Legal Directions

The Australian class action landscape has seen unprecedented growth in the past decade. Part of that growth has been the troubling development in relation to the multiplicity of class actions against the same respondent(s) arising out of the same or substantially the same subject matter. Those actions are invariably filed by different plaintiff law firms with the financial backing of different litigation funders. A recent illustration has been the Getswift litigation.

Competing class actions have been a vexed and costly issue for the insurance market. The inevitable consequence is the increased burden and costs of defending and settling such claims for insureds and their insurers in the D&O, PI and FI spaces. Courts have dealt with the issue on a case by case basis by utilising their case management powers, although they have previously been reluctant to make orders to the effect that only one class action should proceed. For example:

  • In Smith v Australian Executor Trustees; Creighton v Australian Executor Trustees [2016] NSWSC 17, Justice Ball preferred giving the group members of the Smith Class an option to continue in the Smith Proceeding alone or in the Creighton Proceeding alone – group members of the Smith Class who did not opt out of the Smith Proceeding by a specified date would be deemed to have opted out of the Creighton Proceeding; and
  • In McKay v Bellamy’s Australia [2017] FCA 947, Justice Beach made orders closing the class in one of the actions, but allowing the other action to proceed as an open class.

However, Justice Lee of the Federal Court of Australia recently took a novel and different approach in respect of three competing class actions commenced against Getswift, a publically listed company, and its director(s).

By way of background, in mid-January 2018, the Australian Financial Review published an article in relation to Getswift’s business practices. By mid-April 2018, three securities class actions had been commenced in the Federal Court of Australia against Getswift and its director(s) in respect of those practices on the bases of alleged failures to comply with Getswift’s continuous disclosure obligations, and alleged misleading and deceptive conduct associated with those failures. At least two other law firms were also inviting aggrieved shareholders to register, but we understand that no other class actions have yet been commenced – this now seems unlikely, subject to an appeal of the decision.

In a lengthy judgment (Perera v Getswift Limited [2018] FCA 732), Justice Lee made orders permanently staying the first two class actions that were filed and allowing the last class action to be filed to proceed. In the alternative, his Honour would have made orders ‘declassing’ the first two class actions and/or would have granted equitable relief by preventing the first two applicants from taking any further conduct in respect of their proceedings.

This case was a little unusual in that the respondents did not file any interlocutory applications seeking a permanent stay or other interlocutory relief – rather, his Honour wanted to deal with the competing class action issue by utilising the Court’s case management powers at a relatively early stage.

In reaching his decision, his Honour undertook a multifactorial comparative analysis of the most likely returns to group members. His Honour rejected any suggestion that this approach was akin to an auction and stated that the parties were to put their ‘best foot forward’. For the purposes of that exercise, the applicants disclosed costs estimates, financial modelling based on various damages scenarios, funding arrangements and security for costs proposals. The possibility of capping the maximum amount of the applicants’ costs was also canvassed before the Court.

Ultimately, his Honour favoured the last class action to be filed on the basis that it was more likely to produce a better return for group members. That was notwithstanding that no statement of claim had been filed and served in that matter – the expected ‘first mover advantage’ for the first class action to be filed counted for nothing.

In particular, his Honour was persuaded by the successful applicant:

  • Being receptive to the idea of court-appointed experts in relation to liability (materiality of information) and causation (event study) issues, which would likely reduce costs and which would avoid selection bias associated with litigants briefing competing expert witnesses
  • Requesting that a referee be appointed to monitor the costs during the course of the litigation as a way of controlling those costs
  • Proposing a common fund order that would entitle the litigation funder to a funding commission that is the lesser of:
    • A multiple of the expenses that the funder had paid in the proceeding, being 2.2 times if the parties enter into a settlement agreement before mid-April 2019 which is subsequently approved by the Court, or 2.8 times if there is a successful resolution after that date
    • 20% of the net litigation proceeds, being the settlement sum less approved professional fees and disbursements.

The funder would also not receive any other fees outside of this commission structure.

His Honour concluded that in light of his findings, ‘to allow multiplicity to continue would cause the perpetuation of a state of affairs which must be brought to an end’.

We anticipate that both unsuccessful applicants will appeal the decision, given the precedent set by the judgment, and the possible ramifications for the business models of litigation funders and plaintiff law firms in this space. Indeed, it will be interesting to see whether other judges adopt a similar approach involving competing class actions – the threatened and actual AMP class actions arising out of the Hayne Royal Commission come to mind. No doubt there are and will be other cases.

The timing of the judgment is also prescient, given that the Australian Law Reform Commission is presently considering possible reforms to class action proceedings and litigation funding generally. In lieu of any legislative intervention and subject to any appeals, the Getswift judgment arguably marks a turning point in the willingness of Australian courts to address the competing class action issue by utilising its case management powers at a relatively early stage.

Further information / assistance regarding the issues raised in this article is available from the author, Michael Polorotoff, Senior Associate or your usual contact at Moray & Agnew.

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