|
Article Excerpt
[Class actions were introduced in Australia over 1.5 years ago and, despite their initially slow uptake, are now well entrenched. In many respects, Australian class action procedure is more 'plaintiff-friendly' than its United States counterpart, such that Australia has become the next most likely place after North America where a corporation will find itself defending a class action. However, it has been suggested by commentators that current Australian practice and procedure are hampering the healthy development of class actions, as well as limiting their use, and should thus be reformed. The authors believe that many of the proposed changes run counter to the legislative aims of class action procedure and would remove the remaining safeguards that presently operate to limit the prosecution of claims inappropriately brought in the form of a class action. This article provides a detailed analysis of the most significant proposals for change and why many of them should be rejected.]
CONTENTS I Introduction II Australian Class Action Procedure A Overview of Class Action Procedure 1 Federal and State Class Action Procedures 2 Use of Class Action Procedure B History and Aims of Class Action Procedure 1 Legislative Background 2 Aims of Class Action Procedure III Proposals for Change A Opt In Class Actions B Reduction of Interlocutory Applications Including Removal of the Termination Power C Cy-Pres Damages D Costs and Funding 1 Changes to Costs Rules 2 Security for Costs 3 Third Party Funding (a) Commercial Litigation Funding and Contingency Fees for Lawyers (b) Uplift Fees for Lawyers (c) Establishment of a 'Justice Fund' E Claims against Multiple Respondents F Communications with Group Members 1 Opt Out Notice 2 Other Communications with Group Members IV Response to Proposed Changes A Opt In Class Actions B Reduction of Interlocutory Applications Including Removal of the Termination Power C Cy-Pres Damages D Costs and Funding 1 Changes to Costs Rules 2 Security for Costs 3 Third Party Funding (a) The ALRC's Proposals (b) Commercial Litigation Funding and Contingency Fees for Lawyers (c) Uplift Fees for Lawyers (d) Establishment of a 'Justice Fund' E Claims against Multiple Respondents F Communications with Group Members 1 Opt Out Notice 2 Other Communications with Group Members V Is There a Need to Change Class Action Procedure?
1 INTRODUCTION
The birth of Australia's class action system was both slow and controversial. First proposed in the late 1970s, it was not until 1992 that the Federal Court of Australia Act 1976 (Cth) ('FCA Act') was amended to introduce representative proceedings, (1) more commonly known as 'class actions'.
The introduction of the class action procedure was opposed by the business community, which feared that it heralded the emergence of lawyer-driven, United States-style litigation in Australia. These fears were acknowledged by the Australian Law Reform Commission ('ALRC') in its report which recommended the introduction of the class action procedure ('Grouped Proceedings Report'). (2) The proponents of the new regime sought to address these concerns by pointing to a series of safeguards in the legislation which they argued would differentiate it from the US regime and ensure that the changes would not lead to unmeritorious claims. Specifically, they pointed to the exposure of the representative applicant to adverse costs orders; the court's existing power to dismiss proceedings that are frivolous, vexatious or an abuse of process; and the introduction of a further power of the court to dismiss proceedings which are inappropriate to proceed as class actions. (3)
While plaintiffs were, at least initially, slow to adopt the new procedure, class actions are now a prominent feature of both the Australian legal landscape and the Australian psyche. Indeed, it is now said that Australia is the place outside North America where a corporation will most likely find itself defending a class action. (4) This is not surprising as the Australian class action system is more plaintiff-friendly than that in the US. First, there is no initial certification procedure that requires the court to be satisfied that the proceedings are appropriately brought in class form. (5) Secondly, there is no requirement that the common issues among group members predominate over the individual issues. (6) And, thirdly, the Australian rules, unlike those in the US, expressly allow for the determination of 'subgroup' or even individual issues as part of a class action. (7)
It is therefore surprising that we have seen the emergence of what some might see as a coordinated campaign to 'reform' Australian class action procedure. Specifically, a number of commentators, including those associated with some of the more prominent plaintiff law firms, have suggested that current class action practice and procedure are unnecessarily 'hamper[ing] the healthy development' (8) of class actions and limiting their use. Similar calls for reform have also been expressed by other commentators. (9)
This has coincided with the Victorian government's appointment of Dr Peter Cashman, himself the founding partner of a leading plaintiff law firm often involved in class actions, to lead the Victorian Law Reform Commission's ('VLRC') review of that state's civil litigation system, including its class action procedure. In its final report published in May 2008 (' VLRC Final Report'), the VLRC echoed the complaints of plaintiff lawyers and proposed similar changes to Victoria's class actions procedure. (10) These proposals have been criticised as 'read[ing] like a wish list for plaintiff lawyers' (11) and on the basis that they 'would make Victoria a veritable nirvana for plaintiff lawyers' (12)--indeed, Dr Cashman has agreed that the proposed changes would attract class actions to the state. (13)
In the authors' view, the proposed changes run counter to the legislative aims of the class action procedure and would sweep away the remaining safeguards that presently operate to limit the prosecution of class actions that involve de minimis or unmeritorious claims. Accordingly, this article responds to these and other proposals for changes to Australia's class action systems. In so doing, it accepts the express invitation extended by Bernard Murphy and Camille Cameron in a recent article published in this Review to engage in the 'debate about the health of Australian class action regimes and about reform priorities.' (14)
First, Part II of this article gives an overview of the federal and Victorian class action procedures, and explains the history and objectives of the class action systems in Australia. Part II! then aims to describe the most significant proposals for change that have been put forward, such as the move towards an 'opt in' class action system, the removal of the court's termination power and changes to the costs rules. The authors respond to these proposals for reform in Part IV. Finally, the authors conclude in Part V that Australia already has a plaintiff-friendly class action system that--supplemented by a growing litigation funding industry--ensures that class actions with merit have their fair hearing in court. Thus, many of the reform proposals would in fact undermine the original objectives of introducing the class action procedure, primarily, promoting access to justice while maintaining appropriate safeguards against abuse of the class action procedure.
