Class Actions
Keynote address at Law Council of Australia Forum
Class Actions 2016 Key Topics
Few, if any, in this room need, without good reason, to be reminded of the history of class actions in Australia. Part IVA of the Federal Court of Australia Act 1976 was introduced after, and upon the recommendation of, the Australian Law Reform Commission Report No 46 on Grouped Proceedings in the Federal Court tabled in Parliament in December 1988. The history is clearly and concisely stated by the Hon Justice Bernard Murphy in a speech he gave in 2013.[1]
Broadly speaking, that legislation has been copied by New South Wales and Victoria, with Western Australia and Queensland likely to follow. The Commonwealth Attorney-General of the day (the Hon Michael Duffy) identified a number of advantages of the new representative procedure in his second reading speech: enhanced access to justice, reduction in the costs of proceedings and the promotion of efficiency in the use of court resources. The Attorney articulated the enhanced access to justice in two ways: first, the provision of a real remedy for people with small claims whose number may be such as to make the total amount at issue significant; and secondly, to deal efficiently with similar individual claims that are large enough to justify individual actions. The Attorney was articulating matters of considerable social utility.
Part IVA built on and reformed existing representative proceeding rules dating back to 19th century procedures that had largely failed to provide the effective platform for achieving the aims identified by the Attorney. The new Part was articulated as part of the government's equity and access policies in its social justice programme. It was not expected, the Attorney said, that the new regime would have a significant financial impact; and he said that a small number of additional cases may be brought.
The legislation was not bipartisan. Its proposal had already provoked vigorous debate. The legislation was denounced by the shadow Attorney (the Hon Peter Costello) as "bad legislation". Four principal flaws were identified: first, it was an attack on the traditional method of exercise of legal rights; secondly, it would foster Australia as a litigious society by encouraging the proliferation of litigation; thirdly, it would change the nature of legal practice by the creation of an entrepreneurial class of lawyer promoting proceedings; and fourthly, it was a misdirected over-reaction to the problem of the cost of litigation.
I do not propose to analyse who made the better predictions or better analysis; though it might now be thought atavistic to campaign for a reversion to the pre-1988 position. More importantly, I think it is a false dichotomy to be seeking to choose between the two views of Duffy and Costello as if their views were the universe of available views.
It is worth reflecting, at this point, on what courts do, and what litigation in court is, or should be, before commenting on class actions as we see them today. Courts are a branch of government. They execute that role in a functional way by providing a form of litigation service. But service delivery is an inadequate and incomplete description. One responsibility of the courts as a branch of government is to ensure, through their procedures and approaches to the litigation brought before them, that the scarce and valuable public resources that Parliament and the Executive devote to them are employed in a socially useful way. This is an important part of maintaining public confidence in the administration of justice. Litigation is a costly, stressful, but necessary, evil. It is necessary because it resolves disputes between parties in a civil fashion; it replaces the gun and the gang. It is an "evil" because it pits people against each other in a potentially destructive way. The strain and stress of litigation should never be underestimated. I used this expression in 2001. I sought in a small and otherwise inconsequential case (except to those who really count – the parties) to say something about these aspects of litigation. I had had the experience in practice, as some of you probably have had as well, of seeing people in litigation, sometimes witnesses, sometimes defendants, sometimes plaintiffs, ground down, made ill and, at least in one case, killed by the strain of litigation. It caused me to say the following:
Litigation is not a game. It is a costly and stressful, though necessary, evil. To paraphrase Roscoe Pound from 'The Causes of Popular Dissatisfaction with the Administration of Justice' (1906) 29 ABA Rep 395, 404-406, the 'sporting theory of justice' and any behavioural manifestation of it should be seen as a survival, or better, a relic, of the days when a lawsuit was a fight between two clans.[2]
I am not, and was not in 2001, a misty-eyed dreamer about litigants and their lawyers being generous and nice to each other. Some litigation is necessarily for large stakes and most litigation is productive of large strains. Though there is never call to abandon civility. And the stressful character of the undertaking is why some central characteristics of what is being done and how people should act are so important. One central requirement is the social utility of the exercise. Another is the centrality of the litigants' interests reflected in the fiduciary responsibilities of lawyers.
Recognising the need for social utility and apparent social utility in the employment of the public resources of the court, and acting conformably with such recognition, are obligations of the court, and of the profession. They are requirements of both because the administration of justice is a partnership between the courts and the profession. Neither institution (and that is how both should be viewed) can bring about the necessary change or proper state of functioning of the system without the other.
The hopes (of Michael Duffy) and fears (of Peter Costello) of 1988 should be reflected upon through this lens of the need for social utility of what we do as the custodians of the administration of justice, especially when examining the types of cases that are being litigated and the manner in which they are coming forward and being litigated.
