The Review Class Actions in Australia

SECTION ONE

2015/2016 Contents

03 Introduction SECTION ONE 04 Headlines SECTION TWO 13 Multiple class actions SECTION THREE 17 Parties and players SECTION FOUR 20 Red hot – litigation funding in Australia SECTION FIVE 24 Settlements — the closing act SECTION SIX 29 Recent developments in class action procedure SECTION SEVEN 33 Global developments SECTION EIGHT 36 Outlook – what’s next for class actions in Australia?

HIGH NUMBER CONSUMER OF ACTIONS CLASS ACTION THREAT STATE THIS YEAR OF Rise in ORIGIN consumer class actions Largest FY16 settlement 35 actions DePuy hip launched 8 replacement potentially up to in FY16 in FY15 35 class actions were $1.75 launched in FY16, BILLION 29 following a historic high of were in Highest value 11 $250 claims filed in FY16 MILLION NSW 40 class actions launched the previous year

2 King & Wood Mallesons Introduction

Welcome to our fifth annual report on class action practice in Australia, in which we consider significant judgments, events and developments between 1 July 2015 and 30 June 2016. It was another big year for new filings, with at least 35 new class actions commenced, of which 29 were filed in New South Wales. This is a similar level of new actions to last year (up from previous periods). 16 class actions settled (2014/15: 12), and more than an estimated $600 million has been approved in settlement funds. Looking deeper into the numbers, consumer claims have seized the spotlight in a number of ways: the biggest single settlement was the $250 million settlement of a consumer claim relating to DePuy International hip replacement products; the highest value claims filed are consumer actions in relation to the alleged use of defeat devices in vehicles, with one media report estimating the total value of the claim at $1.75 billion; and the bank fees class action against ANZ was a consumer class action that failed. The bank fees class action is also a rare example of a class action that has made substantive law outside class action procedure, with the High Court clarifying the law on penalties in Australia. There have been a number of other notable judgments in the past year: the HIH decision on indirect causation; a judgment allowing former group members to pursue individual defences against Timbercorp, in circumstances where the class action had earlier been dismissed; and the rejection by the Court of the Willmott Forests class action settlement, which reflects the careful scrutiny that a Court will apply to settlements. In relation to funding, just under half of new class actions filed in 2015/16 were funded by a third party litigation funder. While there have been no developments on the regulation front, a funder has sought court approval for a “common funding” arrangement and judgment is reserved. We hope you find this report informative.

Moira Saville Peta Stevenson Partner Partner King & Wood Mallesons King & Wood Mallesons

Alexander Morris Patricia Matthews Partner Special Counsel King & Wood M/allesons King & Wood Mallesons

The Review – Class Actions in Australia 2015/2016 3 SECTION ONE Headlines

The new normal in breach of the Australian Consumer and deceptive conduct (2014/15: 11). Law (ACL) These included claims against QBE The year to 30 June 2016 has been proceedings against Ford regarding (profit and financial performance another big year with at least 35 new defective transmissions guidance);1Vocation (extent of class actions filed. This higher level two actions against Cash Converters government funding); against directors of class action activity may be the “new alleging unconscionable conduct and of Gunns2 (financial performance); normal”. Of particular note is the breach of the statutory interest rate cap against WorleyParsons (forecast increasing proportion of class actions that an action alleging misleading and earnings); against Macmahon Holdings are filed in NSW compared to other states. deceptive conduct in the selling and (profit forecasts); against directors and The Federal Court has reported that marketing of the Nurofen specific pain advisors of QRxPharma3 (failure to 63 class actions were current in the Court range, following an ACCC enforcement disclose in capital raisings that the US as at 31 March 2016. The Supreme Court action FDA had rejected the application by of Victoria’s website records 15 actions proceedings against Carnival Spirit after QRxPharma for a streamlined regulatory (and a further four undergoing settlement a cruise was rerouted as a result of approval process for MoxDuo); and distribution), and the New South Wales cyclonic conditions, and against Murray Goulburn (sales Supreme Court website records 14 class a class action against Commins forecast guidance provided in Product actions. Hendricks Solicitors (Wagga Wagga) in Disclosure Statement). relation to overcharging of legal fees. Financial products/investments: In 2015/16 there has been a rise in the 11 actions were filed (2014/15:11), Securities and financial products/ number of consumer class actions with including against Sandhurst Trustees investment claims remained attractive, 11 new actions filed (2014/15: 8): (as trustee for notes issued by with 18 actions commenced: five actions alleging misleading and Wickham Securities); against Bank deceptive conduct by the installation of Securities: seven actions were filed of Queensland (on behalf of former defeat devices to alter emissions testing alleging breaches of continuous clients of Sherwin Financial); five results (Volkswagen, Audi and Skoda) disclosure obligations and/or misleading against Standard & Poor’s/McGraw-Hill Companies in relation to the rating of structured debt products and synthetic collateralised debt obligations; against New class actions filed 1 40 Bankwest/CBA and its directors and former directors (treatment of 35 commercial facilities); against Famularo and Westpac (unregistered managed investment scheme); against Centuria Strategic Property Limited in the Lang Centre Trust class action (investors

1 Our 2014/15 report noted that 33 class actions had been filed in the 12 months of that financial year. Further research has revealed an additional seven class actions, with recent improvements to the websites of the Federal Court and the New South 18 Wales and Victorian Supreme Courts making more 17 information about current actions publicly available. 2 Earlier proceedings brought against the company directly were stayed in 2012 after the appointment of an administrator, but not before the plaintiff obtained disclosure of relevant insurance policies – including for D&O cover. 3 As QRxPharma was in voluntary administration from May 2015, proceedings were filed against directors and advisors only (the company has since entered into a deed of company arrangement). Class action proceedings against QRxPharma in the United States in relation to the same events were dismissed on the basis of the 2012/2013 2013/2014 2014/2015 2015/2016 deed of company arrangement, with the remaining claim against the CEO dismissed on the merits in June 2016.

4 King & Wood Mallesons SECTION ONE

Types of Claims

Securities QBE 7 Vocation Gunns 11 Consumer WorleyParsons claims Macmahon Holdings Carnival Spirit QRxPharma (MoxDuo) Audi - Maurice Blackburn Murray Goulburn Audi - Bannister Law VW - Maurice Blackburn VW - Bannister Law Financial products/ 11 Skoda - Maurice Blackburn investments 2 x Cash Converters Sandhurst Trustees (Wickham) Nurofen Bank of Queensland (Sherwin) Legal fees overcharging 5 x S&P / McGraw-Hill Companies Ford Bankwest/CBA Sports Trading Club Famularo Advice Lang Centre Trust Government 4 Navy trade training 35 Home insulation program National disasters/ Asbestos landfill 2 (Liverpool City Council) events Walla Walla Rubbish Tip Fire Snake Valley Bushfire Winmalee/Springwood Bushfire (Mt Victoria)

in unlisted property trust) and against Hume Shire Council in relation to the actions against Audi and Volkswagen, Sports Trading Club and its officers Walla Walla Rubbish Tip Fire. and (investments in a gambling scheme). McLaughlin & Riordan, who had Who’s joining the party? represented clients in the Royal Of the remaining categories: Commission into the Home Insulation Natural disasters and events: two More firms are trying their hand at class Program, partnering with ACA Lawyers in environmental actions (2014/15: 6), actions. There were 19 plaintiff firms relation to the subsequent class action. both of which related to major fire involved in the 35 new actions. events - the Snake Valley Bushfire The majority of securities class actions filed In a number of actions, a law firm with a in central western Victoria and the this year were commenced by Maurice particular area of expertise has partnered Winmalee/Springwood Bushfire in the Blackburn (QBE, Vocation and Gunns with a larger “class action” firm to bring the Blue Mountains of NSW. directors) and ACA Lawyers (Macmahon matter to Court, such as: Claims against the State: four Holdings and WorleyParsons), in contrast Watson Law Group, a Brisbane- actions were filed against the state to 2014/15 in which five of 11 securities based superannuation and insurance (2014/15: 2), including in relation to actions were associated with Mark Elliott firm, working with Quinn Emanuel in the Navy trade training program, an (2015/16: 1). No new class actions were relation to an action against the Bank action relating to the Commonwealth filed by Slater & Gordon in 2015/16. of Queensland and DDH Graham in the Government’s home insulation Federal Court of Australia program, proceedings against Liverpool personal injury firm Bannister Law City Council following the dumping of combining with Quinn Emanuel in class asbestos and a claim against Greater

The Review – Class Actions in Australia 2015/2016 5 SECTION ONE

Who is picking up the tab? appointed a former Federal Court judge last year (2014/15: 45%) and remains a to advise its investment committee in significant increase on 2013/14 (25.9%).4 Sixteen of 35 class actions were relation to Australian claims. Locally Funded class actions are usually run on a confirmed as having the support of a listed JustKapital Litigation Partners closed class basis (restricted to those who third party litigation funder at filing. has announced co-funding agreements have signed an agreement with the funder). with Chicago-based Longford Capital At least nine funders are involved in class The defeat devices class actions funded Management LP (for a portfolio of cases) actions filed this year. These include new by Grosvenor Litigation Services were as well as Woodsford Litigation Funding entrants funding their first filed actions however commenced on an open class (against Slater & Gordon). IMF Bentham in Australia – New York-based Galactic basis. The competing actions commenced only funded one new class action, against Litigation Partners LLC (Navy trade by Maurice Blackburn are being conducted directors of Gunns (having also funded the training) and Jersey-based Vannin Capital on an unfunded / no win-no fee basis. (Bank of Queensland re Sherwin). Vannin earlier proceedings against Gunns directly). 4 Empirical research by Vince Morabito found that has been actively promoting its litigation The percentage of funded class actions 49.5% of actions filed in the last 6 years have been funding services in Australia since its funded: An empirical study of Australia’s class action this year (at almost 46%) is consistent with regimes fourth report: facts and figures on twenty- local launch in August 2015 and recently four years of class actions in Australia (29 July 2016).

Class Actions – Who is funded?

Not funded at commencement Funded 19 16 VW - Maurice Blackburn Audi - Maurice Blackburn Skoda - Maurice Blackburn QBE 2 x Cash Converters Vocation – Maurice Blackburn S&P / McGraw-Hill – Johnson Winter Slattery WorleyParsons Famularo advice Gunns (directors) Ford VW - Bannister Law Bankwest/CBA Audi - Bannister Law Murray Goulburn Bank of Queensland re Sherwin Carnival Spirit Snake Valley Bushfire 4 x S&P / McGraw-Hill Companies – Squire Patton Boggs Winmalee/Springwood Bushfire (Mt Victoria) Walla Walla Rubbish Tip Fire Home insulation program Sports Trading Club Sandhurst Trustees (Wickham) QRxPharma (MoxDuo) Macmahon Holdings Legal fees overcharging Navy trade training Nurofen Lang Centre Trust Asbestos landfill (Liverpool City Council)

6 King & Wood Mallesons SECTION ONE

We consider developments in relation to the class action brought by franchisees against telecommunications and utilities litigation funding in section four ‘Red hot – against Pizza Hut alleging breach of companies.7 litigation funding in Australia’. franchise agreements was dismissed, but may be subject to appeal.6 Where do all the good Game over claims go? Bank fees failure The past year has been remarkable for It seems these days that profit warnings, the number of cases that have suffered On 27 July 2016, the High Court put the natural disasters, and regulatory enforcement significant failures: final nail in the coffin of the bank fees outcomes are shortly followed by an class action against ANZ, upholding the announcement that a law firm or a funder under a conditional settlement reached decision of the Full Court of the Federal is taking registrations for a class action. in the equine influenza class action, the Court in 2015 that the late payment fees proceedings are to be discontinued, did not constitute penalties and are not How many claims actually make it past the with the law firm reported to be otherwise unconscionable, unjust or unfair “book building” phase? This year we have $11 million out of pocket under relevant statutory provisions. The looked back at those claims we identified in The Review 2014/2015 as under the Court refused to approve the terms decision is likely to end the numerous bank investigation, and have found that only of settlement proposed in the Willmott fee class actions commenced against three of the 19 claims we identified have Forest proceedings (see section five for other Australian banks which had been made it from announcement to filing, with details), with a further application for stayed pending this decision, as well as roughly half of the balance abandoned and approval to be heard later this year other “fee” class actions commenced half continuing in the investigation phase. a permanent stay was granted in the class action commenced by Mark Elliott 6 See Jacqui Bisas, Trish Matthews and Peta 7 Paciocco v Australia and New Zealand Banking Stevenson “Franchisees fail in their class action Group Limited [2016] HCA 28. See Moira Saville vehicle Melbourne City Investments against Pizza Hut”, King & Wood Mallesons and Alexander Morris “Penalties: High Court (4 April 2016). endorses “legitimate commercial interests” test” (MCI) against Leighton Holdings, with King & Wood Mallesons (17 July 2016). a stay also granted in early July 2016 in MCI’s proceedings against Treasury Wine Estates (TWE)5 Equine exasperation in MCI’s proceedings against UGL, the Equine influenza outbreak – August 2007 Court concluded that in light of a partially successful strike out application, MCI Commission of Inquiry report – April 2008 had no standing and sought submissions as to whether the proceedings Proceedings commenced in Queensland by Attwood Marshall Lawyers - 2009 constituted an abuse of process Maurice Blackburn announces possible class action – July 2012 the discontinuance of proceedings relating to the Australian Bight Abalone Claims Funding Australia (CFA), associated with Maurice Blackburn, and managed investment scheme was Argentum enter into co-funding agreement – October 2012 approved in light of statements by the plaintiff’s solicitors that prospects for Queensland action transferred to Federal Court – February 2013 success were slim “Common fund” proposal for co-funding by CFA - April 2013 the class action brought by former Storm Financial investors against ASIC Common fund application withdrawn January 2014 with CFA citing opposition by was struck out, and Attorney-General

5 Proceedings commenced by MCI against TWE Argentum removed as funder – April 2014 in the Victorian Supreme Court were stayed in December 2014. A second proceeding, Conditional “walk away” settlement – June 2016 commenced by Melbourne City Investments but with a different law firm acting, was transferred to the New South Wales Registry of the Federal Court Court approval hearing – August 2016 and it is these proceedings that have been stayed. Proceedings by Maurice Blackburn continue.

The Review – Class Actions in Australia 2015/2016 7 SECTION ONE

While this only represents figures for one the Victorian Supreme Court relating to litigation funders as to their likely revenues, year, it is very clear that not all proposed disclosures which were the subject of the these actions may represent more than class actions that make a headline make it settlement with IMF Bentham. That action $200 million in further settlement funds.8 to Court. settled in May 2016. See further in section The most significant single settlement was two ‘Multiplicity of class actions’. the $250 million settlement of a consumer In 2015/16 we also saw the mooted claim relating to DePuy International hip securities class action against Padbury Show me the money…a year replacement products. In contrast, no Mining resolve without litigation, however in settlements securities class action settled for more recent examples such as Downer EDI give Sixteen class actions had settlements than $50 million. A full list of the year’s rise to a serious question as to whether a approved in 2015/16 and, while we do settlements is set out on page 10. pre-litigation settlement of this nature will not know the full value of all settlements, deliver finality to the defendant – is Padbury A number of additional class actions have publicly available information indicates Mining safe from further action? In February also been settled in the review period but at least $411.38 million in settlement 2013, Downer EDI settled a potential remain subject to Court approval, which funds approved, well below the almost securities class action that had been funded are detailed further in ‘Outlook’. $1 billion in settlements reported last year. by IMF Bentham and investigated by Slater & Gordon in relation to the Waratah train The terms of four significant settlements 8 Litigation funders reportedly receive fees of project. The following month, solicitor remained confidential this year. Based on between 25% and 45% of a settlement. A funding Mark Elliott filed an “open” class action in media reports and information released by fee of 30% has been used as a median for the purpose of these estimates.

