6. Certification of class actions

 

Introduction

  1. 6.1 In a class action, ‘certification’ refers to the process of obtaining court approval for proceedings to commence as a class action. In jurisdictions that require certification, a class action cannot commence until a certification hearing has occurred. At that hearing, the representative plaintiff must prove to the court that certain preliminary criteria have been met and that the case should go forward as a class action.
  2. 6.2 Certification is not required for class actions in Australia. It was rejected as an option by the Australian Law Reform Commission (ALRC) in its report on grouped proceedings in 1988,1 and has not been incorporated into the class action regimes created in Australia since 1992.
  3. 6.3 Instead, class actions commence in Victoria without Supreme Court approval, provided that threshold requirements are met. Once they have commenced, the onus falls on the defendant to prove that the litigation should not continue as a class action. This arrangement is commonly called a ‘decertification’ device2 and is a reason why Australian class actions are described as ‘plaintiff friendly’.3
  4. 6.4 The ALRC concluded that certification does not always protect class members’ interests. As class actions are often the only chance that individually non-recoverable cases have to obtain legal redress, failure to certify proceedings on the basis that the interests of the class are not being adequately protected is an ‘empty gesture’.4
  5. 6.5 In Australian class actions, the primary means of protecting class members’ interests in ensuring that individually non-recoverable cases are able to be brought are the low threshold requirements and the notification and opt out provisions.5 The ALRC expected that the court’s powers to strike out abusive, frivolous or vexatious proceedings, and the operation of the decertification provisions for class actions, would be sufficient to avoid the need for certification.6
  6. 6.6 Certification is used in every other international jurisdiction that has a contemporary class action regime, except Sweden.7 The Commission has been asked to consider whether a certification requirement should be introduced into part 4A of the Supreme Court Act 1986 (Vic) either for all class actions, or for those supported by litigation funders.
  7. 6.7 This chapter sets out the current provisions for the commencement of class actions in Victoria and compares them with certification requirements in the United States and Canada. In exploring whether a pre-commencement process such as certification should be introduced for class actions, the chapter addresses issues that are typically dealt with by certification:
  • cohesion and commonality
  • decertification
  • adequacy of representation
  • competing class actions
  • the involvement of litigation funders
  • other procedural matters.
  1. 6.8 While the Commission’s terms of reference focus particularly on plaintiffs who seek to enforce their rights through class action proceedings, reference is also made to ‘similar proceedings that involve a number of disputants being represented by an intermediary’. Similar proceedings could include, for example, insolvency proceedings brought by a liquidator on behalf of creditors, and the Commission would welcome any comments and reform options that could be introduced in relation to these proceedings.

Commencement under current law and practice

Part 4A of the <strong_em>Supreme Court Act 1986 (Vic)

Threshold requirements

  1. 6.9 In Victoria, section 33C(1) of the Supreme Court Act sets out the threshold requirements for class actions. Proceedings may be commenced by a representative plaintiff as representing some or all of the class where:

(a) seven or more persons have claims against the same person; and

(b) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and

(c) the claims of all those persons give rise to a substantial common question of law
or fact.8

Decertification provisions

  1. 6.10 Sections 33L, 33M and 33N are commonly known as the decertification provisions. They allow the Court to order that proceedings no longer continue as a class action. Orders may be made on application by the defendant or, in some cases, on the Court’s own motion.
  2. 6.11 Section 33L gives the Court power to order that proceedings no longer continue as a class action where it appears likely that there are fewer than seven members making up the class.9
  3. 6.12 Section 33M provides that, upon application by the defendant, the Court may order that proceedings no longer continue as a class action where, if judgment were to be given in favour of the representative plaintiff, the cost to the defendant of identifying the class members and distributing amounts would be excessive having regard to the likely total of those amounts.10
  4. 6.13 Section 33N empowers the Court, upon application by the defendant,11 to order that proceedings no longer continue as a class action if it is in the interests of justice to do so because:
  • Costs would be likely to exceed those that would be incurred in separate proceedings.
  • The relief sought can be obtained without resort to a class action.
  • The class action is not an efficient and effective means of dealing with the claims.
  • It is otherwise inappropriate that the claims be pursued by means of a class action.12

<strong_em>Civil Procedure Act 2010 (Vic)

