Implications of this week’s Full Federal Court ruling on competing class actions
The Full Court of the Federal Court of Australia confirmed this week that only one of three competing class actions against GetSwift Limited1 may proceed. Middleton, Murphy and Beach JJ dismissed appeals by representatives of the other two shareholder class actions.
All three actions against GetSwift had been commenced as ‘open’ class actions with the intention of applying for a common fund order. Each of the representative parties in the three actions had agreed before the primary judge at first instance (Lee J) that only one open class action should proceed.
No enshrined notion that that the respondent would only face one proceeding
The Full Court recognized, as a starting premise, that Part IVA of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) does not enshrine the notion that a respondent may only face one class action. The Court said that: “The provisions of Part IVA expressly recognize that a respondent might face multiple actions and necessarily incur duplicated costs, and even two class actions against a respondent may constitute a costs saving compared with the costs in multiple individual proceedings in different jurisdictions.”
Options for dealing with competing class actions
The Full Court considered the various options available, including:
- Consolidating the proceedings (although no agreement had been reached between the parties to consolidate the actions).
- Making what is known as a declassing order, under section 33N(1) of the Federal Court Act.
- Allowing all three actions to proceed and take a ‘wait and see’ approach.
- Leaving one class open and closing the remaining actions (the position taken in the Bellamy’s class action2).
- A permanent stay of one or more of the proceedings (the option adopted by Lee J).
Permanent stay of proceedings
The Full Court said that multiple proceedings, and overlap between them, can generally be dealt with by case management. Nevertheless, given risks (such as increased legal costs defending multiple actions), the Court has power to permanently stay competing class actions. There are several sources of this power, including the Court’s inherent power, or its express and implied powers to manage cases in the interests of justice and the parties, or in its equitable jurisdiction.
The Full Court concluded that, although there was no abuse of process in these circumstances, Lee J had not made any error in his exercise of discretion in deciding to permanently stay two of the proceedings and it would have made the same decision.
Selection process - no ‘one size fits all’
The Full Court said that the primary judge had taken into account all the circumstances of the case. These included the position with respect to each of the three open class actions (for example, the proposed funding structures in each action), the relevant interests of justice, the interests of the respondents having to deal with multiple class actions over the same matter, the interests of the applicants and group members (including the position of many of them as continuing shareholders in GetSwift), and the broader interests of ensuring that class actions are run expeditiously and in a cost efficient manner.
The Court emphasized there is no one correct answer to the case management questions that arise with competing class actions. There cannot be a ‘one size fits all’ and different judges will take a different view of the conflicting considerations that may arise.
The Full Court noted that two recent class actions3, in which competing actions were allowed to proceed, were within the proper exercise of the Court’s discretion to case manage competing actions. An important distinguishing feature in one of those proceedings, Bellamys,4 was that the applicants had proposed, as a fall back position, proceeding on a closed class basis.
Relevance of signed funding agreements
The Full Court acknowledged that the number of group members who signed up to a funding agreement with a funder could be relevant to determining the appropriate option to adopt. Indeed, in the Bellamy's class action, it was a significant factor in the Court deciding not to stay either class action but to order one to be closed and the other to be open.
Nevertheless, the Full Court was critical of the funders in GetSwift for seeking to sign up as many group members as they could whilst the intention was to seek a common fund order.
How should Courts choose one competing class action over another?
The Full Court said that each of the various options for competing actions has problems. There is no ‘silver bullet’ solution. Undertaking a selection process, like that used in the GetSwift proceedings, may give rise to problems and the Court needs to be astute to avoid them where possible.
The Full Court gave some guidance on the most important considerations in a selection process, including:
- Leveling the playing field: Lower costs and funding charges is not the decisive consideration. As desirable as lower costs and funding charges are, one of the real benefits of litigation funding has been “the leveling of the playing field for claimants engaged in expensive class action litigation against large, well-resourced and determined respondents” (as Lee J had also recognized). The Court should not give an undue focus to lower costs and funding charges as doing so is likely to promote a “rush to the bottom” by funders and solicitors keen to win the tender.