Significant securities class action settlements

1400 1289.7m 1226.6m 1205.6m

1200 1109.9m 1034.9m

1000

800 574.3m 514.3m 600 364.8m

400 291.8m 122.3m 127.3m 116.3m 116.3m 200 112.0m

0 30 June 2016 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

8 King & Wood Mallesons SECTION ONE

Significant securities class action settlements 9 10 Settlement Settlement Company Nature of allegations Date Amount GIO Misleading representations in takeover, reinsurance losses, business risk 2003 $112M Tracknet Misleading statements in prospectus, business risk 2004 $4.3M Concept Sports Continuous disclosure, misleading statements in prospectus, forecast 2006 $3M (reported, terms confidential) Harris Scarfe Misleading or deceptive conduct, continuous disclosure, corporate collapse 2006 $3M Telstra Continuous disclosure, business risk 2007 $5M Aristocrat Continuous disclosure, profit downgrade 2008 $144.5M Downer EDI9 Continuous disclosure, profit downgrade 2008 Approx $20M (confidential) Village Life Misleading statement in prospectus, continuous disclosure, forecasts 2009 $3M (Fig tree Developments) Sons of Gwalia Continuous disclosure, misleading or deceptive conduct, corporate collapse 2009 Approx. $70M AWB Continuous disclosure, business risk 2010 $39.5M Multiplex Continuous disclosure, profit downgrade 2010 $110M Media World Continuous disclosure, business risk 2010 $0 OZ Minerals Continuous disclosure, debt position 2011 $60M Credit Corp Group Continuous disclosure, profit downgrade 2012 $6.5M Centro Continuous disclosure, debt position 2012 $200M Nufarm Continuous disclosure, profit downgrade 2012 $46.6M NAB Continuous disclosure, business risk 2012 $115M Sigma Pharmaceuticals Continuous disclosure as part of rights issue, profit downgrade 2012 $57.5M Transpacific Industries Continuous disclosure, profit downgrade 2012 $35M Group10 GPT Continuous disclosure, misleading or deceptive conduct 2013 $75M White Sands Petroleum Misleading or deceptive conduct 2014 $3.25M Great Southern Misleading or deceptive conduct 2014 $23M Leighton Holdings Continuous disclosure, misleading or deceptive conduct 2014 $69.45M Brisconnections Misleading or deceptive conduct 2015 Approx. $21M (confidential) Gunns (directors) Continuous disclosure, misleading or deceptive conduct 2016 Approx. $16M (confidential) Newcrest Continuous disclosure, misleading or deceptive conduct 2016 $36M Downer EDI Continuous disclosure, misleading or deceptive conduct 2016 $11.1M Total $1.2897B

9 Settled prior to proceedings being commenced. 10 A proposed class action against Transpacific Industries Group for alleged misleading and deceptive conduct was first announced in March 2008. The settlement was significant as it was agreed before proceedings were formally commenced

The Review – Class Actions in Australia 2015/2016 9 SECTION ONE

Final class action settlements July 2015 – June 2016 11 12

Representative or group member Class action Respondents Allegations Settlement sum (damages)11 Applicants’ costs reimbursements Litigation funder % or $ Administration costs Storm Financial Commonwealth Bank of Australia Breach of contract, misleading or $33.68M $4,484,540.47 $5,855,521.62 Funded by group members Undisclosed Colonial First State deceptive conduct, and unconscionable (approved 7 July 2015) (legal costs not funded by contributing (includes funding reimbursements to conduct group members) contributing group members) Brisconnections Arup Pty Ltd Misleading or deceptive conduct Undisclosed $697,483 Undisclosed Undisclosed Undisclosed (approved 20 July 2015) (IMF estimated revenues of $6.3M) SCDOs Commonwealth Bank of Australia Misleading or deceptive conduct, Undisclosed (reportedly settled $1,937,343.94 Undisclosed Undisclosed Undisclosed negligence, breach of fiduciary duties for ~ $50M)12 and breach of contract (approved 7 August 2015) Abalone virus State of Victoria Public malfeasance, negligence No settlement sum to group Undisclosed Undisclosed Undisclosed Undisclosed Southern Ocean Mariculture Pty Ltd members, $2.57M costs to be (settled in 2013) paid to State of Victoria (approved 18 August 2015) Fairbridge Farm School Commonwealth of Australia Breach of statutory and common law $24M Undisclosed Undisclosed N/A Undisclosed State of New South Wales duties of care (approved 21 August 2015) Fairbridge Foundation Cash Converters (NSW) Cash Converters International Ltd Unconscionable conduct $20M $3M $10,000 Undisclosed $1.7 - $2M Cash Converters Personal Finance Pty Ltd (approved 12 October 2015) Safrock Finance Corporation (Qld) Pty Ltd Ja-Ke Holdings Pty Ltd Australian Capital The Trust Company (Nominees) Limited Negligence (breach of trustee’s duties) $25M $4,918,426.14 $3,250 N/A $684,149 (approved Reserve (approved 18 December 2015) 24 May 2016) False imprisonment of State of New South Wales (NSW Police) Unlawful deprivation of liberty At least $3.85M $2M Undisclosed Undisclosed Undisclosed young people (orders 2 March 2016) Interest on Reserve Fund to be paid to the Public Interest Advocacy Centre Springwood Bushfire Endeavour Energy Negligence and nuisance $4M Undisclosed Undisclosed Undisclosed Undisclosed (More proceedings) (30 March 2016) Gunns Directors Continuous disclosure, misleading or Undisclosed $2,328,992.40 $18,200 Undisclosed, $2,328,992.40 (includes deceptive conduct (approved 21 March 2016) (includes administration costs) (IMF estimated revenue of $4.9M) applicant’s costs) Bank Fees National Australia Bank Ltd Relief against penalties $6.6M (approved 6 April 2016) Max $600,000 $2,000 ($1,000 per applicant) Max $4.1M Undisclosed Standard & Poors McGraw-Hill Companies Inc Negligence, misleading and deceptive Undisclosed $4,537,671.38 $14,683.15 for City of Swan and Undisclosed Undisclosed (City of Swan) Standard & Poor’s Financial Services LLC conduct (approved 12 April 2016) $15,644.29 for Byron Hay Investments (IMF estimated revenue of $54M) LLC Standard & Poors International Downer Downer EDI Limited Continuous disclosure, misleading or $11.1M $2.85M $100,000 $825,000 $25,000 per month until deceptive conduct (approved 3 May 2016) 31 December 2017 Newcrest Newcrest Mining Limited Continuous disclosure, misleading or $36M $10,279,057.12 $57,802.50 Undisclosed $429,706.25 deceptive conduct (approved 3 May 2016) Springwood Bushfire Osborne Aviation Services Pty Ltd Negligence, poor maintenance Discontinued Undisclosed Undisclosed Undisclosed Undisclosed (Johnston proceedings) (proceedings continued against Endeavour Energy (approved 29 February 2016) but subsequently settled and since approved) DePuy Hip Implants DePuy International Ltd Negligence, breach of consumer $250M + interest Undisclosed $100,000 between four group members N/A Undisclosed Johnson & Johnson Medical Pty Ltd warranties (approved 29 June 2016) (estimated in settlement notice as $36M) ($10,000 - $40,000)

11 Gross settlement including legal costs and any payments to group members unless noted otherwise 12 See Leo Shanahan “Commonwealth Bank to settle CDO financial product row for $50m” The Australian, 4 April 2015

10 King & Wood Mallesons SECTION ONE

Final class action settlements July 2015 – June 2016 11 12

The Review – Class Actions in Australia 2015/2016 11 SECTION ONE

damage, and direct reliance did not need to be proved. The Indirect causation and chain of causation was that: its implications for HIH released overstated financial results to the market shareholder class actions The judgment in HIH Insurance Limited (in liquidation) (HIH)13 The market misapprehended that HIH was trading represents the first decision by an Australian Court that the more profitably than it really was and had greater net indirect market-based theory of causation is applicable in assets than it really had shareholder claims against listed companies.

While HIH was not a class action, the reasoning is directly HIH shares traded on the market at an inflated price, and applicable to securities class actions brought by shareholders based on provisions of the Corporations Act, ASIC Act and Competition and Consumer Act. Shareholders paid that inflated price to acquire their shares, and thereby suffered loss. Situation before HIH Prior to the HIH decision in April 2016, there had been long- Justice Brereton held that the appropriate measure of loss was standing uncertainty about how investors were to establish the difference between the (inflated) price paid by shareholders causation in securities class actions. It was unclear whether: and the price they would have paid had the contravening investors were required to prove actual reliance on the conduct not occurred. His Honour held this was the price company’s contravening conduct (‘direct causation’), or achieved by applying HIH’s share price to book ratio to HIH’s the requirement could be satisfied by investors showing that adjusted book value (corrected for the errors in HIH’s misleading they purchased their securities in the company at an inflated accounts). In His Honour’s view, this method of calculating loss price (where the inflated price was caused by the company’s had the benefit of isolating the company’s contravening conduct contravening conduct) (‘indirect causation’ or ‘market from other market influences. based causation’). As final orders have not yet been made as we go to press, the Decisions over the past two years had indicated an increasing time for any appeal has yet to commence. willingness by judges to accept market-based causation, however these were either obiter14 or in the context of strikeout applications Implications of the HIH decision where it was held that a pleading based on market-based This case has significant implications for shareholder class 15 causation was arguable and not liable to be struck out as a result. actions. Most importantly, it removes an area of uncertainty which had affected defendants and plaintiffs alike: the general The HIH decision explained perception being that one of the main reasons shareholder The plaintiff: a shareholder of HIH who had acquired its shares actions typically settled was that neither party wanted to risk this in the company between 26 October 1998 and 15 March 2001, question being definitively resolved adverse to their position. following the release of its financial results. There has been much speculation as to whether this decision The claim: Shareholders claimed (and HIH conceded) that will lead to a significant increase in the number of actions the financial results contained misleading and deceptive commencing. On one view, a significant increase is unlikely: representations, and that by releasing them HIH had contravened it has already become commonplace for actions to be the then section 52 of the Trade Practices Act 1974 (Cth). commenced following a significant decline in share price of a company, whether following a company announcement (for Shareholders argued that they had suffered loss as a result example, profit downgrades - Myer and Newcrest), loss of key of the company’s contravening conduct, but did not contend contracts/funding (such as Vocation), after an IPO, restructure or that they had read or directly relied upon the financial results merger (such as OZ Minerals), or after a corporate collapse. As containing the misleading statements. Instead, shareholders such, it is not as though the previous uncertainty over market- contended that they had purchased their shares in HIH at a time based causation had inhibited plaintiff firms from commencing when the shares were trading at an inflated price by virtue of the these actions. misleading financial results. It remains to be seen whether the HIH decision will have an Justice Brereton in the NSW Supreme Court considered: impact on settlements in securities class actions. The extent to whether the shareholders could claim damages on the basis which previously there was discounting for the risk that indirect of indirect causation, without proving direct reliance, and causation would not succeed is unclear. While clarity certainly if so, how the shareholders’ loss (if any) would be measured. facilitates class actions in that it removes the spectre of an The judgment: His Honour held that indirect causation was individual trial where investors (including institutional investors) available to the shareholders as a means of connecting the would need to give evidence regarding their investment decision- company’s contravening conduct to the shareholders’ loss and making, plaintiffs will still bear a significant evidentiary burden in establishing both liability and that the impugned conduct caused 13 Re HIH Insurance Limited (in liquidation) [2016] NSWSC 482. 14 Grant-Taylor v Babcock & Brown Limited (In Liquidation) [2015] FCA 149; the share price to be inflated. In HIH, liability was admitted. Grant-Taylor v Babcock & Brown Limited (In Liquidation) [2016] FCAFC 60. Expert evidence will also be needed to establish what the price 15 For example, see Caason Investments Pty Limited v Cao [2014] FCA 1410; Caason Investments Pty Limited v Cao [2015] FCAFC 94. would have been if not for the contravening conduct.

12 King & Wood Mallesons SECTION TWO Multiple class actions

There has been an increasing trend in separate trials arising from the same or members, not the Court, so that by trial the filing of multiple class actions similar issues.20 Courts generally prefer the defendant did not have to deal with concerning the same conduct/ to avoid formally consolidating actions, two proceedings brought on behalf of defendants in Australia, with five sets instead using one of the other methods set the same individuals. of related actions filed in 2015/16.16 The out above. Courts have never prevented The cost and inconvenience to defendants risk of multiple class actions gives rise to or permanently stayed an action. of dealing with joint trials of overlapping a number of questions for defendants. cases was not seen as a significant factor When can they be sure the litigation is Overlapping class actions when case managing multiple actions. truly over? What level of settlement is Recently, two class actions against Australian reasonable if this isn’t going to be the Executor Trustees Limited (in relation to Defending multiple class end? How can they curtail the burgeoning the collapse of Provident Capital) were actions costs of defending the same case, ordered to be heard together. The first had several times? been commenced by Slater & Gordon as Courts have not just examined whether an open class action and the second had multiple class actions may be brought, but Types of related actions been commenced by Meridian Lawyers as also how they may be defended. Related actions fall into three categories: a closed class action, with an overlap in the A number of class actions are currently classes and some overlap of the allegations underway regarding the ratings given by competing class actions, where there is 21 made and the time period covered. Standard & Poor’s to structured finance a direct overlap in the classes In making orders for a joint trial, Justice products (such as synthetic collateralised parallel class actions, where the classes Ball of the NSW Supreme Court debt obligations), with other proceedings are different but the subject matter is commented:22 having been resolved in past years.23 In the same, and case managing the new proceedings, “Where there are common issues Justice Rares in the Federal Court took sequential class actions, where one and a common defendant, the an unusual step. At an early stage of the commences after the other has interests of justice strongly point claims, the defendants’ CEO was ordered concluded. to the proceedings being heard to file an affidavit in relation to findings in Judicial responses have included: together, with evidence in one being two earlier cases regarding certain aspects evidence in the other, so as to reduce of the ratings methodologies. Justice ordering a joint trial (usually with costs and avoid the possibility of Rares ordered that, if the CEO believed evidence in one being evidence in the inconsistent judgements.” that those findings should not apply, then other)17 Other reasons stated by his Honour for he was to explain this and why the Court selecting one proceeding for trial and ordering a joint trial included: would need to deal with the issue of the staying the other proceeding(s) until the reliability of the impugned ratings at a final trial has concluded (effectively, a test facilitating settlement, since hearing.24 case),18 or proceedings running at different times and on different bases could hinder In making these orders, over the consolidating the actions into a single settlement; and defendants’ strong objections, Justice proceeding.19 Rares relied on the Court’s case at some point before the joint trial, In deciding how to proceed, the orders would likely be made requiring determinative factor is the best interests 23 The proceedings are: Mitsub Pty Limited overlapping class members to select v McGraw-Hill Financial, Inc & anor (NSD of class members as a whole, while the action in which they wanted 1344/2015); Muswellbrook Shire Council v Royal Bank of Scotland NV & anor (NSD 1322/2012); acknowledging the undesirability of to participate, the view being that Liverpool City Council v McGraw-Hill Financial, this should be a decision for class Inc & anor (NSD 1018/2014); Coffs Harbour City Council v McGraw-Hill Financial, Inc & anor (NSD 16 Treasury Wine Estates, Vocation Limited, Provident 1020/2014); Clurname Pty Ltd v McGraw-Hill Capital, Volkswagen and Audi. Others have been 20 Kirby v Centro Properties Ltd [2008] FCA 1505. Financial, Inc & anor (NSD 957/2015); Ceramic mooted: for example, two actions have been 21 Meridian Lawyers’ action was commenced in the Fuel Cells Limited v McGraw-Hill Financial, Inc & foreshadowed against Slater & Gordon. New South Wales Supreme Court, with the Slater anor (NSD 1126/2015); MDA National Insurance 17 Such as the Centro, OZ Minerals and Provident & Gordon action transferred to the Supreme Court Pty Limited & Ors (NSD 114/2016); Lifeplan Capital class actions. from the Federal Court. Australia Friendly Society Limited v Big Sky 18 Such as the bank fees class actions. 22 Smith v Australian Executor Trustees Limited; Building Society Limited & Ors (NSD 417/2016). 19 Such as the Nufarm class actions and the Esso Creighton v Australian Executor Trustees Limited 24 Mitsub Pty Limited v McGraw-Hill Financial Inc class actions concerning the Longford explosion. [2016] NSWSC 17. [2016] FCA 559 (20 May 2016).