  1. 6.14 As noted in Chapter 3, the overarching purpose of the Civil Procedure Act 2010 (Vic) and the rules of court in relation to civil proceedings is:

to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.13

  1. 6.15 The court has express power to make any order or give any direction it considers appropriate to further the overarching purpose in relation to pre-trial procedures.14 This may include (but is not limited to) directions or orders concerning:
  • the conduct of proceedings
  • timetables or timelines
  • appropriate dispute resolution
  • attendance of lawyers and parties at a case management conference
  • definition of issues
  • attendance before a judicial officer
  • any other matters specified in the rules of court.15
  1. 6.16 Lawyers and litigation funders are also subject to obligations under this legislation to use reasonable endeavours to act promptly and minimise delay,16 to narrow the issues in dispute,17 to only take steps necessary to facilitate resolution or determination of proceedings,18 and to avoid claims or steps that do not have a proper basis or are frivolous, vexatious or an abuse of process.19

Class actions practice note

  1. 6.17 The management and conduct of class actions filed in either the Common Law Division or the Commercial Court of the Supreme Court is explained in the Supreme Court Practice Note for class actions.20
  2. 6.18 Within six weeks of filing, there must be a case management conference (in the Common Law Division) or first directions hearing (in the Commercial Court) at which the parties outline the issues and facts that appear to be in dispute and deal with other key matters.21 The parties are encouraged to file a joint position paper beforehand, listing the major points that they anticipate raising and outlining their respective positions on each issue in one to three sentences.22
  3. 6.19 At the case management conference or directions hearing, parties need to be in a position to address a wide range of matters, including:
  • any issues regarding the description of class members
  • any pleading issues
  • discovery
  • evidence
  • the joinder of additional parties
  • the appropriateness of a split trial and the issues to be determined
  • whether an order for security for costs will be sought
  • the timetabling of any applications for resolving interlocutory matters
  • methods of communicating with unrepresented class members
  • any need to relist or continue the case management hearing or directions hearing.23
  1. 6.20 The case management conference or directions hearing is conducted along relatively informal lines where appropriate. Rather than following a fixed sequence where counsel make submissions in turn, the emphasis is on an exchange between counsel and the case management judge.24
  2. 6.21 Additional case management conferences or directions hearings are convened as required throughout the proceedings to address issues such as class closure, opt out notices, discovery, the use of experts, and the utility of sample class members.25
  3. 6.22 Before making any interlocutory application, the parties’ representatives must confer and attempt in good faith to resolve the dispute.26

Certification as practised overseas

  1. 6.23 Certification, as practised overseas, deals with certain matters relating to class actions—such as construction of the class—at a pre-commencement hearing.
  2. 6.24 Although characterised as preliminary or procedural in nature, it can be difficult to distinguish between some of these matters and the threshold requirements for commencement under Victoria’s class action regime. Some of the other matters addressed by certification are covered in Victoria by the relevant provisions of the Civil Procedure Act and the procedures set out in the Supreme Court Practice Note.
  3. 6.25 However, certification is a narrower and more formal gateway to class action proceedings than that followed in Victoria.
  4. 6.26 In the United States, rule 23 of the Federal Rules of Civil Procedure provides that, when a person sues or is sued as a representative of a class, the court must, at an early practicable time, determine by order whether to certify the action as a class action.27
  5. 6.27 In order to be certified, rule 23 requires the following procedural criteria to be met:
  • The class is so numerous that joinder of all members is impracticable.
  • There are questions of law or fact common to the class.
  • The claims or defences of the representative parties are typical of the claims or defences of the class.
  • The representative parties will fairly and adequately protect the interests of the class.28
  1. 6.28 Similarly, eight of the 10 Canadian jurisdictions that have formal class action regimes use certification.29 Under these regimes (other than Quebec), certification is dependent on the representative plaintiff satisfying the following criteria:
  • The pleadings disclose a cause of action.
  • There is an identifiable class.
  • The proposed representative is appropriate.
  • There are common issues between class members.
  • The class action is the preferable procedure.30
  1. 6.29 In both the United States and Canadian regimes, if the class action is not certified, the representative plaintiff may continue the proceedings as an individual claim but not as a class action. In addition, at any stage of proceedings where the court is of the view that a class action no longer adheres to one or more of the certification criteria, a decertification order may be issued.31

Issues

  1. 6.30 Public debate about the real and perceived problems of class action regimes in Australia often raises certification as a solution. It is not always clear what the cause of the problems is considered to be—whether it is one of procedure or law, or both. The cause is variously identified as the lack of a preliminary hearing, the content of the threshold criteria, and how the criteria have been interpreted.
  2. 6.31 Vince Morabito and Jane Caruana have observed that, in jurisdictions that have a certification process, there is a firm belief that certification is fundamentally necessary in opt out class action regimes. They cite the following comments from Edward Cooper, a United States academic, who considers that Australia’s class regimes do not give the court a sufficient measure of control:

