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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.
On 19 May 2008, Aristocrat Leisure Limited (Aristocrat) announced that it had reached a settlement of a class action brought against it by Dorajay Pty Limited (Dorajay) on behalf of investors who purchased shares in Aristocrat between 19 February 2002 and 26 May 2003. Aristocrat announced that it would incur a net cost (after tax and expenses) of $40 million.
While the terms of the settlement will remain confidential until approval is sought from the Federal Court, it has been speculated that the settlement amount was between $150 million and $170 million.
The class action was commenced in March 2004 and was brought on behalf of nearly 1000 investors in Aristocrat. Funding for the litigation was provided by IMF (Australia) Ltd. The trial of the class action had been completed and at the time settlement was reached, judgment was reserved. Importantly, the case against Aristocrat raised the status of the "fraud on the market" theory in Australian law. The acceptance of that theory may allow plaintiffs to prove their case without proving actual reliance on misleading or deceptive conduct. The settlement of the case before judgment leaves unresolved whether the "fraud on the market" theory will be accepted by Australian courts.
In order to finalise the settlement, Aristocrat and Dorajay must provide notice to the class members of the settlement and gain approval of the settlement from the Federal Court.
Author
Imtiaz Ahmed, Senior Associate
An order to publish corrective advertising and an extension of the opt out deadline resulted from misstatements made by the solicitors for the plaintiff in a class action against Amcor and Visy claiming damages as a result of price fixing of cardboard packaging.
The court had ordered an opt out deadline in the class action and before the deadline for opting out had passed, the solicitor for the plaintiff class made comments in a media interview which incorrectly attributed to the ACCC statements about the extent to which Visy and Amcor overcharged their customers during the cartel and the estimated damages that could be expected to be awarded in the case.
The Court found by attributing these views to the ACCC, the solicitor’s comments may have caused class members to give the statements more weight than if they were simply statements by the solicitors. In the Court’s view, the impact of this impression was particularly important given that class members were still considering whether to opt out of the class.
The Court ordered that the plaintiff’s law firm publish corrective advertising at their own expense and that the opt out deadline be extended by one month.
Author
Jonathan Swil, Solicitor
Australian Securities & Investments Commission v P Dawson Nominees Pty Limited [2008] FCAFC 123
In the course of an investigation into Multiplex's public disclosures concerning the Wembley National Stadium project ASIC used its statutory powers to obtain documents from Multiplex and examine a number of persons.
In the Multiplex class action, which was commenced in the Federal Court shortly before the conclusion of ASIC's investigation, the Applicant alleged that Multiplex failed to publicly disclose certain matters concerning the Wembley project.
The Applicant caused a subpoena to be issued to ASIC seeking production of the transcripts of examinations it conducted and other documents produced to it by Multiplex. ASIC objected to production of the transcripts and certain of the other documents on the basis they were the subject of a public interest immunity.
In a unanimous decision the Full Federal Court overturned a first instance decision which would have allowed the Applicant access to the transcripts and other documents. In doing so the Full Court held that:
- the transcripts and other documents would, both directly and circumstantially, identify an informer;
- the public interest in protecting informers, and encouraging future informers, is as important to a regulatory agency such as ASIC as it is to the police in their traditional role,
- where public interest immunity is raised, the Court must decide whether the public interest which requires that the document should not be produced outweighs the public interest that a court of justice in performing its functions should not be denied access to relevant evidence, and
- in the circumstances of the case, the transcripts and other documents did not have a sufficient importance for the Applicant’s conduct of the litigation as to outweigh the importance of not disclosing the identity of an informer.
ASIC has welcomed the Full Court's decision noting that “this decision is an important one for whistleblowers. It affirms the principle that when people come forward to report matters to ASIC in confidence, their confidence will be respected where that is in the public interest. Otherwise, there is the risk that fewer people would report matters to us.” Full text of the judgment is available here.
Author
Alexander Morris, Senior Associate
The Centro Properties group will be forced to defend two separate class actions, both in relation to alleged inadequate market disclosure concerning the extent of its debt obligations.
Two separate actions have been commenced in the Federal Court of Australia: one by Maurice Blackburn Lawyers on behalf of investors who have signed a funding agreement with litigation funder, IMF Australia; the second, a class action covering all shareholders who have not signed up with IMF commenced by Slater & Gordon. The actions cover slightly different periods of time in which their respective investors acquired their interests in Centro.
Unlike the United States, in Australia there is no procedure for dealing with multiple class actions brought against the same defendant for the same conduct. At an initial hearing in May 2008, Justice Finkelstein indicated that the conduct of the two proceedings would be synchronised, but that the proceedings need not be consolidated. As a result, both actions will remain on foot and will be conducted in parallel.
The European Commission (EC) has moved one step further in facilitating class actions to recover damages as a result of companies violating EU antitrust rules with the release of a White Paper on 2 April 2008. The White Paper suggests an opt in class action system (where entities have to seek affirmatively to be included in the class), compensatory damages for actual losses and a limited discovery regime.
The recommendations are far more conservative than the suggestions floated by the EC in its 2005 Green Paper, which canvassed a US style opt-out class action system and the prospect of multiple damages. The White Paper did not address the issue of contingency fees for lawyers, which are currently banned in most EC member states.
The text of the White Paper, together with associated materials, may be found here.
Author
Thomas Riemer, Solicitor
ASIC has vowed to commence fresh proceedings to continue to seek compensation for Westpoint investors, despite a recent ruling that ASIC could not take over proceedings that had been instituted by the liquidators of various mezzanine companies against directors and officers of those companies on the basis that those directors and officers had misapplied funds raised by the mezzanine companies.
On 27 June 2008, the Federal Court held that while section 50 of the ASIC Act authorised the institution of proceeding by ASIC, it did not entitle ASIC to take over proceedings that had been instituted by the liquidators. However, Finkelstein J indicated that he would order that steps taken in the original proceedings would be deemed to be steps taken in the new proceedings, once instituted by ASIC.
Author
Anais D'Arville, Solicitor