The Review – Class Actions in Australia 2015/2016 13 SECTION TWO

management powers. His Honour Class actions and collateral The forest or the trees – stated that he had formed a preliminary litigation Anshun estoppel and the understanding that a substantive issue Timbercorp class action common to all eight actions concerned A related issue is whether collateral or allegations about Standard & Poor’s satellite litigation is precluded by the The Australian class action model was use of a particular formula in its rating settlement of a class action. In several designed to provide an effective procedure methodology that had been the subject of class actions involving failed managed to deal efficiently with multiple, similar claims adverse findings in a previous proceeding25 investment schemes (MIS), attempts against the one defendant. Class actions and critical reports cited in another were made when settling those actions can provide certainty and efficiency where proceeding.26 Based on that, Justice to ‘wrap up’ the entire dispute. These multiple claimants share substantially similar Rares wished to understand what, if cases involved allegations about the or identical claims. The bar for commencing any, bearing those matters may have on adequacy of the product disclosure a class action, however, is much lower preparing the eight proceedings for trial, statements, specifically whether they were than that. Where idiosyncratic claims, so as to make appropriate directions. misleading or deceptive. The cases also counterclaims or questions of fact specific to He went on to state that the trials of the involved allegations that loans which class individual group members intrude, the finality two earlier proceedings had taken some members had entered into to fund their offered by a class action may fall away. investments were void and unenforceable: time (three months for Bathurst and one The epilogue to the failed Timbercorp class month for Wingecarribee), indicating that The Great Southern settlement action exemplifies the limitation of the class these eight proceedings had the potential involved an acknowledgment that the action model in achieving finality. In the to absorb a large amount of court time loans were valid and enforceable, and Timbercorp class action, the plaintiff had and the person ultimately responsible for a scheme of arrangement was the sought a declaration, on his own behalf litigating these issues (who he took to be mechanism used to achieve a release and for group members, that certain loans the defendants’ CEO) should explain why of the class members’ claims in respect entered into with Timbercorp Finance be 27 the Court should revisit these issues. of their loans. declared void or otherwise unenforceable due to alleged non-disclosure of risks and Standard & Poor’s made a number The proposed Willmott Forests misrepresentations by Timbercorp Securities. of submissions as to why the Court settlement also involved an This action failed at trial and on appeal. should not take this approach, including acknowledgment of the enforceability arguments that the CEO would have of the loans and a prohibition on class In 2011, Justice Judd dismissed the to rely on hearsay and may have to members raising individual defences plaintiff’s claim, holding that the alleged disclose legally privileged information to in separate proceedings brought to risk did not need to be disclosed and make the affidavit, that the earlier cases enforce the loans. This settlement was that the alleged misrepresentations either did not relate directly to the structured not approved by the Court. had not been made, were too vague to finance products the subject of the be actionable or had a reasonable basis. Timbercorp, however, did not involve eight proceedings, and that making Orders were made binding the group a settlement: this was a class action the proposed order would give rise to members to the resolution of common which failed at trial and on appeal. The concerns as to pre-judgment of the issues. questions arising in that claim. An appeal effect of the outcome on the ability of These arguments were rejected by Justice to the Court of Appeal was dismissed, as class members to raise and maintain Rares. Standard & Poor’s application was a subsequent application to the High individual defences to loan enforcement for leave to appeal these orders, and the Court for special leave to appeal. appeal, was heard on 6 July 2016 and at actions has been the subject of judicial the time of writing, judgment was reserved. consideration at both first instance and Timbercorp Securities then commenced on appeal. 1,288 proceedings for recovery of moneys owing under loans to borrowers, many of whom had been group members 25 Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200. in the failed class action, who then A Standard & Poor’s entity was a defendant in these proceedings. raised individual defences, set offs and 26 Wingecarribee Shire Council v Lehman Brothers allegations not resolved by the preceding Australia Ltd (in liq) [2012] FCA 1028, in which Standard & Poor’s was not a party. class action. 27 Mitsub Pty Ltd v McGraw-Hill Financial Inc [2016] FCA 559 at [10] - [15].

14 King & Wood Mallesons Timbercorp’s arguments included that the defendants were estopped from raising such defences (in accordance with the The High Court has now granted special wished to raise individual claims or defences doctrine enunciated in Port of Melbourne leave to appeal from the Court of Appeal’s to enforcement of the loans either to opt out Authority v Anshun Pty Ltd (1981) 147 decision, with the hearing scheduled of a class action or to seek to raise these CLR 589). Justice Robson determined for September 2016, and so a definitive in the class action itself. His Honour found this as a preliminary question and held resolution to this important question will that it would be unjust for group members that the group members were free to raise likely be delivered before the release of to be precluded from raising such claims/ individual defences which had not been next year’s report. defences (as the settlement purported to do) determined by the resolution of common when they had been given no notice prior to questions in the preceding class action.28 Loan enforceability the proposed settlement (for example, via a In June 2016, the Victorian Court of In disposing of Timbercorp’s arguments, clear statement to that effect in the opt out Appeal confirmed that group members both Justice Robson and the Court of notice) that this might happen. are not prevented from raising individual Appeal expressed disagreement with views While the High Court may now resolve defences in debt recovery proceedings that had earlier been expressed by other the seeming conflict arising out of these brought against them by Timbercorp members of the Victorian Supreme Court three agribusiness class actions (each Finance, notwithstanding that the in approving the settlement of the Great propounded by Macpherson & Kelley), enforceability of those loans was at issue in Southern class action and in refusing to the reasoning of the Court of Appeal in the failed class action against Timbercorp allow dissatisfied group members to opt out. Timbercorp (and the Federal Court in Finance and Timbercorp Securities.29 The Willmott) is compelling. The structure of Court of Appeal rejected an argument that In Great Southern, the Court approved Part IVA of the Federal Court of Australia an Anshun estoppel arose against group (over the objection of some group Act is to resolve questions of law and fact members because it was unreasonable members) a settlement which purported to common to group members. It would for them not to have either opted out admit and acknowledge the enforceability 30 be a profound and radical result if group of the earlier class action or raised their of loan deeds made with group members. members, who often have little (if any) individual claims for determination as part The reasoning given was that, had the class awareness of how common claims are of that class action. This was too dramatic action proceeded to judgment, the plaintiff’s being prosecuted on their behalf, could a consequence of failing to opt out and, claims would have been dismissed and be precluded from relying upon individual if it applied, would produce a substantial the group members would thereafter have and idiosyncratic defences because the incentive to group members to opt out been precluded (on issue estoppel, Anshun representative plaintiff’s action has failed. of class actions, thereby undermining the estoppel or abuse of process grounds) The class action system is designed to efficient resolution of common questions from raising individual defences to the aggregate and resolve multiple similar of law or fact while avoiding a multiplicity enforceability of the relevant loans. claims, not to foreclose multiple individual of proceedings. The decisions in the Great Southern defences. Enforceability of individual loans The Court of Appeal also held that, while litigation stand in stark contrast to both concerned questions about individual factual group members could have sought to raise the Timbercorp decisions and the recent circumstances. individual claims in the course of the class decision of Justice Murphy in the Federal action, it was not clear that they would Court declining to approve a proposed A lingering question settlement of the Willmott Forests litigation. have been given leave to do so (such right A question remains as to the extent of being generally limited to the representative Like the Victorian Court of Appeal in the power which representative plaintiffs plaintiff) and that Timbercorp suffered no Timbercorp, Justice Murphy in Willmott should be allowed to wield over dissimilar prejudice by them not having done so. Forests rejected a contention that it was claims made by group members. On that basis, the class members had not incumbent upon group members who acted unreasonably. In both Great Southern and Willmott Forests, 30 Clarke (as trustee of the Clarke Family Trust) & Ors it appears to have been assumed that the 28 Trish Matthews and Erika Codognotto v Great Southern Finance Pty Ltd (Receivers and representative plaintiff has the power to “Timbercorp: preserving individual defences to Managers Appointed) (in liquidation) & Ors [2014] related proceedings even after claim is dismissed” VSC 516. See Trish Matthews and James Apps compromise unarticulated group member King & Wood Mallesons (27 October 2015). “Court approval of Great Southern sees the plaintiff 29 Timbercorp Finance Pty Ltd (in liquidation) v Collins avoid a comprehensive failure” King & Wood & Tomes [2016] VSCA 128. Mallesons (23 December 2015).

The Review – Class Actions in Australia 2015/2016 15 SECTION TWO claims and, in doing so, to give admissions of group member liabilities to a defendant. Using schemes of arrangement to achieve finality By way of contrast, United States courts It is obviously frustrating for defendants to settle or otherwise resolve a class action have recognised as a “fundamental and then be immediately faced with another proceeding or class action on behalf principle” of class actions that the powers of a different group of claimants. From claimants’ perspectives, the ability of a of the representative plaintiff (including claimant group to deliver finality is important in any settlement discussions as many to settle) are limited “to the claims they defendants are reluctant to settle without finality in respect of any particular legal possess in common with other members issue or risk. of the class”.31 This represents a significant protection for group members “who must One means of achieving finality is a scheme of arrangement, under which a rely on the congruence of their interests company can effect a compromise or arrangement with its members, its creditors or with those of the representatives as the any class of them. To be effective, a scheme requires the approval of the Court and incentive for effective representation” by the approval of 75% in value and 50% in number of the class of creditors / members the named plaintiff because “the self- to which the scheme applies who attend and vote at the scheme meeting. The interest of the representative… drives scheme will then bind all creditors / members within the relevant class. the active party.”32 Where, however, a representative plaintiff has the power to The Opes Prime scheme conduct and settle a group member claim, A scheme of arrangement was used by the liquidators of Opes Prime (represented in which they share no interest, there can by KWM) and several banks in 2009 very effectively to settle 15 proceedings be no confidence that group member which had been commenced against Opes Prime and the banks in various Courts interests will be adequately represented. throughout Australia and Hong Kong including one class action, a group proceeding (with more than 70 plaintiffs) and another threatened class action. Pursuant to This is all the more true if, as found by the schemes, the banks contributed $256 million to be distributed to claimants as the Court of Appeal in Timbercorp, group consideration for the release of all claims against the banks and a dismissal of all members have no recourse against of the proceedings. Through the scheme mechanism, even those claimants who representative plaintiffs or their counsel as voted against the scheme were bound by the releases. In this context, the scheme to the manner in which a class action has provided a final and holistic solution to an incredibly challenging multiplicity of been conducted. In other circumstances, proceedings. those who assume conduct of litigation on behalf of others (such as tutors or guardians) More recently, a scheme was used in a similar way to settle the multiple class undoubtedly owe duties to those whom actions brought by investors in the managed investment schemes operated by the they represent. Why this should not be the agribusiness Great Southern group. case in class actions has never adequately A scheme of arrangement can be used to extinguish claims against third parties. been explained.33 It is only in the recent The Opes Prime scheme was crafted so as to release claims against the banks, Willmott Forests case that Justice Murphy while the Great Southern scheme released investors’ claims against the Great suggested that the representative plaintiff’s Southern directors and their D&O insurers. solicitors (who already owed fiduciary duties to those class members who had retained A “pre-emptive strike” them) also had a fiduciary-like obligation to class members who had not retained them. A scheme can also be used by a solvent defendant as a “pre-emptive strike” to neutralise anticipated mass legal claims before the claims arise and before a class Given the undemanding nature of the criteria action is commenced. In December 2015, Atlas Iron reached an agreement with that must be met by a representative plaintiff certain lenders to implement a financial restructure, where the debt owing by before commencing proceedings under Atlas Iron to those lenders would be reduced and the terms of the remaining debt Australia’s class action regime, and the renegotiated in exchange for the issuing of shares and options. The restructure consequent vulnerability of group members, was carried out by way of a creditors’ scheme of arrangement. The scheme also we welcome developments which throw released any potential shareholder claims resulting from representations made in greater scrutiny upon settlements, such as previous capital raisings and also for any breach of continuous disclosure against the appointment of contradictors or amici the company (except to the extent of any net insurance proceeds which might curiae to consider proposed settlements be available). The release of shareholder claims was an important component (as was done by Justice Murphy in Willmott of the restructure because any such claims, if not released, would have priority Forests), to address conflict concerns. over the lenders (to the extent that the debt was swapped for equity). Since the estimated return to such claimants in a winding up of Atlas Iron was nil, the shareholder claimants were not entitled to vote on the scheme by reason of the operation of section 411(5A) of the Corporations Act. Similar sorts of releases have been included in some takeover schemes (such as Bupa’s 2013 acquisition of 31 National Super Spuds, Inc v New York Mercantile Dental Corporation) so as to cleanse the target of any potential Exch, 660 F 2d 9, 16 (2d Cir 1981). 32 Stephen Yeazell, “From Group Litigation to Class shareholder claims as part of the acquisition. Action, Part I: The Industrialization of Group Litigation” UCLA Law Review, vol 27 (1980) 514 at Samantha Kinsey 522, quoted with approval by McHugh J in Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR Partner, Melbourne 398 at 429. 33 In the United States, it has been accepted that [email protected] class members are able to sue class counsel for breaches of fiduciary and tortious duties. No such actions have been attempted in Australia.

16 King & Wood Mallesons SECTION THREE Parties and players

The review period has been marked by against Vocation and Murray Goulburn Superannuation Fund in class actions two trends – repeat players and new (both run by Elliott Legal) against Sandhurst Trustees Ltd in entrants, with claims against directors Earglow Pty Ltd, which was first relation to LKM debentures and against and advisors also continuing. lead plaintiff in proceedings against partners of KPMG in relation to the Sigma Pharmaceuticals and was the collapse of Octaviar. Unlucky or looking for trouble? representative plaintiff against Newcrest (both run by Slater & Gordon) Claims against directors and Repeat plaintiffs continue to appear in Clurname Pty Ltd in proceedings class actions, usually associated with the advisors against CBA in a 2012 class action same law firm promoting the proceedings. In 2015/16, we have seen directors joined relating to synthetic collateralised Mr Elliott has repeatedly used his private as defendants in five class actions, all debt obligations (SCDOs) (settlement company, Melbourne City Investments, in the securities and investment claims approved in August 2015) and against as the vehicle by which he has pursued categories,34 and professional advisors Standard & Poor’s in proceedings filed shareholder class actions, as well as: joined in only two new class actions.35 in August 2015 (both run by Squire John William Cruse Webster (As Trustee Patton Boggs); and for the Elcar Pty Ltd Super Fund Trust) Charles Hodges in his capacity 34 Claim against Bankwest/CBA, Gunns (directors acting as lead plaintiff in proceedings only), Sports Trading Club, QRxPharma and as trustee of the Charles Hodges Murray Goulburn. 35 QRxPharma and Vocation (Maurice Blackburn).

