Do I have to defend all of these? What happens when a company faces multiple shareholder class actions

Shareholder class actions commenced against the same defendant in relation to the same conduct are on the rise. With multiple proceedings, a defendant may:

• need to respond to different case theories proposed by different plaintiffs;
• need to deal with different expert evidence proposed by different plaintiffs;
• find it more difficult to negotiate an overall settlement with multiple plaintiffs; and
• be exposed to multiple adverse costs orders if they are unsuccessful.

Clearly, a defendant company would prefer to face only one proceeding instead of multiple proceedings. So how do the courts deal with multiple shareholder class actions?

Three recent decisions give some guidance. These are the decision of the Full Federal Court in Perera v Getswift [2018] FCAFC 202 (Getswift) and the two decisions of the Federal Court in Impiombato v BHP Billiton Limited [2018] FCA 2045 (Impiombato) and McKay Super Solutions Pty Ltd (Trustee) v Bellamy's Australia Ltd [2017] FCA 947 (McKay). The good news for defendant companies is that they show that the courts are willing to permanently stay all but one of the proceedings and if the court does allow multiple proceedings to continue, it is willing to take measures to reduce the costs and inconvenience of this for the defendant.

But before we look at these, it is useful to clarify some of the terms commonly used in shareholder class actions.

Open or closed class action?

A "closed" class action is when the lead plaintiff only brings the claim on behalf of persons who have signed:

• a retainer agreement with the solicitors acting for the lead plaintiff; and
• a funding agreement with the litigation funder who is financing the class action.

If someone hasn't signed these two agreements, they are not part of the class and will not receive any proceeds from a settlement or judgment.

By contrast, an "open" class action is when the lead plaintiff brings the claim on behalf of persons, who have not signed these two agreements, as well as those who have. Some open class actions have many class members who have signed these two agreements. For example, in Impiombato, one of the open class actions had 29,610 people signed up.^[1]

How does a court deal with multiple shareholder class actions?

How a court addresses multiple shareholder class actions depends on the circumstances of the case, including whether the proceedings are open or closed and the number of class members who have signed a retainer agreement with the lead plaintiff's solicitors and a funding agreement with their litigation funder. In Getswift, the Full Federal Court said "There cannot be a 'one size fits all' and different judges will take a different view of some of the incommensurable and conflicting considerations that may arise."^[2]

Three open class actions, two different results

In both Getswift and Impiombato, the court was faced with three open shareholder class actions. In Getswift, only one proceeding was permitted to continue, thus sparing the defendant from defending multiple proceedings where essentially the same claims were being made.

By contrast, in Impiombato, one proceeding was permanently stayed, one was temporarily stayed and another was allowed to continue. The proceeding that was temporarily stayed had a slightly broader claim than the one which was allowed to continue. This increased breadth potentially allowed more people to share in the proceeds of any judgment or settlement. Justice Moshinsky temporarily stayed that proceeding to give the lead plaintiff for the proceeding, which was allowed to continue, time to consider whether to expand his claim so that it had the same breadth. In September 2019, his Honour will consider whether to make the temporary stay permanent. This is likely to depend on whether the lead plaintiff in the continuing proceeding decides to expand his claim.^[3]

Two competing open class actions

In McKay, the court was faced with two open shareholder class actions where a large number of group members (1,008 and 1,586, respectively) had signed retainer agreements and funding agreements. Justice Beach did not wish to allow both proceedings to progress as open class actions because this would result in each plaintiff purporting to represent the same class members (ie. all of those class members who had not signed retainer agreements and funding agreements).

His Honour decided to allow one proceeding to continue on an open basis and the other to continue as only representing the 1,008 class members who had signed a retainer agreement and funding agreement. The lead plaintiff in the open proceeding did not represent those 1,008 class members. Justice Beach placed significant emphasis on the fact that entirely stopping one proceeding would frustrate the decision of 1,008 or 1,586 class members to choose a particular firm of solicitors and litigation funder.^[4] His Honour preferred an approach which avoided this outcome while also avoiding a situation where each lead plaintiff purported to represent the same class members. Although the respondent was still required to face two proceedings, Justice Beach indicated that he was likely to make further orders to reduce the costs and inconvenience to the defendant of this.^[5] These orders might include:

• having only one set of barristers between the two lead plaintiffs rather than one set each; and
• if the defendant is unsuccessful in both proceedings, making costs orders against the defendant that have the same effect as defending only one proceeding.^[6]

At the time of writing, these orders had not yet been made.

Multiple proceedings may be unavoidable

It is important to note that even if a defendant is defending only one shareholder class action, it may be required to defend other proceedings concerning the same subject matter brought by individual plaintiffs (ie. plaintiffs not representing a class) who opt out of the class action. The legislative regime for class actions allows class members to opt out and bring a claim on their own behalf. In this way, the regime contemplates a multiplicity of proceedings.^[7] However, the likelihood of a class member "going it alone" without the backing of a litigation funder and having to pay all of the costs of their solicitors upfront (instead of paying a portion of those costs along with other class members and then only if they are successful) is low when they could access the greater efficiencies of being part of a class.^[8] Still, it may be an appealing option for a well-resourced party with a very large claim.

What if the lead plaintiffs agree to get together?

It is worth noting that if a defendant is faced with multiple shareholder class actions, the lead plaintiffs may agree to consolidate the multiple proceedings into one. If that happened, the defendant would be relieved of the burden of facing multiple proceedings without any argument. This happened in the current shareholder class action against the now-defunct training provider, Vocation Limited. However, this option would be difficult to implement without the agreement of the lead plaintiffs, which may not be forthcoming.^[9]

If I lose, do I have to pay the costs of all the proceedings brought against me?

As noted above, in McKay, Justice Beach indicated that he may consider making orders that have the effect that the defendant only pays the costs of one proceeding if the defendant happens to be unsuccessful in defending the two proceedings. At the time of writing, Justice Beach had not yet decided whether to make these orders. This is an important issue for a defendant defending multiple shareholder class actions. A defendant could quite fairly say, "Why should I pay the costs of multiple proceedings that are all alleging the same thing?" while a lead plaintiff could quite fairly say, "Why should I be denied my legal costs when the legislative regime contemplates multiple proceedings and I should be allowed to choose my own legal team?" We'll explore this issue when Justice Beach makes his decision.

Some comfort for defendants

In summary, the courts are aware of the difficulties that defending multiple shareholder class actions can present to a defendant^[10] and are willing to take steps to alleviate these, including by stopping all proceedings except for one. This is some comfort to publicly-listed companies. That said, what course a court will take will very much depend on the circumstances of the case.   These include whether the proceedings are open or closed and the number of class members who have signed a retainer agreement with the lead plaintiff's solicitors and a funding agreement with their litigation funder.