Breaking ground in class actions

The year has been a watershed for class actions with more breakthroughs to come, Joshua Aylward, Special Counsel and practice leader, class actions, with Shine Lawyers, Brisbane, told the AILA national conference.

In August, the High Court heard arguments in the Westpac Banking Corp v Lenthall [2019] FCAFC 34 and Brewster v BMW Australia Ltd [2019] NSWCA 35 appeal, which would determine whether making common fund orders (CFOs) was constitutional and within courts’ powers.

The historic decision, which Mr Aylward said would have major implications for the future of class actions, was pending.

CFOs enabled litigation funders to recover costs from all group members’ settlement funds. Alternatively, litigation funders could claim commission only from group members who had specifically contracted with them.

In an interview with Resolve, Mr Aylward said: “CFOs dramatically reduce the cost of a class action, by removing the need for the book-build process. The book-build process for the Westpac case would have involved contacting more than 80,000 group members.”

He told the conference the three challenges to CFOs were construction (ie courts were not empowered to make CFOs); they were not an exercise of judicial power; and a constitutional argument about whether acquisition of property was involved.

However, the courts found:

• each court has power to make CFOs because, under s23 and s33ZF of the Federal Court of Australia Act 1976 and s183 of the NSW Civil Procedure Act 2005, the courts are empowered to make any order appropriate or necessary to ensure justice is done

• the power to make CFOs under the sections was an exercise of judicial power or incidental thereto, which could be conferred on a court under the Constitution

• the sections that authorised courts to make CFOs did not involve acquisition of property other than on just terms, which would be contrary to s51(xxxi) of the Constitution. Rather, the relevant provisions conferred a general power on the courts to make orders considered appropriate or necessary to ensure justice was done.

 Mr Aylward said since the first CFO was made by the Full Federal Court in Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd [2016] FCAFC 148 in late 2016, access to justice had dramatically improved.

Policy disclosure

Mr Aylward said the Federal Court had ordered insurance policy disclosure in several cases and that was likely to occur more.

In the Federal Court, it was likely applications for early access to policies would become the norm in class actions against companies in administration.

Traditionally, insurance policies did not need to be produced unless they were considered relevant to pleaded issues in the case (Lister v Romford Ice and Cold Storage Co Ltd [1956] UKHL6).

However, since Richard Kirby Centro Properties Ltd (ACN 078 590 682) [2009] FCA 695, there had been a shift towards pragmatic case management principles and a greater need to produce policies in some circumstances.

Mr Aylward said the Federal Court Act’s S33ZF enabled the court to, “of its own motion or on application by a party or a group member, make any order the court thinks appropriate or necessary to ensure justice is done in the proceeding”.

The rationale was:

• Reasonableness – the need for a plaintiff’s legal team to form a view on the reasonableness of the settlement. Available insurance cover was often a key factor in determining the parameters on what was actually recoverable

• Proportionality – plaintiff solicitors must manage the case and incur costs in a manner proportional to the expected benefit of litigation. Where the benefit depends on insurance funds, there’s an argument it is difficult for the legal team to manage legal fees appropriately without the policies.

For plaintiffs, in cases where recoverability may be an issue, it was important to make an early application for access. “Plaintiffs who don’t do so could be criticised if their case management or settlement approach does not match the actual insurance funds available,” Mr Aylward said.

For defendants, issues included:

• Communications with insurers – he advised defendants to take care when communicating with insurers as those communications could be captured by a new class of disclosure order.

• Seek confidentiality provisions with the disclosure of any policies. He said they should include protection against policy limits being disclosed in open court or evidence and consider keeping the insurers’ names confidential, otherwise the information could be used to support other claims.

Expert referees

Mr Aylward explained the courts’ shift in appointing expert referees in actions with complex factual issues to resolve.

Expert referees could reduce the time required for class actions that needed multiple technical experts’ reports.

Traditionally, parties would prepare reports from competing experts, with their evidence to be heard, and tested, at trial. Now, there was increased reliance on s54A of the Federal Court Act, which enabled the court to refer “a proceeding … or one or more questions arising in a proceeding … to a referee for inquiry and report”.

The experts formed a “special jury” to which the normal rules of evidence did not apply, adopting an inquisitorial process. Most reports were adopted in full or in part, he said.

Environmental actions

Mr Aylward discussed two environmental contamination class actions in which he represents property owners in Oakey, Queensland, and Katherine, in the Northern Territory, whose properties have been contaminated with toxic chemicals from the Defence Department’s historic use of fire-fighting foam.

In the Katherine proceedings, an open class of 4,000 to 6,000 people is seeking compensation for reduced property values. The Oakey proceedings involves 500 property owners with similar claims. Expert evidence is being finalised and the Oakey case goes to trial in April 2020.

Mr Aylward warned that environmental actions were rising, including against governments for not mitigating against the effects of climate change or complying with obligations to affected communities. “Defendants and their insurers cannot ignore this reality and must prepare for this inevitability,” Mr Aylward said.

Current class action trends included:

• Increased actions – 54 were filed last financial year, including 15 in the Federal Court
• Court support for third-party litigation funding – 70% of FY19’s 54 class actions were litigation funded and that number was likely to rise
• An increase in the number of shareholder and investor claims
• Institutional investors, including super funds, were now participating
• 10+ class actions stemming from the financial services royal commission
• Lawyers using ASIC and ACCC reports to support claims
• An increase in the number of class actions arising out of the same event eg a corporate collapse with multiple actions against the same defendant
• Larger settlements, the largest so far being $500 million, but larger ones were likely, including a stolen wages case being mounted in Qld
• SME law firms getting involved in class actions.