Multiplying your targets in itself, aiming to “spread the pain”. In May 2014, OZ Minerals found itself defending a class action by Zinifex shareholders class actions who acquired shares in OZ Minerals (having faced two earlier While the majority of class actions are brought against the class actions by the shareholders of Oxiana Limited and Zinifex primary target (such as the company that allegedly engaged Limited that were settled in 2011). OZ Minerals not only cross- in the misleading conduct or breached continuous disclosure claimed against Zinifex’s solicitors but commenced separate requirements), directors and professional advisors may also be proceedings in the Victorian Supreme Court against both Grant joined to proceedings. The net is swept widely, and has drawn Samuel and Oxiana’s lawyers (as well as against its own former in traffic forecasters, accountants, lead managers, lawyers and directors and executives). Further cross-claims were brought management consultants. against Oxiana’s accountants (KPMG). The allegations against the professional advisors were that: The fact that joining multiple defendants will usually result in KPMG incorrectly classified debt in the accounts as long greater cost, complexity and delay has not halted this trend. term when it should have been classified as short term Often, the decision to include directors or professional advisors advisory firm Grant Samuel hadn’t taken into account as defendants is because the target is insolvent and/or the $US340 million of debt when recommending that directors/advisors are covered by insurance (so are perceived shareholders vote in favour of the merger, and to have the “deep pockets”) and have professional reputations Oxiana’s lawyers had failed in advising it on its market to protect (and thus, more to lose). For example: disclosure obligations in early 2008 and on the disclosure in the Brisconnections class action, proceedings were given in the merger scheme booklet – largely surrounding commenced against the traffic forecaster as the toll road the alleged failure of Oxiana to properly disclose short operator had gone into liquidation, and term debts. actions were commenced against directors of Gunns and QRxPharma, as the companies had been placed into The trial for the matter was due to commence on 6 June 2016, administration. but settled soon after. That settlement was subsequently approved by Justice Middleton on 18 July 2016. It has been more common for professional advisors to be brought into actions at a later point by the target company

The Review – Class Actions in Australia 2015/2016 17 SECTION THREE

Are insurers taking over the The immediate implication was that only a small number of policy holders were effectively removed from the class action, plaintiff space? A look at which could have significant ramifications for the amount the Endeavour and beyond insurer recovers out of the class action.

Generally speaking, class actions define a class of potential Implications claimants who are bound by the outcome of the proceedings Has Endeavour Energy, in rebuffing the insurer’s attempt to (including settlement) unless they exercise a right to opt out. move into the plaintiff space by bringing its own class action, Increasingly, insurers are finding their policyholders fall within killed the possibility of insurers participating in class actions in the defined class, requiring a decision whether to remain in the the future? We think not. Insurers who wish to control opt out class or opt out and bring a separate recovery action (including decisions have been reviewing their policies to ensure they have by way of a separate class action). the right to make that decision notwithstanding any protest Two main issues arise: from the policyholder. What benefits are there to insurers pursuing separate claims; There remain (we think) significant benefits to an insurer in and pursuing their own recoveries by class action or individual Who controls the opt out decision. claim, not least of which is the (likely) increased recovery. There are also benefits for insurers remaining part of a class and not Benefits to separate claims? opting out, such as reduced exposure to costs. Separate claims may be attractive to insurers because they: may run the action more efficiently given information The role of insurers in class actions commenced by others is advantages; and/or often opaque given the minimal information available on group can avoid reduction in amounts recovered by either uplift members. Some indications are sometimes given, such as fees charged by class action lawyers or amounts paid to in the Brisbane Floods class action, where the plaintiff has litigation funders. commenced proceedings on behalf of persons and insurers of such persons. We explored this in an earlier article.37 How recovery proceeds are allocated between policyholder and insurer can also be a relevant consideration - section 67 of the A conflict for insurers? Insurance Contracts Act and the policy terms can be relevant as Whilst control of a class action may be attractive for insurers, they deal with the priority to, or allocation of, recovered amounts. such control can also create conflicts. That is because of the role insurers often play on the defence side of class actions. Control of the opt out decision A delicate balance is required between maximising recovery as Who controls the opt out decision can turn on a range of plaintiffs and defending any claims as insurers factors including the policy wording and the scope of the of the defendants. Watch this space. indemnity granted by insurers. Travis Toemoe Control was the central issue in a significant judgment in the Partner, Sydney Endeavour Energy class action this year. The NSW Supreme [email protected] Court reinforced the importance of the policy terms in determining the insurer’s ability to control opt out decisions.36 A large number of opt out notices prepared by insurers on behalf of policyholders were deemed invalid for two main reasons: the policies did not give insurers the power to make the opt out decision, and / or where a policyholder is under-insured, the policy-holder retains the right to commence action to recover both the 37 Justin McDonnell and Kione Johnson “A flood of causal inquiries? Causation insured and uninsured losses without interference from and insurance issues in tort-based class actions”, King & Wood Mallesons (27 October 2015). See our more detailed discussion of the Endeavour the insurer. Energy decision by Travis Toemoe and Peta Stevenson “Class action judgment highlights uncertainty in insurance policies”, King & Wood Mallesons 36 Johnston v Endeavour Energy [2015] NSWSC 1117. (4 September 2015).

18 King & Wood Mallesons SECTION THREE

New firms attracted to means that group members “need take a pool to meet any security ordered, the class actions no positive step in the prosecution of the proceedings may be stayed. proceeding to judgment to gain whatever Justice Beech-Jones recognised that the The number of law firms representing benefit its prosecution may bring”.40 plaintiffs in class actions continues to requirement that group members provide rise. In 2015/16, the 35 filed actions In an action against Carnival regarding information as part of the opt-out process involved 19 different firms, no doubt a rerouted cruise, the Court noted that represented a departure from the usual attracted by the prospect of large fees. although there was nothing to suggest the approach, which enables group members Whereas recent research shows the plaintiff was deliberately chosen for her to take an “essentially passive role” until majority of class actions have historically impecunious circumstances, the damages judgment on the common questions of been filed by Maurice Blackburn and claimed were minimal. Accordingly, fact or law is delivered or a settlement Slater & Gordon (approximately 17% of the unpaid costs of litigation would be is approved. The Court considered that actions each),38 smaller personal injury firms “significantly disproportionate” to the cost it was justified in this case on the basis and some commercial law firms are now of the claim faced by the defendant and it that a sufficiently strong case for ordering pursuing class actions. was therefore unfair that it have all the cost security had been made out to warrant exposure. ascertaining the ability and willingness of In The Review 2014/2015 we noted one group members to contribute to a fund The Court noted that the onus remained mid-tier commercial firm proposing a class to meet such an order. The Court also with the plaintiff to establish that the action on behalf of aggrieved Vodafone noted that it was possible no security for ordering of security would stultify customers; and in June 2016 another costs would be ordered after these proceedings, which had not been satisfied mid-tier firm advertised a shareholder enquiries were made of in that case. Following the approach class action against Surfstitch, seeking group members. registrations of interest from current and adopted in Madgwick v Kelly, the Court past shareholders.39 directed the parties to negotiate the form of a revised opt out notice to ask It has not however been smooth sailing group members about their willingness to for all players this year, with listed firms contribute pro-rata in the order of 15% of Slater & Gordon and Shine Legal both the cost of their cruise to a pooled fund running into difficulties in provisioning for for security. Once the responses to that work-in-progress, issuing trading halts notice were received, a judgment could and reporting adjustments in expected then be made about the effects of an earnings. Two firms have stated that they order for security.41 are actively considering class actions against Slater & Gordon. The Court noted that group members should be put on notice that: The role of group members in a group member who did not security for costs respond, or unreasonably Where an impecunious plaintiff is suing declined to contribute, may be for the benefit of others, Courts have removed from the proceedings confirmed their willingness to consider (which we anticipate would be ordering security. This marks a departure achieved by means of a “class from the starting position that the opt closure” process); and out nature of class actions in Australia if sufficient group members were to unreasonably refuse to contribute to 38 Vince Morabito reports that each firm has acted in 64 class actions each out of a total of 340 actions filed between 4 March 1992 and 3 March 2016: 40 Mobil Oil Australia Pty Ltd v Victoria (2002) 211 An empirical study of Australia’s class action regimes CLR 1 at 32; [2002] HCA 27 at [40] per Justices fourth report: facts and figures on twenty-four years Gaudron, Gummow and Hayne. of class actions in Australia (29 July 2016). 41 De Jong v Carnival PLC [2016] NSWSC 347. 39 “SurfStitch Group Limited - Possible Class Action,” The same approach has been adopted in Western Gadens website, 11 June 2016, www.gadens.com/ Australia under the existing rules of court regime News/Pages/SurfStitch-Group-Limited- for representative actions: Boase v Brook [No 2] %E2%80%93-Possible-Class-Action.aspx [2016] WASC 1.

The Review – Class Actions in Australia 2015/2016 19 SECTION FOUR

Red hot – litigation “Australia is regarded as a pretty hot place for litigation funding in Australia funding with a lot of foreign funds nosing around.”45

When comparisons are drawn in the class action in which Maurice Blackburn time, Tamaya Resources is defending a media between third party litigation funding was acting: securities class action in relation to the and private equity, and there are reports same transaction, which is also funded by created a ‘backdoor’ way for a law firm of one funder having more than 60% ILP. Refusing leave to amend pleadings to obtain contingency fees, which are of the market and receiving a return in both cases, the Full Federal Court otherwise prohibited, and on investment of 144% since listing in noted that:45 2001, you can be sure that ears prick up. gave rise to potential conflicts between It will be observed that the same Australia has a reputation as an attractive the law firm’s pecuniary interest, on the funder is on both sides of the market for litigation funders. This will be one hand, and its duty to clients, on the record. The desirability of permitting reinforced by reports that 92% of funded other. such arrangements is something class actions settle (compared to 48.9% of CFA discontinued its application in the which warrants investigation by the unfunded proceedings).42 face of the Attorney-General’s express legislature.46 A new playing field? opposition to law firms both acting in and effectively financing the proceedings by Regulation: a focus on In the past 12 months, private equity funds owning a funder.43 CFA is still promoting disclosure have continued to partner with litigation itself as a litigation funder, emphasising Despite the high proportion of cases that funders in Australia, with JustKapital the advantage of its backing by Maurice are being funded, it remains the case that partnering with Longford Capital (US). Blackburn, which it states “evaluates no specific regime applies to regulate third Moving in the opposite direction, however, every request for funding and makes party litigation funders. Funders benefitted we have also seen IMF Bentham end recommendations to our board based on from exemption pursuant to an ASIC class its arrangements with US-based Elliott those assessments”. Such a combination order and subsequently by amendments Management Corporation, JustKapital of roles – with Maurice Blackburn to the Corporations Regulations 2001 (Cth) abandon a proposed takeover of Litigation undertaking the initial assessment of that exclude litigation funding schemes Lending Services, and a potential merger the case and CFA funding any ensuing and arrangements from the definition of between Vannin Capital and Litigation proceedings – could prove more profitable managed investment scheme and provide Capital Management fall by the wayside than acting in the proceedings given the an exemption from the requirement to hold (though not without a dispute between prohibition on contingency fees and the an Australian Financial Services Licence. LCM and its former managing director, current cap on uplift rates. who has since taken up a role with Litigation funding remains subject to the Despite the increasing number of Vannin Capital). general supervision of the Court (including funders in Australia, concerns have been its common law protections against A number of new players entered the expressed about the options available abuse of process), and Federal, State and litigation funding market in the past year, for group members in circumstances Territory consumer protection regimes, including JustKapital (WorleyParsons), where a law firm partners with a funder to with the adequacy of disclosure of litigation Vannin Capital (BOQ/Sherwin) and Galactic investigate a class action, meaning group funding arrangements to group members Litigation Partners (Navy trade training). members have no real alternative at the continuing to be a focus of the Court. point at which they sign up.44 Claims Funding Australia (CFA) first Disclosure was key to the Productivity emerged as a possible funder of litigation Concerns have also been expressed by Commission’s 2014 recommendation that a in relation to the equine influenza the Court that funders are taking roles on licensing regime be established for litigation class action. CFA was established by different sides of the same factual dispute. funders. This recommendation was driven principals of Maurice Blackburn, and Tamaya Resources is suing its former by consumer protection concerns so as to sought approval from the Federal Court directors and auditors. The liquidator’s ensure not only that funders hold adequate to co-fund the claim by group members action is funded by International Litigation capital relative to their financial obligations, for whom Maurice Blackburn was acting. Partners No 2 Ltd (ILP). At the same but also to properly inform clients of relevant Concerns were raised that CFA funding a 43 See Moira Saville and Alexander Morris “The end of law firm funding?” King & Wood Mallesons 45 Philip Kapp as quoted in Leo Shanahan “Law 42 Vince Morabito, An empirical study of Australia’s (3 February 2014). and order: litigation funding set for shake-up” class action regimes fourth report: facts and 44 Sarah Danckert “UniSuper criticises class action The Australian, 17 July 2015, page 23. figures on twenty-four years of class actions in funder over fees” The Sydney Morning Herald 46 Tamaya Resources Limited (in liq) v Deloitte Australia (29 July 2016), page 8. 21 August 2015 (accessed 22 August 2015). Touche Tohmatsu (A Firm) [2016] FCAFC 2 at [13].