At least one country—Australia—has apparently devised a class procedure that does not require court certification of the class. It is difficult to believe, however, that a group action can be maintained on any basis other than pure opt-in without some measure of court control. The risks of sloppy class definition are too great, including fundamental conflicts of interest and indeterminate res judicata consequences. The risks of indifferent or incompetent representation both by named class member parties and by class counsel are too great.32

  1. 6.32 Care must be taken not to define the problem as the absence of the preferred solution. The fact that Victoria’s class action regime does not include a preliminary certification stage is not sufficient reason to recommend it. For this reason, the remainder of this chapter discusses issues that have arisen in the operation of the existing regime and the extent to which they would be addressed if certification were introduced. They include:
  • efficiency and costs
  • common questions of law and fact
  • decertification
  • adequacy of representation
  • competing class actions
  • involvement of litigation funders in proceedings
  • other procedural issues.
  1. 6.33 Possible solutions to these issues other than, or in addition to, certification are discussed below. However, the issues and reform proposals in this chapter are not complete. The Commission would welcome submissions that discuss the advantages and disadvantages of certification and other reform ideas, and put forward any further proposals for reform.

Efficiency and costs

  1. 6.34 One line of reasoning in favour of certification is that the procedural step of holding a certification hearing saves time and money. Judicial determination—at the earliest possible stage—of whether the potential action is procedurally suited to the class action vehicle is a way of increasing efficiency. It is argued that requiring the representative plaintiff to prove that the action should be brought as a class action reduces the risk that defendants are caused unnecessary expense and inconvenience by proceedings being commenced that are not suited to class action litigation.33
  2. 6.35 A preliminary certification process is seen as an efficient way to filter out litigation that is not suited to class actions. Rachel Mulheron, for example, supports this view:

Of all the significant class action regimes around the world, Australia’s federal class action opted for the path of ‘no certification’ ... As an experiment, it has been singularly unsuccessful. Litigation under Pt IVA has been mired in numerous interlocutory applications about issues that could better have been addressed at a certification hearing. … The omission of a certification hearing has hardly achieved the cost-efficient and streamlined process that the ALRC hoped for when it recommended against certification.34

  1. 6.36 Class actions in Australia, including in Victoria, are characterised by numerous interlocutory applications. It has been suggested that certification would reduce the need for later interlocutory applications and responding amendments to determine the contours of the class.35 However, the Hon. Kevin Lindgren commented that interlocutory applications for this purpose can be necessary and constructive:

It should be acknowledged that, generally speaking, there are proper reasons why there are more interlocutory challenges by respondents in representative proceedings than in ordinary proceedings … Respondents are often criticised on account of their interlocutory challenges in group proceedings. It is important, however, from their viewpoint and from that of the Court, not only that the issues for decision be clearly defined, but also that class related questions be identified early.36

  1. 6.37 Interlocutory applications may be made for many reasons, apart from decertification, such as for orders for discovery, communication with class members and security for costs.37 The amount of ‘satellite litigation’ and the frequency with which it is being brought in class actions cannot be attributed to the absence of a certification procedure alone. In Bright v Femcare,38 Justice Finkelstein of the Federal Court noted:

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. … This is an intolerable situation, and one which the court is under a duty to prevent, if at all possible. … 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.39

  1. 6.38 Tactics such as those identified by Justice Finkelstein are not unique to Australia’s class action regimes. Introducing preliminary certification in Australia to reduce satellite litigation could instead provide merely another process for the parties to appeal. Among the reasons why the ALRC decided against including certification in its recommended model for class action procedures in the Federal Court were the costs and delays generated by the certification process in the United States and Quebec:

In class actions in the United States and Quebec, the preliminary matter of the form of the proceedings has often been more complex and taken more time than the hearing of the substantive issues. Because the court’s discretion is involved, appeals are frequent, leading to delays and further expense. These expenses are wasteful and would discourage use of the procedure. There is no need to go to the expense of a special hearing to determine that the requirements have been complied with as long as the respondent has a right to challenge the validity of the procedure at any time.40

Reform options

  1. 6.39 The issue to be considered in the present review is whether the introduction of certification in class actions would reduce costs and be more efficient than the current combination of law, practice and case management procedures. Certification may be a solution to real or perceived inefficiencies but the evidence in support of introducing it would need to be stronger.
  2. 6.40 The Commission has been told during informal consultations that class actions in the Federal Court proceed more quickly than in Victoria. While this may be a reflection of the types of case filed in each jurisdiction, or the resources available to manage them, it may also reflect a difference in procedure that could potentially be replicated in Victoria.
  3. 6.41 The Federal Court Practice Note for class actions is more prescriptive in setting out the procedural steps to be satisfied in class actions than the equivalent practice note used in the Supreme Court and it has been suggested that the Federal Court is informally moving towards a ‘quasi-certification’ format in class action proceedings.41
  4. 6.42 An alternative option is legislative reform, for example, by revising the threshold test for commencing a class action under section 33C of the Supreme Court Act. This option is discussed in the next section.

