Competing proceedings are now a feature of the class action landscape, particularly since the endorsement of common fund orders by the Full Court of the Federal Court of Australia in Money Max Int Pty Ltd v QBE Insurance Group Ltd (2016) 245 FCR 191. The joint judgment of the Full Court of the Federal Court of Australia in Perera v GetSwift Limited [2018] FCAFC 202 (GetSwift) was that Court’s first opportunity to provide guidance on the multiplicity issue where competing class actions have been commenced in the Federal Court. The competing class actions in GetSwift concerned substantially the same claims and were brought on behalf of the same group members, and the judgment of the Full Court must be read in that context. The decision also does not address the further complications which arise where competing class actions are commenced across different jurisdictions, as occurred with the various class actions brought recently against AMP.
The appeal in GetSwift arose from a judgment of Lee J in which his Honour resolved the multiplicity issue by permanently staying two class actions and permitting a third to proceed. His Honour also made a common fund order in the sole remaining proceeding and ordered an injunction restraining lawyers for the unsuccessful applicants from communicating with group members.
Ultimately, the Full Court granted leave to appeal in relation to the multiplicity issue but dismissed the appeal, noting that it was “important that some general guidance be given as to the range of factors to consider and the possible options open to a docket judge in dealing with competing class actions”. That guidance is the focus of this casenote, rather than the Court’s observations about the considerations particular to the GetSwift proceedings themselves. This note also does not address other issues canvassed in the judgment, namely the common fund order and injunction.
On the multiplicity question, the Court discussed the various realistic options available to a judge in resolving competing class action proceedings, identifying five:
- consolidation;
- a de-classing order under s 33N of the Federal Court of Australia Act 1976 (Cth) (the Act);
- a ‘wait and see’ approach, whereby the various competing proceedings are permitted to continue until trial with a joint trial of all issues;
- a permanent stay of one or more of the proceedings; and
- an order closing the class in one or more of the proceedings but leaving one proceeding to continue as an open class, with a joint trial on all issues.
The Court reviewed the power and general suitability of the above options, and concluded:
- There is no doubt that the Court has power to consolidate class action proceedings. However, a consolidation order is unlikely to be made in the absence of agreement between the applicants, funders and solicitors because a mechanism is required to resolve issues such as funding models for the group members signed up with different funders, accumulation of costs between the different solicitor firms and engagement of counsel. Effectively, consolidation can be put to one side if not contended for by the parties. Further, even if the parties agree to consolidation, there may be wastage of costs and inefficiency that do not favour this option.
- Section 33N is not an appropriate vehicle to resolve multiplicity disputes. In their Honours’ view, the relevant enquiry under s 33N of the Act is whether it is in the interests of justice that a proceeding be determined in numerous individual non-representative proceedings rather than as a group proceeding. That is, the comparator under s 33N is not a competing group proceeding (noting, however, that the Court acknowledged that their preferred construction is not without doubt, and the Court also left unresolved whether the separate power under s 33ZF could be used to make a de-classing order).
- The ‘wait and see’ approach may be appropriate in some circumstances, however it may be appropriate to provide clarity earlier in the proceeding, such as where a common fund order is sought by more than one applicant in each proceeding. This approach may also give too little weight to the fact that respondents are vexed with the injustice and cost of several separate proceedings and that group members will ultimately bear the costs of having two sets of proceedings.
- The Court has power to order a permanent stay in the context of competing class actions by reason of its express or implied powers to manage cases, but their Honours doubted that the fact of competing class actions was of itself sufficient to establish an abuse of process. That is because (in part) the class action regime specifically contemplates the existence of multiple proceedings with the same substratum of facts and causes of action (for example, group members can opt out and issue their own proceedings).
- The Court has power to order class closure in the context of competing class actions, whereby one or more of the proceedings is closed by reference to a subset of the class (likely being those members who have signed funding agreements) with one proceeding being permitted to continue as an open class. This approach was adopted by Beach J in Bellamy’s. That decision was made in circumstances where significant numbers of group members had signed funding agreements in two competing proceedings (over 1,000 in one; over 1,500 in the other). In GetSwift, the Court noted that solicitors and funders should not be incentivised to sign up group members before proceedings are issued, because it involves wasted costs. (In light of those comments, therefore, it remains to be seen how subsequent courts will approach a situation where a substantial number of group members have signed funding agreements in competing class actions, particularly where some or all of those group members are sophisticated such as in Bellamy’s.)
The Court observed that the appropriate option will depend on the circumstances of the case and commonly will involve weighing up “incommensurable and sometimes conflicting considerations”, where there can be no one right answer and where different judges may weigh the relevant considerations differently. Their Honours noted that there is no ‘silver bullet’.
With the caveat set out above about each matter being determined on its own facts, and although not stated in this way in the judgment, the Full Court appears to have expressed a broad preference for managing competing class actions by permanently staying all but one proceeding. That seems apparent from the concerns identified by the Court about consolidation and the ‘wait and see’ approach as well as the Court’s observations about the inappropriateness of s 33N being used to resolve multiplicity issues (albeit leaving the issue open in relation to s 33ZF as an alternative source of power) and the unnecessary costs incurred in any bookbuild process in circumstances where a common fund order is sought.
Accordingly, unless lawyers in competing actions can devise cooperative strategies so that a coordinated approach matches the costs and funding burden in a single proceeding, it seems likely that the Court will stay all but one competing action.
The Court made some general observations which provide guidance about which proceeding should be favoured over any others, and how to approach such a selection process:
- Significantly, the Court considered that lower legal costs and funding charges should not be determinative because that would promote a ‘rush to the bottom’ by funders and lawyers. Rather, the focus should be on selecting the proceeding with a funding and costs model that is likely to best motivate the solicitors and funder to achieve the best outcome for the applicant and group members.
- The Court should be astute in selecting the proceeding with the legal team that is most likely to achieve the largest settlement or judgment, being the most experienced and capable team. The Court should not ‘dodge’ the difficult issue of differentiating between competing lawyers.
- The Court must strongly discourage hasty filing of class actions which carries the risk of insufficient due diligence and the commencement of unmeritorious, or at least weak, cases. The Court contemplated that it may be appropriate for a 90-day standstill order to be made following a class action being issued, and in particular a securities class action, to allow a reasonable time for other solicitors and funders to complete their due diligence.
It may be observed that the Court identified three particular concerns that should inform the management or resolution of ‘competing class action’ situations:
- discouraging the ‘race to issue’ – lawyers rushing to issue proceedings; such that the level of preparedness in one proceeding compared to others largely falls away as a factor relevant to the court’s determination of which proceeding should continue;
- discouraging the ‘rush to the bottom’; such that the proceeding with the lowest charges for legal fees and any funding commission will not be determinative; and
- discouraging the cost inefficiencies which result from signing up group members (‘book building’) where a common fund order will be sought; such that the number of signed group members also largely falls away as a factor.
For these reasons, the key factors which will likely be prioritised by the courts when faced with managing competing class actions are:
- funding and costs models which incentivise lawyers and funders to achieve the best outcome for group members overall; and
- the best legal team.
Counsel ought be mindful of these matters when advising on multiplicity issues in class action proceedings.
The article may be read in full here.
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