20 King & Wood Mallesons SECTION FOUR We are at risk of having a friendly common law environment that is ripe for exploitation by litigation funders. – Louise Petchler, AICD48

obligations and systems for managing risks funder’s fee (including the percentage create incentives for lawyers which and conflicts of interest.47 The government amounts and other rewards to which a could conflict with the interests of their is yet to respond to the litigation funding funder would be entitled on settlement) clients; and aspects of the Productivity Commission’s and clauses dealing with settlement increase the volume of unmeritorious Access to Justice Arrangements report.48 mechanisms and termination. In reaching litigation. this conclusion, his Honour noted the The existing Federal Court class action intention of the Practice Note to “strike a The Law Institute of Victoria to date stands practice note (CM 17) sets out the Court’s balance between the rights and interests of alone in favouring the introduction of expectation that any agreement by which the parties as they are, or may be, affected contingency fees as a means of providing a litigation funder is to pay or contribute to by the involvement of … the funder.” 50 access to justice, arguing that it would the costs of the proceeding, any security result in a greater number of small to for costs or any adverse costs order will be Update on contingency fees medium-sized cases being brought and disclosed by the first case management In all states and territories of Australia would bring down the costs of litigation. conference, subject to the redaction of there is a general prohibition on solicitors Any adoption by Victoria of contingency information which might reasonably be charging contingency fees (or “damages- fee arrangements would require it to break expected to confer a tactical advantage based fees”), being a costs agreement away from the Legal Profession Uniform on the other party. The draft Class Actions under which the amount (or part of the Law, which only commenced in NSW and Practice Note49 issued by the Federal total amount) that the client must pay to Victoria on 1 July 2015. Court in January 2016 (see further section the law practice is calculated by reference six) takes the same approach, with an A formal position is yet to be set out by to the amount of any award or settlement additional requirement that changes to any the Federal Government, with its response or the value of any property that may be such arrangements be notified to the Court. to the Access to Justice Arrangements recovered if proceedings are successful report, released on 29 April 2016, limited The Federal Court recently ruled on a or settled. The general rationale for the to the funding of legal aid commissions dispute regarding the extent of redaction current prohibition is that contingency fees and community legal centres. permitted to a funding agreement on create incentives for lawyers which could the basis of privilege claims. In a case conflict with the interests of their clients. Uplift in NSW actions relating to ratings applied to complex The Productivity Commission’s final report financial products by Standard & Poor’s, Since 1 July 2015, it has been possible on access to justice arrangements in the question arose as to whether Coffs for lawyers in New South Wales to Australia was released on 3 December Harbour Council could maintain redactions charge an uplift of up to 25% of fees 2014, recommending the removal of the over parts of the funding agreement. where cases are run on a conditional or “no existing ban on charging of ‘damages- Justice Rares ruled that redaction could not win no fee” basis (which had already been based’ or contingency fees by lawyers be justified on the basis of legal privilege possible in Victoria). The ability to charge (other than in relation to criminal and family as the agreement was not created for the an uplift provides an alternate funding law matters).51 Since then, debate has dominant purpose of giving or receiving model to third party litigation funding. continued in a vacuum with the Attorney- legal advice. His Honour did, however, General providing no indication as to In the year since uplifts have been accept that it could be appropriate to whether such a change is supported by possible, we have seen 29 of 35 new redact parts of the funding agreement Government. class actions filed in New South Wales on the basis of appropriate claims for (83%; 2014/15: 58%). While we do not confidentiality, which could extend to the In April 2016, the Law Council of Australia know if these matters have a conditional fee confirmed that it was against the arrangement, one can speculate that the introduction of contingency fees on the 47 Productivity Commission Access to Justice ability to charge an uplift may be attracting Arrangements Report (released 3 December 2014), basis that it would: Recommendation 18.2. See James Emmerig a greater proportion of class actions to New and Peta Stevenson “Productivity Commission’s access to justice recommendations may reshape South Wales as a jurisdiction. Australia’s litigation funding market”, King & Wood 50 Coffs Harbour City Council v Australian and New Mallesons (23 December 2014). Zealand Banking Group Limited [2016] FCA 306. 48 Cited in Sarah Danckert “Shaken and a bit stirred, 51 Productivity Commission Access to Justice but class action undaunted” The Sydney Morning Arrangements (3 December 2014). See James Herald, 30 July 2016, pages 4-5. Emmerig and Peta Stevenson, “Productivity 49 Available at: www.fedcourt.gov.au/__data/assets/ Commission’s access to justice recommendations pdf_file/0003/30486/Draft-Class-Actions.pdf may reshape Australia’s litigation funding market”, (13 January 2016) at [20]. King & Wood Mallesons (23 December 2014).

The Review – Class Actions in Australia 2015/2016 21 SECTION FOUR

Of the 29 class actions filed in NSW in A spike in class actions was also seen research does not state what proportion 2015/16, we are aware of only 12 being after the 2006 Fostif judgment. In that of these actions were funded: supported by litigation funding at filing.54 judgment, the High Court confirmed This could indicate a trend towards the

that the funding of litigation was not use of an uplift in New South Wales cases. 31 August 2006 to an abuse of process or contrary to When used in combination with a product 30 August 2009 public policy.52 Research by Professor 54 such as after-the-event insurance, this Vince Morabito found that there was a model of financing proceedings could 53 dramatic increase in class actions filed 31 August 2003 to make it viable to bring actions that a in the period post Fostif, although his 30 August 2006 20 litigation funder might not be interested in.

53 Vince Morabito Class Action Facts and Figures second report: an empirical study of Australia’s class action regimes, Litigation Funders, Competing Class Actions, Opt Out Rates, 52 Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd Victorian Class Actions and Class Representatives 54 Some cases may combine both an uplift and (2006) 229 CLR 386; [2006] HCA 41. (September 2010) page 17. litigation funding.

Breakdown of actions by jurisdiction

Queensland Registry of Federal Court 1 1 QLD 1 Supreme Court of NSW 9 2

29 NSW Registry, 10 NSW Federal Court 20

Supreme Court VIC 5 of Victoria 3 1 Victorian Registry, Federal Court 2 2 Cases Funded

22 King & Wood Mallesons SECTION FOUR

Common interest in a common fund allocation. Both “funding” group members proceedings against Leighton Holdings and funders have complained that this falling away when the matter settled. leads to inequality in the result, with “free There is A common fund order by the Court riding” by non-funding group members. something to be would provide upfront approval of the said for the proposition that some form of common To overcome this potential disparity, funder’s right to recover costs, expenses fund approach … to deal settlements have typically involved a and remuneration in respect of all group with the reality of commercial “funding equalisation payment” approved members, regardless of whether the group litigation funding in representative by the Court. The funder receives only the member had a funding agreement, as well proceedings. It would, however, contracted-for amount, but the liability to as resulting in an enforceable court order. perhaps be preferable for that to pay that commission is borne equally by occur as a result of legislative The effect of an equalisation order and funded and unfunded group members. reform, rather than by way of common fund arrangement can be the piecemeal utilisation Such an approach has been used in a depicted as below, using a $100 million by judges of general number of class action settlements (such settlement, 40% funder’s fee and equal discretionary powers. as the GPT class action) and is proposed – Justice Wigney55 split of funded and unfunded group in respect of the recent conditional members to frame the comparison. settlement of the Billabong class action. The application in Allco was unsuccessful, More attractive to a funder, however, is a with Justice Wigney finding that it was Litigation funders require a “book build” situation in which they can be guaranteed premature and inconsistent with the to sign up a critical mass (by number or their funding fee from all group members, statutory scheme for class actions for a value) of claimants before they will commit whether or not they have signed a funding common fund order to be made at that to funding. agreement. This would increase the stage of the proceeding, and would not be total amount of the funder’s fee. Last Where an “open class” action has litigation in the best interests of the group members year, we reported on the unsuccessful funding, only the funded group members as a whole.56 This was a setback in attempt to have International Litigation must remit a share of their damages to attempts to broaden the scope of litigation Funding Partners Pte Ltd (ILFP) formally the funder; while those group members funding in Australia, and limited funder appointed as the funder of a class action that have not signed up retain their full entitlements to those contractually agreed against Allco Finance Group pursuant to with individual group members. 55 Blairgowrie Trading Ltd v Allco Finance Group Ltd a “common fund” order, following an initial (Receivers & Managers Appointed) (In Liq) [2015] FCA 811 at [227] per Wigney J attempt to have such an order made in In 2016 Maurice Blackburn and ILFP sought again to obtain a common fund order, this time in a class action against With equalisation QBE Insurance Group. The application payment was heard in late May by the Full Court of the Federal Court sitting at first instance upon direction of the Chief Justice. The judgment of Justices Murphy, Gleeson and Beach is presently reserved. One Without equalisation With common fund of the issues raised by the Bench during payment arrangement the hearing was how the Court could be satisfied that group members would not be worse off with a common fund order than under a funding equalisation approach, and how the Court could 40% 40% determine whether the remuneration to be paid to the funder was reasonable. We await the outcome of this application with interest, as it may determine whether 20% the common fund model becomes a 30% 30% 30% common fixture in large class action proceedings. 50% Funded group members 20% Funder’s fee 40% Unfunded group 56 See Neal Bedford, Simon Burnett, Peta Stevenson members and Moira Saville “Common Fund Found Out – Takeaways from the decision in the Allco class action”, King & Wood Mallesons (7 August 2015).

The Review – Class Actions in Australia 2015/2016 23 SECTION FIVE Settlements under scrutiny

While very few class action settlements The Court’s reasons for rejecting settlement are rejected by the Courts, this year Features of the settlement meant it was not fair and reasonable as between class members saw the rejection of the proposed Willmott Forests class action settlement. The settlement did not involve compensation to class members, only reimbursement of legal costs. Class members would be deemed to have admitted the validity and enforceability of the Settlement rejected loans, and to give broad releases in favour of all defendants, including as to claims about the enforceability of the loans and in respect of defences or set-offs against the defendants. In the Willmott Forests class action, Registered class members who were clients of Macpherson & Kelley would be proportionately investors that had acquired an interest reimbursed for the legal costs they had paid and those who had contributed to security for costs in one or more failed timber managed would also be reimbursed. investment schemes made claims Class members who had not retained Macpherson & Kelley would receive no benefit from the against the responsible entities of the reimbursement of legal costs and would be detrimentally affected by the settlement, as they would be precluded from raising individual defences to separate loan enforcement proceedings. schemes, certain directors and officers The binding admissions in relation to the enforceability of loans was a significant detriment for of the responsible entities for their those registered and non-participating class members who may have otherwise been able to rely investment losses and also against the on claims or defences that are not pleaded in the class actions, based on their individual or unique financial institutions that provided loans circumstances, with the detriment outweighing the benefits for some registered class members and there being no benefit to balance the detriment for non-participating class members. to some investors for their acquisition, Insufficient basis for the judge to form a view about the prospects of success seeking damages and declarations that their loans were void and unenforceable. Justice Murphy decided that he could not form a view about the prospects of success (which is one of the factors used to assess the fairness of the settlement) where there were significant gaps A settlement was proposed in which in Macpherson & Kelley‘s preparation of the proceedings and the opinion given by the plaintiff’s no compensation was to be paid to group counsel was not as complete as His Honour would have expected. members, costs of $4.1 million were to be The affidavit material disclosed that there had been difficulties in funding the litigation and reimbursed to the plaintiff’s lawyers and the deficiencies in case preparation had arisen as a result. Justice Murphy’s view was that this had adversely affected the plaintiff’s lawyers views as to the adequacy of settlement offers made. He loans were to be declared enforceable. This was also critical of the decision not to engage an independent forensic accountant who would was somewhat similar to the settlement of have provided expert evidence if the case had run to trial, particularly where payment for a stage of legal fees (that included such expert costs) had been sought from class members. the Great Southern class action in late 2014. Concern that class members had not had an informed opportunity to opt out In April 2016, Justice Murphy of the At the time the opt out procedure occurred, class members were not informed of the potential Federal Court rejected the settlement on consequences of a settlement which admit the enforceability of the loans and precluded being the basis that there was not sufficient able to raise individual defences. evidence to establish that it was fair or Justice Murphy was critical of Macpherson & Kelley for not informing registered class members 57 (most of whom had retained them as solicitors) about the funding difficulties and the resultant gaps reasonable as between class members. in case preparation. Registered class members who were clients of Macpherson & Kelly were owed The Court will give careful consideration fiduciary duties by the firm, and non-client registered members were in a similar position since, in to settlements which involve only the accepting instructions to act as solicitor in an open class, the firm had taken on an “obligation to act in the interests of all class members, not just clients.” This meant that the settlements should not be reimbursement of legal costs incurred by approved unless class members were given an informed opportunity to opt out. the plaintiff and group members, and will Potential conflicts had not been properly addressed require adequate evidence as to the merits Justice Murphy outlined a number of potential conflicts (for example, between groups of class (or lack of merits) of the class action and members and between the solicitors’ interest in receiving legal costs and the interests of class the reasonableness of the legal costs. members in minimising them or at least ensuring that they were reasonable) which in his view had not been properly addressed. Orders had previously been made whereby Reasonableness of the legal costs had not been established class members who did not register in the Justice Murphy had no difficulty in agreeing that the reimbursement of class members who had class member registration process were paid legal costs should be prioritised. not permitted to participate in the benefits His Honour did however reject the plaintiffs’ submissions that they were not required to satisfy of any settlement (non-participating the Court as to the reasonableness of the costs charged ($7.835m). Justice Murphy noted that class members). They remained class insufficient evidence had been put forward to satisfy the Court that the costs were reasonable, which forms part of the “important supervisory role over costs charged to class members” played members, and would have had their rights by the Court. extinguished by the settlement. The primary Justice Murphy noted that any assessment as to reasonableness would not be possible without reasons given for rejecting the settlement evidence from an independent costs assessor or by a Registrar of the Court undertaking a are summarised in the following table. costs assessment. “While the Court cannot alter the terms of a class action settlement, the Court should not be wedged by the terms of settlement into approving a settlement without 57 Kelly v Willmott Forests Ltd (in liquidation) (No. 4) appropriately protecting class members’ interests in relation to costs.” [2016] FCA 323.

24 King & Wood Mallesons SECTION FIVE

Scrutiny in MIS class actions it should be referred to any appropriate counsel, independent of the parties involved disciplinary body.59 in the case, be appointed as amicus The conduct of some plaintiff lawyers in curiae. There have not been any written failed MIS class actions has come under Contradictor or amicus – the reasons for this decision. In Banksia, scrutiny in other quarters. The Senate role of an independent voice there are a large number of defendants, Economics Reference Committee published at settlement some of whom are not participating in the its final report on the failed timber MIS settlement and therefore the action against For the purpose of the Willmott settlement cases Agribusiness Managed Investment those defendants will continue. A condition approval hearing, Justice Murphy took the Schemes: Bitter Harvest in March 2016, of the class action settlement is that the unusual step of appointing a senior counsel and made some negative comments settlement of a related proceeding by not retained by either party to act as a regarding some of the legal advice given Banksia’s special purpose receivers is also contradictor, with counsel’s fees shared to investors. Specifically, the Senate approved by the Court. It is possible that between the parties. The usual practice Committee referred to the legal advice given the complexity of the settlement led to the is for the plaintiff’s own senior counsel to to investors to cease making repayments appointment of amicus curiae in this case. on loans taken out to fund their MIS provide a confidential opinion to the Court investments (presumably on the assumption as to the fairness and reasonableness Distribution and administration that this issue would be dealt with in the of the proposed settlement, with the of settlements of class actions various class actions) which, now that those defendant’s counsel playing little role other actions have either failed or been settled on than to support the settlement. This has The Court will scrutinise the process for the terms which leave the loans enforceable, placed the Court in the position where, distribution of settlement sums – and the mean that investors who heeded that advice unless there are objectors to the settlement costs incurred to do so – in order to satisfy now owe substantially more than at the time who are represented, there is no effective itself that they are as fair and reasonable as the schemes collapsed. opposition to settlement. The appointment the other terms of settlement. Distributions of a contradictor appears to be a involve an administrator (usually the plaintiff’s The Senate Committee stated it “is firmly recognition that in what so far has been a solicitors) assessing the quantum of the class of the view that the legal profession small number of instances,60 and consistent member’s claim, so that their proportion of has the responsibility to inform itself of with the Court’s supervisory role, the Court the settlement sum can be quantified. the circumstances around the advice would benefit in having a contradictor to provided to retail investors in collapsed provide an opposing viewpoint. Speed of distributions agribusiness MIS to cease repayments on their outstanding debts.”58 The Senate In Willmott, Justice Murphy took the view The process of administering settlement Committee then recommended that the that as aspects of the settlements fell distribution schemes has been in the Victorian Legal Services Commissioner and outside the pleaded case, senior counsel spotlight, with Maurice Blackburn being Legal Services Board “thoroughly review” ought to be appointed as a contradictor to criticised in the media for the lengthy the conduct of the lawyers who provided represent the interests of class members process of assessing claims as part of the this advice, to determine whether the who were not clients of the plaintiff’s settlement of the Kilmore-East Kinglake 61 legal profession needs to take measures solicitors. In that case, the contradictor and Murrindindi group proceedings. to ensure the maintenance of high ethical made detailed submissions as to why the Despite being awarded settlement sums of standards. It recommended that the settlement should not be approved. $495 million and $300 million respectively investigation should include making under settlements approved in late 2014 As part of the approval process for the recommendations or determinations and early 2015, bushfire victims have partial settlement of the Banksia class on remedies available to investors who not yet received funds, although around action, Justice Robson of the Victorian acted on that advice and have suffered 78 claimants will share in a $2 million Supreme Court made orders that a senior considerable financial loss, whether interim distribution on extraordinary need 62 disciplinary action should be taken, whether or compassionate grounds. The chief 59 Senate Economics Reference Committee bottleneck arises from the assessment compensation is warranted, and whether “Agribusiness Managed Investment Schemes: Bitter Harvest”, March 2016, recommendation 18, p.xxxv. 61 “Black Saturday bushfire victims devastated 60 Two earlier instances of this occurring were in King after class-action payouts delayed”, The Age, v AG Australia Holdings Ltd [2003] FCA 1420 7 February 2016. 58 Senate Economics Reference Committee (the GIO shareholder settlement) and Dorajay 62 Pia Akerman “Black Saturday bushfire victims quiz “Agribusiness Managed Investment Schemes: Pty Ltd v Aristocrat Leisure Ltd [2008] FCA 1311 Maurice Blackburn on payouts”, The Australian, Bitter Harvest”, March 2016, p.xxxv. (the Aristocrat shareholder settlement). 22 June 2016.