Common questions of law and fact

  1. 6.43 The effective aggregation of individual claims is a central element of any class action regime. In jurisdictions employing a certification regime, court certification requires the representative plaintiff to prove, prior to commencement of proceedings, that there are questions of law or fact common to the class. This is known as the requirement of commonality.
  2. 6.44 Compared to the preliminary criteria used in those jurisdictions, the threshold criteria under section 33C of the Supreme Court Act, and its equivalent provision under the Commonwealth class action regime, have been interpreted liberally. The High Court has recognised the difficulty of determining significant issues relating to merits at the commencement of proceedings.42
  3. 6.45 Paragraphs [6.46] to [6.65] provide an overview of how the law has been interpreted and reform options.

Section 33C threshold requirements

  1. 6.46 Section 33C(1) of the Supreme Court Act sets out three requirements, each of which has been interpreted judicially, that must be met for proceedings to commence as a class action in Victoria:
  • Seven or more persons have claims ‘against the same person’—section 33C(1)(a).
  • Their claims are connected through ‘same, similar or related circumstances’—
    section 33C(1)(b).
  • Those claims give rise to ‘a substantial common issue of law or fact’—
    section 33C(1)(c).
  1. 6.47 An identical provision in the Federal Court Act applies to the commencement of proceedings in the Commonwealth’s jurisdiction.43

Claims ‘against the same person’

  1. 6.48 There has been some uncertainty about whether the requirement that claims must be ‘against the same person’ means that all class members must have a claim against all defendants in multi-defendant proceedings, or whether it is sufficient if one person has claims against all defendants.
  2. 6.49 In Philip Morris (Australia) Ltd v Nixon,44the Full Federal Court held that a multi-defendant proceeding could not be commenced as a class action unless each class member had an individual claim against each of the defendants. Under this interpretation, the requirements of section 33C(1)(a) are satisfied where each class member makes a claim against each defendant.
  3. 6.50 However, a differently constituted Full Federal Court suggested that there is no need for each class member to have a claim against each defendant in order for section 33C(1)(a) to be satisfied.45 This approach has since been approved in Cash Converters International Ltd v Gray.46

‘Same, similar or related circumstances’

  1. 6.51 The requirement that the same, similar or related circumstances exist in a class action has been described as ‘three sufficient relationships of widening ambit’,47 or ‘three concentric circles with “same” at the centre, “related” at the periphery, and “similar” in-between the other two’.48
  2. 6.52 It requires that some relationship between the claims of each of the class members must be present, but differences in time, place and circumstances will generally be tolerated.
  3. 6.53 In Zhang v Minister for Immigration, Local Government and Ethnic Affairs, the Federal Court noted that the outer limits of eligibility for class actions are defined by reference to claims in respect of, or arising out of, related circumstances, with the word ‘related’ suggesting a connection wider than identity or similarity.49
  4. 6.54 The Federal Court considered that, in each case, a threshold judgment will be required as to whether the similarities or relationships between circumstances giving rise to each claim are sufficient to merit their grouping as a class action:

At some point along the spectrum of possible classes of claim, the relationship between the circumstances of each claim will be incapable of definition at a sufficient level of particularity, or too tenuous or remote to attract the application of the legislation.50

  1. 6.55 It has been noted that care must be exercised when interpreting the word ‘related’ to ensure that satisfying the bare minimum of relatedness does not end the inquiry. If ‘related’ simply introduces a requirement to identify some type of relationship, then it has been suggested that the word be deleted from the legislation in the interests of cohesion of the class.51

‘Substantial common issue of law or fact’

  1. 6.56 The requirement that there be a ‘substantial common issue of law or fact’ has also been interpreted liberally. While it requires that there be at least one common issue of law or fact which is real and of substance in class actions, the High Court has held that it is not necessary to demonstrate that the issue is large or of special significance.52 It is not necessary that the common issue would be likely to resolve, wholly or to a significant degree, the claims of all class members.53
  2. 6.57 Australian class actions expressly enable the determination of sub-group or individual issues as part of proceedings.54 This can be contrasted with jurisdictions that employ certification. In the United States and Canada, certification criteria require that the issues common to the class members ‘predominate’ over any individual differences.55 In these jurisdictions, courts are reluctant to allow class actions that involve unique issues of causation for each class member, such as pharmaceutical or medical device class actions.56
  3. 6.58 The Supreme Court Practice Note states that the first case management conference or directions hearing should address the filing of evidence early in proceedings to enable proper identification of individual and common questions. The practice note also provides for the Court to assist in the determination of common issues:

To narrow the scope of the dispute, at the earliest practicable date the Court may consider the utility of either:

(a) determining any common question in the proceeding as a preliminary question; or

(b) giving summary judgment on any common question in the proceeding.57

  1. 6.59 Further provision is made, in appropriate cases, for a split trial so that common issues together with non-common issues concerning liability may be determined first. The Supreme Court Practice Note states that lawyers should consider whether there are issues common to sub-groups of the class which also might efficiently be addressed at an initial trial.58

Reform options

  1. 6.60 The Commission has been told during informal consultations that the low threshold for commencing a class action has resulted in class actions that are not properly constituted or suited to the class action mechanism. This introduces inefficiencies, delays and costs into the class action regime that are borne by defendants and the courts.

 

  1. 6.61 In particular, it is suggested that the requirements under section 33C allow proceedings to be commenced where there is little cohesion or commonality among the claims of class members. In this situation, costs and delays to proceedings are increased, as more steps are required to solve the individual issues. Any savings in terms of time and cost attempted by allowing broadly classified class actions to commence are therefore ‘illusory’, as the class action definition may eventually break down into numerous individual cases, but only after incurring the significant costs associated with class actions.59
  2. 6.62 The Commission has identified three possible approaches to reform in response to these criticisms of section 33C.
  3. 6.63 The first is to introduce a pre-commencement hearing to certify that certain preliminary criteria are met and that the class action should commence. This would involve drafting new criteria for the commencement of a class action under part 4A, which the representative plaintiff would be required to prove to the court. The criteria used in certification hearings in the United States and Canada could provide guidance as to the types of matters addressed at such a hearing.
  4. 6.64 The second approach could be to retain the current commencement criteria under section 33C, but shift the onus for proving that the class action should continue from the defendant to the plaintiff. For example, the Supreme Court Practice Note could require the plaintiff to establish—at the first case management conference or directions hearing—that the threshold requirements under section 33C are met, and that the proceedings should continue as a class action.
  5. 6.65 The third approach could be to amend the existing commencement criteria under section 33C to increase the threshold for a plaintiff commencing a class action. The following suggestions have been made by commentators:
  • Amend section 33C(1)(b) to remove the word ‘related’ and only permit class members with ‘same or similar’ circumstances to be included in the class.60
  • Amend section 33C(1)(c) to require that resolution of common issues in class actions substantially advance the determination of all class members’ claims. This would require the class action to make a meaningful impact on advancing the resolution of class members’ claims.61

Decertification

  1. 6.66 The ALRC’s decision not to recommend certification in its 1988 report on grouped proceedings was based in part on the conclusion that the proposed regime would contain sufficient safeguards, including the defendant’s right to challenge the validity of the class action.62 The Federal Court would have powers to order that proceedings no longer continue as a class action, even where threshold requirements were met. This was considered an important means of protecting the interests of class members and defendants.63
  2. 6.67 Under a certification regime, the court’s discretion to order that proceedings no longer continue as a class action is limited to where the certification criteria no longer exist.
  3. 6.68 This is not the case under part 4A of the Supreme Court Act.64 In addition to the broad decertification provisions available under sections 33L, 33M and 33N, the Supreme Court retains the discretion, of its own motion or by application of a party, to make any order it sees fit to ensure justice is done in the proceedings.65
  4. 6.69 It has been said that these decertification provisions, in combination with the ability to challenge the threshold requirements under section 33C, have essentially created de facto certification in Australia.66
  5. 6.70 The High Court has considered section 33N a necessary counterweight to the liberal construction of section 33C.67 If a class action satisfies the low procedural threshold requirements of section 33C, it may still be discontinued (for a range of reasons) if continuing in class form is not appropriate. The High Court has considered it desirable that the option for discontinuance be available later in proceedings when courts are armed with more complete information about the merits of the proceedings.68
  6. 6.71 Much has been said about these decertification provisions and, in particular, whether the availability of these provisions has contributed to ‘satellite litigation’ being brought by defendants in class actions.
  7. 6.72 There have been proceedings that were terminated as class actions, under the decertification provisions, long after they commenced and had used significant resources. It is likely that some of these could have been excluded by a certification process. One example is the decision of the Federal Court in Pampered Paws Connection Pty Ltd v Pets Paradise Franchising (Qld) Pty Ltd (No 11),69 in which the decertification provisions were used as a basis for ruling that the proceedings should no longer continue as a class action, but only after it had already been running for four years.
  8. 6.73 However, empirical data collected by Morabito and Caruana about Federal Court class actions filed between March 1992 and March 2009 reveal that the existing law and procedures do not appear to encourage lawyers to file cases that are not suited to class actions:

