The Operation Of The Australian Class Action Regime — 2013 Part A

Introduction

It is unsurprising that, in a conference dedicated to a review of the changing face of legal practice, some attention is paid to developments in the Australian law relating to class actions.

Of course, representative procedures themselves are not new, having been available under English law for a long time. For example, Order 16 rule 9 of the Rules of the Supreme Court of England 1883  provided that “… where there are numerous persons having the same interest in one cause or matter, one or more of such persons may sue or be sued … on behalf of or for the benefit of all persons so interested”. These rules were replicated in Australia.1 However, interpretation of these provisions by the Courts led to procedural difficulties,2 and the representative procedures fell into disuse.

The modern class action procedure was introduced in response to the deficiencies of the former representative scheme and that is what we are here to talk about today. This modern procedure is an attempt to deal with the problems of mass claims arising from the very large civil wrongs that sometimes occur in modern economies – that is, a mass solution for mass wrongs.

The report of the Australian Law Reform Commission into Grouped Proceedings

The Australian class action journey started in 1977 when the Federal Attorney General requested advice from the Australian Law Reform Commission (“ALRC”) as to whether class actions ought to be introduced into Australia. Following a review by a group, including Justice Wilcox of the Federal Court and Dr Peter Cashman, the ALRC issued a report in 1988 which recommended that a class actions procedure should be introduced in the Federal Court.

It did so for the expressly stated aim of enhancing access to justice by reducing the cost of court proceedings to the individual and improving access to legal remedies by the individual. It also aimed to promoted efficiency in the use of court resources, increase consistency in the determination of common issues, and make the substantive law more enforceable and effective.3

The class action regime in the Federal Court

Part IVA of the Federal Court of Australia Act 1976 (Cth) which contains the class action provisions, came into effect on 5 March 1992. It set out a prescriptive regime containing detailed provisions for the commencement and conduct of class actions.

Section 33C sets out the threshold requirements for the commencement of a class action under the regime:

(a) There must be claims by seven or more persons against the same person.

(b) The claims must arise out of the same, similar or related circumstances.

(c) There must be substantial common issues of law or fact.

Other important provisions include the following:

• Standing  (s 33D);

• No consent required to be a class member (s 33E);
• Right to opt out (s 33J);
• Ability to “de-class” proceedings (ss 33L, 33M, and 33N) when;

– there are less than 7 class members;

– the cost of distribution of damages is excessive having regard to the total of the amounts;

– it is in the interests of justice to do so.

• Determination of individual issues (s 33R);
• Settlement and discontinuance (including requirement for court approval) (s 33V);
• Settlement of the representative’s claim (s 33W);
• Suspension of limitation periods while class members’ claims are on foot (s 33ZE);
• Power of the Court to make such orders as it deems necessary in the interests of justice (s 33ZF);
• Prohibition on ordering costs against class members (s 43(1A) (except in relation to specific individual or sub group issues).

The climate in which the regime was introduced

The new class action regime only passed Federal Parliament following vigorous debate. The regime was introduced in a climate of concern that class actions would usher in;

• legal entrepreneurialism;
• US style litigation; and
• misuse of the media in a litigation context;

thereby causing serious impediments to business. In particular, there was a concern that;  

• the floodgates of litigation would open; and
• financial and reputational pressure from class actions would induce substantial out of court settlements regardless of the merits of a case.4

The operation of the regime in practice

Fortunately, the operation of the regime in Australia has been such that these early fears have gone unrealised in practice. Some important differences are apparent in the ways that class actions operate in the US and in Australia and these differences have assisted our system to remain balanced. It is now broadly accepted that the Australian class action regime is working well, which conclusion is supported by both the empirical and evidence available.

