A Guide to Class Action

A Guide to Class Action

Class Action

Sometimes legal cases are complex, costly and risky. Where there is more than one person affected by the actions or conduct of an individual or organisation, a Class Action might be appropriate. Class actions occur when a sizable group of people join forces to bring a claim against the party that has caused them to harm in some form. These types of claims can be likened to David-and-Goliath-style battles. Not everyone has the resources to make a claim on their own, and some are unaware that they have grounds for a lawsuit. A class action allows these people to pursue a claim collectively, increasing the claim amount and making the individual expenses more manageable. 

Categories of Class Action

Class actions have increased in Australia over the past 25 years, with more law firms prepared to represent claimants. However, unlike other areas of law, class actions don’t specialise in one area. Instead, their primary function is to bring together people whose claims are similar or connected in some way and give them a better chance of meaningful compensation. 

Types of class action include:

  • Shareholder and investor – including claims against companies for deceptive or misleading conduct or breaching disclosure requirements of the ASX. Investors who, due to negligence or misconduct by the companies entrusted with their financial investments, who’ve lost money may also commence class actions.
  • Consumer law – where a group of people have suffered economic and financial losses because someone broke consumer protection laws. This type of class action can also be beneficial for those people who have incurred personal injury resulting from defective or contaminated products. 
  • Financial product – Where consumers have been talked into purchasing financial services and products that were misrepresented or advertised, they can bring a claim against the institution or bank that sold them the product.
  • Medical – This type of class action is typically used for such problems as defective equipment, medications or implants.
  • Environmental – Any damage from natural disasters or environmental contamination that the defendant should reasonably have foreseen could lead to an environmental class action. These include bushfires, floods, biosecurity issues, mining damage, contaminated land, etc.
  • Human rights – These types of class action are beneficial for any breach of our basic human rights, such as institutional abuse, by organisations and governments and their agencies entrusted with the safety and wellbeing of vulnerable community members.
  • Employment – Groups of employees can band together to take action against employers who have misbehaved around their obligations towards their staff, including payment, workplace agreements and industrial conduct.

How Does One Begin A Class Action?

Commencing a class action is relatively simple in terms of legislative requirements.

  • The group must have at least seven people claiming against the same defendant;
  • Their claims must be connected or stem from similar circumstances; and
  • The claims must give rise to an important fact or common issue of law. 

While the above criteria appear simple, properly constructing a class action is quite complex.

Generally, a single representative or plaintiff will pursue a claim on behalf of a group of similarly affected individuals. This person is known as the representative plaintiff. They assume the cost and risk of the class action litigation. The representative plaintiff runs the claim in the interests of the whole group, including any affected person who may not be aware of the class action. 

 

Using issues the representative plaintiff has in common with the rest of the group allows the Court to resolve as many of the issues as possible without establishing the matters for each individual. 

 

How Important Is Expert Representation?

Due to the complexity of class actions, it is highly recommended that you engage an expert class action lawyer to represent you. There are several tactics whereby defendants may successfully stop class actions in their tracks, particularly where the action is too broad or involves an overly diverse brief of issues. However, a termination at this point can cause difficulties for anyone else to move forward with other claims. An experienced lawyer can recognise and navigate potential problems. 

What Obligations Does A Representative Plaintiff Have?

Apart from the usual obligations typical in individual litigation, a representative plaintiff has a few obligations specific to class actions. These include:

  • Ensuring the claim serves the interests of all group members in the case and not solely for their own benefit. 
  • Providing instructions to lawyers about how they want the claim run. 
  • Making decisions when negotiating to resolve a claim or making settlement offers. 

Class actions have significant advantages over the risk, time, and costs involved in bringing many individual claims. 

Who Can Be A Group Member?

Each action has a group definition, a precise statement of criteria each individual must satisfy to participate. This statement is set out in the court documents filed at the commencement of the case. At some point in the proceedings, individuals typically register to participate to receive compensation from the action. 

Can I ‘Opt In’ or ‘Opt Out’?

Australian class actions operate on an ‘opt out’ basis, meaning claims commence on behalf of a defined group, regardless of whether all members know about the lawsuit. That way, people who may not be in contact may still benefit from the claim. 

Once all of the issues involved in the class action are clearly defined, all group members will be given the possibility to opt-out of the action should they not wish to be included. The representation will automatically continue for any members that do not respond to the notice. Those choosing to opt-out at this time will cease to be involved with the class action, though they will be able to pursue an individual claim if they wish. 

Make sure you get legal advice before opting out because people who opt out are held to the time limits that apply to participants in class actions, meaning they may miss the opportunity to claim compensation.

Open And Closed Classes Explained

The ‘class’ is the group of people making a class action. Where a class retains a specific legal firm and enters into an arrangement with them, it is generally considered closed. In these classes, the litigation funder typically knows each of the members included in the claim. 

Closed classes were popular with third-party litigators because their returns, if successful, were more confident. In closed classes, all members must register and agree to contribute towards costs. 

