Turbulent times ahead for class actions

by Resolve Editor Kate Tilley

Future class actions are likely to emerge from employment underpayment, technology and financial services.

That was the message from Gavin Beardsell, Senior Investment Manager – Sydney and Head of NZ with litigation funder Omni Bridgeway, at the AILA National Conference.

He cited cryptocurrency, data protection, the building and construction industry, directors’ failures to disclose climate change impacts, and online platform providers as potential sources for new class action litigation.

In particular, he suggested two pieces of new NSW legislation, the Design and Building Practitioners Act 2020 and the Residential Apartment Buildings (Compliance and Enforcement Powers) Act, are likely to prompt class action litigation.

Mr Beardsell appeared on a panel with Melody Carr, Head of FinPro, Claims Solutions at Marsh, and Matthew Dick, Financial Lines Claims Manager – Asia Pacific with Chubb.

Potential expansion

In a pre-conference interview with Resolve, Ms Carr said class action exposure for corporate directors was on the cusp of exponential growth.

She said the environment for directors was dynamic with several factors influencing a potential expansion of exposures:

• Before court approval of common fund orders, requiring all group members to contribute to litigation funders’ fees, regardless of whether they have signed funding agreements, there was more incentive for funders to settle cases quickly, giving insureds greater certainty.
• The ALP Federal Government potentially has a different attitude to class action funding and may adopt a more open-access-to-justice attitude.
• The temporary reprieve from potential director breaches that was granted during the height of the Covid-19 pandemic will end, prompting a “massive revival” in shareholder class actions.
• A High Court leave application has been filed for a major class action against Worley Ltd, that was initially found in favour of shareholders but reversed on appeal.

Ms Carr said shareholder actions for those insured with side C coverage in D&O policies (covering securities class actions) were becoming more commonplace, particularly in the Victorian jurisdiction that allowed contingency fees.

Prepare for change

A plethora of inquiries and commissions investigating corporate behaviour meant plenty of evidence was now readily available in the public domain, which “is being scrutinised by plaintiff law firms and litigation funders, sparking a potential new wave of shareholder class actions”.

“Side C cases have risen in a quasi-regulatory expansion of the social conduct of large corporations,” Ms Carr said. Coupled with the heightened focus on ESG risk exposures, she suggested there was a “significant evolution of the landscape for corporate accountability”.

Ms Carr’s advice to insureds was to be ready for change. “It’s a scary environment because of the increased uncertainty and directors need dynamic strategies in place to understand their potential exposures.”

During the panel session, Mr Beardsell said Omni Bridgeway focused on evidence to determine whether to fund an action. “We need good evidence of unlawful, egregious conduct not just [potential defendants] having done their best but made a mistake.”

Sufficient evidence

He said Omni Bridgeway rejected far more cases than it took on, largely for a lack of sufficient evidence of wrongdoing. “We look at the merits, many are not commercially viable. If we see a low return to group members, we won’t fund it.”

Mr Dick said side C cover had been “too cheap for too long, so it was no surprise insurers took the action they did” to raise prices. Australia’s class action environment was “scary” because actions took a long time and were expensive, so were difficult to manage. Insurers wanted certainty but wouldn’t settle unmeritorious actions. “We don’t just roll over.”

Mr Beardsell agreed there was “a relatively low bar” to launch a class action in Australia and the parties could become entrenched, making it harder to negotiate settlements. “We welcome early engagement; it ultimately gets a better outcome for everyone,” he said.