If recent media reports are to be believed, Australia has seen a sharp rise in the number of class actions filed – yet on closer inspection, the reality may be more complex than it seems.

While some research points to a growing number of such matters, other reports show numbers have held steady at the Federal Court level where the majority of cases are filed.

Without question, however, changes are happening in other parts of the class action landscape – including diversification of sectors, more availability of funding and the growing influence of technology.

Questionable quantity

Even among experts, it is difficult to find consensus over whether class actions are in fact on the rise in Australia.

Last year King & Wood Mallesons partners Moira Saville and Peta Stevenson released a report titled The Review: Class Actions in Australia 2014-2015, where they found that the number of such matters filed in Australia almost doubled year on year.

“There has been a relatively constant number of class actions over the past five years, although 201415 saw a significant uptick in the number of new actions filed,” Ms Saville says.

The report, which takes into account class action cases filed at the Federal Court, the NSW Supreme Court and the Victorian Supreme Court, showed 33 class action suits in the 2014-15 financial year, compared to 17 in the previous year.

Ms Saville believes there are a number of factors at play that may have contributed to this increase.

“There is a level of acceptance of class actions now in the business and wider community so that people are also more inclined to consider a class action when something goes wrong,” she says.

“The high historic settlement rate of class actions may also provide an incentive.”

On the other hand, there has been little change at the federal level. Professor Vince Morabito of Monash University’s research paper, An Empirical Study of Australia’s Class Action Regimes, updated most recently in 2014, indicates there has been no significant increase in filings at the Federal Court since Australia introduced the class action regime in 1992.

It’s important to note that Professor Morabito’s research doesn’t take in to account cases filed at the NSW Supreme Court or the Victorian Supreme court.

“The research done by Professor Morabito shows the long-term average just hasn’t changed,” says ACA Lawyers principal Steven Lewis.

“Yes, there have been peaks and troughs, but on average over time you’re looking at around 15 new filings a year, and that hasn’t changed for a number of years.”

He adds: “You’ll always get years when there are more and years when there are less, but generally speaking there’s been no avalanche of filings.”

Plaintiff firms are also quick to dismiss the idea of a pick-up in class actions. Maurice Blackburn principal Andrew Watson backs Professor Morabito’s research, and suggests that even these statistics could be overstated.

“Even that probably overstates the number of class actions because what that does is count each class action issued as individual cases. But on occasions you’ll have a number of class actions issued for a variety of reasons, which have to do with the same dispute and which are managed effectively as a single case,” Mr Watson says.

Mr Watson points to the current class action against Volkswagen as an example of this.

“We’ve issued three proceedings and there are other proceedings issued by another firm, but all of those cases are being managed effectively as one piece of litigation,” he says.

“So even though the statistics would count them as individual cases, the practical consequence of them is that really they’re being managed as one.”

Definite diversity

While the question of whether or not the number of class actions in Australia is rising is still up for debate, what is certain is that the types of claims being brought are diversifying.

“We’re seeing the maturity of the jurisdiction in the sense that class action firms are doing a wide range of class actions over a wide range of topics,” Mr Watson says.

“It ranges from disaster-style class actions like the Queensland floods and Black Saturday bushfire cases, through to product liability type actions like the Volkswagen case, shareholder cases, and social justice style or pro bono cases such as the case on behalf of asylum seekers who were detained on Christmas Island.”

Mr Watson believes this indicates that the system is functioning exactly as you would want it, with a wide variety of cases not skewed heavily in one direction or another.

Mr Lewis emphasises that while the types of cases being run are becoming more diverse, the key areas are remaining the same.

“We are getting a much wider range as people test the limits of the law,” he says. “We’re seeing human rights claims for example or claims against various governments.”

He adds: “So the base is widening but the major types of claims are still the same, and that’s securities class actions or actions relating to financial services and mass torts.”

As well as the sectors becoming more diverse, the number of firms active in the class actions space is rising.

“It’s still only a very small number of firms that have the knowledge and the ability to bring the claims but some firms are fracturing, people leave and set up new firms and they take with them the knowledge,” Mr Lewis says.

“You also see some firms bringing actions in the areas that they’re specialists in. It’s not for everyone but it’s certainly an area where more firms are becoming active.”

Ms Saville also believes that more commercial firms are becoming interested in running class actions, as well as international entrants arriving to take a piece of the class action pie.

“When Piper Alderman brought the class actions against Lehman Brothers and Standard & Poor’s a few years ago, we saw a ‘commercial’ law firm move in to this space,” she says.

“More recently we’re seeing new entrants to Australia such as US law firms Squire Patton Boggs and Quinn Emanuel file actions here, either on their own or in collaboration with a local firm.”

Funding factor

A significant factor contributing to the changing class actions landscape is the arrival of more litigation funders to the Australian market.

King & Wood Mallesons partner Peta Stevenson says more than 20 funders are now active in Australia, with 16 involved in current class actions.

“They are competing for actions and looking for opportunities,” she says.

