Reforming Australia’s litigation funding and class actions 05: the benefits of a nationally uniform class action system

The fifth instalment in our series on the report of the Parliamentary Joint Committee on Corporations and Financial Services on Litigation funding and the regulation of the class action industry considers the drive towards uniformity and clarity across the class action regimes in different Australian jurisdictions. National consistency should limit "forum shopping" and the allure of multiple or competing class actions.

National consistency of class action laws is addressed across the Committee's report; of particular relevance are the recommendations:

• for State and Territory Supreme Courts with class action procedures to adopt a protocol with the Federal Court like those which are already in place between the NSW Supreme Court and the Victorian Supreme Court (Recommendation 4);
• that Part IVA of the Federal Court Act be amended to introduce an express power to order class closure orders, modelled on section 33ZG of the Victorian Supreme Court Act (Recommendation 5);
• that the Corporations Act and ASIC Act be amended to confer exclusive jurisdiction on the Federal Court with respect to civil matters commenced as class actions under that legislation (Recommendation 30); and
• that, irrespective of whether any of the Committee's recommendations about the Federal Court class action regime are adopted, the Federal, State and Territory Governments work towards achieving consistency in class action regimes across jurisdictions (Recommendation 31).

A nationally uniform class action system?

It is common for Australian jurisdictions to have different laws regulating the same issues. There are many persuasive arguments in favour of a nationally consistent approach to class action procedure. They include:

• clarity for parties and courts about the rules applied to class actions;
• development of a consistent body of case law;
• equal access to justice for group members;
• a cheaper and more efficient class action system; and
• deterring forum shopping (ie. commencing proceedings in a Court to obtain real or perceived advantages afforded by local law and procedure).

Part IVA of the Federal Court Act 1976 (Cth), providing for class actions in the Federal Court, commenced in 1992. Australia has slowly been moving towards a uniform class action regime and some States have since adopted class action regimes modelled on Part IVA:

• Victoria in 2000;
• NSW in 2011;
• Queensland in 2017; and
• Tasmania in 2019.

Western Australia initiated consideration of a Part IVA-like regime in 2019, but has yet to implement such a change.

A particular issue may also arise because Federal legislation confers jurisdiction on State and Territory courts in respect of causes of action arising under Federal legislation, in turn permitting class actions to be commenced simultaneously in the Federal Court or one or more State or Territory courts. 

Two significant differences in Victoria regarding contingency fees and class closure orders may lead a plaintiff (or their lawyers or funders) to file proceedings in the Victorian Supreme Court, to take advantage of procedures not available in the Federal Court or another State Court, even though all Courts have jurisdiction to hear the issue.

Victoria – the place to be?

Class actions legislation in Victoria:

• expressly permits the representative plaintiffs' lawyers in a class action to bill for legal costs on a contingency fee basis, subject to the Court approving the arrangements (“group costs orders”);
• provides an express power to make a class closure order; and
• permits orders concerning group membership to be made “at any time”.

These features of Victorian class actions law are not found in the Federal or other State or Territory jurisdictions of Australia and may incentivise a plaintiff law firm to commence a claim in the Victorian Supreme Court where the Federal Court or another jurisdiction may be equally or more appropriate.

Contingency fees are charged to clients when a class action is successful and are calculated as a percentage of the money recovered from the defendant(s). Contingency fees are prohibited in each State and Territory other than Victoria, where they were introduced in 2020 for class actions (section 33ZDA of the Supreme Court Act 1986 (Vic)). The charging of contingency fee arrangements is therefore controversial.

An express power for the making of class closure orders is only found in Victoria's statute (section 33ZG of the Supreme Court Act). The provision specifies that an order made under section 33ZF (the Court's general power to make orders it thinks "appropriate or necessary to ensure that justice is done in the proceeding") may set out a step that a group member must take in order to be entitled to relief, payment or other benefit from the proceeding, and specify the date by which the step must be taken. If the step is not taken, a group member may not be entitled to relief in the proceeding.

Such orders are described colloquially as "class closure" orders, and two forms of order have been made in class action proceedings: 

• “soft closure”: if group members fail to register prior to mediation and the proceeding settles they cannot take part in the settlement and their claim will be barred. If a settlement is not reached the class action continues as before and the rights of unregistered group members are unchanged; or
• “hard closure”: group members who fail to register prior to mediation cannot share in any future settlement or judgment and their claim is barred. In other words, unregistered group members lose their rights against the defendant.