The Review – Class Actions in Australia 2015/2016 25 SECTION FIVE

phase, over which Maurice Blackburn involve an assessment process and not a special referee appointed to audit does not have entire control, and which is just a mathematical calculation and an cost claims submitted by the scheme a complex exercise, requiring assessment allocation, also involve: administrator. of personal injury claims, dependency senior counsel appointed to monitor the There have been some calls for the claims, property damage and economic progress of the scheme, administration of settlements to be loss claims. conducted by a new law firm, so that supervising judges appointed to In recent decisions concerning the the plaintiff law firm can continue to monitor the schemes, including by way administration of both bushfires’ advocate on behalf of class members,66 of judicial conference, settlement deeds, the Victorian Supreme however the counter view is that it may Court made orders intended to improve independent barristers and solicitors lead to an increase in administration costs the efficiency of the settlement distribution acting as assessors, with an appeal (presumably resulting in a lower payout schemes. For example, the Court made process for individual assessments to figure) and may be slower due to a lack of orders expanding the category of lawyers another barrister sitting with a senior familiarity with the subject matter. who can act as claim assessors beyond loss valuer, and 66 Rachel Carbonell “Heartbreak and frustration barristers63 to include appropriately as Black Saturday victims wait for payout”, qualified personal injury solicitors — ABC Radio National, 5 August 2016. although not so far as to include Maurice Blackburn’s own solicitors, despite an attempt in that direction.

Who administers? While acknowledging the unprecedented size of the settlement and the “vast” number of claimants, the Court has emphasised the importance of the settlements occurring in a timely, efficient and cost-effective fashion so as to allow the claimants to get on with their lives and, “inasmuch as it is possible to do so, to put the events of Black Saturday behind them.”64 Maurice Blackburn is acting as the scheme administrator, with duties to the Court to distribute in accordance with the approved scheme and to provide periodic updates (by way of affidavit). It has become standard for plaintiff firms involved with the case to administer the settlement process, since their familiarity with the case usually means it is efficient and appropriate for them to do so.65 The Black Saturday schemes, which are complex by virtue of the fact that they

63 Rowe v Ausnet Electricity Services Pty Ltd & Ors (Ruling No 6) [2016] VSC 166 (19 April 2016) (Rowe). 64 Matthews v Ausnet Electricity Services Pty Ltd (Ruling No. 40) [2015] VSC 131 at [14] (Matthews). 65 Foley v Gay [2016] FCA 273 (21 March 2016) at [17] (Foley v Gay).

26 King & Wood Mallesons SECTION FIVE

Defendants are generally not involved in Quantum of legal costs amount of $1,937,343.94. The orders the settlement administration and may A number of cases this year have went on to make provision for the payment not even see the settlement scheme. demonstrated the Court’s reliance on of those costs by group members on a Once the settlement is approved and the and acceptance of expert advice to rateable basis if that amount exceeded the settlement sum paid, defendants have no substantiate the reasonableness of the costs payable by the defendant pursuant 67 71 further role to play. representative plaintiff’s legal costs. to the settlement agreement. The draft Class Actions Practice Note Legal / funder costs before In the class action against Gunns’ sets out the Federal Court’s approach and class members directors, Justice Beach commented that the primary role of the judge is to emphasises the role that an independent While the Court has put on record that it ensure the claim for legal costs is not expert’s report should play where the legal considers Maurice Blackburn has acted disproportionate to the nature of the costs and funder’s fees are to be deducted reasonably in relation to the settlement context, the litigation involved and the from the settlement amount. It also notes administration process,68 the firm itself expected benefit. As such, his Honour that there will be closer scrutiny of legal being paid ahead of bushfire victims has noted that: costs and litigation funder’s fees where: not played out well in the media. Although this is usual, perhaps it has not previously [I]f unchallenged expert opinion is the class members include persons received media attention. put before the Court which sets who are not clients of the plaintiff’s out a commercial and reasonable lawyers or the litigation funder, This issue arose recently in the Downer methodology consistent with the EDI securities class action, where Justice the deduction per class member is a terms of any retainer and which Digby considered whether the terms of the significant proportion of the settlement demonstrates that it has been settlement agreement allowed for amounts sum, or accurately and thoroughly applied to be paid to the plaintiff law firm and the to sufficient and probative source the litigation funder imposes charges litigation funder prior to distribution to class records of the solicitors, then it is no beyond the percentage commission members. The approved settlement terms part of a judge’s function to: set out in the litigation funding did not address the time for payment to agreement (for example, a project be made. (a) reject that evidence as to whole or management fee). part without very good reason; or Justice Digby considered that a miscellaneous obligation within the (b) apply one’s own subjective view settlement terms for each party to perform of what the legal work is “really its obligations “promptly” was consistent worth”, divorced from the reality with the implication of a term of payment of the current marketplace and the within a reasonable period of time. His commercial context within which Honour saw no reason for the payments the work was carried out and the to be delayed until a later, presently expenses incurred.70 unforeseeable, time, as contended for The question of proportionality is not by the defendants. His Honour also simply determined by comparing the legal considered it a relevant factor that the costs with the settlement sum. As Justice payments to be made were in respect Beach explained, spending 50 cents of time spent and expenditure already to recover an expected $1 may be incurred.69 As a result, while the class proportionate, if it is entirely necessary to members may have to wait until the end of spend the 50 cents. 2017 to see their money, the law firm and the funder were to be paid upfront. In approving the settlement of the Clurname action against CBA (the settlement sum was confidential), the Federal Court made orders approving the 67 Matthews at [25]. 68 See eg Matthews at [37], Rowe at [20]. plaintiff’s solicitor’s costs to date in the 71 Clurname Pty Ltd v Commonwealth Bank of 69 Camping Warehouse Australia Pty Ltd v Downer Australia NSD778/2012, orders dated 7 August EDI Limited [2016] VSC 312. 70 Foley v Gay at [24]. 2015.

The Review – Class Actions in Australia 2015/2016 27 SECTION FIVE

Reimbursements to representative applicants

Decision Reimbursement for expenses/burden Settlement sum Legal / funder costs of being representative applicant (not legal costs)

Gray v Cash $10,000 ($5,000 per proceeding) for $20 million Legal costs of $3 million approved Converters “time and effort” as well as the “toll of the International Ltd (No 2) proceedings on her” Expected scheme admin costs [2015] FCA 1109 $1.7–2 million No funder

Foley v Gay [2016] $18,200, being 91 hours at $200/hr Undisclosed $2.3 million FCA 273 Justice Beach describes the hours and rate Funding agreement in place with all as “modest” group members, undisclosed %

Farey v National $1,000 for each of the two representative $6.6 million Roughly $600,000 legal costs Australia Bank Ltd applicants [2016] FCA 340 IMF Bentham Justice Beach calls it “very modest” Estimated >20 hours each

City of Swan $14,683.15 to City of Swan Undisclosed but a “very large sum, Legal costs around $4.5 million v McGraw-Hill though considerably less than the Companies, Inc [2016] $15,644.29 to Baron-Hay Investments estimate of the total amount claimed” 33% to IMF Bentham, described FCA 343 as an “extremely large” payment Both amounts said to be supported by Total claim related to these “detailed evidence” proceedings was around $250 million

Payments to representative administration expenses of up to $2 million applicants to come. It is not unusual for representative The highest reimbursement of costs applicants to seek modest reimbursement approved this year was described as payments to cover expenses, time “modest” by Justice Beach, involving a and effort spent in the representative claim for 91 hours of work at $200 per 72 capacity. These are payments on top of hour. Justice Beach had the opportunity any compensation/damages paid to the to consider reimbursement costs again representative applicant and generally in the settlement of the NAB bank fees relate to the extra expenses incurred/ class action, there outlining that, although burden imposed by reason of being the this was not such a case, he considered representative applicant (other than legal that in some cases it may be appropriate costs, which are dealt with separately). for a representative applicant to receive a “reward style payment” primarily in return Payments of this type have ranged from for taking on the risk of an adverse costs $1,000 per representative applicant to order.73 Where a litigation funder bears roughly $18,000, in all cases amounting that risk, it is unlikely that an incentive to only a low percentage of the settlement payment could be justified. For those sums and which pale by comparison with considering this option, His Honour the legal fees and funder commission. suggested that the appropriate course For example, in Gray v Cash Converters, was to have the payment approved, at the applicant was allowed $10,000 least contingently, at the commencement for time, effort and “the toll of the of proceedings. proceedings”, whereas the case settled for $20 million and legal costs of 72 Foley v Gay at [27]. $3 million were approved, with scheme 73 Farey v National Australia Bank Ltd [2016] FCA 340 at [41]–[43].

28 King & Wood Mallesons SECTION SIX Recent developments in class action procedure

In the past year there have been a Under the new NCF, the majority of matters The draft retains key features of the number of developments in class commenced in the Federal Court will be existing practice note (such as ensuring action procedure, including: allocated into one of eight National Practice there is adequate disclosure of legal proposed changes by the Federal Court Areas (NPA) some of which have sub- costs agreements and litigation funding to its Class Action Practice Note, areas. “Class Actions” is not a specific NPA agreements to class members, the decisions setting the boundaries for – however, there will be a specific practice defendant and the Court). The four main use of international procedures in aid of note. The objectives of the draft Class proposed NCF reforms relating to class class actions, Actions Practice Note are stated to be: actions are: rulings on claims of legal professional addressing some of the practical issues In appropriate cases, a Case privilege relating to litigation funders, and which frequently arise in class actions Management Judge (CMJ) with continued focus on the content of and indicating the Court’s expectations experience in management of class opt out notices to ensure adequate in managing them, and actions will be allocated to conduct disclosure of the consequences of taking facilitating efficient and expeditious case management hearings and (or not taking) action to group members. conduct of class actions, in particular interlocutory disputes that commonly by ensuring that the issues in contest arise in class actions. The CMJ will also Federal Court reforms are exposed early in the proceeding and hear certain applications which it may that proceedings are not unnecessarily not be appropriate for the Trial Judge to The Federal Court is currently considering delayed by interlocutory disputes.74 hear (eg privilege disputes). feedback received in the public The appointment of a Class Actions consultation process for the new National 74 See paragraph 2.1 of the “Draft Practice Note Registrar in appropriate cases, to assist Court Framework (NCF), including the Gen# - Class Actions”, available at: judges and the parties. draft Class Actions Practice Note. www.fedcourt.gov.au/__data/assets/pdf_file/0003/ 30486/Draft-Class-Actions.pdf (13 January 2016). At the first case management hearing, the plaintiff will be required to send the Court a copy of the costs agreement (redacted for individual variations), in addition to the requirement under the current practice note that a plaintiff provide a redacted version of the funding agreement. A proposal that, if a settlement proposal involves an evaluation as to whether the legal costs incurred on behalf of the class members are reasonable, the Court may have regard to the corresponding costs of the defendant(s). This would be a significant change, even if confidentiality restrictions were imposed.

Setting the boundaries In Jones v Treasury Wine Estates Limited, the Full Federal Court granted an anti-suit injunction, restraining the representative plaintiffs from taking steps in legal proceedings filed in the United States for the deposition of senior officers (or former officers) of TWE. The plaintiffs argued that the information would have assisted with a central issue in the class action, being the extent and timing of TWE’s knowledge

The Review – Class Actions in Australia 2015/2016 29 SECTION SIX

concerning the alleged excess inventory and case management practices; whereas the plaintiffs in respect of a class action held by its US distributors. in Standard & Poor’s they sought to make against BankSA at the relevant time: use of those processes, albeit in relation to The Court was critical of the plaintiffs for From late 2009 to June 2013, GMG persons located overseas. seeking to obtain the benefit of processes had been approached by a number of not usually available in the Federal Court, Privilege lives shareholders and had held meetings without notice to the other party or with them to discuss potential legal endorsement of the Court itself. The Court Privilege attaches to communications avenues for recovery of their losses. granted injunctive relief in circumstances between a client and their lawyer where The second plaintiff had more meetings where the US proceedings would the communication is made on a with GMG and gave more detailed undermine the Federal Court’s supervision confidential basis and for the dominant instructions. and case management of the class action. purpose of obtaining legal advice or in respect of anticipated legal proceedings. A formal retainer between the plaintiffs TWE does not submit, nor do In the context of class actions, where (on behalf of potential group members) we conclude, that the fact these months of investigation can take place and GMG to investigate and, if proceedings are case managed before a representative plaintiff is identified appropriate, institute and conduct the provides a basis in itself for restraining (or a funder signed on) and proceedings proceeding was not entered into until the conduct of § 1782 depositions … are commenced, how do Courts treat about June 2013. The vice in the present case is that communications between the plaintiff law the conduct of Jones and URS in Justice Mansfield noted that although firm and the proposed funder? Decisions invoking the US Proceedings without a formal retainer is not required, the on privilege in this specific context may notice and without the imprimatur of relationship between GMG and the have implications for the way both those this Court has undermined this Court’s plaintiffs must be examined at different parties explore potential class actions. case management and supervision of stages, as the provision of unsolicited legal the class action. 75 Pre-proceeding communications were advice is not privileged. Justice Mansfield the subject of challenge in Perazzoli v held that there was not a general lawyer/ The outcome is still be to finally determined, BankSA (a class action in relation to an client relationship with the plaintiffs and/or as the plaintiff has applied to the High Court alleged Ponzi scheme), with the Federal group members to explore the prospects for special leave to appeal the decision. Court considering a claim for privilege over of recovery, including by a claim against Interestingly, in proceedings against certain documents produced pursuant BankSA, prior to June 2013. This was Standard & Poor’s, the Federal Court to subpoenas to the plaintiffs’ lawyers because there was no evidence of any agreed to issue a subpoena to be (GMG), to the trustee in bankruptcy of the coherent record of those with whom served in the United States in connection second defendant (Trustee) and to the GMG were said to have a lawyer/client with the Australian proceeding. The litigation funder. 77 relationship. However, there was a limited circumstances were described as “unique lawyer/client relationship with the second It was argued that the disputed if not exceptional” as the purpose of the plaintiff in respect of his claims, and a documents were not privileged for a subpoena was not to gather evidence lawyer/client relationship with specified number of reasons, including: for use in the litigation, but rather to other persons to undertake particular and ascertaining the identity of potential group there was no solicitor/client relationship separate tasks. members so they could be advised of their with GMG until a formal retainer was On this basis, communications between rights to participate in the action.76 entered into; and GMG and the funder prior to 30 June While these decisions may appear to differ there was no real prospect of litigation 2013 were not privileged except where in outcome, they can be reconciled by until 1 July 2013. they related solely to the retainer with recognising that each judgment emphasises the second plaintiff or specific others. Ultimately, the privilege claims were only the importance of respect for the Court’s Communications with the funder seeking partially successful, with the decision own processes: in TWE the plaintiff sought to develop a funding proposal to put to turning on whether there was a solicitor/ to by-pass the Federal Court’s procedures the plaintiffs and group members so they client relationship between GMG and could consider whether to retain GMG to 75 Jones v Treasury Wine Estates Limited [2016] FCAFC 59 at [47]. commence a class action against BankSA 76 Ceramic Fuel Cells Limited (in liq) v McGraw-Hill Financial Inc [2016] FCA 401. 77 Perazzoli v BankSA (No 2) [2016] FCA 260. were not privileged.