Empirical Research

Since 2009 we have had the benefit of detailed empirical research performed by Professor Vincent Morabito.5 Professor Morabito’s research shows that many of the myths about class actions are without foundation. Amongst other things, his research shows that:

• The number of class actions that have commenced has been modest. The studies show that, in the Federal Court and the Supreme Court of Victoria, a total of about 281 class actions commenced in the 17 year period between March 1992 and 31 December 2009. This is an average of only about 15 per year in the Federal Court and about 3 per year in the Supreme Court. With respect to other jurisdictions, the number of commenced class actions is unlikely to be significant because they either did not have a class action regime for the relevant period or it was only recently introduced.
• Despite early concerns of an avalanche of such litigation, shareholder class actions still represent only 25 per cent of all class actions in the past five years.
• Close to 70 per cent of all class actions concluded within two years and, at the time of publication of Professor Morabito’s research, the average duration was declining.
• Class actions are not always successful and in fact 51 per cent of the time class actions either do not continue or do not continue in that form. This result undermines the basis to concerns that defendants would be placed in such a disadvantageous position that claims would succeed despite a lack of merit.
• The “typical” class representative was a married, middle aged, professional male residing in New South Wales. Professor Morabito’s research indicates that, in Australia, there is no culture of organising class actions such that the obligation to pay costs would be avoided in the event the litigation was unsuccessful. 
• “Closed” or opt in classes has not led to any significant increase in competing class actions.
• During the 17 year period from 1992 to 2009, every class action under the federal system that was supported by a litigation funder resolved in favour of the class.

The view of the ALRC

In January 2000, the Australian Law Reform Commission finished a lengthy and detailed review of the federal civil justice system. This review specifically included a consideration of the class action regime, concluding that:

Procedures for representative proceedings generally appeared to be working well and in accordance with legislative intention.  The Federal Court does not view such cases as more problematic than other complex cases.6

The view of state legislatures

Following introduction of the federal regime the various state parliaments in Australia have had ample opportunity to see how the regime operates in practice. It is said that imitation is the most sincere form of flattery, and a good indication that the federal regime is operating well is the fact that several state governments have adopted the same procedures. Class action regimes substantially the same as the federal regime were introduced in Victoria and New South Wales in the years 2000 and 2010 respectively. More recently the same regime has been recommended in Western Australia and there is support for the introduction of a similar regime in Queensland.

The view of lawyers acting for defendants in class actions

Of course these views vary, but the view of defence lawyers appears to be that the Australian class action regime is working reasonably well. This sentiment has been confirmed to me at numerous class actions seminars, conferences and symposiums that I have attended or spoken at in the last 15 years. These forums have been attended by partners from each of the major law firms acting for defendants or their insurers. In the vast majority of cases they have informed me that they consider that the Australian regime is, in general terms, working well.7

Mr Ken Adams and Mr Damian Graves, the lawyers who head Australia’s largest defence class action practice and the co-authors of a leading Australian academic text on class-action,8 wrote in a 2010 article:

There is a lot of hysteria surrounding class actions in Australia and unfortunately for all parties involved it can lead to some serious misconceptions about what’s happening in the local legal sector.

The view of Australian corporate regulators

The two main corporate regulators in Australia have expressed support for the role class actions play in assisting the regulation of corporate misconduct.

First, in December 2005 the then Deputy Chairman of the Australian Securities and Investment Commission, Mr Jeremy Cooper, stated: 

ASIC cautiously welcomes the emergence of the shareholder class action in Australia  as a “self help” mechanism whereby shareholders are able to seek damages for loss  incurred at the hands of directors and advisers who negligently or dishonestly cause loss to those shareholders…….Vigilant shareholders and a vigorous, but appropriately balanced, shareholder class action landscape, will play an important part in maintaining the integrity of the equity capital market in years to come.

Second, in July 2006 the then Chairman of the Australian Competition and Consumer Commission, Mr Graeme Samuels welcomed the settlement of the Vitamins Cartel class action and stated that the $41 million settlement was “a lesson to those that are involved in cartels”.9 He referred to a three pronged approach under which the ACCC would first seek penalties, and second seek jail terms for cartel operators. The third prong was private claims for damages by consumers and businesses.