In fact, we found no evidence of claimants taking advantage of the absence of a compulsory certification device by regularly filing class actions with respect to claims that could not possibly be advanced fairly or efficiently through the class action device.70

  1. 6.74 If implemented, the reform ideas identified above—requiring satisfaction of preliminary criteria through a pre-commencement hearing, or putting the onus on the plaintiff to establish that a class action should continue as such—could affect the use of decertification provisions in class actions.

Question

  1. 13 Should the existing threshold criteria for commencing a class action be increased? If so, which one or more of the following reforms are appropriate?
  2. (a) introduction of a pre-commencement hearing to certify that certain preliminary criteria are met
  3. (b) legislative amendment of existing threshold requirements under section 33C of the Supreme Court Act 1986 (Vic)
  4. (c) placing the onus on the plaintiff at the commencement of proceedings to prove that the threshold requirements under section 33C are met
  5. (d) other reforms.

Adequacy of representation

  1. 6.75 Under part 4A of the Supreme Court Act, a representative plaintiff brings the class action on behalf of some or all of the class members. However, there is no requirement for the representative plaintiff to be adequate for the task, or to meet any test of adequacy before commencing a class action under section 33C.
  2. 6.76 Instead, section 33D requires only that the representative plaintiff have a sufficient interest to be able to commence the proceedings on their own behalf. If a person has commenced a class action as a representative plaintiff, they will retain a sufficient interest to continue the proceedings and bring an appeal from a judgment even if they cease to have a claim against the defendant.71 Section 33D does not require the representative plaintiff to demonstrate that they are able to adequately represent class members.
  3. 6.77 The Supreme Court Practice Note provides little further guidance on the choice of representative plaintiff, only stating that, in commencing class actions, the statement of claim ‘should be drawn so that the plaintiff’s personal claim can be used as the vehicle for determining the common questions in the action’.72
  4. 6.78 The High Court addressed the issue of adequacy of representation in Carnie v Esanda Finance Corporation Ltd.73 While it held that it is not critical for a representative plaintiff to have identical claims to those of other class members, an adequate representative plaintiff must have the same interests as other class members. That means the representative plaintiff should not have a conflict of interest with other class members, and ‘the interests of those who are absent but represented are not prejudiced by the conduct of the litigation on their behalf’.74
  5. 6.79 Although the Supreme Court has the power to replace a representative plaintiff who is inadequate,75 this is at the request of class members. Neither the Court nor defendants are able to initiate such substitution, although the Court could possibly use its broad powers under sections 33N or 33ZF to ensure adequate representation.76 In New South Wales, the Court has explicit power. The Civil Procedure Act 2005 (NSW) includes the provision that where a representative plaintiff is not able to adequately represent the interests of class members, the Court may discontinue a proceeding.77

Reform options

  1. 6.80 A possible reform is to make adequacy of representation a threshold requirement for class actions. This could be achieved by introducing a pre-commencement hearing. This approach is adopted in the United States and Canada, where a representative plaintiff is required to prove to the court at a certification hearing that they are able to adequately represent the interests of class members.78
  2. 6.81 Alternatively, it may be desirable to maintain existing legislative requirements, but amend the Supreme Court Practice Note to require adequacy of representation to be addressed by the representative plaintiff early in proceedings, most likely at the first case management conference or directions hearing. The representative plaintiff would establish that they are able to adequately represent the class as part of case management procedures. The practice note could include criteria for adequacy of representation, or this could be dealt with on a case-by-case basis.
  3. 6.82 A similar option was recommended by the ALRC in its 2000 report on managing justice. It recommended that the Federal Court draft guidelines or a practice note relating to the choice of the representative plaintiff, who should not be chosen as a ‘person of straw’.79
  4. 6.83 A third possible reform is to amend the legislation to include an requirement that the representative plaintiff is able to adequately represent the parties. John Emmerig and Michael Legg have suggested that section 33D should be amended to this effect.80 Under this option, while adequacy of representation would not be a threshold requirement for commencement of a class action, it would require the representative plaintiff to affirmatively establish adequacy of representation as part of proceedings.