The authors are commercial litigators who have acted for respondents in numerous class actions, including a number that have helped shape Australia's class action jurisprudence. That experience has, undoubtedly, played a role in informing their perspective. That said, they believe that class actions play a vital role in the civil justice system, particularly in terms of ensuring access to justice. Absent a class action regime, many applicants would be denied such access, either because they lack the resources to pursue the claim or because their cause of action is simply unviable in isolation. The authors submit that their views represent a fair balance between the competing interests of applicants, respondents and the community at large. Accordingly, the views expressed in this article are not simply a reflection of the views of the business community--indeed, some of the authors' views would be anathema to that constituency. (15)
II AUSTRALIAN CLASS ACTION PROCEDURE
The proposed reforms are said to be necessary to better achieve the aims of Australian class action procedure. In order to assess the accuracy of this assertion, this Part tracks the historical development of the procedure and considers its legislative aims.
A Overview of Class Action Procedure
1 Federal and State Class Action Procedures
Class actions were introduced into the Federal Court of Australia in early 1992 with the insertion of Part IVA (ss 33A-33ZJ) into the FCA Act ('Part IVA'). (16)
Victoria also has a class action procedure which has been in effect since 1 January 2000 (17) and which is virtually identical to that of the Federal Court. This procedure is found in Part 4A of the Supreme Court Act 1986 (Vic) ('VSC Act Part 4A') (18) and, with minor exceptions, adopts the same section numbers as its federal equivalent. The main features of these procedures are summarised by the authors elsewhere. (19)
Part 4A refers to class actions as 'group proceedings' while the federal provisions in Part IVA refer to 'representative proceedings'. For the sake of simplicity, the authors refer collectively to both as 'class actions' and otherwise adopt the terminology in Part IVA. (20) However, the discussion and analysis applies equally to both procedures. Section numbers in the body of this article refer both to the FCA Act and VSC Act, unless provisions differ between the two Acts.
2 Use of Class Action Procedure
Despite the plaintiff-friendly nature of the Australian procedure and its survival through early constitutional challenges, (21) it is generally agreed that there was no initial flood of litigation following the introduction of class actions in 1992. According to the ALRC, at least up until 2000,
[t]here ha[d] been no flood of class action litigation. Instead there ha[d] been a gradual adoption of the procedure in many appropriate cases with more than adequate restraint and control being exercised by the Court as Judges and the profession [sought] to come to grips with [the] procedure ... (22)
Since that time, however, there has been a significant increase in the overall number of class actions in Australia, most recently in securities class actions. (23) The factors driving the initial slow start and recent significant increase in Australian class actions have been considered by the authors elsewhere. (24)
B History and Aims of Class Action Procedure
1 Legislative Background
Australian class action procedure had a very long gestation period. The Commonwealth Attorney-General first referred the question of class action reform to the ALRC in February 1977, (25) but it took a further 12 years for the ALRC's report, which formed the basis for Part IVA, to be tabled in Parliament. (26) It took another three years for Part IVA to come into force (in March 1992) in the face of continued and strident opposition from some who had hoped that the procedure would be 'stillborn'. (27)
To complicate matters further, in enacting Part IVA the legislature departed from some of the ALRC's proposals, either by rejecting a particular proposal or, while agreeing with a proposal, by enacting a differently worded provision. (28) Nonetheless, as observed by the Full Federal Court, despite Part IVA not following
precisely the recommendations of the [ALRC] in [the Grouped Proceedings Report, nevertheless it] ... follows reasonably closely the substance of the [ALRC's] proposals concerning procedural requirements for representative proceedings.... For this reason, the [ALRC's] analysis sheds light on the objectives underlying key provisions now contained in Pt IVA. (29)
Thus, in assessing whether the changes suggested by plaintiff lawyers would better achieve the objectives of Part IVA, the authors refer to the recommendations made in the Grouped Proceedings Report, while being careful to highlight aspects which were not adopted in Part IVA. It is important to note here that, with respect to those aligned with the interests of class action plaintiffs generally--and who in the main part are advocating change--the authors refer to them as 'plaintiff lawyers' for the sake of simplicity.