Before the recent NSW Court of Appeal decision in Haselhurst v Toyota Motor Corporation Australia Ltd [2020] NSWCA 66, it was understood that Part IVA and analogous regimes included a power to make a class closure order found within the Court’s general power to “make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding” (section 33ZF of the Federal Court Act and section 183 of the Civil Procedure Act 2005 (NSW)). Both plaintiff and defendant lawyers had thought there was utility in a mechanism which allowed soft class closure before beginning settlement negotiations to assist the parties to assess the potential scope of liability.

However, the Court of Appeal upset this understanding and declined to follow decisions of the Full Court of the Federal Court to the contrary.

The decision in Haselhurst does not preclude a class closure order being made as part of a settlement scheme to resolve a class action (under section 33V of the Federal Court Act and section 173 of the Civil Procedure Act). Haselhurst considered the Court's power (in the absence of a specific power such as section 33ZG of the Supreme Court Act) to make such orders at an earlier point in proceedings.

A further distinction between Part IVA and the Supreme Court Act was not considered by the Committee: section 33KA of the Supreme Court Act permits orders concerning group membership “at any time, whether before or after judgment”. Justice Lee recently observed in Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 4) [2021] FCA 459 that this provision was “curious”. We consider its existence may provide a further incentive for forum shopping in the Victorian Supreme Court, such as by creating the potential for last minute increases in the number of group members.

What did the Committee say?

While the focus of the Committee's report is the Federal Court class action regime, the Committee observed (in Chapter 18 of its report) that:

• several issues raised during the inquiry are understood to be an adverse consequence of Australia's multiple class action regimes (eg. competing class actions and "forum shopping"); and
• if some of the Committee's recommendations are adopted into the Federal Court Act, this may introduce further inconsistency across the FFederal, State and Territory regimes.

The Committee acknowledged the intention that Australian class action regimes should be nationally consistent and that, irrespective of the approach taken to the Committee's recommendations, Federal, State and Territory Governments should work towards achieving this national consistency across jurisdictions (Recommendation 31).

More specifically:

• “on balance” the Committee considered that the benefits of contingency fees were outweighed by the risks, including the conflict of interest between lawyers’ duties to their clients and the Court and the potential windfall profits to plaintiff law firms. We will address the Committee's recommendations about contingency fees in a future article; and
• in relation to class closure orders, the Committee stated that these are “critical” to developing settlement proposals and an express power for the Federal Court to make these orders would provide clarity and avoid “increased delay, costs and procedural contents”.

In addition, the Committee recommended a protocol should be developed between each State and Territory Supreme Court, and the Federal Court, for communication and cooperation in class action proceedings, like those already adopted by the NSW and Victorian Supreme Courts, respectively.

The Committee also highlighted concerns about an increase in shareholder class actions, particularly in 2017 and 2018. It recommended, as did the ALRC in 2018, that the Corporations Act 2001 (Cth) and the Australian Securities and Investments Act 2001 (Cth) be amended to give the Federal Court exclusive jurisdiction over civil matters arising under those Acts commenced as class actions. The Committee considered this would avoid the adverse consequences noted above and take advantage of the Federal Court’s expertise adjudicating class actions of this type. 

Moving to national consistency in class actions

Steps down the path to increased national consistency of class action legislation across Australian jurisdictions are positive, as are any reforms designed to enhance access to justice, reduce the costs of proceedings and promote efficiency in the use of Court resources. 

Further reform (not specifically addressed in the Committee's report) may also be considered, to ensure that class action procedures cannot be side-stepped where they may be the most appropriate and efficient procedure for managing matters involving seven or more plaintiffs with substantially the same claim against one or more common defendants.

The Federal class action regime has changed little since 1992 so it is to be hoped that the Committee's recommendations renew the impetus for reform. In the meantime, we expect that there will be further developments in the courts as the Federal Court in particular considers over the proper approach to class closure orders, having regard to the NSW Court of Appeal's judgment in Haselhurst. We will keep you updated as new decisions emerge.

Related Insights

• Reforming Australia's litigation funding and class actions 04: managing conflicts of interest
• Reforming Australia's litigation funding and class actions 03: continuous disclosure laws
• Reforming Australia's litigation funding and class actions 02: increased regulation of litigation funding
• Reforming Australia's litigation funding and class actions 01: multiple and competing class actions