Class Actions in Australia

31 January 2008

Background

Class Actions in Australia, by Freehills’ partners Damian Grave and Ken Adams, focuses exclusively on class action law in Australia. It is a complete and comprehensive guide to this area of the law.

'The subject of class actions is controversial. In some respects, class actions challenge lawyers’ fundamental beliefs about the role of law in society, the role of the courts and the nature of society. Not surprisingly, this challenge gives rise to different and, in some instances, polarised views.'

It is over sixteen years since the seminal work of the Australian Law Reform Commission embodied in its report, Grouped Proceedings in the Federal Court, was tabled in the Commonwealth Parliament in December 1988. This report provided the foundation for the subsequent introduction of new class actions procedures under Commonwealth and Victorian legislation.

Early approach to class actions in Australia

'The early class actions in Australia involved claims on behalf of consumers for loss caused by contaminated products such as peanut butter and oysters. These claims were funded by firms acting for the representative party in the class action. As the law and practice of class actions in Australia has developed so too have the types of claim and also the way in which those actions have been funded. The types of claim have now included claims such as claims on behalf of shareholders and claims on behalf of consumers affected by anti competitive behaviour including price fixing and market sharing arrangements. There has also been a rapid growth in a number of commercial funders of litigation, including class actions.'

In conventional forms of litigation the parties know the identity of the claimants from the outset of the dispute and one is able to ascertain the quantum of the claim and the nature of the loss from an early stage of the proceeding. None of this applies to class actions.

'Class Actions are relatively easy to commence and the class action procedure has been used in a wide variety of situations.'

The essential elements needed to commence a class action are that:

• there must appear to be seven or more persons with a claim against the same person
• the claims must arise out of related circumstances
• the claims must give rise to a substantial common issue of law or fact.

Subject to fulfilment of these elements there is no limit to the subject matter of class actions.

The class action procedure has been used for a wide range of situations including:

• claims on behalf of shareholders in corporations
• claims on behalf of consumers who suffered loss as a result of an interruption to energy supply
• loss by reason of anti competitive behaviour including price fixing and market sharing arrangements.

‘The ease with which class actions can be commenced coupled with the flexibility of the class action procedure is likely to provide a platform for further class actions in Australia. The availability of third party financing to pursue a class action is also likely to ensure that class actions are an increasingly common feature of the litigation landscape in Australia.’

Initially class actions were funded primarily by the lawyers for the representative party. The usual features of these funding arrangements were:

• the representative party entered into a cost agreement with its lawyers. The terms of that cost agreement required no payment for services during the term of the class action. In effect, the lawyers acted without payment until the conclusion of the class action
• the lawyers seek to recover from the respondent part of their costs if the representative party succeeds
• the balance of the lawyer’s costs may be recovered by deducting them from an award of damages.

The lawyers also sought to enter into cost agreements directly with group members on whose behalf the proceeding was being pursued so that a group member’s individual claim could be assessed. 

In Australia there has been a rapid growth in the number of commercial funders of litigation. At least two funders are listed on the Australian Stock Exchange (IMF Australia Ltd and Hillcrest Litigation Services Ltd).

Although each funding arrangement is negotiated for each claim, in broad terms the litigation funders:

• agree to pay the legal costs of the funded party
• agree to provide any security required by reason of an order for security for costs
• take 25–40 per cent of the proceeds of litigation
• the funder agrees to pay any adverse costs order against the funded party during the period in which the funding agreement was on foot.

‘The class action procedure and a more liberal approach by the courts to litigation funding are seeing an increase in shareholder class actions.’

The development of class actions

There is likely to be continued growth in the number and size of class actions in Australia in the short to medium term. The areas where one might see some activity is shareholder class actions, cartels and other areas of focus of competition and prudential regulators.

‘The class action procedure provides a convenient way for a large number of people affected by anti-competitive conduct to seek recompense following an admission of guilt or a successful prosecution by the ACCC or other regulator.’

In this sense the possibility of a class action could be similar to civil sanction for any business found to have engaged in unlawful conduct.

Text on class actions

Despite these developments, there has been no Australian text on class actions. The purpose of the book is to state the law associated with the class actions procedures under Commonwealth and Victorian legislation. The text proceeds on the basis that there were policy considerations which supported the introduction of these provisions, that class actions are a feature of the litigation landscape in Australia and that the law associated with these proceedings should be exposed and analysed in a way which would be of assistance to all practitioners.

Damian Grave is a specialist commercial litigator who advises clients on a broad range of corporate, commercial and regulatory matters. His practice focuses on commercial dispute resolution providing advice to clients involved in complex commercial matters requiring strategic analysis.

Ken Adams is a specialist commercial litigator. Clients typically seek Ken’s assistance with complex problems requiring strategic and multidisciplinary analysis.

Together, they were involved in the defence of the Longford Class Action—the largest class action in Australian legal history.

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