2 Aims of Class Action Procedure
As is evident from the following (oft-cited) passage from the second reading speech for the Bill that introduced Part IVA, (30) the primary aims of the class action procedure are to promote access to justice and the efficient use of court resources: (31)
The Bill gives the Federal Court an efficient and effective procedure to deal with multiple claims. Such a procedure is needed for two purposes. The first is to provide a real remedy where, although many people are affected and the total amount at issue is significant, each person's loss is small and not economically viable to recover in individual actions [cases which the ALRC had labelled as 'individually non-recoverable' (32)].... The second purpose of the Bill is to deal efficiently with the situation where the damages sought by each claimant are large enough to justify individual actions and a large number of persons wish to sue the respondent [labelled 'individually recoverable' cases by the ALRC (33)]. The new procedure will mean that groups of persons ... will be able to obtain redress and do so more cheaply and efficiently than would be the case with individual actions.
However, what is often overlooked is that the federal government also emphasised the importance of including in the procedure various safeguards against the abuse of class actions, as recommended in the Grouped Proceedings Report, to allay the concerns of the Australian business community. (34) Indeed, many of the plaintiff-friendly features of the class action procedure mentioned earlier were justified by the ALRC on the basis that there were adequate safeguards in place to prevent abuse of the procedure. For example, the absence of a certification requirement was justified by the availability of other so-called 'safeguards', primarily the respondent's right pursuant to s 33N(1) to challenge the validity of the class action at any time. (35) The ALRC was at pains to emphasise that its recommended procedure 'advance[d] the objectives of access to the courts and judicial economy, while providing safeguards against possible abuse', (36) and that it 'balance[d] the interests of all parties'. (37)
Another frequently ignored aspect of the ALRC's recommendations is that, while the class action procedure was intended, inter alia, to facilitate the pursuit of 'economically non-recoverable' claims, it was never intended to extend to so-called 'non-viable' claims, (38) that is,
claims which are so small that ... the costs of recovery will exceed the total benefits of litigating.... The objective of new procedures should be to reduce the costs of litigation where it is necessary and worthwhile in the interests of justice, not to encourage abuse or the pursuit of the trivial. (39)
The details of these safeguards are discussed in Part IV of this article, as and where relevant to the authors' consideration of the proposed class action reforms summarised in the next Part.
III PROPOSALS FOR CHANGE
There have been numerous calls for change to various aspects of the class action procedure, and the authors appreciate that there are different views among plaintiff lawyers regarding the procedure's operation in Australia. Accordingly, this Part of the article focuses on and endeavours to summarise the most significant proposals for change.
A Opt In Class Actions
The 'opt out' provision is one of the cornerstones of the Australian class action system. It is important to understand that there is no requirement that a group member consent to their inclusion in the group. (40) Rather, everyone who falls within the group description is part of the group--and is bound by the outcome of the proceedings--unless and until they take steps to 'opt out'. (41)
It has now been suggested that this fundamental principle be reversed by legislation such that the represented group comprise only those who have consented to the conduct of proceedings on their behalf (that is, an 'opt in' system). (42) This follows recent attempts by litigation funders and plaintiff lawyers to limit or close the class in this way so as to exclude the so-called 'free-riders', that is, group members who do not retain the representative applicant's lawyer or who do not enter into an agreement with a litigation funder.
There have been conflicting decisions in both the Federal Court and the Supreme Court of Victoria as to whether a class action may properly be brought on behalf of a subgroup of potential applicants, specifically those who have entered into a litigation funding arrangement and/or those represented by a particular firm of solicitors. (43) This issue has recently been described as the principal source of dissatisfaction among plaintiff lawyers and litigation funders. (44)
It is clear from the legislation that a class action may be commenced by one or more group members on behalf of only some of them; (45) and there is nothing in the procedure which restricts the characteristics by reference to which people may be omitted from the group.