The view from the bench

Whilst it would be wrong to suggest that there exists unanimity of views amongst judges as to the operation of the class action regime.10 I consider that it is now safe to say that the regime is viewed with much less suspicion by judges than was initially apparent. This appears from various decisions refusing to strike out class actions under s 33N of the Act, the apparent ability of the Federal Court and other courts to effectively case manage, hear and determine class actions and the fact that in doing so judges have not considered it necessary to point to any unfairness or injustice to either plaintiff or defendant in the regime.

In my view the successes of the regime, particularly its apparent success in delivering a measure of justice to both claimants and defendants in mass claims, have lead to it being cautiously embraced.  For example, in 2008 Justice Finkelstein said:

While there are problems with securities class actions, it must, I think, be accepted that they serve a useful function.  It is often said that these actions promote investor confidence in the integrity of the securities market.  They enable investors to recover past losses caused by the wrongful conduct of companies and deter future securities law violations.11

The claimants

Another obvious touchstone with regard to the success of the class action regime is its application to a large number of different causes of action, and on behalf of many hundreds of thousands of claimants in diverse areas. Examples include the following:

• Personal injury through food, water or product contamination

Such class actions include claims for injury arising from contaminated peanut butter12, water13, oysters14, pizza15, pork rolls16, Christmas dinner17, Spanish Mackerel18, food provided on a holiday cruise19, and illnesses caused by excessive iodine in soy milk20. 

• Personal injury through defective products

Class actions of this type include claims arising from defective breast implants21, tobacco22, defective pacemaker batteries23, sterilisation clips24, artificial knees25, adverse reactions to a travel sickness pill26 ,and arthritis medication27. 

• Actions under the Migration Act

Approximately 21 Class Actions relating to the operation of the Migration Act 1958 (Cth) and, in particular, in relation to refugee status,28 illegal detention, refusal of visas,29 and the like were commenced in the period 1992 to 2002.  However, in October 2001 an amendment to the Migration Act put an end to such class actions by providing that class actions are not permitted in any proceeding relating to visas, deportations or removal of non-citizens30.

• Shareholder class actions

Approximately 25 class actions have been commenced on behalf of shareholders for misleading and deceptive conduct and/or breaches of the continuous disclosure regime on the share market by various companies. The largest of these cases include the GIO Class Action31 which settled for $112 million in 2003, the Aristocrat Class Action32 which settled for $145 million in 2008, the Multiplex Class Action33 which settled for $110 million in 2010, and the Centro Class Action34 and National Australia Bank Class Action35 which settled for $200 million and $115 million respectively in 2012, and a series of smaller cases.

• Investor class actions

Numerous class actions been commenced by investors complaining of conduct by the promoters of various investments including in infrastructure projects,36 a shopping centre,37 debentures and security notes,38 vehicle tracking technology,39 margin lending arrangements,40 investments in collateralised debt obligations and in apartment purchases.41

• Anti-cartel class actions

Four class actions to date have been commenced on behalf of consumers and businesses against cartelists. Three of these cases concerned international cartels, and one concerned a local cartel. Three have been resolved, namely the Vitamins Cartel Class Action42 for $41 million, the Rubber Chemicals Class Action43 for $1.5 million, and the Amcor-Visy Class Action44 for $120 million. The Air Cargo Class Action45 which relates to an international cartel to fix various surcharges for air freight is ongoing.

• Disaster class actions

Such class actions include: The Longford Gas Plant Class Action46 in 1998 on behalf of more than 1 million consumers, businesses and employees, which related to an explosion and fire at a major gas plant which caused a two week interruption to the gas supply to Australia’s second-largest city. Following judgment and lodgement of an appeal the action was settled for $32.5 million.

The Melbourne Aquarium Class Action47 in 2000 on behalf of more than 100 people who alleged that they contracted Legionnaires disease at the aquarium. The action was settled on the basis of payment in full to all class members for their personal injury and economic loss.

