Class Actions and the National Court Framework
Legal Leaders' Briefing - Law Council of Australia
The National Court Framework
Under the NCF reforms, the Court's entire workload has been reorganised and it is now managed with reference to eight National Practice Areas ("NPA's"). This allows the Court to operate as a truly national and international court and the work of the Judges has been realigned to hear cases under a new national allocation system. The restrictions imposed by State boundaries that were manifest in the Court before the ECF and NCF reforms have been dismantled.
At the same time, through new Practice Notes coming out as part of the NCF reforms, the Court has expanded the use of more efficient methods of case management, expanded the use of processes to expedite hearings, focused on less expensive dispute resolution, and sought to reduce unnecessary process-driven practices by lawyers. The result is a more efficient, national and flexible structure which strengthens the effective operation of the law and supports commerce.
The key features of the NCF include:
National Practice Areas
The Court's work is organised and managed nationally by reference to eight subject matter areas, namely:
- Administrative and Constitutional Law and Human Rights;
- Admiralty and Maritime;
- Commercial and Corporations (with six sub areas);
- Criminal Cartel Trials;
- Employment and Industrial Relations;
- Intellectual Property (with three sub areas);
- Native Title;
National Practice Area Judges
- a dedicated group of judges have been allocated to each NPA consistently with their experience and ongoing education;
- National Co-ordinating Judges have been appointed in each NPA;
- Co-ordinating Judges have been appointed in each registry.
National Allocation system
- a National Operations Registrar has been appointed to manage case allocation on a national basis. You all know Sia Lagos who is present tonight;
- a consistent national allocation system replaces inconsistent local allocation systems;
- the National Operations Registrar assists the Chief Justice in managing judicial workloads by reallocating cases where circumstances require, including so as to assist in timely delivery of judgments;
- the docket system remains with all of its advantages.
In summary, the changes through the NCF are:
- it brings a truly national approach to the Court's work;
- Judges work nationally within NPA's with co-ordinating judges overseeing the practice areas;
- inconsistent local registry arrangements are converted to consistent national arrangements;
- a dedicated groups of judges are allocated matters in their areas of specialization;
- achieving greater consistency in judgments by national allocations to judges in their areas of specialization;
- nationally consistent and simplified practices in each NPA so as to assist speedier and less expensive litigation with flexible case management and greater focus on ADR;
- nationally consistent Corporations List and Duty systems;
- a more timely judgment delivery process with central oversight;
- truncated cost procedures, such as lump-sum costs orders, where appropriate.
How does the National Court Framework relate to class actions?
The more observant of you will have seen that there is no NPA relating to Class Actions, notwithstanding that Federal Court Class Action Users Groups have requested a Class Actions List over many years.
The essential reason for the Court's decision in this regard is that class action law is largely procedural. Judicial expertise in class action procedure does not necessarily correspond to expertise in the substantive law underpinning the pleaded causes of action. Consistently with the aims of the NCF, the Court is concerned to ensure that dedicated judges in the applicable NPA are docketed to hear and decide class actions.
Even so, while emphasising the importance of having class actions heard by dedicated judges with expertise in the relevant substantive law, the NCF will introduce some important improvements in the way in which the Court manages class actions.
Before moving to explain these changes I want to touch on the current state of health of the federal class action regime.
The current state of the federal class action regime
We have had a class action regime in place in the Federal Court since March 1992, so it is nigh on 24 years since the regime was born.
It can be accepted, as Justice Gordon observed in a paper on class actions in 2013, that the teething problems of infancy - when much of the litigation was bogged down in procedural questions about how the regime worked - have passed. So have the claims made when the regime was adolescent - that judges did not understand its special needs.
As the 24th birthday of the Part IVA regime approaches, although some questions remain, the Federal Court is proud to have led the way in answering many jurisprudential questions and many questions regarding the practical operation of the regime.
Similarly, it is also worth noting that, although separated into two tribes with different tribal grounds to protect, plaintiff and defence lawyers working in this area have, in the main, striven to ensure that the regime operates effectively. The quality of legal representation on both sides is the envy of many other practice areas, and lawyers in this area have played an extremely valuable role in the development of a rational and sustainable regime.
Not that there are not difficulties from time to time, for example:
- (as the leaders of Australia's largest class action defence practice said in 2010) "there is a lot of hysteria surrounding class actions in Australia [and that] can lead to some serious misconceptions about what's happening in the local legal sector". Some of these misconceptions can occasionally lead defence lawyers or their clients down the wrong path; and
- plaintiff lawyers sometimes overstate the value of their cases in an attempt to better market them to class members (which feeds into the hysteria) and every now and again there is an outbreak of inappropriate plaintiff entrepreneurialism which the Courts are required to deal with.
