What to do if a class action is threatened or filed

Engage a team – Alex Tolliday

When picking your legal team it is important to remember that class actions are a specialist form of litigation—one requiring a deep understanding and vast experience when responding to these unique cases.

You also need to organise an internal team that will work with your external advisors. This internal team will be essential to ensure that instructions can be provided quickly and that internal reporting to the company is managed effectively.

Prepare to defend the action – Belinda Thompson

As soon as a class action is filed or threatened, you need to begin preparing the company to defend the action.

Some of the key initial steps that should be taken to prevent headaches down the line include:

• (insurance) checking the company's insurance position and notifying the insurer of the circumstances or claim as soon as possible;
• (strategy) developing a litigation strategy, taking into account the legal and commercial exposure;
• (document management) practicing good document management by ensuring relevant records aren’t erased, and establishing reporting structures to protect legal professional privilege and limit the creation of new documents relating to the matter; and
• (identifying experts) moving swiftly to retain experts and identify likely witnesses. These will be crucial to the outcome of the proceeding and it is important to ensure they are 'locked in' early.

Consider the legal and commercial impacts – Alex Tolliday

In addition to legal exposure, class actions can have a substantial impact on a company's commercial operations. It is therefore vital these commercial implications are considered and managed from the outset. Some examples that should be front of mind include:

• continuous disclosure obligations;
• commercial exposure and the drivers behind the claim; and
• broader commercial and reputational impacts.

Let's explore each of those briefly.

Continuous disclosure obligations

For listed companies, if a claim has commenced you need to consider issusing a short market disclosure acknowledging this. Don’t forget—further updates may also be required throughout the life of the matter.

Commercial exposure

It is important to understand the size of the claim and the potential exposure of the company as soon as possible—this is to ensure the company's response is proportionate to the risk it faces. When looking to quantify the potential liability, consider not just the number of potential plaintiffs but also the nature of the alleged loss and damage—some class actions involve a large number of plaintiffs but the actual compensation available to each class member can end up being very small. 

Broader commercial impacts

Class actions tend to attract media attention and, accordingly, a high degree of reputational risk. From the outset your company should consider ways to limit these broader impacts, including issuing:

• internal communications explaining the issue to staff and the company's response; and
• external communications to the media and business partners to manage reputational risk.

Depending on the nature of the claim, it may be worthwhile engaging professional PR assistance in this process.

Conclusion - Belinda Thompson

Remember, class actions are complex forms of litigation where expert assistance is vital. The better prepared you are, the faster you'll be able to respond if and when an action is threatened or commenced.