- Best outcome for group members: There is a good level of Court supervision of costs and funding charges already available through the settlement approval process. Given that protection, the Court should focus on selecting the proceeding with a funding and costs model “likely to best motivate the applicant’s solicitor and funder to work assiduously to achieve the best outcome for the applicant and group members and to take responsible risks in that regard”. This may not be the lowest possible costs and funding charges.
- Experienced and capable legal team: The single most important determinant of the net recovery achieved by group members is not the quantum of legal costs but the amount of the settlement or judgment achieved. Where the settlement or judgment is large, the legal costs are usually not material to net recovery. Therefore, the Court should select the proceeding with the legal team that is most likely to achieve the largest settlement or judgment.
The Full Court was concerned to strongly discourage a rush to the Court (implicitly endorsing the proposition that first to file will be given no weight in any selection process). It proposed the possibility of a standstill period upon the filing of the first proceeding during which any sign up to funding agreements would be given no weight.
IMF Bentham’s position – relevance of funding agreement sign up and flexibility for open or closed class actions
The Full Court’s decision has provided clarity on the Court’s power to permanently stay competing class actions and some useful guidance for Courts conducting a selection process between competing actions. The Australian Law Reform Commission (ALRC) is also due to deliver its final report on the class action system and third-party litigation funders to the Attorney General on 21 December 2018. The report is likely to be published early next year.
One of the proposals that the ALRC has indicated it may recommend to the government is that all future class actions be open class actions, whereby a class action must include everyone affected, and that any competing class actions be subject to consolidation or be stayed. This would remove the ability of a claimant to choose to represent some, and not all, affected persons and reduces flexibility.
IMF Bentham has submitted to the ALRC that the flexibility of the current system should be retained, whereby a class action can be commenced on either an open or closed basis. Enabling a closed class (for example, restricted to those who sign a funding agreement) may have significant advantages, including providing the funder and lawyers an opportunity to ascertain the level of interest of group members in pursing the claims and accordingly the utility of doing so, before significant costs are incurred.
IMF Bentham disagrees that seeking sign up to funding agreements serves no useful purpose, when a common fund order is being sought. We believe it has several benefits:
- It can provide an indication of the level of interest of group members in pursuing the claim. (This is consistent with the overarching purpose of not using the Court’s time to achieve an outcome that group members are not interested in participating in.) It provides the funder with a level of comfort that there is a base level of recoveries from which it can receive its fee if the case is successful.
- It provides the group members with an avenue to express their preference for a particular funder and or lawyer or case theory. Given the costs of a carriage motion, if there is enough sign up to funding agreements, it leaves open the option of proceeding on a closed class basis only.
- It enables information about the claims to be gathered upfront, which information would need to be gathered in any event if there are settlement discussions.It also enables information to be gathered in relation to any relevant individual issues which might impact on the viability of the case or its quantum. This might be particularly important in non shareholder class actions.
Obtaining this information at an early stage, which might affect the viability of the proceedings, is clearly consistent with the overarching purpose. This information can be gathered without a funding agreement but, given the other benefits described above, there is utility in seeking a funding agreement at the same time. There are limits to how much money a funder will be prepared to spend without a commitment by the claimant.
Accordingly, IMF Bentham fully endorses the Full Court’s concerns to avoid a rush to the Court but has concerns with any solution which prevents sign up to funding agreements having any relevance.
IMF Bentham agrees with the view expressed by the Full Court in GetSwift that there cannot be a ‘one size fits all’ when dealing with competing class actions. We have also submitted to the ALRC that, in our experience, Courts should retain the flexibility to address issues on a case by case basis. Sometimes it may be appropriate for more than one competing class action to proceed, for example, if the claims alleged in different class actions have variations.
- Perera v GetSwift Limited  FCAFC 202.
- McKay Super Solutions Pty Ltd (Trustee) v Bellamy’s Australia Ltd  FCA 947 (Bellamy’s).
- Bellamy’s and Cantor v Audi Australia Pty Ltd (No 2)  FCA 1042.
- Supra note 2.