30 King & Wood Mallesons SECTION SIX

In an earlier case, the Federal Court dispute has been heard, however the those group members may then be entitled had held that a law firm’s dealings with decision is reserved. to compensation in the new class action. registered class members, who had not There being no evidence before the Court yet signed a retainer agreement with The central role of suggesting such a challenge would be the law firm but had filled out surveys opt out notices viable, the Court proceeded to approve an regarding their claims and expected opt out notice proposed by the defendant. In an “open class” class action, the named to be kept informed of developments, plaintiff may represent group members The other notable consideration of opt were privileged.78 who have not consented to joining the out notices was in Oztech Pty Ltd v Public A similar issue to that considered in action and may not be aware of the claim. Trustee of Queensland. There, the plaintiff Perazzoli was before the Victorian Without notice of the class action, they wanted to delay the delivery of the opt Supreme Court in a privilege dispute could become bound by the outcome of out notice, arguing that issues about the between IOOF Holdings Limited (IOOF) any judgment or settlement without having trustee’s indemnity should be resolved and Maurice Blackburn. This case had the opportunity to consider whether first and that it had not yet completed concerns allegations by IOOF that Maurice they wish to pursue any claim on an reviewing discovered documents and as Blackburn used IOOF’s confidential individual basis by “opting out” of the class such may seek to amend its pleadings. information when considering whether to action. Opt out notices therefore play a These were not accepted by the Court commence a class action against IOOF. critical role in open class proceedings. as a sufficient reason to depart from the “ordinary practice” of ordering that the opt In an interlocutory privilege dispute, Courts have continued to emphasise the out notice be approved so that the opt Maurice Blackburn contended that certain importance of the timely delivery of opt out out notice was issued soon after the close documents (including a memorandum notices to group members and applied a of pleadings.80 In the Court’s view, the analysing the prospects of success of high level of scrutiny to the content of opt plaintiff failed to establish a good reason a proposed class action against IOOF out notices that plaintiffs have proposed to to delay informing group members of their and an email outlining a ‘budget’ for send to group members. right to opt out.81 the proposed class action) provided to In a class action by repeat player Mark Harbour Litigation Funding (HLF) were Elliott against Downer EDI, the Court claimed to be privileged communications. refused to approve an opt out notice At the time those documents were proposed by the plaintiff, finding that it was prepared and given to HLF, IOOF alleges “apt to mislead.”79 The proposed notice that Maurice Blackburn did not have a suggested that a settlement agreement client, and there was arguably no real previously entered into between certain prospect of litigation at the time the group members and the defendant documents were created. This privilege 80 See Federal Court Practice Note CM 17 company may be subject to challenge, and “Representative proceedings commenced under 78 Brookfield Multiplex Limited v International Part IVA of the Federal Court of Australia Act 1976 Litigation Funding Partners Pty Ltd (No 2) [2009] 79 Camping Warehouse Australia Pty Ltd v Downer (Cth)” at [7.3]. FCA 449. EDI Ltd [2015] VSC 555. 81 [2015] FCA 1010.

The Review – Class Actions in Australia 2015/2016 31 SECTION SIX

Using mandatory arbitration class action waivers in mandatory arbitration clauses in a wide range of financial consumer contracts.88 The rules would not limit clauses to bar class actions the use of mandatory arbitration clauses more broadly, but would: Mandatory arbitration clauses (typically contained in standard prohibit providers of certain consumer financial products form contracts) have been increasingly relied upon by companies and services from using an agreement with a consumer that in the United States to resolve disputes and avoid litigation provides for arbitration of any future dispute between the with consumers or customers. It is not uncommon for these parties to bar the consumer from filing or participating in a class clauses to contain a “class action waiver” purporting to mandate action with respect to the covered consumer financial product arbitration of disputes and to bar participation in a class or service; and action against the company. These clauses typically also bar require covered providers involved in an arbitration pursuant participation in group arbitration. In effect, they require claimants to a pre-dispute arbitration agreement to submit specified to bring their claims on an individual, not group, basis. arbitral records to the CFPB, including the initial claim and any counterclaim, the arbitration agreement filed with the An empirical study conducted in 2015 by the US Consumer arbitrator or arbitrator administrator, the judgment or award Financial Protection Bureau (CFPB) found that mandatory issued (if any) and certain other materials. arbitration clauses feature in large percentages of US consumer contracts for credit cards, bank accounts, storefront payday Separately, other regulators are also reported to be considering loans, private student loans and mobile wireless services,82 and imposing restrictions on the use of mandatory arbitration clauses have been described as “ubiquitous in consumer contracts”.83 and class action bans, including the regulators of Medicare and Medicaid (in relation to nursing home contracts) and the US Controversy surrounding the use of Department of Education (for contracts between students and 89 mandatory arbitration clauses for-profit schools). There has been a mixed reaction to the increased use of these There have also be attempts by legislators to restrict the use of clauses in the US domestic consumer market. these clauses. In 2015, the “Arbitration Fairness Act of 2015” was introduced in the US Senate and was referred to the Committee Companies use arbitration clauses to protect against needing to on the Judiciary (where it has remained). It seeks to prohibit pre- defend claims brought in different State Courts and jurisdictions; dispute arbitration agreements in a range of disputes including to utilise a relatively standard process where cases are often consumer disputes (but excluding collective bargaining union decided on the papers, saving the costs associated with court arbitration agreements, which would be permitted). hearings; and to avoid civil jury trials. Companies contend that class action waivers enable more efficient resolution of individual Australian context claims and prevent unmeritorious class action claims. The use of mandatory arbitration clauses in consumer On the other hand, consumer advocates have argued that agreements is relatively rare in Australia. While companies may arbitration decisions generally favour large companies who may favour them (due to arbitrations being conducted away from seek to exert greater control over the arbitration process by the public eye and the decreased risk of class actions), possible choosing the arbitrator and applicable rules of evidence. They reasons for their rarity include: also contend that such clauses are often included in the “fine that there are specific laws prohibiting arbitration clauses in print” of consumer contracts and that consumers are often certain contracts, most notably insurance contracts; unaware that they have waived their rights. In many situations, any term of a standard form agreement that seeks to limit one a failure to agree to pre-dispute arbitration likely means that an party’s right to sue another party may be subject to challenge individual will simply be unable to obtain the service in question.84 under the unfair terms regime in the Australian Consumer Law and mirror provisions in the ASIC Act in respect of financial Developments in the United States services (which, from 12 November 2016, will be extended The US Supreme Court has interpreted the use of mandatory from consumers to small businesses);90 and arbitration clauses in consumer contracts as consistent with such clauses may be void if they restrict a consumer’s rights the legislative preference for the enforcement of arbitration to such an extent that they impermissibly exclude, restrict or agreements, as a matter of freedom of contract, under the qualify liability for certain types of statutory liability (such as Federal Arbitration Act of 1925 (FAA).85 In AT&T v Concepcion, misleading or deceptive conduct). the US Supreme Court observed that the FAA generally An interesting question remains as to whether it is possible for an indicated a “liberal federal policy favouring arbitration.”86 More Australian company to seek to contractually restrain its members recently, however some US commentators have observed a from participating in class actions against it by including an possible shift away from this position.87 arbitration clause in its constitution.91 In May 2016, the CFPB made available for public comment a 88 A copy of the report is available for download at http://files.consumerfinance. proposal to introduce new rules which would effectively prohibit gov/f/documents/CFPB_Arbitration_Agreements_Notice_of_Proposed_ Rulemaking.pdf. The proposed rules would apply to financial services 82 CFPB, Arbitration Study Report to Congress, pursuant to Dodd–Frank Wall providers including credit card companies, debt collectors, banks, loan brokers Street Reform and Consumer Protection Act § 1028(a), at 8 (Mar. 2015). and automobile finance brokers, as well as retailers in certain circumstances, 83 NY Times Editorial, “Bank Customers Get a Fighting Chance”, 6 May 2016. and would extend to a range of contracts including contracts relating to 84 Brad Reid, “Fundamental Fairness Reform of Arbitration Agreements is consumer credit, automobile leases, credit reporting and student loans. Essential”, Huffington Post, 29 July 2015. 89 NY Times Editorial, “Bank Customers Get a Fighting Chance”, 6 May 2016. 85 AT&T v Concepcion 131 S Ct 1740, 1745 (2011) and American Express Co v 90 See King & Wood Mallesons’ competition law blog InCompetiton article Italian Colors Restaurant 133 S Ct 2304, 2308 (2013). “Unfair terms expansion a go”, 27 October 2015. The unfair terms regime 86 AT&T v Concepcion 131 S Ct 1740, 1745 (2011) at 1745. explicitly excludes company constitutions. 87 “Consumer Financial Services Legal Update”, J.H. Jennifer Lee & Michelle Ng, 91 See James Emmerig ‘Can an Australian company use a dispute resolution Dorsey & Whitney LLP. clause in its constitution to bar shareholder actions?’, (2015) 33 C&SLJ 513.

32 King & Wood Mallesons SECTION SEVEN Global developments

and financial products, although no one a right on the part of certain registered type of claim dominates the case list. trade associations and consumer protection organisations to file group As a matter of practice, the SPC requires actions where a breach of competition the lower courts to report the class actions law affects their members; and they accept to their superior courts. the use of special purpose entities Courts in different geographic areas are which aggregate and take assignment required to communicate internally and to of cartel damage claims and then make unified decisions with the guidance litigate them to recover damages. of their superior courts. China – fast forward While this practice of collective While the term “class action” is not known Looking ahead, we anticipate a continuing enforcement of claims has been subject under PRC law, “representative actions” increase in the attempts to use the class to some criticism, the standing of such are recognised under the Civil Procedure actions mechanisms provided by the claims vehicles has been confirmed, Law (CPL) with mechanisms for claims CPL across a broad range subject to having sufficient funding involving either: of actions. to pay the defendant’s costs if the claim fails as otherwise the vehicle’s Cathy Liu (a) an undetermined number of mechanism for assigning and collecting Partner, Beijing unidentified plaintiffs at the point at claims could be regarded as illegal. which the case is filed (Article 54); or [email protected] The position of claimants will be (b) numerous plaintiffs, whose number strengthened by amendments that and identity is known when the action implement the EU Directive on Antitrust is initiated (Article 43). Damages into German law by the end of Despite this framework, class actions are 2016. Among other changes, the new rules: not yet common practice in China. This enable claimants to benefit from is because the Supreme People’s Court the binding effect of decisions of (SPC) has actively discouraged the lower competition authorities across the EU level courts from accepting and hearing (along with final appeal decisions), proceedings in the form of class actions, introduce a rebuttable presumption and encourages courts to divide class to the benefit of the claimants that action into individual cases. any cartel infringement leads to higher prices for direct purchasers, and provide In addition, securities-related class actions explicit standing for indirect purchasers are currently prohibited in China. In if they can establish they have suffered the Notice of Supreme People’s Court damage, with a presumption that on Accepting Tort Cases Triggered By damages have been passed on to them Misrepresentation in Security Market, (requiring a passing-on scenario on the the SPC demands the lower courts part of the direct purchasers), accept and hear a securities-related Germany provide that cartelists are jointly and misrepresentation case in the form of an While Germany does not have a general severally liable for damages (as in individual case or a joint action (with ten or class action regime, collective redress is Australia), fewer plaintiffs), rather than a class action. available for claimants by other means and limit cost risks for claimants as statutory There have been a limited number of Germany continues to be considered an refunds are available, class actions reported in the PRC since attractive place for claimants to bring cartel set a relatively high rate of interest, the class action mechanism was adopted damages actions in particular. available from the date of the first in the CPL in 1991. As noted in The occurrence of the damage, In addition to the general procedural right Review 2014/2015, the types of claims in introduce new rules on the disclosure to join parties (on both the claimant and these class actions have related to land of documents, which will dramatically defendant side), additional mechanisms for acquisition, environment contamination, improve the ability of claimants in cartel damages claims include: consumer protection, copyright production German courts to access documents to

The Review – Class Actions in Australia 2015/2016 33 SECTION SEVEN

substantiate their claim, given traditional The Competition Appeals Tribunal, the hearing for the CPO application is due to restrictions on pre-trial discovery, and UK’s specialist competition tribunal be held on 12 and 13 December 2016. extend the statutory limitation period to (CAT), is now able to certify claims by Of particular interest is the way the five years, and suspend the limitation consumers and businesses as eligible for proceedings are funded. While the UK period while competition authorities are collective proceedings if they raise “the recently removed the blanket prohibition investigating the infringements. same, similar or related issues of fact or on contingency fees, the new Damages law” and are “suitable to be brought in These changes are expected to further Based Agreements regime expressly collective proceedings”. Claims can be enhance Germany’s status as an attractive disallows the use of such agreements for brought by a third party representative jurisdiction for the prosecution collective actions. The proposed claim or a class member on either an opt in or of cartel damages claims. against Pride is being funded on the opt out basis. In opt out cases, there is basis of both conditional fee agreements Tilman Siebert no need to identify all individual claimants (“no win no fee” with a potential uplift if Partner, Munich and specify their cases: the claim can be the case succeeds) and after-the-event [email protected] brought on behalf of the whole group and insurance (to cover any adverse costs any damages will be awarded to the whole orders). As part of its review of the case for group. Unless claimants take steps to opt the purpose of deciding whether to make out of the claim, they will automatically be a CPO, the CAT must consider whether included. the proposed funding arrangements are Details of the UK’s first ever class both adequate and proportionate to the action were published by the CAT on compensation being sought. 21 June 2016. The National Pensioners The UK’s second class action is due to Convention (NPC), a pensioners’ welfare be filed imminently. Walter Merricks, the association, issued an application for UK’s former Chief Financial Ombudsman, an opt out collective action seeking reportedly intends to bring a £19 billion damages from Pride Mobility Products collective action against MasterCard Limited (Pride), a manufacturer of on behalf of UK consumers. The action mobility scooters, on behalf of anyone follows a European Court of Justice ruling who purchased a Pride mobility scooter that MasterCard breached competition between 2010 and 2012. The action is law by imposing illegal interchange fees on based on a 27 March 2014 decision by payment transactions between 1992 and the Office of Fair Trading OFT( ) (now the 2008. If filed, this will be the largest claim Competition and Markets Authority) which in UK legal history. The United Kingdom – found that Pride had infringed competition new beginnings law by entering into agreements and The outcome of these landmark cases will concerted practices aimed at prohibiting be followed closely by practitioners and The UK’s class action regime has been in the online advertising of prices for certain will shed light on the practical application place for less than a year, but has already models of mobility scooters below Pride’s of the new regime. The CAT’s chosen attracted a £19 billion collective action recommended retail prices. A report approach in these first few cases will set against MasterCard. commissioned by the NPC (made public the tone for claimants considering making On 1 October 2015, the UK’s Consumer following a case management conference a claim under the UK’s Rights Act brought the UK’s regime for on 15 July 2016) estimates the class new procedure. size to be between 27,200 and 32,400 collective actions for competition damages Sarah Turnbull people, with total damages ranging from claims into force. This new regime is Partner, London £2.5 million (plus interest) if the class part of an effort by governments across [email protected] Europe to promote private enforcement size is limited to 27,200 claimants, to as a means of obtaining redress for £4.18 million (plus interest) in a larger class harm suffered as a result of breaches of scenario. The NPC has applied to the CAT competition law. for a Collective Proceedings Order (CPO) enabling it to bring its action forward. The