Even so, after nearly 24 years of operation, there is no real question that the Part IVA regime has become an effective, sustainable and well accepted system for providing mass justice for mass civil wrongs. There are many indicators that the federal class action regime is in rude good health, including that:
- the federal regime was essentially copied for the Supreme Court regimes in Victoria and New South Wales, a similar regime is pending in Queensland and a similar regime has been recommended in Western Australia. Imitation is the sincerest form of praise.
- in 2005 and 2006 the ACCC, and ASIC, welcomed cartel and shareholder class actions as playing an important role in maintaining market integrity and achieving compensation for the victims of misconduct;
- since 2009 we have had the benefit of ongoing detailed empirical research undertaken by Prof Morabito, which has revealed the falsity of some of the shibboleths about class actions;
- we have not seen an opening of the floodgates of litigation;
- the research shows that there is no common practice of organising class actions so that the class representative is a person of straw in an effort to avoid paying costs if the case is unsuccessful;
- the research shows that there is no common practice under which plaintiff lawyers commence unmeritorious class actions in an effort to obtain blackmail settlements;
- the research shows that class actions are not always successful, and that just over half of them either do not continue as class actions or they do not continue in that form;
- at numerous class action seminars partners from large class action defence firms have agreed that the regime is working reasonably well, and that shareholder class actions are having a normative effect in terms of compliance with the continuous disclosure regime.
Access to justice and improving effectiveness of the substantive law
The most important touchstone in regard to the health of the regime is in relation to the regime's expressly stated aim to enhance access to justice by improving an individual's ability to access legal remedies, and by making substantive laws more enforceable and effective. The regime has delivered handsomely on this aim. It has been successfully applied to numerous and diverse causes of action on behalf of a huge number of claimants, and resulted in damages awards in the region of $2 billion, making substantive laws more effective for the community.
To date the regime has been used in relation to:
- Shareholder and investor class actions;
- Personal injury through food, water or product contamination;
- Personal injury through defective products;
- Actions under the Migration Act;
- Cartel class actions;
- Disaster class actions;
- Consumer class actions;
- Environmental class actions;
- Human rights class actions;
- Trade union class actions;
- Various miscellaneous causes of action.
The variety of these causes of action, the huge number of claimants involved, and the variety of types of claimants that sign fee and retainer agreements or litigation funding agreements so as to join a class action indicate a high level of community acceptance of the regime.
In 2013, in relation to the huge Kilmore East-Kinglake Bushfire Class Action, The Age newspaper published an editorial that said:
That this case can be heard at all is a measure of the maturity of Australia's class-action regime, which in the past 15 years has generated substantial financial settlements for people and companies affected by negligence, misleading claims or the failure of company officers to properly carry out their duties."
That is not an editorial that is likely to have been published in the climate that existed when the regime was introduced, or even 10 years ago.
A snapshot of current class actions in the Federal Court
At the moment there are 52 class actions current in the Court (of which we class 42 as active which includes six matters awaiting settlement approval and a series of matters mawaiting an appeal in the High Court). This number of cases, the highest ever in the Court, illustrates how important class actions have become in the work of the Court.
Stepping back from it, it also shows how experienced the judges of the Court have become in managing and hearing these monolithic cases.
At first blush this might not appear to be a huge amount of work for a Court our size but this number of large, complex, vigorously prosecuted and strenuously defended multi-party actions, involving a deal of interlocutory disputation, and sometimes long trials means that class actions take up a great deal of Court time and resources. For example the DePuy Hips class action before Justice Robertson in NSW has consumed about 60 sitting days to date and the Storm Financial class action before Justice Reeves in Queensland consumed 110 sitting days.
Of the 42 active class actions
- 28 fall into the Corporations and Corporate Insolvency sub area of the Commercial and Corporations National Practice Area ("NPA") most of which are shareholder and investor class actions;
- 9 fall into the Regulator and Consumer Protection sub-area (two of which are major product liability claims and another which relates to breaches of the consumer credit code);
- 2 fall into the Administrative and Constitutional Law and Human Rights NPA, one on behalf of indigenous residents of Palm Island alleging discrimination and another in relation to the wages paid to intellectually disabled workers;
- 2 fall into the Commercial Contracts, Banking, Finance and Insurance sub area; and
- 1 falls into the Economic, Regulator, Competition and Access sub area.