If one recalls the vigour with which the two cases were put leading up to the legislation in 1988, it is well to reflect that the apparent social utility of the class action regime in operation must be clearly demonstrable to deny the ability of anyone to mispresent it for the advancement of his or her own interests. Public debate is often carried on without balance and fairness, and with selfish and partisan motivations. It should not be assumed that criticism of the class action regime in operation will be fair or unbiased, though that is not to say that some criticism cannot legitimately be levelled at the system in its current operation. To paraphrase Abraham Lincoln in one of his great speeches in 1854, opposing the views of Senator Douglas in Peoria, Illinois over the proposed Kansas-Nebraska Act that was to repeal the Missouri Compromise of 1820, threaten slavery in the western territories and pave the way for the bloodletting of the Civil War, the case for social utility of the class action regime in operation has to be sufficiently demonstrable so that no honest person can misunderstand it, and no dishonest one successfully misrepresent it.[3]
The valuable empirical research that has been, and continues to be, undertaken by Professor Morabito and others as to the number and nature of the class action litigation brought since 1992 does perhaps falsify the notion expressed by Michael Duffy that there would be few additional cases. There has not, however, been an avalanche. From 1992 to 2009 there were 281 in the Federal Court and the Supreme Court of Victoria.
The cases that have historically been brought reflect a range of commercial and non-commercial cases: personal injury through food, water or product contamination, or through defective products; prior to legislative amendment, claims under the Migration Act; disaster tort claims; environmental claims; human rights claims; trade union claims; consumer claims for contravention of protective laws; claims by shareholders and investors; and anti-cartel claims.
An examination of the current active caseload of class actions in the Federal Court reveals over 60 cases. They range from and include product liability claims, to investor class action claims, including GFC instrument claims, shareholder class action claims based on market disclosure or lack thereof, strata building claims, discrimination and disability claims, consumer claims against unconscionable and predatory conduct and conduct contrary to credit codes, and product liability claims.
Of these active cases, 32 were filed between 2011 and 2014 (4 in each of 2011 and 2012; and 10 and 14 filed in 2013 and 2014, respectively). Two-thirds of these have been settled at mediation, are currently subject to settlement approval proceedings or are listed to be heard or mediated in late 2016 or 2017. Of the remaining third, 6 of these cases are currently subject to interlocutory proceedings or are awaiting the outcome of other court proceedings. From the 2015 and 2016 filings there are currently, respectively, 17 and 12 active matters. Over eighty-percent of these have been listed for hearing in 2017, are being case managed or are awaiting a first return date. Of the remaining 5 matters, 4 are currently subject to interlocutory proceedings or are awaiting the outcome of other court proceedings.
The variety of subject matters and the number of cases are not such as to indicate an abuse of the class action vehicle into socially useless litigation. Nevertheless, it is critical to ensure that how these cases come forward and how they are being run satisfies the requirement of social utility. This is most particularly so in an environment in which commercially driven litigation funders (domestic and international) now provide significant financial support to the propounding of claims. (Something in the order of 50% of class action claims are funded in this way.)
It is worth stating at this point that the introduction of a degree of central management of the Court's workload (not just its class action workload) is facilitating a much closer scrutiny and analysis of the throughput of the cases in the Court. The digitally based information system of the Court now allows comprehensive and timely analysis of individual cases, and of the Court's case load overall. All the present evidence in the Court is that, overall, the timeliness of disposition in the Court has improved and will continue to improve by the careful allocation of matters to judges in relevant practice areas with an informed eye to workload pressures and availability, and the continuous scrutiny of workload, individually and generally.
The Court recognises that case management and efficient disposition is a two-way street. It is not only about telling the profession what to do or what the Court expects of it; but also what the Court expects of itself and what the profession should expect of the Court.
There are a number of areas where questions of good or bad practice in class actions have the capacity to affect perceptions of social utility of such cases. Some may, in due course, require legislative intervention. Broadly, they are the kinds of considerations adverted to by Michael Duffy and Peter Costello in 1988. They can be seen to include the following:
(a) entrepreneurial promotion of weak or speculative cases;
(b) the proper degree of articulation of claims in circumstances of information asymmetry, including whether discovery and s4 of the Australian Consumer Law are being used as substitutes for preliminary discovery;
(c) the supervision of attendant commercial considerations of fees, commissions, and legal costs in the context of the primacy of the interests of the litigants and class members;
(d) the fair sharing of risk amongst potential "beneficiaries" (funders, lawyers, class members) for running this kind of litigation;
(e) the appropriate approach to defence of such litigation and the unnecessary tactical raising of issues in "trench warfare";
(f) the proper place of procedural attack on articulated claims and the role of s 31A of the Federal Court of Australia Act;
(g) the proper identification of common issues and, as a related question, the place of cross-claims and how they are managed;
(h) offers of compromise and how they can be encouraged and made more useful;
(i) the management and co-ordination of concurrent or competing claims.
