Victoria Law Reform Commission recommends sweeping changes to class actions

Roger Forbes

Partner
T +61 2 9296 2150

Kathleen Harris
Special Counsel

Sydney
Ashley Black
Karen Coleman
Kate Mills

25 July 2008

Victorian Law Reform Commission recommends sweeping changes to class actions

As part of its review of the Victorian civil justice system, the Victorian Law Reform Commission (VLRC) has recommended substantial changes to Part 4A of the Supreme Court Act 1986 (Vic) with respect to class actions.

These recommendations may also affect Part IVA of the Federal Court of Australia Act 1976 (Cth), which contains substantially the same provisions as the Victorian legislation. The Review report was released on 27 May 2008 and the VLRC’s recommendations are currently being considered by the Victorian Government.

No requirement for each class member to have a claim against each defendant

Courts have interpreted the class action legislation to require that each class member have a legal claim against each defendant. The VLRC recommends that there should be no requirement that all class members have legal claims against all defendants in class action proceedings, but rather that all class members must have a legal claim against at least one of the defendants. This recommendation would increase the risk that differing claims would be included in proceedings and thus increase the cost, length and difficulty of the class action.

“Closed” classes should be allowed

The issue of whether classes can be defined as limited to persons who have signed a litigation funding agreement (called a "closed class") continues to remain a contentious issue. The VLRC recommends that there should be no restrictions to a class action being brought on behalf of a subset of the total number of persons who may have the same, similar or related claims, even if the class comprises only those who have signed a funding agreement. This could encourage multiple proceedings by different groups with claims against the same defendant.

Cy-pres remedies

A cy-pres remedy allows a distribution of class action damages, in whole or in part, to a charity or public interest beneficiary instead of individual class members. Cy-pres distributions are used in the United States where the cost of distribution would outweigh the individual recovery or where there is a residual of funds which has not been claimed by class members. The VLCR recommends that the Victorian Supreme Court have the discretion to order cy-pres remedies in class actions in situations where the loss suffered, or the gain obtained by the defendants, is capable of assessment but it is not practicable or cost effective to identify all or some of the persons who have suffered a loss.

Establishment of a “Justice Fund”

Probably the most controversial aspect of the review is the VLRC recommendation that a new funding body, the Justice Fund, be established to provide financial assistance to parties with civil claims and provide indemnity for any adverse costs order or order for security for costs made against the party assisted by the fund.

The VLRC envisages that the Justice Fund would be involved in class action funding and derive revenue by taking a share of the total amount recovered by the class in assisted class actions, or by receiving funds from cy-pres distribution. The VLRC also recommends that the Justice Fund have the ability to apply to the court to cap the amount of costs the plaintiff would have to pay to the defendant if the class action is unsuccessful. This would expose defendants to potentially substantial unrecoverable legal costs.