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The increasing ‘sophistication’ of the class action landscape

With the volume of class action filings ticking back up post-pandemic, how much has the space grown and evolved in recent years? These lawyers weigh in.

user iconLauren Croft 18 October 2023 Big Law
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As practice areas such as cyber and environmental, social and governance (ESG) expand in the legal market, it only stands that litigation within these areas is also increasing.

This is particularly prevalent in the Australian class action space, which has been called “one of the most active and profitable jurisdictions in the world”.

Current (and future) growth in class actions

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In August this year, in a market update about class action risks, BigLaw firm Allens noted that class actions filed in this calendar year are “on pace to significantly outstrip” the number of proceedings that were filed in 2022.

In fact, it showed that the number of proceedings filed to 30 June 2023 is double that of last year’s figures by the mid-way point of 2022 – 28 to 14.

Herbert Smith Freehills global co-head of class actions and partner Jason Betts confirmed this to Lawyers Weekly – and said that class action filings would only continue moving forward.

“There has been a lot of misreporting about a drop-off or decline in class actions in recent years. The truth is the class action industry is growing and increasing in sophistication and impact,” he said.

“In recent years, Australia has had an average of over one class action filed each week. The complexity and size of the cases is also increasing significantly – something that few commentators are acknowledging.”

Clayton Utz commercial litigation partner Ross McInnes echoed this sentiment and said the landscape has evolved in a number of ways post-pandemic.

“Most of the changes have stemmed from developments in class action law, largely driven by new issues arising in a procedural sense. For example, the courts and the legislature in certain jurisdictions have grappled with the regulation of litigation funders, including group cost orders. The law has also matured in its approach to resolving class actions, with the courts considering class closure and the appropriate boundaries for settlement approvals,” he told Lawyers Weekly.

“In addition, new categories of claims have emerged using the class action regimes. This includes claims in the ESG space, employment underpayment claims, and data privacy class actions.”

Particularly in the Australian market, the class actions space has increased in “sophistication and diversity of claim”, added Mr Betts.

“Australia has this unique combination of circumstances: a permissive. US-style class action mechanism; contingency fees for plaintiffs lawyers permissible in one jurisdiction and likely others are due course; advantageous common fund orders permitting funders to obtain a commission on aggregate settlement funds; a recent finding suggesting lawyers may also be entitled to a common fund order on a similar basis, a further advantage for plaintiffs lawyers; limited regulation of litigation funding; one of the largest rates of share ownership in the world, which increases the attractiveness of shareholder class actions; and one of the only jurisdictions in the world with both a continuous disclosure regime and strict liability for misleading and deceptive conduct,” he explained.

“So, this makes the Australian class action environment one of the most active and profitable jurisdictions in the world, and Australian courts are particularly sophisticated in this space. Claims are becoming more sophisticated and generally larger in scale and alleged quantum. Frequency of filings remains significant.”

The last few years have also seen an evolution in various funding arrangements, according to Shine Lawyers’ joint head of class actions Vicky Antzoulatos and senior solicitor Riley King.

“The last three years have seen the evolution of funding arrangements with the introduction of group costs orders in Victoria and the rise of solicitors common fund orders. The full court has recently sought to resolve the uncertainty of whether there is power to make a common fund orders on settlement, with the High Court’s decision in Brewster still maintaining relevance,” the pair told Lawyers Weekly.

“Observers have also witnessed an increased appetite from respondents to go to trial in class actions.”

Key areas: ESG, cyber, employment and governance

In King & Wood Mallesons’ (KWM) annual report, The Review: Class Actions in Australia 2022/2023, consumer class actions were revealed to have dominated the market in the financial year 2023, with data breach class actions set to change the landscape moving forward.

Last year, class actions filed included consumer, employment, securities, financial investments, competition and class actions against the state, such as those against detention centres and the “hard” public housing lockdowns during COVID-19. You can read Lawyers Weekly’s coverage of those and other class actions here.

Currently, there are at least three shareholder class actions reserved (Insignia, CBA and Brambles), according to Ms Antzoulatos and Mr King.

“There have also been many appeals, with the High Court having heard the Redland City Council appeal regarding the appropriateness of levying specific special charges, the validity of a class actions waiver clause in Karpik v Carnival and having just granted special leave in Mallonland Pty Ltd v Advanta Seeds Pty Ltd.

“Multiplicity continues to be a feature of the class actions space. There have been many recently, including across two courts with the Downer EDI. The privacy/cyber class actions have also been topical with proceedings against Medibank and Optus both involving multiplicity,” they said.

“A trend has arisen for a bifurcated settlement approval, where judges will approve the headline settlement amount but seek to scrutinise the costs or other aspects of the settlement with further evidence. There has also been the first tender process conducted by a court-appointed referee as to who will administer the settlement following approval.”

As Professor John Swinson of the University of Queensland told Lawyers Weekly earlier this year, cyber security threats are more dynamic than ever, and the consequential data breach class actions have broader implications for the Australian market, as reported late last year.