I do not propose to examine these issues today. I do not say that it is an exhaustive list of the areas where the perception of social utility may be affected. Nor should their placement in an articulated list of issues be taken as a predilection of an applicant or respondent sympathetic focus. Just as there should be concern for a respondent (or respondents as a class) placed in a position of being required to discover large numbers of documents and divert hugely valuable human resources to create statements or evidence to rebut a barely articulated claim of marginal strength, so there should be concern for the legitimate claims of members of a class which are being attacked by the implacable taking of every point, however unmeritorious, to beat away, or exhaust the resources of, the claimants.
At least one answer (but, necessarily, only a partial answer) to these kinds of problems lies in strong and effective case management and the proper functioning of the profession's and the clients' responsibilities to the court. There is no class action exception to the binding nature of ss 37M and 37N of the Federal Court of Australia Act 1976 that require parties to civil litigation to conduct themselves in a way that is consistent with facilitating the just resolution of the dispute as quickly, inexpensively and efficiently as possible; and that require lawyers to assist their parties to comply with that duty.
These considerations explain why the court has brought in new practice notes, relevantly the Central Practice Note and the Class Action Practice Note. These practice notes reveal a philosophy of case management that is based on both the court and the profession recognising and fulfilling mutually important responsibilities in conducting litigation as a form of problem solving, rather than fee generation.
It is crucial that this ethos pervade the conduct of litigation, including class action litigation. It does not mean that a half-baked or structurally flawed case should not be attacked, vigorously, using s 31A or any other procedural application; but likewise, it does not mean that litigation will be allowed to be conducted in an implacably intransigent manner with repeated and marginally useful satellite applications.
The practice notes espouse an aim of efficient and practical litigation informed by the terms of ss 37M and 37N. The need for social utility of the class action system will be assessed by the fairness and efficiency (to both sides) of the process of case management; the reality, and the perception of reality, of the primary consideration of the interests of litigants (including class members), not funders and lawyers; and the legitimacy of the consequences of the operation of the system, whether assessed through access to justice, the vindication of just claims, the encouragement of proper market behaviour by putative wrongdoers, and the elimination, without undue delay or expense, of unworthy claims.
Central to the successful working of the system and the reality and perception of the social utility of class actions is the recognition of what the process is or should be: the vindication of just claims, and their resolution through a process characterised by parties (applicants and respondents) that recognise the critical features of ss 37M and 37N and a profession that not only recognises its responsibility in those provisions, but also the strict fiduciary capacity in which it works, such that every decision concerning the litigation and its running can be seen as taken in the interests of the litigants.
How these considerations manifest themselves in the complexities of hard-fought day-to-day litigation is not always straight-forward. The new practice notes are an attempt to express and epitomise the relationship between the Court and the participants in class actions and to supervise, and provide the framework for, a practical and fair system that will be seen to be socially useful.
The Court has attempted in the class action practice note to develop a framework in which the practical, specialised skills of class action registrars and judges can be deployed to help manage what are often complex and difficult claims and in which the potential for conflicts of duty and interests, and duty and duty, can be effectively and fairly managed.
Litigation funding, as an avowedly commercial endeavor, has brought challenges, and also disciplines, to the system. The disclosure and provision of those agreements and of costs agreements in parts 5 and 6 of the practice note are an attempt to ensure that the commercial and professional interests of funders and lawyers can be assessed in the fair operation of the system.
Whilst I am not blind to the commercial considerations in the funding and running of mass litigation, ultimately such litigation has to be fair, practical, just and, as far as possible, cost-efficient. If it fails one or more of these tests of social utility, the Court and the profession will pay a price of the legitimate criticism of the public. The Court is seeking to ensure that, in partnership with the profession, the social utility of the class action system can be vindicated. It is important that the profession (as it no doubt does) recognises its public role in this partnership. If this provokes a wry smile in you, or provokes a response in you that such sentiments are unrealistic, then you may conclude that there is already a serious problem.
If commercial interests and commercial returns (as opposed to professional responsibilities) are seen to drive a substantial section of this work then the cost of defending claims and the public cost of providing the infrastructure for them will come to be seen as an impost on Australian business and public infrastructure that will not be seen as acceptable.
[1] Justice B Murphy "The Operation of the Australian Class Action Regime" (Speech presented to Bar Association of Queensland, 8 March 2013) www.fedcourt.gov.au/publications/judges-speeches/justice-murphy/murphy-j-20130309
[2] White v Overland [2001] FCA 1333 at [4]
[3] Abraham Lincoln Peoria Speech (October 16, 1854) (text available: www.nps.gov/liho/learn/historyculture/peoriaspeech.htm; ME Neely The Abraham Lincoln Encyclopedia (1982, New York: Da Capo Press, Inc))
