Australian class actions are representative proceedings – that is, claims brought by representative plaintiff(s) on behalf of a broader class.

The Federal Court of Australia and Supreme Courts of New South Wales, Victoria and Queensland each have regimes for the bringing of representative proceedings. Those regimes are almost identical in all material respects. ₁

¹ For more details on class actions in Australia, see Allens’ publications: Class actions in Australia and Shareholder class actions in Australia.

There are no restrictions on the persons or entities who may bring representative proceedings but any claim must satisfy the following threshold requirements:

• there must be seven or more persons with claims against the same defendant;
• the claims must be in respect of, or arise out of, the same, similar or related circumstances; and
• the claims must give rise to at least one substantial common issue of law or fact.

The representative plaintiff(s) are the only class members who are parties to the proceedings. There is an implied requirement that the representative(s) adequately represent the class members’ interests and a court may permit the substitution of a representative who is unable to do so (although this has never been properly tested).

Unlike class actions in the United States, there is no class certification process and it is not necessary for common issues to predominate. A defendant may, however, challenge the constitution of the proceedings as representative proceedings on the basis that the threshold requirements have not been satisfied and/or it would not be effective, efficient or otherwise appropriate for the claims to be dealt with by representative proceedings.

Some regulators are empowered under legislation to bring representative proceedings. For example, the Australian Competition and Consumer Commission is entitled to act as a representative party on behalf of claimants that are consumers; and the Australian Securities and Investments Commission is able to commence representative proceedings in the name of a company or a natural person.

All Australian regimes are opt out regimes. As a result, every potential claimant who falls within the class definition is a member of the class (and will have their rights determined by the proceedings) unless they opt out.

The class definition may, however, be formulated in a way that limits the class members to persons who have registered to participate in a claim. Proceedings of this kind are essentially opt in proceedings within the opt out regime. This approach was developed in claims supported by third party funders who wish to limit the class to those persons who have entered into funding agreements. Although now accepted as permissible (and expressly permitted by the NSW and Queensland regimes), this approach represents a serious challenge to the opt out policy reflected in the legislative framework.

The action must satisfy the threshold requirements set out above.

Judge.

Third party funding is the most common form of funding for Australian class actions. Class actions may also be funded by the representative plaintiff and/or class members themselves, or by lawyers acting on a conditional fee (i.e. ‘no win, no fee’) basis. Lawyers may not, however, fund the proceedings in return for a share of any proceeds - although lawyers in representative proceedings in the Supreme Court of Victoria will soon be able to seek a court order permitting them to do so.

Until recently, funders could secure their right to a funding commission by either: signing-up class members to funding agreements which gave them a contractual right to a commission; or by seeking a 'common fund' order which would entitle them to a commission from any proceeds of the litigation by order of the court. However, in December 2019, the High Court of Australia ruled that courts did not have the power to make 'common fund' orders during the interlocutory stages of a class action. While the full impact of this decision and the viability of alternative approaches remain unclear, it has injected significant uncertainty into the funding industry.

Moreover, while a significant factor in the development of the third party funding sector had been Federal Government support for third party funding of class actions as an important means of facilitating access to justice (manifested through a so-called ‘light touch’ approach to the regulation with few barriers to entry), there are recent signs of a changing tide in that respect. In May 2020, the Attorney-General announced a parliamentary inquiry into whether 'the present level of regulation applying to Australia’s growing class action industry is impacting fair and equitable outcomes for plaintiffs'. Shortly after that announcement, the Treasurer announced that litigation funders would be required to hold an Australian financial services licence and to comply with the statutory regime governing managed investment schemes - this change is expected to be implemented in about September 2020.

These announcements following a January 2019 report by the Australian Law Reform Commission which recommended a range of measures intended to increase court oversight of third party funding arrangements and to give courts greater power to protect the interests of class members, but did not recommend any measures which would increase the barriers to entry for third party litigation funders.

In the ordinary course, the parties will be required to give pre-trial ‘discovery’ (akin to disclosure). In some limited circumstances, the class members (i.e. non-parties) have also been ordered to give pre-trial discovery.

Discovery can be a substantial undertaking for class action defendants, who may be required to disclose many thousands of documents. Having regard to the costs of this burden, there has been increasing judicial attention in recent years on attempting to limit the nature and scope of discovery required in large civil proceedings (including class actions), including through the use of technology assisted review.

Originally, product liability claims were the most likely subject of an Australian class action. In more recent years, however, securities and mass consumer claims have become the most common types of class action proceedings. The spike in consumer claims has been primarily driven by a large number of claims in relation to issues addressed by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. This trend is expected to continue in the medium term, as are trends for increasing claims in respect of workplace rights, privacy and environmental issues.

Despite the so-called ‘perfect storm’ conditions for class actions in Australia, the ‘floodgates’ have not burst open. Class actions continue , however, to be an increasingly significant and evolved part of the Australian legal landscape.

Significant change is, however, afoot with the High Court's rejection of interlocutory 'common fund' orders, the pending changes to the regulation of litigation funders and the availability of contingency fee arrangements in class actions in the Supreme Court of Victoria. It remains to be seen how each of these developments (both individually and in combination) may impact the commercial drivers for class action activity in the short to medium term.