“There has been significant growth in employment underpayment class actions recently. Adero Law has filed a series of class actions in this space, including against large companies such as Coles, Woolworths, and Merivale. In response to rising cyber concerns, data privacy claims have increased. For example, Optus and Medibank are both facing class actions following their recent cyber incidents,” Mr McInnes said.

“It’s also interesting to see the myriad of issues being pursued in ESG-related class actions. While some claims target conduct that results in environmental harm, others focus on the accuracy of statements that entities make about their green credentials, known as ‘greenwashing’ cases. Separately, some claims focus not on harm that has actually occurred but [on] the question of whether reasonable steps have been taken to mitigate climate risks or environmental damage. This rich tapestry of ESG-related class actions will likely find a voice in Australia in the coming years.”

But while climate and ESG-related class actions have been gaining traction for a number of years, Mr Betts said that it is not a new or growing phenomenon.

“First, ESG, in large part, is not at all new. We have been talking about these kinds of risks for 30 years, but using different names. ESG is just a convenient proxy for a group of risks affecting companies [that] interface with large sections of the community – generally shareholders or customers. And the risks themselves are usually pretty conventional – failure to make accurate disclosures, misrepresenting the nature of a product or service, or imposing fees that are higher than they should be. This probably captures 80 per cent of what people mean when they raise ESG risk, and these exposures are decades old,” he said.

“The most significant area of growth is in governance and disclosure risk – that is, allegations that companies didn’t do what they said they would do in terms of controlling risk; and companies making forecasts about the future that are said to be misleading. That remains the heart and soul of Australian class action litigation. Even in spaces that are regarded as ‘new’, such as cyber security, one of the main risks is failure to disclose vulnerability to attacks or inadequacy of systems. That is a traditional shareholder class action proceeding, albeit with a slightly adjusted subject matter. So, it’s important that we debunk the misapprehension that there is a radical evolution of class action claims in Australia. There is an evolution of subject matter, but the legal norms and legislation largely remain the same.

“The largest and most sophisticated claims in Australia – and the ones responsible for the largest settlements – remain as they have been for many years – shareholder class actions and traditional product liability and mass tort claims (in which I include environmental toxic torts and natural disaster claims). The ‘trend’, if it can be called that, is continued risk in this space.”

Therefore, specific cases that have had “game-changing results” are not those related to climate change or cyber security, Mr Betts opined.

“The game-changing cases are those that influence significant procedural steps. Brewster and McDonald have had major impacts in determining the availability of common fund orders for funders – and potentially lawyers; AMP and Boral have had major impacts on the availability of class closure techniques in different jurisdictions; GetSwift and AMP determined how carriage motions should be conducted; BHP determined whether foreign nationals acquiring overseas can participate in an Australian shareholder class action; and a range of settlement approval cases have tested the limits of what is reasonable in a settlement in terms of returns to group members versus plaintiffs lawyers and funders,” he explained.

“These are the cases that will determine the profitability of class actions and whether they will settle. They are actually far more important than decisions around new causes of action for climate change impacts, or even cyber security risk, which, while very important, may unfortunately take another decade to evolve.”

Best practice amid ongoing developments

Back in 2020, then-attorney-general Christian Porter announced his intention to proceed with a parliamentary inquiry into the impact of litigation funding on justice outcomes, exploring whether or not Australians “are receiving their fair share” from class action settlements and looking at the “extraordinary profits being made by the booming litigation funding industry”.

This followed a report released by the Australian Law Reform Commission on class action proceedings and third-party litigation funders, which is due to continue impacting the class action space into next year.

“The federal government has started to wind back the regulation of litigation funders and will consider introducing contingency fee arrangements in the Federal Court. We expect the government to revisit all the recommendations made by the ALRC in its 2018 report concerning class actions and litigation funding,” Mr McInnes added.

“Given the ongoing developments, class actions are a vibrant space. Law firms and class actions experts share a lot of helpful material, including commentary on recent cases, trends and developments.”

In terms of future trends, Mr Betts predicted that there would be a “steady increase in class action filings” over the next five years, resulting in two class actions being filed every week in Australia. Additionally, he said that shareholder class actions are likely to return to “about 35 per cent of all claims filed in Australia” and “a drop in employment-based class actions given their modest success in Australia”.

Mr Betts also said there could be an “introduction of contingency fees federally, and in the meantime, several class actions commenced by law firms seeking a lawyers’ common fund order” as well as the “introduction of a private cause of action for data breaches, and the steady growth of those types of claims”.

“Classes are now more frequently expressly defined to include foreign nationals whose cause of action is not linked in a traditional way with Australia. Class periods are larger, including in shareholder class actions where cases are focused on risk-based disclosures as much as they are earning guidance,” he added.

“The quantum of settlements is large and arguably increasing. The narrative that there has been some sort of drop off or stabilisation in the growth of the class action regime is not borne out by the real-life expletives of clients and lawyers who operate in the space every day.”

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