Access to Justice Under the Part IVA Regime

Keynote address at seminar “Class Actions - Current Issues after 25 years of Part IVA” - University of NSW

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Looking around this room I see many practitioners who are highly experienced in the operation of the Part IVA regime. You will all be well aware that the central aims of the Part include enhancing access to justice.^[1] The topic for today’s address is the extent to which the regime has met this aim. I address the issue by reference to empirical data, by canvassing the views of the regime expressed by various law reform and other governmental commissions over the last 16 years, by reference to the views from the Bench, the views of Australia’s main corporate regulators, and by reference to the diverse claims brought by a great number of similarly-situated claimants in class proceedings over the last 25 years^[2].

Let me start, however, with the overarching observation that my experience both as a class action litigator and a judge of the Federal Court managing class action litigation has taught me that class actions can work.

Of course, the regime is not perfect. But since when has that been the test. If it was, most legal procedures would fail it.

Provided class actions:

• are brought in relation to serious misconduct;
• are brought with the primary aim of delivering substantial compensation or other relief for the claimants; and
• are properly conducted and managed;

they serve an important role in providing access to justice because they allow many people substantially affected by mass civil wrongs to recover compensation that they would otherwise be unable to obtain.

It is important to remember that, before the class action regime was introduced, it was either impossible, or at least exceedingly rare, for consumers, cartel victims, shareholders, investors and the victims of catastrophe to recover compensation, even where the misconduct was plain. Since 1992 the regime has permitted claimants to recover more than $3.5 billion in compensation for civil wrongs they have suffered.

The regime has proved flexible and adaptable in meeting the challenges to its utility as they appear. In my view it appears appropriately balanced and I can see few signs of any systemic problems in its operation, but perhaps the more important point is that the Courts are well capable of dealing with any problems that do arise. Having looked at many different class action regimes around the world it is as good as any, and better than most.

1     The climate in which the regime was introduced

Throughout its life the regime has faced the criticism that it would:

• cause serious impediments to business through legal entrepreneurialism promoting US style litigation;·     
• through misuse of proceedings and the media, to generate financial and reputational pressures to force substantial out of court settlements by defendants, regardless of the merits; and·     
• open the floodgates of litigation.^[3]

It has been plain for years that those concerns are misplaced. In my view the proponents of such fears:

• do not accord sufficient significance to the cost-shifting rules in Australia which provide a powerful disincentive to speculative litigation compared to the position in the US;
• Nor do they sufficiently recognise that:
  • awards of exemplary damages are exceedingly rare in Australia;
  • cy pres damages are not permitted;
  • lawyers are prohibited from charging contingency fees;
  • Australian class actions are not heard by a jury; and
  • the litigation culture in Australia is more conservative than in the US.

These differences have assisted our system to remain appropriately balanced.

There is no evidence in Australia of any practice of commencing unmeritorious cases in an attempt to blackmail the defendant into a nuisance value settlement, nor any coupon settlements. Justice Jonathan Beach recently said there has been no “Americanisation” of the Australian class action system, and very few spurious or unmeritorious claims.^[4] Experience shows that the great majority of cases are brought in relation to alleged serious civil wrongs claiming substantial damages, and the claims appear to have merit.

While there is no evidence of any significant increase in unmeritorious class actions to date, I accept the possibility that:

• the (incorrect) perception in some quarters of the legal profession that class actions are straightforward;
• coupled with the increased availability of litigation funding;

may mean that, in competing for a share of the work, lawyers and funders who are not at the top end of their respective profession or industry will file less meritorious or even unmeritorious cases.

If it is the case that an unmeritorious class action is commenced, if it has no realistic prospect of success it may be summarily dismissed. Of course, that is a high bar. If the case is unmeritorious, but unlikely to be summarily dismissed, I would expect competent class action defence lawyers to force the applicant to abandon the case or defeat it at trial. It is important that the Part IVA regime is not misused to bring unmeritorious class proceedings (which are expensive to defend and may be settled for nuisance value amounts), but the respondent and defence lawyers must take up any battle in that regard.

In this context it is perhaps also worth noting that more class actions are now proceeding to trial. Although few proceed to judgment, an increasing number are not settled until after the plaintiff’s case has been tested which means the merit (or lack of merit) of the case will have been revealed. Cases where that occurred include the Centro shareholder class action which settled for $200 million after 8 weeks of trial, the Kilmore East-Kinglake Black Saturday bushfire class-action which settled for $500 million after a 12 month trial, and the De Puy artificial hips class action which settled for $250 million after a 17 week trial.