Five Bushfire Class Actions were commenced in 2009 on behalf of thousands of people who suffered personal injury, property damage and economic loss as a result of bushfires against power companies whose alleged negligent maintenance and operation of powerlines is said to have caused the fires. Three of these class actions have been settled in favour of the class members48 and another two are still on foot.

The Abalone Virus Class Action in 2010 by Victorian abalone fishermen against a state government department in relation to the escape of a virus from an abalone farm which then decimated the wild abalone population off the Victorian coast.49

A class action has been threatened against the Queensland government department that operates the Wivenhoe Dam in relation to major floods which caused numerous deaths and major property damage and economic loss in January 2011.

• Consumer class actions

These have included class actions by consumers induced by misrepresentations to purchase goods which were not as represented50 and the Bank Fees Class Action,51 which commenced in September 2010 against eight Australian banks for allegedly illegal fees charged including honour and dishonour fees, over limit fees, and late payment fees.

• Environmental class actions

There have been few such cases but those that have commenced include a class action in relation to injury caused by industrial pollution52 and a class action brought on behalf of landowners who suffered losses when gas from a nearby former rubbish tip entered into their houses. This last case was settled for $23.5 million.53

• Human rights class actions

Similarly, there have been few such actions but some examples include a class action commenced in 2011 on behalf of children and young adults who had been wrongly arrested and jailed because of out of date or incorrect bail information in the New South Wales police computer system54, and a class action on behalf of former students at the Fairbridge Farm School between 1938 and 1974 against the Fairbridge Foundation and the Commonwealth Government alleging physical and sexual abuse.

• Trade union class actions

Trade unions commenced 45 class actions in Australia in the period between 1992 and 2011 (although 19 of these cases were brought with respect to the same industrial dispute.) The workplace issues have included matters such as underpayment claims55, disputes about employer conduct in obtaining workplace agreements56, and orders against imminent termination of employment57.

• Miscellaneous

Numerous other class actions have been commenced for causes of action which fall outside the broad categories I have set out above. These include diverse causes of action such as a class action by women who were infected with Hepatitis C at a medical clinic58, and a class action by travel agents to recover commissions on fuel charges paid by airlines59.

The variety of these causes of action, the large numbers of claimants, and the variety of types of claimants (including “mums and dads”, private individuals, small companies, public companies and institutions) that sign fee and retainer agreements or litigation funding agreements so as to join class actions indicates acceptance of the regime by the community.

In my view they do so because they expect some justice through the regime. Whilst there is no empirical research as to the total damages paid to date, my rough estimate is that the total is well over $1 billion60.

Laws which purport to provide protections to citizens but which are not capable of being used by them are no more than an illusion. In improving access to the protection of substantive laws an effective class actions procedure is plainly important. As observed by the Age editorial that begins this paper, in Australia we have so far seen hundreds of thousands of people – who would have been unable to pursue their losses in individual court proceedings – successfully obtain a measure of damages by use of a procedure that also provides protections to defendants.

While the regime is working well, of course there remain numerous issues in the operation of class action law in Australia. Professor Cashman and I will now deal with some of these issues, although it is of course impossible to do so in detail in a presentation of this length. I will deal with the first such issue, which is discovery and interrogation of class members, and Professor Cashman will deal with the remaining issues.

 Continued in Part B

* Justice of the Federal Court of Australia.

