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Australia: Product Liability Defence Review 2017

Is It Time to Revisit Australia's Class Action Procedure?

 By Colin Loveday and Bonnie Perris, Clayton Utz

Colin Loveday and Bonnie Perris at Clayton Utz explore the development of class actions in Australia and question whether it may be time for procedural reform. 

Clayton Ulz

Part IVA of the Federal Court of Australia Act establishes the legislative framework for representative proceedings (class actions) in Australia. It was enacted in the early 1990s and was introduced to give the Federal Court an efficient and effective procedure to deal with multiple claims. At the time it was said that a class action procedure was needed for two reasons. First, to give access to the court to those in the community who could not afford the cost of taking individual actions. Second, to deal more cheaply and efficiently with scenarios where multiple actions are brought against the same respondent.

It is now 25 years since Part IVA was introduced. Class action procedures now exist in the supreme courts of Victoria, New South Wales and Queensland. Australia has a very active class action jurisdiction. At present there are 67 class actions pending in the Federal Court of Australia and an additional five that have been stayed awaiting the outcome of High Court litigation. There are 13 and 16 class actions currently before the supreme courts of New South Wales and Victoria, respectively.

Australia is now one of the likeliest jurisdictions where a company will face significant class action litigation. It is noteworthy that some class actions have commenced in Australia that were not certified in the United States. So there appears to be, at first blush, confirmation that the first objective of introducing class actions – namely, giving access to the courts – has been achieved.

However, it is also worth noting that many class actions are complex legal disputes involving massive amounts of evidentiary material – factual evidence as well as mountains of documents and expert reports. They require a considerable amount of the court’s time and resources for case management, interlocutory disputes, hearing time and then the preparation of a detailed written judgment.

As with any litigated commercial dispute, some class actions will settle but as this requires court approval experience has shown that such settlements will often not occur until quite late in the piece. It is not easy to assess what is in the interests of group members in the early stages of a broadly pleaded class action. Last year one class action in the Federal Court consumed several months of court time for a full hearing before it settled.

Similarly, like any litigated commercial dispute, some class actions do not settle, run to a full first-instance hearing and then a series of exhaustive appeals. The Vioxx class action in the Federal Court is but one example of this scenario. When this occurs, an enormous amount of court resources is required. This is not a rare occurrence. In the latter part of 2017, another class action has been listed for a six-month hearing in the Federal Court. Given the quantity of evidence involved in a six-month hearing, it is reasonable to expect that the court will take up to 12 months to deliver judgment.

At least part of the reason for this settlement pattern (if that is the correct phrase to use) is the multiplicity of issues in dispute and the difficulty of refining matters to manageable levels to enable negotiations to proceed successfully. There are also material differences in the usual vectors for resolution in class actions compared with single party commercial disputes. One of these is that class actions dilute the effectiveness of the loser-pays rules that otherwise apply to single-party disputes. But that is a topic for a separate discussion.

So while Part IVA has, from one view, provided access to some to the courts, has the procedure fulfilled its second objective of efficiency? Has it really enhanced access to justice? Or are class actions placing an undue burden on court resources? More pertinently, is there a better way to conduct class actions that is more consistent with the Federal Court’s overarching purpose of resolving disputes “as quickly, inexpensively and efficiently as possible”?

Perhaps it is time to revisit some fundamentals, including the threshold requirements for the commencement of class actions.

At present, all that is required to commence a class action in Australia is that there are:

• seven or more persons who have claims against the same person;

• claims that are in respect of, or arise from, the same, similar or related circumstances; 

• claims that give rise to a substantial common issue of law or fact.

Unlike the US, there is no certification process and a respondent has very limited opportunity to de-certify a class. The threshold requirements in the US are also distinct. There, a class must be “so numerous” that all class members could not practically be joined to the proceedings; and there must be “questions of law or fact common to the class”. Not so in Australia, where the common issue of law or fact must be simply “substantial”.

In the early days of Part IVA, it was thought that the requirement of a “substantial” issue might be a limiting factor. It was argued that Parliament had expressed a clear intention that there must be more than “questions of law or fact common to the class”, as in the US. The commonality should be “substantial”.

However, this changed when this threshold requirement was given a liberal interpretation by the High Court of Australia in Wong v Silkfield Pty Ltd [1999] 199 CLR 255. In Wong, the High Court held that “substantial” should not be used to narrow access to what was then a relatively new form of representative proceeding.

In Wong, a class action had been commenced on behalf of persons who had entered into written contracts to purchase apartments in a high-rise residential development. Group members alleged that a number of misleading statements had been made concerning investment prospects and returns which induced them to enter contracts that they would have otherwise reconsidered.

In considering whether there was a “substantial common issue of law or fact”, the High Court held that “substantial” is not a limiting factor. In particular, the High Court held that it was not necessary to show that litigation of the common issue would be likely to resolve the claims of all group members wholly or to any significant degree. As a result, there need not be a common issue which is large or of special significance or that, once decided, would have a major impact on settling the disputes of all group members. Instead, “substantial” is directed to issues that are real or of “substance”.

The outcome in Wong is not surprising given the facts of the case. There were a limited set of common written and clearly identifiable representations. The case did not involve a complex set of legal or factual issues that was going to require a lengthy hearing. Furthermore, in the late 1990s there was understandable enthusiasm to promote the new class action procedure rather than limit its scope and application.

I have often pondered whether the High Court would be prepared to reconsider its construction of “substantial” if it were hearing a case today where the multiplicity of non-common issues massively outweighed the so-called common issues as is the case in many current complex class actions. It is exactly these sorts of class actions that are virtually impossible to resolve and will end up drawing upon inordinate amounts of court time and resources.

The low threshold with regards to commonality that has now been set means that only one matter of substance is required notwithstanding the multiplicity of other matters of fact and law, the multiplicity of products or services that are of interest and in some cases the multiplicity of respondent parties. It is these kinds of class actions to which I refer.

So what is to be done?

Some courts now have specialist class action lists managed by judges who are very experienced in class actions and who are expert in managing pretrial issues in class actions. The Federal Court now has specialist class action managing judges who will similarly guide a class action through the interlocutory processes. But this may not be enough because it does not address the threshold issue.

Another consideration is legislative amendment. However, coordinated legislative amendment of what are now four sets of provisions by four different parliaments is unlikely to happen.

Absent an opportunity to re-argue the issue before the High Court, I suggest that legal practitioners who are involved in class actions must play a role. The Chief Justice of the Federal Court has already put us on notice of the issue of limited court resources and the need for thought leadership in this area.

We need to keep in mind that “just quick and efficient”, which is at the essence of access to justice, applies to not just the management of class actions but also their formulation and commencement. Access to justice does not dictate or justify some of the large class actions that are now before our courts. Some class actions need to be split up and re-formulated with ease of management as the focus.

The cheap and efficient management of claims by multiple people are not always best served by formulating one big class action.

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