the action.
The charging of contingency fees is, however, somewhat controversial. The Law Council of Australia opposes the introduction of contingency fees in class actions,[6] due to concerns regarding the undesirable ethical risks the fee structure will create for members of the legal profession.
Pre-election, the new federal Attorney-General was on record stating that Labor would only make changes to the class action systems that were “in the best interests of plaintiffs seeking justice”, which could indicate favourability towards allowing contingency fees.[7] However, there has been no firm indication either way as of yet.
In the meantime, Victoria is likely to remain, from the perspective of plaintiff law firms, the most attractive forum in Australia for commencing class actions.
- In two 2020 decisions, the New South Wales Court of Appeal (NSWCA) held that ‘soft’ and ‘hard’ CCOs were beyond the statutory powers conferred under Part 10 of the Civil Procedure Act 2005 (NSW).[13]
- In 2022, the Full Federal Court held that one of those decisions was “plainly wrong” and cast doubt on the correctness of the other, holding that the cognate provisions under the Federal Court of Australia Act 1976 (Cth) empower orders for the giving of notices to group members signalling an intention to seek a CCO.[14] However, the Court did not answer whether there is power to make a CCO, as the question was not enlivened in the particular circumstances of the case.
As a result, there are competing interpretations of the Court’s statutory powers across jurisdictions, which may promote forum-shopping. Arguably, the Victorian Supreme Court has the power to make CCOs by reference to section 33ZG, which does not have a counterpart in the New South Wales or Federal class action regimes. This leaves CCOs ripe for consideration by the High Court or potential law reform.
The ALRC Report, while acknowledging the risk to access to justice, accepted the utility of CCOs and recommended that the Federal Court’s practice and procedure include express guidance as to when CCOs may be made and when a class that has been closed may be reopened.
There has been no firm indication from the new Labor government as to their position on CCOs. However, as mentioned above, Labor intends only to make pro-plaintiff changes. This may mean that Labor only adopts the ALRC’s recommendation to require all class actions to be initiated as open class actions.
What’s next?
With a new Labor government holding very different priorities to its predecessor, and a live set of issues to be resolved, the Australian class action scene might be on the precipice of significant change. In our view, class action filing numbers are likely to remain high for the foreseeable future.
This article was written by GRT Lawyers, Alexander Sloan (Senior Associate) & Elizabeth Dowrie (Associate), and is part of GRT Lawyers\’ Class Action Series.
Over the coming weeks, we will be sharing articles with more in-depth analysis about the key issues the industry is facing, with the next article focusing on contingency fee arrangements.
Glenn Vassallo (Managing Director), Scott Standen (Director) and
Ashley Hill (Director) can assist you with any queries in relation to your corporate legal requirements.
[1] Fiona Wade, ‘Litigation funding for class actions promotes access to justice, but contingency fees are problematic’, Law Council of Australia (Media Release, 29 July 2020).
[2] Michael Pelly, ‘Labor promises a ‘less hostile’ approach to class action funders’, Australian Financial Review (online, 24 February 2022)https://www.afr.com/politics/labor-promises-a-less-hostile-approach-to-class-action-funders-20220224-p59z9p
[3] Michael Pelly, ‘Michaelia Cash target class actions ‘feeding frenzy’’, Australian Financial Review ( online, 27 May 2021)https://www.afr.com/politics/federal/michaelia-cash-targets-class-actions-feeding-frenzy-20210526-p57vd7
[4] Michael Pelly, ‘Labor could make it easier for shareholders to sue ‘dodgy’ directors’, Australian Financial Review (online, 24 May 2022)https://www.afr.com/companies/financial-services/labor-could-make-it-easier-for-shareholders-to-sue-dodgy-directors-20220322-p5a6xd.
[5] Mark Dreyfus and Stephen Jones, ‘Labor backs Australians’ Right to have their day in Court’ (25 August 2020)https://www.markdreyfus.com/media/media-releases/labor-backs-australians-right-to-have-their-day-in-court-mark-dreyfus-qc-mp/
[6] [2022] FCAFC 103.
[7]Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd [2009] FCAFC 147.
[8] (2016) 245 FCR 191.
[9] [2019] HCA 45.
[10]Brewster v BMW Australia Ltd [2020] NSWCA 272.
[11]Davaria Pty Ltd v 7-Eleven Stores Pty Ltd [2020] FCAFC 183.
[12] See Hall v Arnold Bloch Leibler (a firm) (No 2) [2022] FCA 163; Zantran Pty Ltd v R Resorts Ltd (No 4) [2022] FCA 500; Uren v RMBL Investments Ltd (No 2) [2020] FCA 647.
[13]Haselhurst v Toyota Motor Corporation Australia Ltd [2020] NSWCA 66; Wigmans v AMP Ltd [2020] NSWCA 104.
[14]Parkin v Boral Limited (Class Closure) [2022] FCAFC 47.