Footnotes

1. For example, Victorian Supreme Court Rules 1957 O16 r9; Federal Court Rules 1979 O6 r13.
2. See Temperton v. Russell [1893] 1 QB 435 ; Markt Co Ltd v. Knight Steamship Co Ltd [1910] 2 KB 1021; John v Rees [1970] Ch 345; Prudential Assurance Co Ltd v Newman Industries Ltd [1981] Ch 229; RJ Flowers Ltd v Burns [1987] 1 NZLR 260; and Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398
3. Australian Law Reform Commission, Grouped Proceedings in the Federal Court, Report No. 46 (1998) (“ALRC Report”), p 8. At page 9 the report proposes that such a procedure could “…enhance access to remedies where many people have suffered loss or injury as a result of the same wrongful act or similar wrongful acts of another. The ability to act together as a group in making a claim for relief could enable the cost to the individual to be reduced and ensure an effective determination of common issues; one person being able to act on behalf of the group might assist those people to know about and to pursue their rights. The result could be to enhance access to legal remedies, ensure the efficient use of resources and avoid multiplicity of proceedings.”
4. For example, Commonwealth, Parliamentary Debates, House of Representatives, 26 November 1991, 3284 (Peter Costello)
5. Vincent Morabito, An Empirical Study of Australia’s Class Action Regimes -First Report: Class Action Facts and Figures (Department of Business Law and Taxation, Monash University, December 2009) (“the First Report”); Vincent Morabito, An Empirical Study of Australia’s Class Action Regimes-Second Report: Litigation Funders, Competing Class Actions, Opt Out Rates, Victorian Class Actions and Class Representatives (Department of Business Law and Taxation, Monash University, September 2010), (“the Second Report”); Vincent Morabito, ‘Clashing Classes Down Under- Evaluating Australia’s Competing Class Actions Through Empirical and Comparative Perspectives’ (2012) 27 Conn. J. Int’l L. 245 (“the Third Report”); with Vincent Morabito and Vicki Waye, Reining in Litigation Entrepreneurs: A New Zealand Proposal (2011) New Zealand Law Review 323, 346 (“the Fourth Report”).
6. Australian Law Reform Commission, Managing Justice: A Review of the Federal Civil Justice System, Report No 89 (2000) 530
7. L eaving aside the separate question as to the level of regulation of litigation funding which is appropriate, about which representatives of defence law firms have often expressed concerns.
8. Damian Graves, Ken Adams and Jason Betts, Class Actions in Australia (Lawbook Co, 2nd ed, 2012).
9. Interview with Graeme Samuel (ABC Radio National PM Program 17 July 2006).
10. See Mobil Oil Australia Pty Ltd v Victoria (2002) 211 CLR 1 at 73, where Callinan J said: The question here is not whether, by their nature, group or class proceedings are oppressive to defendants, give rise to entrepreneurial litigation, in fact proliferate and prolong court proceedings, undesirably substitute private for public law enforcement or contrary to the public interest, with disadvantages outweighing a public interest in enabling persons who have been damnified but who would not, or could not bring the proceedings themselves, to be compensated for their losses. The question simply is whether the Victorian Act is valid.’
11. Cf Fostif v Campbells Cash and Carry [2005] NSWCA 83 at [101] where Mason P said: “In the report, Access to Justice, Lord Woolf wrote (Ch 17 §2):
12. It is now generally recognised, by judges, practitioners and consumer representatives, that there is a need for a new approach both in relation to court procedures and legal aid. The new procedures should achieve the following objectives: (a) provide access to justice where large numbers of people have been affected by another’s conduct, but individual loss is so small that it makes an individual action economically unviable;(b) provide expeditious, effective and proportionate methods of resolving cases, where individual damages are large enough to justify individual action but where the number of claimants and the nature of the issues involved mean that the cases cannot be managed satisfactorily in accordance with normal procedure; (c) achieve a balance between the normal rights of claimants and defendants, to pursue and defend cases individually, and the interests of a group of parties to litigate the action as a whole in an effective manner.