Question

  1. 14 Should the onus be placed on the representative plaintiff to prove they can adequately represent class members? If so, how should this be implemented?

 

Competing class actions

  1. 6.84 Under any class action regime, it is possible that multiple class actions will arise from the same set of circumstances. They are known as ‘competing class actions’. The Federal Court has stated that competing class actions can cause ‘increased legal costs for both sides, wastage of court resources, delay, and unfairness to respondents, particularly when they are commenced in different courts (such as in both the Federal Court and a State Supreme Court)’.81
  2. 6.85 Professor Morabito has found that approximately 15 per cent of all class actions filed in Australia since the introduction of part IVA of the Federal Court Act have been competing class actions.82 Since the introduction of Victoria’s class action regime in 2000, 38 per cent of the instances of competing class actions were filed in more than one jurisdiction. Forty-three per cent of all instances of competing class actions in Australia occurred after


    the decision of Multiplex Funds Management Ltd v P Dawson Nominees Pty Ltd83 (which ruled that class actions could commence on a closed basis).84
  3. 6.86 Competing class actions may be filed for a number of reasons, including the availability of different jurisdictions, different funding mechanisms or litigation funders, and differently structured groups (open or closed classes).
  4. 6.87 While Australian courts have a number of mechanisms through which they currently address competing class actions—for example, stay, joinder or consolidation85—they have preferred to hear cases together rather than electing a single class action to continue.86

Reform options

  1. 6.88 Three main options for reform have been identified by the Commission to address the inefficiencies and delays introduced by competing class actions. These options are:
  • Introduce a pre-commencement hearing, at which the court would be required, if appropriate, to nominate a particular class action to proceed where multiple class actions arise from the same set of circumstances. This is the approach adopted in the United States, where a certification hearing may involve a judge nominating the class action that is to continue, as well as the lawyers chosen to run it from a number of competing bids. When choosing the lawyers, the court will consider factors such as estimated legal costs and experience in running class actions.
  • Amend the Supreme Court Practice Note, to set out how and when competing class actions are to be addressed by the Court during proceedings.
  • Create a specific power for the court to address competing class actions through legislative amendment. While the courts currently have the discretionary power to use procedural tools such as stay, joinder and consolidation to address competing class actions, it has been argued that these ‘were not devised with litigation funders and the contractual arrangements between funders, lawyers and claimants in mind’.87 Instead, a legislative power could be given to the court to create a single class action and to select a team to run the class action, including the representative plaintiff, lawyers, and litigation funder. This legislative power could specify criteria for the court to take into account when selecting a team, or it could provide the court with discretion over selection.88
  1. 6.89 In Kirby v Centro Properties Ltd,89 Justice Finkelstein expressed a preference for an ‘auction’ process for lawyers where competing class actions arise. Under such a process, he proposed that lawyers would submit a sealed bid to run the class action. The successful lawyer would then be chosen by a judge or a litigation committee, or by the judge who takes into account the opinion of a litigation committee.90
  2. 6.90 An alternative option for reform is to retain the status quo, and allow court practice to develop on a case-by-case basis to deal with competing class actions. The Federal Court has suggested, for example, that competing class actions may be reduced through the use of common fund orders. As the jurisprudence surrounding the use of these orders develops, the courts are likely to develop appropriate means of dealing with competing class actions on a case-by-case basis.

Question

  1. 15 Should a specific legislative power be drafted to set out how the Court should proceed where competing class actions arise? If not, is some other reform necessary in the way competing class actions are addressed?

Involvement of litigation funders in proceedings

  1. 6.91 In exploring issues relating to certification, the terms of reference make specific reference to litigation funders and, in particular, whether funded class actions should be subject to certification requirements.
  2. 6.92 The involvement of litigation funders in class action proceedings introduces issues that are not present in unfunded proceedings. Some of these require addressing by the court and/or the parties at an early stage. Examples include the disclosure of costs information to class members, disclosure of the funding agreement to the court, or court orders for payment of a funding fee (such as a common fund order). These issues are discussed in detail in Chapters 4, 5, and 7.
  3. 6.93 Emmerig and Legg argue that the involvement of litigation funders in proceedings increases the desirability of certification in class action proceedings. They state that it may be more efficient to place the onus on the entities with the best knowledge of the proposed class action to come forward and demonstrate that it complies with the requirements for cohesion and adequacy of representation, as well as seeking orders for other key steps aimed at determining the shape of the class action.91
  4. 6.94 The Federal Court Practice Note specifically addresses some of the issues raised by the involvement of litigation funders in class actions. In particular, it requires:
  • notification to class members of litigation funding fees and legal costs in proceedings
  • disclosure of litigation funding agreements to the courts and the other parties
  • court supervision of the deductions of litigation funding fees from settlement, including the appointment of an independent expert to assess their reasonableness in relation to the terms of the funding agreement
  • evidence relating to the terms of any litigation funding agreement in approving settlement.92
  1. 6.95 Whether similar provisions are necessary in Victorian class actions is less clear. Morabito has stated that only 10 of the 80 class actions commenced in Victoria since the introduction of part 4A in 2000 have been supported by a litigation funder.93

