Competing class actions - no 'one size fits all' solution

In brief

The Full Federal Court has held that, when the court is faced with multiple 'competing' class actions in relation to the same issue, it can choose one to proceed and stay the others. In doing so, it said that there is no 'one size fits all' solution to the problem of competing class actions, and that different cases will require different approaches. Partner Jenny Campbell and Senior Associate Alex Tolliday report.

The decision at first instance

In May, Justice Lee made orders permanently staying two of three shareholder class actions brought against GetSwift Limited (see our Client Update: Competing class actions – the court takes control). The promoters of each case accepted that only one 'open' class action should proceed but proposed alternative solutions for achieving that outcome. Ultimately, Justice Lee decided that the class action brought by Phi Finney McDonald (a firm of breakaway Slater & Gordon partners) should proceed; and that the class actions brought by Squire Patton Boggs (SPB) and Corrs should be stayed, on the basis that they were both an abuse of process. His Honour made this decision by reference to what he called a 'multifactorial' assessment (essentially, a competitive tender) that involved consideration of:

• the experience of the legal practitioners, the resources available to the solicitors and their funders, the state of preparation of each proceeding;
• the respective merits of the cases pleaded and the representative applicant chosen;
• the relative number of group members who had signed funding agreements;
• the estimated costs of running the proceeding, and any proposals to reduce and control costs; and
• public policy issues.

The two unsuccessful firms (through their representative applicants) appealed the decision on the grounds that the court did not have power to order the permanent stay of their proceedings as an abuse of process.

The problem of competing class actions

In recent times, the Federal Court has become more express in its acknowledgement that the issues raised by competing class actions are driven by the entrepreneurial interests of the plaintiff lawyers and litigation funders who join forces to bring the cases, rather than the interests of the group members they represent.

As we reported in our Client Update: Full Federal Court speaks on competing class actions, the Chief Justice said in August, regarding the competing class actions against AMP (which have now been transferred to the Supreme Court of NSW): 'the running of multiple actions by different lawyers, with different funders was, in principle, potentially inimical to the interests of group members, and potentially oppressive to AMP', and that competing class actions are really about the 'competing self-interests of those promoting and hoping to manage' the proceedings.

Following that theme, in the GetSwift judgment, the Full Court said the following:

On some occasions the competing applicants (or more accurately the competing funders and/or solicitors) are able to reach agreement to consolidate the proceedings. When such agreement occurs the competing cases are subsumed into one and the associated case management problems largely disappear. However, in many cases no agreement is reached. In our view that usually has more to do with the interests of the relevant litigation funders and applicants’ solicitors than with the interests of the different applicants or the group members. Notwithstanding the important role that solicitors and funders play in providing access to justice, scarce judicial time and Court resources should not be spent dealing with disputes between service providers, and the Court should be allowed to focus on the interests of the parties and group members consonant with the overarching purpose.

 

This way of thinking underpins the Full Court's legal findings set out below and, as we see it, represents an important turning point in the Federal Court's case management of class actions.

The power to permanently stay the proceedings

The Full Court (Justices Middleton, Murphy and Beach) held it was plain that the court had the power to order a permanent stay of one or more competing class actions, whether in the exercise of its inherent power, or in its express and implied powers to manage the cases before it in the interests of justice and consonant with the overarching purposes of civil procedure (to resolve disputes as quickly, inexpensively and efficiently as possible), or in its equitable jurisdiction.

Having regard to these powers, the Full Court did not consider it necessary for Justice Lee to address the power question through the prism of an abuse of process, and in fact held that the SPB and Corrs class actions were not abuses of process. In reaching this conclusion, the Full Court placed emphasis on the language of the Federal Court of Australia Act 1976 (Cth),which provides that a claimant has a choice to commence representative proceedings on behalf of 'some or all' persons – expressly contemplating the possibility of multiplicity of proceedings. Readers might recall that this was also the basis on which, back in 2008, the Full Court held that commencing a 'closed' class action on behalf of only some affected persons did not amount to an abuse of process (in the shareholder class action against Multiplex).