Interlocutory disputes in class actions
Now can I touch on the primary reason for the change in the Federal Court's approach to the case management of class actions. That is, the level time and expense spent in interlocutory disputes.
This has been one of the profession's main concerns for many years and it was this concern which led to a proposal for a Class Actions List. As you know, the problem of interlocutory disputation attracted some pithy remarks by Finkelstein J in Bright v Femcare, way back in 2002.
Regrettably, there have been a few examples in the last five years where class actions in the Court have suffered significant delay and wasted costs, taking towards seven years to get to trial and then settling for substantial damages. The fact that the cases settled for substantial damages indicates to me that they had some merit but the parties did not get through the interlocutory processes expeditiously. Of course, those few examples are outliers, and with strong and regular judicial case management most class actions get to a hearing or settlement inside two to three years. Even so, those cases happened and the Court is concerned to avoid any further examples.
Why is there often a high level of disputation in class action litigation?
Can I start by saying that a high level of interlocutory disputes does not happen in every class action, and there are some signs the problem is abating. When excessive interlocutory disputation does happen there are a number factors are in play, and they include the following.
First, complex strenuously contested multiparty litigation involving $100 million damages will often give rise to a significant level of interlocutory disputes. To this extent the level of interlocutory disputes in class actions just mirrors other types of major commercial litigation.
Second, class action jurisprudence is still evolving, and the uncertainty in the law creates opportunities for disputes.
Third, particularly in the early days when plaintiff class action lawyers were less experienced and counsel was engaged on a No win-No fee basis, some of the interlocutory disputes seem to have been, at least in part, related to inadequacy of pleading. These days it is common that senior commercial silks are briefed and the pleadings are usually of high-quality. However, there are currently a number of new plaintiff law firms entering the class action arena and it would be unsurprising if some class actions brought by them suffered from this deficiency.
Fourth, the level of interlocutory disputes is sometimes related to a respondent's desire to exhaust the financially weaker applicants. This appears to be a factor in some No win-No fee litigation but not in litigation supported by a sizeable litigation funder. Respondents now seem to accept the difficulty of exhausting such a funder.
Fifth, and importantly for case management considerations, some features of class action litigation increase the opportunities for interlocutory disputes, including:
- the threshold requirement for use of the class action mechanism (s 33C) which provides avenues to argue that each class member does not have a claim against it or against each respondent, that their claims are not the same similar or related or do not give rise to substantial common questions of fact or law, and that the applicant's claim is not properly representative;
- the absence of a certification regime means that it is open to argue that the class action should be 'de-classed' pursuant to s 33N including because the common questions of fact and law are outweighed by individual issues or because it is not in the interests of justice;
- that class actions are often brought by an outsider, that is, an applicant with a less detailed understanding of the factual background underpinning their cause of action than, say, parties to a commercial transaction. For example, the applicant in a shareholder or a cartel class action can rely only on publicly available information and the pleadings sometimes suffer from related deficiencies;
- pleadings can be more complex because of class members' claims and because there are sometimes sub-issues within the class members' claims;
- that class members are not parties and do not have the usual discovery obligations, but a respondent will often want discovery from them;
- 'closed' class actions allow competing class actions to be commenced in relation to the same cause of action including in different courts; and
- the extent to which class members will be bound by a settlement, at least insofar as it goes outside the pleaded claim or involves their individual issues, is not settled.
These issues cannot be waved away with a magic wand, but I have little doubt that the proposed change to the Federal Court's approach to case management of class actions will reduce the delay and expense associated with interlocutory disputes.
The changes to case management of class actions under the NCF
Two Judges on each class action
The first change is that there will generally be two judges appointed to work on each class action filed, and they are both expected to become familiar with the case.
The class action will be docketed to a judge who is a member of the appropriate NPA, and this judge will be the Trial Judge.
At the same time the class action will generally, not always, be provisionally docketed to a judge, titled the Case Management Judge. The proposed new Practice Note is still in draft form but the approach of appointing two judges has already commenced and is being applied to appropriate cases that are on foot.
For example, on top of a class action I am docketed to hear, I have been provisionally docketed to case manage three class actions that will be heard by other judges. Justice Beach has been docketed to hear one class action and case manage another.
The Case Management Judge will be a judge with experience in the conduct of class actions, and that judge's role will be to expeditiously and efficiently case manage the proceeding, particularly in relation to the interlocutory disputes that commonly arise in class actions. In addition, that Judge may hear certain applications that may not be appropriate for the Trial Judge; eg privilege disputes.