Based on my experience over 15 years as a class action litigator, my studies in class action law and practice, and my work as a judge case managing class-action litigation, I have no difficulty in concluding that the Part IVA regime and its State counterparts work reasonably well and provide real, practical broad-based access to justice. This is also attested to by the following matters.

2     The empirical research

Since 2009 we have had the benefit of detailed empirical research performed by Professor Vincent Morabito^[5] which shows the following:

• The floodgates of litigation have not opened. From 4 March 1992 until 4 March 2013 an average of 19 class actions were filed each year around Australia. Then, over the three years from 4September 2013 to 3 September 2016 a total of 103 class actions were filed bringing the average up to 34 class actions per annum for that period. There is an upward trend in the use of Australia’s class action regimes (although the extent of that trend is not yet clear) but as Chief Justice Allsop recently noted, the number of cases is far from an avalanche^[6]. There have only been 500 class actions filed around Australia over the 25 years of the regime’s operation, and those cases relate to only 350 different disputes. That is not a flood.
• Class actions are not always successful and in fact, 51 percent of the time, class actions either do not continue or do not continue in that form. This undermines the stated concern that the regime places defendants in such a disadvantageous position that they are forced to settle unmeritorious class actions.
• Many class actions settle for very substantial sums which points away from the conclusion that they are weak or unmeritorious on liability. A conservative estimate of the total compensation paid to class members since commencement of the regime is $3.5 billion.
• There is no widespread practice of using “persons of straw” to be the class representative so that the obligation to meet an adverse costs can be avoided if the class action was unsuccessful. In any event, nowadays 50% of class actions and almost 100% of shareholder class actions are brought with the assistance of a litigation funder and any adverse costs liability is guaranteed by the funder.
• There has not been a transmogrification of the regime so that it only relates to shareholder class actions. Shareholder class actions represent about 34 per cent of all class actions filed in the last 25 years, and about50% of all class actions filed in the last three years, so there are still many class actions addressed at concerns other than alleged share market misconduct. In any event, in the Second Reading Speech for the bill introducing Part IVA, Senator Tate, the Minister for Consumer Affairs and Justice specifically stated that an objective of the proposed class action regime was increasing access to justice for shareholders.
• Close to 70 per cent of all class actions concluded within two years and the average duration was declining. Class actions have a high settlement rate, approximately 90% of all funded class actions having been resolved by settlement. They are not clogging up the courts.

3     The view of various law reform and related governmental commissions

Over the last 16 years the operation of the Part IVA regime has been considered in no less than five reports by law reform and related governmental commissions. Each report concluded, either expressly or implicitly, that the regime was operating well:

• in2000, the Australian Law Reform Commission concluded that procedures for class actions generally appear to be working well and in accordance with legislative intentions. It said the Federal Court did not view such cases as more problematic than other complex cases.^[7]
• in2008, the Victorian Law Reform commission considered the Victorian counterpart of the Part IVA regime. It made recommendations aimed at reducing barriers to the use of the regime, as opposed to restricting the regime because of a concern that it was fuelling unmeritorious litigation.^[8]
• in September 2009, the Access to Justice Taskforce of the Commonwealth Attorney-General’s Department handed down a report which made recommendations aimed at enhancing the ability of the Part IVA regime to secure the goals of access to justice and judicial economy, rather than to restrict its operation.^[9]
• In2014, the Australian Productivity Commission produced a report into “Access to Justice Arrangements”^[10]which expressly rejected the statements of some commentators that there was a significant increase in unmeritorious shareholder class actions and that a US-style litigation culture was developing. It said that it had received no evidence that caused it to believe that litigation funding of class actions promoted unmeritorious claims or that litigation funders took advantage of claimants. Importantly, the Commission also saw no evidence to indicate that the courts and regulators would not be able to address such problems if they emerged.^[11]
• In October 2015, a report by the Law Reform Commission of Western Australia was tabled in State parliament^[12]which recommended the introduction of a class action regime closely modelled on Part IVA.. It said that the prediction that Part IVA-type regimes would “open the flood gates” for litigation had not been proven in practice and described such a regime as a “tested solution."^[13]