13. Kirby v Centro Properties Ltd (2008) 253 ALR 65, 67.
14. Butler v Kraft Foods & Anor (settled)
15. Schokman v Sydney Water Corporation Limited , Federal Court of Australia, Proceeding No NG 794 of
16. 1998
17. Ryan v Great Lakes Council [1999] FCA 177
18. Sophia Pizza Class Action (settled)
19. Lopez v. Star World [1999] FCA 104 (settlement approved).
20. Georgiou v Old England Hotel [2006] FCA 705 (settlement approved)
21. For background see McLean v Nicholson [2002] VSC 446
22. Neil v. P&O Cruises Ltd [2002] FCA 1325 (settlement approved)
23. Downie v Spiral Foods Pty Ltd (on foot in the Supreme Court of Victoria)
24. Bates v Dow Corning (Aust) Pty Ltd [2005] FCA 927 (discontinued)
25. For background see Nixon v Phillip Morris (1999) 165 ALR 515
26. Courtney v. Medtel Pty Ltd (No 5) [2004] FCA 1406 (settlement approved)
27. For back ground see Bright v. Femcare (2002) 195 ALR 574, 590.
28. Casey v DePuy International Limited (No 2) [2012] FCA 1370 (settlement approved)
29. Reynolds v. Key Pharmaceuticals Pty Ltd (unreported, VSC, No N5621 of 3002)
30. See Peterson v Merck Sharp and Dohme (Australia) Pty Ltd (2010) 266 ALR 1
31. Wu v. Minister of Immigration
32. Lek v. Minister for Immigration (1993) 117 ALR 455.
33. Migration Act 1958 (Cth) s486B(4)
34. King v. AG Australia Holdings Ltd (formerly GIO Australia Holdings Ltd) [2003] FCA 980
35. Dorajay Pty Ltd v Aristocrat Leisure Ltd [2009] FCA 19
36. P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 4) [2010] FCA 1029
37. Kirby v Centro Properties Ltd (No 6) [2012] FCA 650
38. Pathway Investments v National Australia Bank (No 3) [2012] VSC 625
39. For background see AECOM Australia Pty Ltd (formerly known as Maunsell Australia Pty Ltd v RiverCity Motorway Management Ltd [2012] FCA 1304
40. For background see Barbara O’Sullivan v Challenger Managed Investments Limited [2008] NSWSC 602
41. For background see Harrison v Sandhurst Trustees Ltd [2011] FCA 541
42. See Lukey v Corporate Investment Australia Funds Management Ltd [2005] FCA 1074
43. For background see Imobilari v Opes Prime Stockbroking Ltd [2008] FCA 1920
44. Wong v Silkfield Pty Ltd [1999] HCA 48 ; see also Reiffel v. can 075 839 226 Ltd [2001] FCA 509
45. Darwalla Milling & Ors v. F Hoffman La Roche & Ors (No 2) [2006] FCA 1388 (settlement approved)
46. Wright Rubber Products Pty Ltd v Bayer AG (No 3) [2011] FCA 1172
47. Jarra Creek Packing Shed Pty Ltd v Amcor Ltd [2011] FCA 671
48. For background see De Brett Seafoods Pty Ltd v Qantas Ltd (No 3) [2011] FCA 1059
49. Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 4) [2004] VSC 266
50. Hilton v. Melbourne Underwater World Pty Ltd [2004] VSC 357
51. Thomas v Powercor Australia Ltd [2011] VSC 614; Mercieca v SPI Electricity Pty Ltd [2012] VSC 204.
52. For background see Regent Holdings Pty Ltd v State of Victoria [2012] VSCA 221
53. Williams v. FAI Home Insurance Pty Ltd (No 5) [2001] FCA 399 ; For background see Tropical Shine v. Lake Gesture (1993) 118 ALR 510
54. Andrews v Australia and New Zeal and Banking Group Ltd [2012] HCA 30
55. For background see Cook & Ors v. Pasminco Ltd & Ors [2000] VSC 534
56. Wheelahan & Anor v City of Casey & Ors 2011] VSC 215
57. For background see Konneh v State of New South Wales[2011] NSWSC 1170
58. Constuction, Forestry, Mining and Energy Union v Contract Blinds Pty Ltd [2009] FCA 572 (settlement approved)
59. For background see Smith v University of Ballarat [2006] FCA 138
60. Patrick Stevedores No 2 Pty Ltd v Maritime Union of Australia (1998) 153 ALR 643