Competing class actions - a problem in need of a solution

In brief

Written by Partner Kate Austin and Senior Associate Jack Power

As fertile ground for class actions, the Royal Commission has highlighted an ongoing problem with Australia's class action regime – there is no clear, consistent means for resolving competing class actions.

Following on from its appearance before the Royal Commission, AMP has been faced with five competing class actions – four commenced in the Federal Court of Australia and one in the NSW Supreme Court. Each class action alleges that AMP failed to disclose market sensitive information to the ASX (being that AMP allegedly charged consumers fees for no service on a systematic basis and then misled ASIC).

The commencement of these actions are part of an ongoing trend driven by the increasing entrepreneurialism of class action promoters, particularly in the shareholder class action space. The problem of competing class actions has recently been considered by the Victorian Law Reform Commission (VLRC)¹ and is currently being considered by the Australian Law Reform Commission (ALRC) as part of a broader review of the effectiveness of the class action regimes.²

The existing problem of competing class actions

What is the problem?

While it might seem counterintuitive to those unfamiliar with class actions in Australia, it is currently possible to have multiple class actions with overlapping group membership brought by different lawyers against the one defendant in relation to essentially the same misconduct.

In such circumstances, a defendant is faced with fighting the same or very similar battle on multiple fronts, leading to greatly increased legal fees and generally undermining the efficiency and cost- effectiveness that the class action system is intended to achieve.

Competing class actions are not a problem only for defendants. For courts, competing class actions waste very finite resources and also disadvantage group members, causing confusion if they are asked to chose between competing claims, and potentially reducing overall group member recovery because of the increased costs associated with multiple proceedings.

The source of the problem

Despite the problems that competing class actions create, the courts do not currently have a specific power, process or criteria to follow when this issue arises (instead relying on their more general powers to manage their own proceedings).

Our experience has been that the absence of a specific power or process means that courts are often hesitant to take steps to limit the number of class actions, and concerned about the right of individuals to choose their lawyer and litigation funder.

Solutions that courts have employed in the past range from case-managing class actions together, consolidating the proceedings, temporarily staying one of the proceedings, or any combination of such solutions.³ This has led to uncertainty for all stakeholders.

Potential solutions

In its discussion paper, the ALRC proposes that a procedure be implemented that would (in the majority of circumstances) result in a single class action proceeding when competing claims are filed. In particular:

1. There be a limited amount of time in which competing class actions can be filed;⁴
2. Where there are competing class actions, the Federal Court must determine which one of those proceedings will progress and must permanently stay the competing proceeding(s), unless the Court is satisfied that it would be inefficient or otherwise antithetical to the interest of justice to do so;⁵ and
3. In making this decision, the Federal Court would hold a 'selection hearing' at which the various competing class actions would present their case for why they should be the one to proceed.⁶

We support the ALRC's proposals, which are consistent with our general view that there is a need for greater upfront scrutiny of the appropriateness of class action claims. A selection hearing procedure will play a role in ensuring there is appropriate scrutiny of the core issues in a class action at an early stage so that time and resources are not wasted and the interests of group members properly protected.

We also agree with the ALRC's position that the order in which competing class actions are brought should be irrelevant to which is selected to continue: the reason being that plaintiff law firms that dive in with a poorly formulated claim should not be rewarded for their haste at the expense of those plaintiffs and law firms that have more properly thought out their claims.⁷

However, we do not agree with the ALRC's proposal that defendants be excluded from participating in the selection hearing, given the matters to be addressed at that hearing, such as security for costs, common questions, the suitability of the lead plaintiff are highly relevant to the defendant's interests in the proceedings.

In some cases, the ALRC's proposal as discussed above deals with only one half of the problem, as competing class actions can be commenced across multiple jurisdictions – meaning there is also a need for the jurisdiction question to be resolved. This is currently an issue in the AMP class actions, where there remains a jurisdictional dispute on foot. AMP's position is that the proceedings should be heard in the NSW Supreme Court, while the plaintiff law firms prefer the Federal Court (the next step in this saga is for the Federal Court to issue a decision on AMP's application to transfer the Federal Court proceedings to the NSW Supreme Court). However, there is no clear procedure for resolving jurisdictional conflicts such as this.

The ALRC and the VLRC have proposed different solutions. The ALRC asked for views on whether the Federal Court should be provided with exclusive jurisdiction over Corporations Act and ASIC claims (which would mean that all shareholders class action claims, being the majority of competing class action claims commenced to date, could only be commenced in the Federal Court).⁸ The VLRC recommended that a cross-vesting judicial panel for class actions be established to determine how competing class actions across jurisdictions should be resolved.⁹

Whatever the approach to be taken, we consider that national consultation and reform is needed in order to avoid such uncertainty as has engulfed the AMP class actions. The ALRC is due to hand down its final report by 21 December 2018.