4     The position of federal and state legislatures

There has been no legislative attempt to wind back Part IVA. The only recent expression of parliamentary intention occurred in 2012 when the federal government introduced the Corporations Amendment Regulations which exempted litigation funders from the requirement to hold an Australian Financial Services License. The Explanatory Statement said that the government supports class actions and litigation funders as they provide access to justice for a large number of consumers.^[14]

In the period 2000 and 2016 Victoria,^[15]New South Wales^[16] and then Queensland^[17] enacted class action regimes that essentially copied the federal regime. In October2015, the Western Australia Attorney-General announced that government would also adopt a class action regime based on the Part IVA regime.^[18]I infer the respective state legislatures would not have taken that course unless they thought the regime was operating well.

5     The views of Australia’s main corporate regulators

The two main corporate regulators in Australia have expressed support for the role that class actions play in assisting the regulation of corporate misconduct:

• in2005 the then Deputy Chairman of ASIC^[19],and in 2012^[20]the present Chairman, expressed support for the role of class actions in protecting the integrity of capital markets and freeing ASIC to better focus on its surveillance and enforcement functions;
• in2006 the then Chairman of the ACCC^[21]welcomed a cartel class action settlement as a third prong in deterring cartel conduct, and in 2012^[22] the present Chairman welcomed cartel class actions as freeing it to undertake its other important other functions.

6     The view from the Bench

There was initial antipathy to class actions from some judicial quarters, perhaps best illustrated in the remarks of Callinan J in Mobil Oil Australia Pty Ltd v Victoria^[23],made in an appeal which alleged that the Part IVA type regime in Victoria was outside power. Over the years, however, it appears that judges have increasingly come to treat class actions with less suspicion and have become inclined to see them as important in providing access to justice. This can be seen, for example:

• in2005,theNSW Court of Appeal in Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd^[24]expressed strong support for the access to justice provided through litigation funding of class proceedings. In 2006, in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd,^[25]the High Court endorsed Mason P’s remarks.
• in2008, in Kirby v Centro Properties Ltd,^[26]Finkelstein J said that shareholder class actions served a useful function by promoting investor confidence in the integrity of the securities market and allowing investors to recover past losses caused by the wrongful conduct of companies, which operated to deter future securities laws violations.^[27]
• in2016, the Full Federal Court in Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd (Money Max)^[28]said that it was undeniable that funded class actions brought on a closed class basis have provided access to justice to a great number of claimants.
• in2016,JusticeForrest of the Victorian Supreme Court expressed strong support for the access to justice provided through class actions.^[29]In making orders which paved the way for the distribution of almost $800million to many thousands of class members in class actions about two Black Saturday bushfires his Honour said,:

“This demonstrates that the class action process works. It shows that when it is properly managed, many substantially disadvantaged and affected people can recover compensation that they would otherwise not have been able to obtain.”

• There has not been one judgment of a superior court in the past 25 years which points to any systemic problem with the operation of Part IVA, and there have been a number of judgments which show that the courts are well capable of dealing with any difficulties which arise.

7     The claimants

Another obvious touchstone with regard to the breadth of access to justice under the regime is its application to enormously diverse causes of action, including:

• disasters;
• personal injury, through contamination of a variety of foods and products;
• personal injury through medical devices;
• breaches of the continuous disclosure regime on the ASX;
• misleading conduct in investment prospectuses;
• cartel conduct;
• consumer claims;
• environmental damage;
• employment related issues;
• breaches of human rights and anti-discrimination laws; and
• miscellaneous matters that are not easily categorised.

The breadth of the causes of action, the hundreds of thousands of claimants, and the variety in the types or kinds of claimants (including mums and dads, consumers, employees, small businesses, private companies, public companies, retail investors and institutional investors) that sign retainer and litigation funding agreements so as to join the actions, indicates the breadth of the access to justice provided (and incidentally, a level of community acceptance well beyond that which I thought likely 25 years ago).

8     Conclusion

The Part IVA procedure provides real, practical and broad based access to justice and it is a regime of which we should be proud. The importance of the regime means the community should expect the Federal Court to be vigilant in protecting it against undesirable practices that may try to creep in, so that it remains directed to the interests of the parties and the community and remains appropriately balanced and sustainable.

Justice Bernard Murphy

23 March 2017