September 2017


Class action litigation prickly

By Kate Tilley, Editor, Resolve

Class actions are "difficult beasts to manage", King & Wood Mallesons partner Justin McDonnell told the AILA Qld insurance law intensive.

He said Qld had now introduced class action legislation, joining NSW, Victoria and the Federal Court, which had "well-established regimes".

Qld had always had a class action option under rule 75 of the Uniform Civil Procedure Rules, but it was very broad, so specific legislation was required.

Part 13A of the Civil Proceedings Act 2011 came into effect on 1 March 2017 and two class actions had been filed so far. The first in April was on behalf of sorghum growers whose grain seed was infected by shuttercane weed, Grain Central reported.

The second was on behalf of investors in failed retailer Surfstitch. It alleges the company breached its continuous disclosure obligations and engaged in misleading or deceptive conduct in announcements to the market about its business and brand acquisition regime, reported.

Mr McDonnell said the legislation required there to be "substantial issues of law or fact", but lawyers taking class actions did not need to "say who's in and the amount being sought at the start", even though "the insurers behind the defendants want to know that".

"There may be 15,000 people in a class, but they are obliged only to tell you about one representative."

Claimants could opt out of the proceedings, but a class action could not settle or be discontinued without court approval.

Potential battlegrounds were:

• Closed versus open classes - open classes were harder to settle because no one knew exactly “who’s in”
• Multiple and satellite litigation that mirrored the proceedings to cover those not included in the main class
• Splitting liability and causation
• Security of costs and funding arrangements
• The lead plaintiff’s ability to represent all group members.

Mr McDonnell said class actions were big business for funders, although champerty, the process in which someone bargains with a party to a lawsuit to obtain a share in the proceeds, remained a tort in Qld.

He said IMF Bentham Ltd was Australia's largest litigation funder. "They get lots of opportunities and are spoilt for choice."

IMF's 2016 report showed it was involved in 187 cases, of which 123 settled, 36 were withdrawn, 15 lost and 13 won.

Total recoveries were $1.8 billion, of which $1 billion was returned to clients.

Mr McDonnell said insurers were now getting involved in class actions on both sides, eg, under subrogation rights to get returns on claims paid.

Insurer involvement on the plaintiff side was detailed in the December 2016 issue of  Resolve. Susanna Khouri, investment manager with IMF Bentham, said Justice Garling's decision in Johnston v Endeavour Energy [2015] NSWSC 1117 illuminated difficult issues arising from an insurer exercising its subrogation rights in representative proceedings and the complexities arising from claimants with insured and uninsured losses.

In the same insurance law intensive session as Mr McDonnell, David North, Swiss Re vice-president, property & casualty business management, agreed insurers were now involved in both asides of class actions.

When deciding whether to join an action, they had to consider reputation risk and whether a funder was involved.

The industry had changed its attitude to funders because if an insurer had paid $300 million in claims, they were keen to get something back.

But Mr North warned taking a subrogated action was “not straight forward”. He queried:

• What happens if a captive is involved?
• Will an excess insurer contribute?
• What are the lawyers’ fees?

He said expert evidence costs could be "astronomical" and reserving was difficult, although "everyone wants a number and soon".

If conflicts arose between insurers and funders, how did the parties decide on mediation or settlement? Parties had to consider the cost effectiveness of cases that spent months before the courts, then settled before judgement.

How do you assess how the amount will be divided and the tax liabilities? "These are very complex issues and I don't have the answers," Mr North said.

During the Q&A session, Mr McDonnell said the Qld floods class action, which is being heard in NSW, would be "very difficult" because "many people would have been flooded, even with no water being released from the dams".

The parties would need hydrological evidence and loss adjusting experts to determine what flooding was naturally occurring and what was water from dam releases.

Maurice Blackburn filed the class action in July 2014, seeking compensation for financial loss and damage caused by allegedly negligent operation of Wivenhoe and Somerset dams during the January 2011 floods. IMF Bentham is funding the action, which has about 6,000 participants.

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Resolve is the official publication of the Australian Insurance Law Association and
the New Zealand Insurance Law Association.