The Trial Judge will preside over the trial of the proceeding and will deal with all pre-trial issues appropriate for determination by the judge who will hear the trial. This judge is appointed at the commencement because it is likely to be important for the parties to know which Judge will hear the case as that may inform their approach to matters such as evidentiary issues and settlement.
The Case Management Judge and the Trial Judge are expected to work collaboratively to ensure that the proceeding is dealt with expeditiously and efficiently through the case management, pre-trial and trial phases of the proceeding.
The Court expects that, over time, the judges with experience in the conduct of class actions will pass on to other judges their expertise in the different case management issues that can arise.
This change should reduce the problems that have arisen in the case management of class actions.
I say this, first, because there are a number of judges on the Court who have a close understanding of the tactical strategies of plaintiffs and respondents in class actions, and are au fait with the issues that commonly underpin the interlocutory disputes. Those judges are likely to selected as a Case Management Judge and can expect them to be astute to ensure that class actions are not unduly delayed or costs unduly increased.
Second, the use of a Case Management Judges should assist in achieving greater consistency of approach to the issues which sometimes underpin interlocutory disputation, the sort of issues to which I have already taken you.
The Class Actions Registrar
The second important change is the appointment of a Class Actions Registrar who will assist the judges and the parties in relation to class actions.
The Class Actions Registrar will contact the parties to identify any early procedural issues that may be important for the Court to be apprised of, and will be a central contact point for the parties' enquiries or in relation to difficulties arising during the proceeding. History teaches us that the great majority of class actions will settle before trial, and the tasks for the Class Actions Registrar are likely to include a role in understanding and addressing the impediments to settlement, in an effort to assist the parties to achieve settlement at an earlier time and at a lower cost.
The Class Actions Registrar will assume responsibility with the Class Actions Case Management Judge and the Trial Judge to ensure that the proceeding is dealt with expeditiously and efficiently.
Disclosure of Legal Costs and Litigation Funding Agreements
The third change is some proposed changes to the requirements regarding disclosure of legal costs agreements and litigation funding agreements, and disclosure of potential conflicts of interest between the lawyers, funders and class members.
There have been some cases over the last few years where the disclosure to class members of legal costs or litigation funding arrangements have been found to be inadequate (Modtech v GPT, ASIC v Richards). The Court is concerned to ensure that class members are properly informed of these matters and some changes to disclosure requirements are proposed.
There have also been concerns raised regarding disclosure of legal costs agreements and litigation funding agreements to the respondent and the Court. In large part this practice is already followed by established plaintiff class action firms, but the Court is concerned to ensure that it happens across the board. Such documents may, of course, be redacted to conceal any information which might reasonably be expected to confer a tactical advantage on another party, including, without limitation, information as to the funds available to the applicant or which might reasonably be expected to indicate an assessment of the risks or merits of the proceeding or claims in the proceeding. The proposal will include a right to object to disclosure. Those proposed changes will be the subject of consultation.
Regarding the disclosures of conflict of interest the proposal is similar to the existing declarations that plaintiff lawyers and litigation funders are required to make to ASIC.
In my view you are fortunate to be working in arguably the most balanced and sustainable class action regime in the world and these changes are aimed at keeping us on the right path. To date:
- we have avoided the worst excesses of the US system;
- we have the benefit of a regime which offers both the efficiency of opt-in class actions and the access to justice benefits of opt-out class actions - which has the important additional benefit of providing finality for defendants;
- unlike the US system, our costs follow the event rule strongly discourages unmeritorious litigation and there is no practice of blackmail settlements;
- we seen no practice of "rent-seeking" through other claimants opposing settlement approval;
- while we do not have a certification regime (which has been the subject of much discussion) section 33N has enabled de-classing of cases whenever that has been shown to be appropriate. It is a better system when you see what the certification regime has degenerated into in the US.
- the Court has been quick to address inappropriate conduct by class action practitioners and has usually been conscientious in relation to settlement approval.
One thing of which you may all rest assured is that the Federal Court is committed to staying at the forefront of class action jurisprudence and practice, and committed to ensuring that class actions are managed and heard as efficiently, as inexpensively and as fairly as possible.
There is a disturbing trend that is emerging in representative proceedings which is best brought to an end. I refer to the numerous interlocutory applications, including interlocutory appeals, that occur in such proceedings. a|it is not unknown for respondents in class actions to do whatever is necessary to avoid a trial, usually by causing the applicants to incur prohibitive costs. The court should be astute to ensure that such tactics are not successful.
 Philip Morris v Nixon, Bray v F Hoffman La Roche and Ors, McBride v Monzie;
 Bright v Femcare ibid; Guglielmin v Trescowthick, King v GIO Australia Holdings Ltd