Reform options

  1. 6.96 As above, the introduction of a pre-commencement hearing where the representative plaintiff is required to meet preliminary criteria could include a requirement that the representative plaintiff address matters concerning the litigation funder’s involvement in the proceedings.
  2. 6.97 An alternative option is for the Supreme Court to specify how and when issues relating to litigation funders are to be addressed in class action proceedings.

Question

  1. 16 Does the involvement of litigation funders in class actions require certain matters (and if so, which) to be addressed at the commencement of, or during, proceedings?

Other procedural issues

  1. 6.98 Two additional procedural issues—pleadings and costs budgeting—are identified in the commentary as being more efficiently or fairly addressed through a pre-commencement hearing than under existing legislative provisions.

Pleadings

  1. 6.99 Failure to plead a case properly is regularly identified as an issue causing additional delays and inefficiencies in class actions. Stuart Clark and Christina Harris have observed that, while the courts will generally grant a representative plaintiff leave to re-plead in that event, this creates further delays and provides opportunities for the defendant to have the class action discontinued under section 33N.94
  2. 6.100 Accordingly, in recommending certification, they claim it would ensure that pleadings are appropriate at the commencement of proceedings, thereby avoiding the process whereby the pleadings are ‘refined’ in a series of expensive and time-consuming applications by defendants.95
  3. 6.101 Currently, guidance for pleadings is provided by section 33H(2), which states that a class action must commence by writ, which must:

(a) describe or otherwise identify the group members to whom the proceeding relates;

(b) specify the nature of the claims made on behalf of the group members and the relief claimed; and

(c) specify the questions of law or fact common to the claims of the group members.96

  1. 6.102 While it is not necessary to name or specify the number of class members in pleadings,97 the basis of the class members’ case must be adequately disclosed. This means that the causes of action on which the representative plaintiff and class members rely must be set out. This can create difficulty where claims rely on different factual circumstances and where there are numerous individual issues to be addressed. In such a case, the courts have held that the representative plaintiff may plead the case of each class member at a ‘reasonably high level of generality’.98
  2. 6.103 The Supreme Court Practice Note currently provides for any pleadings issues arising in class actions to be dealt with at the first case management conference or directions hearing.99

Costs budgeting

  1. 6.104 Estimates of costs in class actions, and the disclosure of these estimates to class members, are discussed in Chapter 4. Whether these estimates should be assessed by the Court at the commencement of class action proceedings was raised with the Commission during information consultations.
  2. 6.105 In the United States, costs budgeting methods are sometimes included in the certification process. That is, certification may require lawyers to submit sealed bids to the judge outlining the estimated legal costs of running the case. The judge, in choosing the lawyers to run the case, will generally choose the lawyers with the lowest estimated costs (although other factors are considered).100
  3. 6.106 In England and Wales, costs budgets are now required to be submitted to the court and other parties prior to the first case management conference in some class action proceedings. These cost budgeting provisions are extensive, and allow the court to limit the costs recovered by the successful party to the costs estimated in the budget.101
  4. 6.107 There are no specific provisions in Victoria which require costs budgets to be submitted to the Court at the commencement of a class action proceeding. Under the Civil Procedure Act, however, the Supreme Court is empowered to direct a lawyer, at any time in a proceeding, to disclose to the Court, other party, or both, information about:
  • the estimated length of the trial
  • the estimated costs and disbursements
  • the estimated costs that the party would have to pay to another party if the party were unsuccessful at trial.102
  1. 6.108 The requirements apply only to estimates of legal costs in relation to the trial, rather than estimates of legal costs for the entire proceedings. Further, it appears that only high-level estimates are required, and the opposing party has the opportunity to comment on any claim which it considers unreasonable.103
  2. 6.109 These provisions of the Civil Procedure Actdo not appear to be regularly used in class action proceedings. Considering that the majority of class actions commencing in the Supreme Court settle,104 an estimate of legal costs for the trial only may be of limited utility. Settlement distribution schemes, which arise after trial, can incur significant additional costs, an estimate of which may be of particular use in class actions.

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