Class actions have been a big deal in the U.S. for a long time now, but what is really interesting is that class actions (and other forms of collective action) are now becoming a big deal outside of the U.S. One place in particular where class actions have become a very big deal indeed is in Australia. As detailed in a recent study, class actions have in recent years become a well-established part of Australia’s litigation landscape. Recent judicial developments seem likely to make Australia an even more attractive jurisdiction for class action litigation.
Class action procedures were first introduced in Australia in March 1992. In the nearly 25 years since, class action litigation has become an important part of the litigation environment in Australia. A July 2016 report from Vince Morabita of Monash Business School presented a comprehensive overview of class action litigation in Australia. The report shows that during since class action procedures were first introduced, the number of class actions filed annually in Australia has increased; during the 24 years the class action regime has been in place, there were an average of 19.4 class actions filed each year, but in the last six years, that annual average figure has increased to 29.1.
Among other things, the report show how important litigation funding is now to the pursuit of class action litigation in Australia. In the last six years, 49.5% of class actions in Australia were funded by commercial litigation funders, compared to 23.4% in the prior six year period. The report also notes that while in the early days of class action litigation in Australia, product liability class actions predominated, in more recent years investor and securities class action lawsuits have become more prevalent. In the last twelve years, 52.4% of all class actions commenced in Federal Court involved claims by investors or shareholders. 76% of all class actions supported by litigation funders were brought on behalf of investors or shareholders.
All of these trends have been more pronounced in the most recent periods. As detailed in an August 26, 2016 report from the King & Wood Mallesons law firm entitled “The Review: Class Actions in Australia, 2015/2016” (here), there were a total of 35 new class actions commenced in Australia during the 2016 fiscal year (ending June 30, 2016), slightly down from the 40 new class actions commenced during the 2014/2015 fiscal year. Of the 35 new class actions during the 2015/2016 fiscal year, seven involved allegations of violations of continuous disclosure obligations or of misleading and deceptive conduct, compared with eleven during the 2014/2015 fiscal year. Sixteen of the 35 class actions filed in fiscal 2015/2016 (45.7%) were confirmed as having the support of litigation funders.
The likelihood is that these trends will continue in the months ahead, particularly with respect to the prevalence of litigation funding.
In October 2016, the Full Court of the Federal Court in Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Limited  FCAFC 148 for the first time approved an application to permit a class action. As discussed in an October 27, 2016 memo from the King & Wood Mallesons law firm (here), this court decision is “a game changer” in Australian class action litigation, paving the way for litigation funders in “open class” actions to obtain fees from class members without the need to enter into funding agreements. A copy of the Federal Court’s October 26, 2016 decision in the QBE case can be found here.
The common fund doctrine permits funders to spread the costs of pursuing a class action lawsuit across the entire class – and more importantly from the perspective of the funders, to draw a funding commission from every member of the group – whether or not the class member has signed a funding agreement. As a result, class actions will become financially and economically more attractive to litigation funders, because they can now draw a return from the entire open class, rather than just the smaller number of class members who signed the funding agreement.
The Full Federal Court’s decision in the QBE case is likely to result in “significant growth in domestic and foreign funders launching Australian class actions in 2017,” according to a December 12, 2016 memo from the Herbert Smith Freehills law firm entitled “Class Actions Set to Get Bigger and Cover New Ground in 2017” (here).
This predicted increase in litigation funding in Australia, along with a possible increase in the number of plaintiffs law firm, means that “class action promoters will be increasingly be searching for market share and new types of cases to expand their practice.” These trends, the law firm memo suggests, “will mean more actions against small to mid-cap listed companies (historically overlooked by larger funders and plaintiffs firms).”
The trends may also mean that funders will explore new types of class actions, such as pollution and environmental toxic tort claims, and more claims in the education, consumer and mining sectors. The law firm memo also suggests that these changes may in turn lead plaintiffs to “revive their calls for contingency fees to be permitted in class actions.”
Even before the recent judicial recognition of the common fund doctrine, Australia was already a particularly hospitable jurisdiction for litigation funders. With the “bonus” of the new recognition of common fund doctrine, Australia is now “the most attractive jurisdiction for class action funding in the world.” The memo speculates that under the circumstances there may be “fresh calls for stricter regulatory requirements for funders,” including a push for minimum requirements and increased restrictions on the level of control funders have over class actions and the size of the commissions they may charge.
In any event, all of this means, according to the law firm memo, that Australian businesses will face a heightened class action risk in 2017.