Australian class action landscape set to significantly evolve in 2020 after recent decisions

The fast-evolving Australian class actions landscape is likely to see “significant” change in 2020, according to Chris Pagent of Australian law firm Corrs Chambers Westgarth. Some of the change will be be welcomed by risk managers battered by the rapid rise in actions over recent times, but some will not. The big driver of positive change from a defendant’s perspective will be the High Court's recent ruling that courts do not have power to make 'common fund orders' (CFO) at an interlocutory stage of a proceeding, which will make the actions less attractive to third-party funders, according to the lawyer. Mr Pagent also said the likely introduction of legislation in Victoria that will allow solicitors to charge contingency fees for class actions as in the US will have an impact on the legal landscape this year. A CFO is a court order that obliges all group members in a class action to pay their proportionate share of a litigation funder's commission out of the proceeds of a judgment or settlement, regardless of whether the group members entered into a funding agreement directly with the funder. As a result of the High Court’s decisions in BMW Australia Ltd v Brewster and Westpac Banking Corporation v Lenthall in December 2019, Mr Pagent said he expects to see class action funders focus more on book building and less on racing to court. Book building can be a time-consuming process because the litigation funders have to identify, contact and sign up as many class action group members as possible to funding agreements, rather than just posting the action and then attracting plaintiffs afterwards. Mr Pagent pointed out, however, that while the Australian High Court's December decision confirmed that courts do not have power to make a CFO at an interlocutory stage of a proceeding, there is “residual uncertainty” as to whether courts can make a CFO at the settlement/judgment stage of a proceeding. “While the Federal Court has indicated it is open to making a CFO in an appropriate case, the position in other jurisdictions is unclear. Until that uncertainty is resolved, we predict that funders will be less inclined to race to court with new cases, preferring instead to build a sufficiently strong book before launching. This means some cases will not be commenced as quickly as we have seen in the last two years in particular,” stated Mr Pagent. The decision will lead to diminished competition in the previously thriving Australian class action market. “Book building is expensive and not all funders have the capacity to do it. As a result, we'll see less competition in the market for certain cases. The result may be lower returns for group members,” stated the lawyer. This year will likely also see few multiplicity disputes, following the Full Court of the Federal Court's recent decision in GetSwift, which confirmed that courts have the power to permanently stay a competing and substantially overlapping class action that has led to fewer competing class actions. “This trend will continue as funders prioritise a decent book over speed to the court and seek to avoid the uncertainties of the GetSwift winner-takes-all scenario, or consolidation orders,” predicted Mr Pagent. The changed environment will also lead to fewer low-value consumer class actions, because book building is typically challenging in such actions. However, less good news for risk managers and their insurers is the fact that lawyers will probably be permitted to charge US-style contingency fees in Victorian class actions, as the state parliament considers a bill suggesting the change. “We predict that the Victorian parliament will pass the Bill presently under consideration. Plaintiff law firms will be able to obtain court approval for US-style contingency fee arrangements in class actions filed in the Victorian Supreme Court, where the court is satisfied that it is appropriate to ensure justice is done,” stated Mr Pagent. This will “catalyse” two further developments in class actions. First, Mr Pagent predicted that class action funders will become financiers. “Since most plaintiff law firms will not have the capacity or inclination to provide, out of their own resources, security for costs on class actions, they will be looking to secure financing facilities. Sophisticated funders have been providing those facilities for years in other jurisdictions. The stars are aligning here,” he said. Second, there will be a spike in the number of cases in Victoria but overall numbers are unlikely to change, predicted the lawyer. “There will be a spike, at least in the short term, in the number of class action cases filed in the Supreme Court of Victoria. Indeed, we wonder whether some cases have been held back as plaintiff law firms wait for the Victorian government to pass the Bill. We also wonder whether the Supreme Court of Victoria will become the natural forum for cases that are difficult to book build, such as shareholder claims (particularly when framed as an open class and/or where there is competition) and mass low-value consumer claims. Although we will see a spike in the number of cases filed in Victoria, we are unlikely to see a significant change in the total number of filings per year,” stated Mr Pagent. Three class action areas to watch out for this year are in financial products, employment and climate, said Mr Pagent. “Regulators are announcing their enforcement priorities for 2020, revealing their interest in pursuing companies for problematic financial products. Such enforcement action often leads to private class actions; growth in employment-related class actions hinges on the outcome of two matters currently before the Full Court of the Federal Court (one relating to casual employees, the other relating to security for costs in cases brought under the Fair Work Act 2009); and environmental activists have flagged consideration of novel climate change class action litigation against either the Federal Government or large public companies,” concluded Mr Pagent.

Australian class action landscape set to significantly evolve in 2020 after recent decisions

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