Despite initial conflict among first instance decisions, (46) the Full Federal Court has recently held that:
* it is not permissible to define the group as including only clients of one law firm (or presumably also those who retain a particular litigation funder) where the group members retain that law firm (or funder) after commencement of the class action, as this effectively requires potential group members to 'opt in' to the proceeding; (47) but
* it is permissible to restrict the group to those who enter a funding arrangement with a particular litigation funder (and/or those represented by a particular firm of solicitors) prior to commencement of proceedings, as this does not offend the 'opt out' nature of Part IVA. (48)
However, the Full Federal Court, while acknowledging that s 33C expressly allows class actions to be brought for subsets of applicants, conceded that '[i]t is difficult to see how [such limited groups] can be reconciled with the goals of enhancing access to justice and judicial efficiency in the form of a common binding decision for the benefit of all aggrieved persons.' (49)
B Reduction of Interlocutory Applications Including Removal of the Termination Power
Once commenced, a class action will continue unless and until the court orders that the proceedings be discontinued in class form. Such an order may be made pursuant to an application brought by the respondent or of the court's own motion, usually pursuant to s 33N(I), which grants the court power to order the discontinuance of a class action where:
(a) the cost of the class action would be excessive having regard to the costs which would be incurred if each group member conducted a separate proceeding;
(b) the relief sought can be obtained by means of a proceeding other than a class action;
(c) a class action would not provide an efficient and effective means of dealing with the claims of group members; or
(d) it is otherwise inappropriate for the proceedings to continue as a class action. (50)
A class action may also be struck out if the applicant fails to properly plead its claim. (51) The requirement that applicants properly plead their case has created both difficulties for applicants and opportunities for respondents in class action proceedings. While it is relatively easy to satisfy the pleading requirements in relation to a single-event tort affecting many people--for example, an aeroplane crash--it can be extremely difficult where the group members wish to rely on facts separated in time or geography or other circumstances where there are numerous individual issues in dispute. A classic example is a case based upon representations allegedly made by the respondent to group members, often at different times and by different means or individuals.
This has led to a number of class actions being struck out on the ground that the pleadings did not disclose the basis of the group members' case but were merely a smorgasbord of the possible combinations and permutations of claims which may apply to the applicant or any other group member, but in fact applied to none. (52) Where a proceeding is based on separate representations made to group members at different times in different words, the pleadings must demonstrate that the representations were, in substance and effect, the same to each group member, or else they will be struck out. (53)
In most instances, the court will grant the representative applicant leave to re-plead. (54) However, this will not always be the case. In a class action commenced against several major Australian manufacturers and distributors of tobacco products, the Full Federal Court not only struck out the statement of claim (the applicant had had several attempts already) but also refused leave to replead on the basis that, no matter what amendments might be made to the pleading, the proceedings could not possibly be brought as a class action. (55) Accordingly, although defects in pleadings might be cured by amendment, there is a substantive threshold which some Australian applicants have been unable or unwilling to cross.
Those acting for applicants have criticised respondents for being quick to bring applications to strike out class actions relying on these bases, in particular pursuant to s 33N. They describe this as 'satellite litigation' (56) and suggest that it is part of respondents' 'tactical delay and attrition' (57) and is 'antithetical to the aims of class action legislation, reducing efficiency, increasing expense and adding considerable complexity to proceedings.' (58)
Some plaintiff lawyers have gone as far as to propose the blanket removal of the termination power, particularly on the grounds contained in ss 33N(1)(c) and (d), which they argue provide 'too wide' a power of termination. (59) At the very least, they advocate that the termination powers 'ought to be very limited.' (60)
C Cy-Pres Damages
One of the worst features of the US class action system is the so-called 'coupon' class action. These are class actions that are commenced in circumstances where the alleged loss is so small that damages cannot be economically distributed to class members. Rather, when the case is settled (as it usually is), the class members receive a coupon or other token consideration while the class lawyers get paid their fees. (61) When class actions were first mooted in Australia, their proponents argued that the proposed rules would prevent this occurring here.
It has now been suggested that the court ought to be given the power to order cy-pres or 'public interest' distribution of damages in class actions where group members otherwise entitled to damages cannot be identified or where identification and proof of entitlement are not practicable or cost-effective. (62) The proposed form of cy-pres distribution of damages is 'price rollback'--a reduction in the cost of the respondent's goods or services--and/or distribution to nominated organisations whose interests are said to be aligned with those of group members. (63)
The most detailed proposal for the introduction of cy-pres damages is found in the VLRC Final Report, in which the VLRC recommended that the court have discretion to order these remedies where the following conditions have been met:
* where there has been a proven contravention of the law;
* the contravening party has accrued some pecuniary advantage as a result;
* the loss suffered by others or the pecuniary advantage gained is capable of reasonably accurate assessment; and
* it is not practicable to identify some or all of those who have suffered loss. (64)
The VLRC Final Report recommended that the court's discretion to award cy-pres type remedies be unfettered, specifically recommending that the power to order such remedies should:
* include the ability to order payment into a proposed new litigation funding mechanism entitled the 'Justice Fund' (the reasoning for which is discussed in Part III(D)(3)(c));
* not be limited to distribution of money only for the benefit of group members or those who fall within the general characteristics of...
|
