Improvements to the Australian class actions regime
The Australian class actions regime was designed to enable a large number of claims which were the same or similar to be bundled together and dealt with efficiently. However, the question of how these claims would be funded was left unresolved. Litigation funding filled that gap. Over the years, litigation funding of class actions has enabled hundreds of thousands of Australians to have their rights ventilated and pursued.
As the global leader in financing and managing legal risks, Omni Bridgeway has welcomed the inquiry and the opportunity to improve the class action system in Australia.
The debate about what, if any, reform should happen has been closely followed by corporates, the legal industry, academia and the regulators. Business interests representing potential defendants to class actions, including the Australian Institute of Company Directors and the US Chamber Institute for Legal Reform (a subsidiary of the powerful US Chamber of Commerce), have been particularly vocal in calling for changes.
This filmed discussion was an opportunity for Clive and Jason to address some of the critical questions.
In this film they discuss what, if any, reform was needed to the class action procedure in Australia, including in relation to ‘open’ and ‘closed’ class actions and common fund orders.
Closed class actions
Prior to the Money Max decision in 20161, most funded class actions in Australia were ‘closed’, or opt-in, class actions which required potential group members to sign a funding agreement in order to be in the class. This process - known as ‘bookbuilding’ - was undertaken at the outset of the action. It ensured that all those who benefited from the class action paid their share of the costs.
Open class actions and common fund orders
Money Max was the first case in which the courts permitted the use of an ‘open’ class action supported by a ‘common fund order’ (or CFO) as a means of funding a class action. In these cases, the Court made an order, a CFO, requiring all members of the class to pay the litigation funder a fee, which was determined by the Court, regardless of whether they had entered into a litigation funding agreement with the funder. Funders no longer needed to bookbuild in order ensure they would be paid a fee, if the case was successful. Many believe that CFOs led to an increase in multiplicity of class actions, or competing actions, where more than one action is commenced against the same defendant in relation to the same or similar issues, as a funder only needs to engage with one class member before filing an action.
However, following a decision of the High Court of Australia in December 20192, the use of CFOs in class actions is now in doubt. The High Court ruled that neither the Federal Court of Australia nor the Supreme Court of New South Wales have the power to make CFOs, at least at the early stages of proceedings. Since then, the court’s powers to make a CFO, even at a later stage of proceedings, has been uncertain and several judges have made conflicting decisions and comments.
In December 2020, a special leave application was made to the High Court in a class action against 7-Eleven in relation to CFOs. The applicant has asked the High Court to find that courts do not have the power to make CFOs at settlement or judgment in a class action.
Proposed new procedure
In this film, Jason Betts set out his proposal for the introduction of a new procedure which he believes would provide certainty to practitioners and the courts as to the process for managing multiplicity of class actions. The proposed new procedure includes that all class action proceedings must be filed as an ‘open class’ (although funders and law firms could still bookbuild before commencement if they wished) and a new procedure is followed if any competing class action proceedings have come forward.
Clive Bowman gave his views of this procedure – which he considered would be draconian. He suggested an alternative proposal which is to return to the system before the Money Max case when CFOs did not exist and there were far fewer multiple claims filed. He believes that removing CFOs would mean that funders would need to bookbuild. This would have the benefit that only cases which are supported by a large enough group of interested people at the outset, to make the class action commercially viable, would proceed.
Click above to view this film or see the video library on our website for other episodes of Clive and Jason’s discussion.
1 Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd  FCAFC 148.
2 BMW Australia Ltd v Brewster and Westpac Banking Corporation v Lenthall  HCA 45.