A recommendation from the Australian Law Reform Commission (ALRC) stated that all class actions start with an open class to allow less educated, remotely located and less financial individuals the opportunity for fair access to the justice system. 

It’s A Success, Now What?

Before they can be finalised, class action settlements in Australia need to be approved by the Court. Accordingly, the representative plaintiff must apply to the Court requesting approval for the proposed settlement. That application must include considerable information concerning the settlement, including how it was reached and what affected group members. 

The Court needs particular questions about the settlement to be answered. 

  • After careful consideration of the claims from the group members, is the settlement reasonable; is it fair?
  • Have the interests of the whole group been considered in the settlement? 

Once approved, a comprehensive assessment of compensation entitlements will be completed. Most often, the court-appointed group of lawyers for the representative plaintiff will administer the payments to each eligible member registered in the action. Typically, the settlement amounts are deposited into a trust fund. The funds are then distributed to the individual members once it is determined how much each will receive. The division of funds is generally paid pro-rata according to the Court-approved settlement scheme. 

How large can the classes be?

At least seven members are needed to start a class action, but their size can range to tens of thousands, especially claims to impact massive community sectors. Examples of significant class actions include:

  • In 2010, the bank fees class action saw tens of thousands of customers register as class members against the leading banks of Australia. 
  • Three actions were brought against Cash Converters relating to cash advance interest rates. Two of those actions included more than 30,000 members. 
  • Around 200,000 class members were registered in the action, dealing with defective airbags. 
  • So far, 6000 individuals have registered in the action against Uber. Numbers could rise to around 80,000, though. 

Australian Class Action Trends

Recent class action trends in Australia include:

  • Rising numbers of class actions and subject of claims, possibly because more litigation funders have entered the market and legal firms are more willing to act for class action members. Commercial legal firms have recently entered the market, strengthening relationships with third-party litigation funders. 
  • Continued participation by institutional investors. Their involvement often depends on securing funds for potential class actions. These types of investors are typically attractive to litigation funders because they can bump the size and number of actions. 

Still Unsure?

There are three main criteria solicitors consider before commencing a class action lawsuit. 

  • Has a severe wrong been committed? There must be a strong chance the action will prove successful. 
  • Will the damages be sufficient to cover the lawyers’ fees and benefit each of the members?
  • Is it likely that the action will recover damages? There’s not much point in proceeding with a case worth millions if they don’t have the resources to pay for what they’ve done. 

Some class actions can run for years, particularly more significant claims involving many members. Even preparing for the case is involved, often taking a couple of years to gather information, identify members, and consult with the experts. It is a lengthy process. 

FAQs Regarding Class Actions

1. Is A Class Action Lengthy?

Answer: Anywhere from one to three years is the typical time taken to resolve issues, depending on circumstances. However, the length of time can vary for several reasons, including the complexity of the issues. 

2. What if I don’t Agree with the Settlement that has Been Proposed?

Answer: When it comes to considering proposed settlements, the Court typically allows group members to voice any objections they may have. Then, each group member will receive a Court-approved notice detailing the payment terms and how everything would work if it is approved. 

3. Who Funds the Class Action?

Have you ever heard of third party litigation funding? Third-party funders, of which there are 25 active in the Australian market, agree to pay the legal costs of the class representative. They also agree to pay the respondent’s fees if the class action is unsuccessful. In return, the funder receives the money it paid in addition to 20 to 40 per cent of the amount awarded. The specific return will depend on how large the group is.

Other types of funding for class actions include:

  • Payment by the lead plaintiff.
  • Payment by third-party litigation funders and insurers via joint financing. 

4. If I Lose, Am I Liable To Pay?

Answer: Generally, the loser pays, but costs can only be claimed against the class representative. The rest of the group do not have to pay. Litigation funders will usually meet costs against the class representative.

5. Can a Class Action be Stopped by the Court?

Answer: Yes. Where the Court finds that justice would be best served by halting proceedings, they can discontinue a class action. Some of the reasons a Court may stop proceedings include:

  • Costs involved in continuing look likely to be greater than the cost of separate cases. 
  • Other proceedings could provide the relief being sought.
  • The action won’t prove effective or efficient when dealing with issues. 
  • A class action is inappropriate. 

6. Is it necessary for the settlement to be approved by the Court?

Answer: Yes, it does. There is a series of steps required to seek approval formally. First, the Court is obliged to consider the fairness of the settlement. Settlements are being given increasingly detailed inspections, particularly concerning funding commissions and legal fees. The Court will move to amend or disallow settlements proposed if they:

  • Don’t provide all class members with an opportunity to share in a premium for contribution to the proceeding’s funding.
  • Fail to differentiate adequately between the claims of individual members. 
  • Provide commissions greater than the contractual amount to a litigation funder. 
  • Cite funding commissions and legal fees that are disproportionate to expected amounts for the litigation. 
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