The appropriateness of a permanent stay and alternative options

The Full Court observed that there are number of options available for managing competing class actions, including:

• the approach adopted by Justice Beach in the shareholder class actions against Bellamy's, where orders were made to close the class in one proceeding and allow the other matter to remain as an open class action – this meant the cases did not have overlapping classes (as anyone in the 'closed' class was excluded from the 'open' class);
• the 'wait and see' approach adopted by Justice Foster in the emissions class actions brought against Volkswagen, Audi and Skoda, where his Honour did not accept that allowing the continuation of two groups of class actions would, for the time being, unduly oppress the defendants, produce undue costs, confusion or delay; or
• the permanent stay approach adopted by Justice Lee in GetSwift, following his Honour's 'multifactorial' assessment.

In considering these options in the context of the three cases against GetSwift, the Full Court held that, although there were aspects of Justice Lee's reasoning that it could not fully endorse, there was no material error in the decision that would warrant setting aside the judgment. Indeed, the Full Court held that, if it were exercising the discretion itself, it would have concluded that it was appropriate to stay two of the three competing proceedings, having regard to following factors:

• Common fund orders – the lawyers in all three cases intend to seek 'common fund' orders and to continue to bring their case on behalf of an open class, meaning that staying one or more proceeding would not limit access to justice for potential group members;
• No closed class – unlike what happened in the Bellamy's class action, neither SPB nor Corrs unequivocally said that, if their proceeding were not chosen as the one open class action to proceed, they were content for their proceeding to continue as a closed class (on behalf of group members that had signed-up with them), rather than be stayed;
• Lack of prejudice – no evidence was adduced by the applicants in the SPB or Corrs proceedings suggesting that their interests, or the interests of group members more generally, would be best served by more than one class action progressing;
• Subsequent litigation – the applicants and registered group members in the SPB and Corrs proceedings could vindicate their claims through the class action that proceeded, or, alternatively, opt out and commence either individual or aggregate claims in the form of another (closed) class action;
• Best vehicle – group members' interests were appropriately protected by advancing their claims through the most potentially beneficial vehicle – ie the proceeding that was not stayed;
• Responsive assets – it was not in the interests of the applicants and group members for GetSwift's assets to be unnecessarily depleted by having to defend more than one class action;
• Respondent's costs – it was in GetSwift's interests that it only incurred the costs of defending one proceeding, rather than three, and was only exposed to the risk of an adverse costs order in one proceeding; and
• Interests of justice – the broader interests of justice supported a permanent stay of two of the proceedings.

Implications

The key message is that there is a no single solution to the problem of competing class actions. In the words of the Full Court:

… there is no one right answer to the case management questions that arise when dealing with competing class actions. There cannot be a 'one size fits all' and different judges will take a different view of some of the incommensurable and conflicting considerations that may arise. It should also be kept in mind that there is no 'silver bullet' solution to the case management problems of competing class actions and each of the 'solutions' can be said to have some or other problem.

 

That said, it seems likely that in circumstances in which the promoters do not come to an agreement between themselves to consolidate competing proceedings, or have all but one claim proceed as a 'closed class' case, the Federal Court is willing to make a choice between competing cases. It remains to be seen whether the Supreme Court of NSW will take the same approach in dealing with the five competing class actions against AMP Limited – listed for hearing on 6–7 December 2018.

Finally, we note that the Full Court suggested that it may be time – in relation to shareholder class actions, at least – for the court to consider a procedure that, upon the filing of the first proceeding, the court orders a standstill in that proceeding for a period of time, to allow other class action promoters the opportunity to undertake proper due diligence and consider the viability of a claim. This is a timely observation in the context of the ALRC's inquiry regarding class action proceedings and third-party funding, which, among other things, is grappling with the very significant spike in shareholder class action filings and a parallel spike in class action entrepreneurialism. You will hear more from us on those issues shortly.