34 King & Wood Mallesons SECTION SEVEN

This decision is significant as it may provide plaintiffs must demonstrate that they have a parallel means to pursue collective actions suffered an “injury-in-fact”. A lingering in France, even though the circumstances question has been whether some actual were very specific and may therefore be of harm to a plaintiff must be demonstrated, limited precedential value for subsequent or whether a claim can be brought on the damages claims. The Court expressly basis of a mere procedural violation of a adopted the claimant’s position that the federal statute. In last year’s Review, we present case did not constitute a class discussed a pending decision of the US France action under French Law, which is subject to Supreme Court, which was anticipated to strict limitations, but recognised the standing provide clarity on this question. In 2014, France introduced a class action of Afer by means of specific powers of regime providing for “action de groupe” That decision, Spokeo, Inc. v. Robins, attorney, grouping thousands of individual limited to the reparation of consumers’ No. 13-1339 (U.S. 2016), was issued by claims into a single claim asking for the material injuries in the fields of consumer law the US Supreme Court on 16 May 2016. restitution of sums held by the State. and anti-competitive practices. The regime The decision has clarified that a plaintiff is limited however by the requirement that Looking ahead, the possibility of extending in federal litigation must demonstrate an only authorised consumer associations the current French class action system injury-in-fact that is both “particularized” to can bring proceedings. As such, the to include environmental and health- the plaintiff and sufficiently “concrete” to recent Afer decision has important related claims is due to be reviewed by establish standing. implications for the way consumer claims the Parliament in the coming The decision is likely to have a mixed are pursued in France. months. impact on US class actions. It offers The case goes back to the 2000s, when Natasha Tardif class action defendants some increased two CEOs of the French insurance Partner, Paris protection against “no-injury” claims association Afer were involved in [email protected] for statutory damages based on a bare the embezzlement of approximately procedural violation of statute where €128 million to the detriment of the no actual loss is suffered. It should association’s members. Both CEOs were also generate an increased number of finally convicted in 2008 and part of the challenges to class certification where embezzled sums were confiscated by there is a lack of concrete injury common the Court. In 2013, each of the 55,114 to class members. members of Afer granted a power of However, the decision falls short of attorney to Afer in order to file a collective requiring that harm can only be established request for the restitution of approximately by a “real world injury” to the plaintiff, €27 million that was held by the State after leaving open the possibility that, in certain the convictions. circumstances, intangible harm (or even Afer’s first attempt was unsuccessful, with the “risk of real harm”) provided for in the Court of Appeal of Paris holding that statute may be sufficiently concrete and the association could not act on behalf may support a carefully pleaded claim. of others and that collective actions are generally prohibited under French Law (beyond the strict and limited consumer framework, described in our last Review). United States – On appeal, however, the French Court of “no injury” case rejected Cassation recognized the legitimacy of Afer’s by Supreme Court application. The Court of Cassation referred the case back to the Court of Appeal of US Courts have interpreted Article III Versailles and on 6 July 2016, restitution of of the US Constitution as imposing a more than €27 million was ordered in favour requirement that, in order to establish of the 55,114 members of Afer. standing to bring a claim at federal level,

The Review – Class Actions in Australia 2015/2016 35 SECTION EIGHT Outlook – what’s next for class actions in Australia?

On the radar The Timbercorp appeal is due who suffered loss at the Road Safety to be heard by the High Court in Remuneration Tribunal; against the Upcoming events include: September 2016. Queensland government in relation to contamination of land by underground gas A large number of hearings have been Judgments: We await judgment on the company Linc Energy; and by current and set down, including: common fund application in the QBE former employees of NSW Ambulance class action and the trial judgments in the for the two Christmas Island class Service for bullying and harassment. actions – the first is a negligence claim in claim by Palm Island residents (alleging relation to the sinking of asylum seeker racial discrimination in relation to the Consumer claims: vessel SIEV221 (26 September 2016) investigation of a riot) and the consumer against egg producers for alleged and the second is by detainees alleging claim against Scenic Tours (regarding misleading “free range” claims; negligence in failure to provide adequate flood-affected tours). claims by farmers against milk processors for representations about milk prices; health care (14 November 2016), Settlements: a number of class against CommInsure for “unethical” the claim by residents of the residential action settlements are awaiting Court processing of insurance claims (with facility Grand Western Lodge approval, including the claim against numerous firms investigating claims); (commencing 27 September 2016), the Commonwealth by workers against Dick Smith by gift card holders; a claim by investors of misleading with intellectual disabilities claiming against Thermomix for defective conduct against Villa World discrimination in relation to the payment product injuries; Developments regarding a Gold Coast of wages (as yet undisclosed, 30 August by 7/Eleven franchisees over failure to property development (5 October 2016), 2016) and the shareholder action against disclose costs of running franchises; the Allco shareholder class action Tamaya Resources ($6.75 million, against Bayer for an allegedly defective (24 October 2016), 16 September 2016). The equine influenza contraceptive device; the Snake Valley bushfire class action class action has been abandoned, with against Bet365 for failure to disclose (6 February 2017), an in principle settlement providing for onerous conditions of bets offered; the Mickleham-Kilmore Bushfire class discontinuance of proceedings and no by patients of the Cosmetic Institute action (13 February 2017), compensation (30 August 2016). the Walla Walla class action brought in who allege negligence in the relation to negligent management of a Proposed class actions performance of breast surgery; tip (April 2017), against poker machine manufacturers for misleading and deceptive poker Sandhurst Trustees (on behalf of A significant number of matters are being machine designs; debenture holders of Wickham examined by law firms or reported by against various banks for alleged rigging Securities, 3 July 2017), media outlets as potential class action of the bank bill swap rate; the Johnson and Johnson class action candidates. Potential actions include: over transvaginal mesh surgery (4 July against Evocca College for substandard 2017) and, Securities: actions against Arrium, teaching and unfair marketing practices; the Wivenhoe Dam class action for Surfstitch, Dick Smith, a second action against Jetstar and Virgin for “drip water-related damage (now postponed in relation to Murray Goulburn, PaperlinX pricing” tactics; and to October 2017). SPS Trust, and Slater & Gordon. against GSK regarding the side effects of anti-depressant Paroxetine. Other investment and financial Significant appeals: product claims potentially include Natural Disasters/Events: a class action An application for leave to appeal, and an action against ANZ in relation to in relation to the 2013 Lithgow bushfires. the appeal itself, has been heard in the financial and investment advice in failed McGraw Hill class action in respect of investments in agribusiness schemes. Stop press the decision to order the defendants’ chief executive officer to file an affidavit Government and public interest claims Just outside the review period we have seen: in relation to the applicability of findings have been mooted against the Department approval of the OZ Minerals settlement in two earlier cases regarding certain of Defence for toxic contamination of the ($32.5 million, 18 July 2016) and aspects of the ratings methodologies. land surrounding RAAF Base Williamstown settlement of the Rivercity class action Judgment is reserved. (with an additional investigation in relation in relation to the preparation of traffic to contamination at Oakey); by drivers forecasts ($121 million, 10 August 2016).

36 King & Wood Mallesons SECTION EIGHT

conditional settlement of the Jack River Only one class action was filed in Court Rules be supplemented with bushfire class action and Billabong Queensland in 2015/2016,92 although a legislation to accommodate greater access securities class action. number of recent class actions with an to representative proceedings.93 While the the High Court’s dismissal of the bank obvious Queensland nexus have been recommendation has received in principle fees class action against ANZ, with a filed in the New South Wales Supreme support from the present government and majority holding that late payment fees Court, such as the Queensland floods class opposition alike, it is not expected that did not constitute penalties and are not action and Bank of Queensland in relation any reforms will be introduced before the otherwise unconscionable, unjust or to conduct by Brisbane-based Sherwin next State election in March 2018. In the unfair under relevant statutory provisions. Financial as well as two actions filed in the meantime, a number of bushfire-related past 12 months against Cash Converters proceedings are having to rely on the Class actions commenced after the review regarding conduct affecting Queenslanders. Supreme Court procedure. period include: an action by India-based investors In Western Australia, the Law Reform against the Australian-based assets of Commission’s report on representative the Pearls Group, proceedings was released in October an action by the families of passengers 2015, recommending that the existing, on Malaysian Airlines flight MH17, and limited procedure under the Supreme an action against PPTEP by Indonesian 93 See Michael Lundberg and Robert Slattery seaweed farmers in relation to the 2009 92 Action by investors against Sandhurst Trustees (as “Stay classy WA: the proposed changes to Montara oil spill. trustee for notes issued by Wickham Securities) in representative proceedings in Western Australia” the Queensland Registry of the Federal Court. King & Wood Mallesons (18 December 2015). Regime change On 5 August 2016, the Queensland Attorney-General Yvonne D’Ath announced that legislation would be introduced within the month to establish a class action regime in the Supreme Court. Legislation that broadly mirrored the Federal, NSW and Victorian regimes has since been introduced. Ms D’Ath stated: At present, Queenslanders who wish to take class action lawsuits have to operate through other jurisdictions to do so. For people who are often involved in emotionally and financially difficult circumstances, this can limit their access to justice through unnecessary complexity and inconvenience. There can also be an additional cost burden for claimants who currently need to pursue class action matters through other jurisdictions. For cases that are particularly pertinent to Queensland, it will also allow the knowledge and expertise of our judges and lawyers to be better utilised.

The Review – Class Actions in Australia 2015/2016 37 Profiles

Moira Saville Peta Stevenson T +61 2 9296 2311 T +61 2 9296 2492 [email protected] [email protected] Moira Saville specialises in corporate and financial services Peta Stevenson specialises in competition litigation, from regulatory disputes, including class actions and complex litigation, as well as investigations and enforcement proceedings and prosecutions regulatory investigations. through to follow-on damages actions including class actions.

Alex Morris Patricia Matthews T +61 2 9296 2495 T +61 3 9643 4221 [email protected] [email protected] Alex Morris specialises in corporate and financial services Patricia Matthews specialises in commercial litigation, including regulatory inquiries, litigation and commercial disputes. contractual disputes, insolvency matters and class actions.

Contacts

Sydney Roger Forbes Alex Morris Moira Saville Peta Stevenson Travis Toemoe T +61 2 9296 2150 T +61 2 9296 2495 T +61 2 9296 2311 T +61 2 9296 2492 T +61 2 9296 2430 M +61 409 575 565 M +61 412 878 650 M +61 407 241 824 M +61 438 289 743 M +61 458 485 105 [email protected] [email protected] [email protected] [email protected] [email protected]

Brisbane Melbourne Justin McDonnell Chris Fox Domenic Gatto Samantha Kinsey Patricia Matthews T +61 7 3244 8099 T +61 3 9643 4116 T +61 3 9643 4460 T +61 3 9643 4155 T +61 3 9643 4221 M +61 417 196 858 M +61 418 270 408 M +61 439 249 987 M +61 408 433 554 M +61 407 830 744 [email protected] [email protected] [email protected] [email protected] [email protected]

Perth France Germany United Kingdom Michael Lundberg Natasha Tardif Tilman Siebert Rachel Couter Sarah Turnbull T +61 8 9269 7107 T +33 1443 4634 T +49 89 890 812 T +44 20 7111 2266 T +44 20 7111 2595 M +61 412 970 478 [email protected] [email protected] [email protected] [email protected] [email protected]

China Huang Tao Richard Wigley Guan Feng Cathy Liu Susan Ning T +86 10 5878 5588 T +86 10 58785588 T +86 21 2412 6000 T +86 21 2412 6000 T +86 10 5878 5588 [email protected] [email protected] [email protected] [email protected] [email protected]

Acknowledgements Contributors: Amelia Achterstraat, John Arthur, Hugh Atkin, Anna Belgiorno-Nettis, Jacqui Bisas, Charlie Bruce, Henry Cooper, James Emmerig, Jordan Gifford-Moore, Alison Hammond, Amber Hu, Charmaine Lam, Kalia Laycock-Walsh, Emily Maartensz, Taylor Macdonald, Daisy Mallett, Madeleine McIntosh, Andrew Parrish, Doug Porteous, Henry Sit, Brad Smith, Brooke Smith, Aarthi Sridharan, Alex Tapp, Emma White and Thomas Wu International contributors: Cathy Liu (Shanghai), Victoria Keenan and Sarah Turnbull (London), Helge Aulmann and Tilman Siebert (Munich), Elise Massé and Natasha Tardif (Paris) Design/production: Claus Huttenrauch, Alana Sun, Samantha Maslen, Emma Vermey and Helen Pearce

38 King & Wood Mallesons Our Class Actions & Regulatory Investigations Practice

Successfully bringing a class action to finality requires a combination of subject matter expertise – whether securities and financial services, cartel and competition disputes or product and public liability – and skill in class action procedure with novel approaches to strategy. Our clients rely on us to deliver on all fronts.

Our Class Actions & Regulatory Investigations practice is one of Product liability the strongest in the Australian market. From the initial stages of Aspen Pharmacare: defending class action proceedings in regulatory investigations to enforcement proceedings and third the Federal Court alleging misleading and deceptive conduct in party actions for damages, our team is well known in the market respect of the sale of a pharmaceutical product. for their adaptability to changing circumstances and finding ways of Bristol-Myers Squibb: acting in relation to a product liability achieving favourable outcomes. class actions in the Federal Court and Supreme Court relating We stand out for delivering subject matter expertise and our focus to silicone breast implants. on early resolution. We are particularly well known for our ability to provide strategic counsel to global corporations on significant and Projects, Infrastructure, Energy & Resources highly complex matters. Seqwater: advising the Queensland Government dam authority in defending a arising from the 2011 Brisbane floods. Our track record includes some of the most high-profile, commercially significant and challenging proceedings in the market, including: Gladstone Ports: successful strike out of class action claims arising out of dredging in the harbour for the LNG construction. Securities, financial products & investments BHP Billiton: acting in relation to the fire and explosion at Major bank: defending class action proceedings arising from Longford in 1998, including acting in the subsequent Federal the collapse of Storm Financial. and Supreme Court class actions. RBS: defending RBS in the Federal Court in a class action by Municipal Association of Victoria: acting for MAV in relation former financial planning customers relating to the alleged mis- to the Casey landfill gas migration class action. selling of complex financial products. IOOF Holdings: taking proceedings against a plaintiff law firm Antitrust and litigation funder in respect of leaked and stolen documents British Airways: acting as Asia-Pacific counsel in responding being used in a class action against IOOF. to the regulatory investigations and prosecutions of the air cargo price fixing cartel and the follow-on class action for Top tier firm: acting for top tier law firms which joined to the damages. OZ Minerals class action. Chemtura: defending a class action in the Federal Court Brookfield Multiplex: defending a securities class action alleging a price fixing cartel in relation to rubber chemicals. concerning the Wembley National Stadium project. In a landmark case, we successfully challenged the legality of funding arrangements between claimants, their lawyers and litigation Other : defending allegations of misleading and deceptive funders as an unregistered managed investment scheme. Alleasing conduct and exclusive dealing in the in relation to leasing PricewaterhouseCoopers: acting in the Centro multiple contracts. The proceedings were settled on a “walk away” shareholder class actions in the Federal Court involving basis with no payment made by the defendant. allegations of failures to disclose information concerning Centro’s debt position. Travel agents: acting for British Airways in relation to a class action commenced by travel agents against a number of airlines over their entitlement to commission payable under standard industry contracts. SECTION ONE

About King & Wood Mallesons

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40 King & Wood Mallesons