Ms Stevenson suggests litigation funders are also expanding their horizons, contributing to the diversification of class action suits.

“In the past the funders tended to stick to securities class action, but they are now looking beyond to other types of class action suits.”

A drawcard for overseas funders could be Australia’s robust class action regime, both at a federal level and NSW and Victorian state levels, Mr Lewis suggests.
“There’s an opportunity of cases here, and the funders believe that it’s a good market to be in,” he says.

This increase in litigation funders is a positive thing, Mr Lewis argues, as it creates a competitive funding market.

“It has had the effect long term of actually being beneficial for group members, because it is forcing down the commission charged by funders due to the increased competition,” he says.

“So [having] more funders is a better deal for group members for two reasons: one, it allows more cases to be funded and therefore potentially go ahead; and two, group members will be paying ultimately a smaller commission to the funder.”

According to Professor Morabito’s research, only approximately 40 per cent of cases are funded and the remainder are being run without a funder.

“The funding approach here is very strict and they’ll only fund cases which they believe have merit,” Mr Lewis says.

This, of course, makes it financially difficult for group members in suits that are unfunded, which is partly responsible for the current debate over contingency fees.

Adjusting the bill

Contingency fees – where law firms charge a percentage of the winnings – are not allowed under Australian law. However, attitudes are beginning to shift.

“I think the historic reasons for not having [contingency fees] have all fallen away and there’s really no proper basis to prohibit them,” Mr Lewis says.

“The major concern has always been stated to be that contingency fees would encourage unmeritorious litigation but, like any piece of litigation, solicitors are officers of the court and their primary duty is to the court.”

Mr Lewis believes there are already sufficient checks and balances in the system to ensure that if contingency fees were introduced they wouldn’t be abused, but said further restraints could be introduced, such as a percentage cap.

Mr Watson is of the same mindset, seeing it as a question of equality. While he believes the growth in litigation funding has increasingly allowed plaintiffs and defendants to run cases on equal terms, the next step is introducing contingency fees.

“We think contingency fees can be introduced with appropriate safeguards, to ensure that there are no outbreaks of unmeritorious claims,” he says, echoing Mr Lewis’s thoughts.

“But we also think that were contingency fees introduced, clients in class actions would substantially benefit from the competition that’s offered to litigation funding.”

Mr Watson says that if Maurice Blackburn had been able to conduct class actions on a contingency basis through 25 per cent fee over the last 10 years or so, the claimant group that the firm represented across nine funded class actions would have been $90 million better off in a collective sense.

“We think there’s a real and palpable economic benefit which will be delivered to group members in class actions if contingency fees are introduced and we really think that’s one of the key ways in which the system could be made better,” he says.

In December 2014, the Productivity Commission voiced its support for contingency fees. The Law Institute of Victoria also threw its support behind the proposal in March this year.

“We are hopeful that policy makers will embrace the need for change and introduce contingency fees with appropriate safeguards, and we think now is the time to do that,” Mr Watson says.

By contrast, Ms Stevenson is not in favour of allowing firms to bill in this way. She is joined by the Law Council of Australia, which recently decided to back away from a proposal to introduce contingency fees.

“Those who support the introduction of contingency-fee billing argue that it promotes access to justice for plaintiffs who cannot afford to bring a legitimate claim under current billing models,” Ms Stevenson says.

“This logic does not translate well into the context of major class action claims, where private funding is now widely available in Australia and the claimants often include large institutional shareholders.”

In her view, permitting plaintiff class action lawyers to charge contingency fees would most likely lead to a further increase in the number of class actions, and the number of firms active in the space.

“Although it would enable competition between litigation funders and plaintiff lawyers by providing increased choice for potential plaintiffs, it is also likely to increase the number of law firms trying their hand at class actions,” she says.

Ms Saville adds: “If contingency fees are introduced in Australia, there is no doubt that class actions will become more lucrative for plaintiff lawyers.”

Looking to the future

Technology is infiltrating everything we do and it’s no different when it comes to the way class actions are pursued.

Kylie Petersen, e.law international’s director of consulting and services, says: “Technology is a factor in all aspects of our personal and professional lives, and has certainly led to a substantial increase in the volume of potentially relevant information for any proceedings.”

E-discovery tools have allowed plaintiff lawyers to go through large documents during the discovery stage, while online management systems have made communication with members a lot simpler.

“Technology is a necessary element in the effective management of class action litigation, rather than being the driver of those actions per se,” Ms Petersen says.

Ms Petersen has found technology facilitates the management of class action data in a way that isn’t feasible using traditional, linear document review and organisation techniques.

“This is largely driven by the fact that class action evidence is typically electronically sourced information and is voluminous,” she says.

“From this perspective, class action litigation is like any other large scale litigation, with the added need to also manage data for the class members.”

Like everything these days, data management needs to be cost-effective for both plaintiff and defendant firms and this cannot be achieved without the utilisation of appropriate technology, she argues.

On the other hand, Mr Lewis believes that while important, technology hasn’t had a major impact on the way class action cases are run.

“It’s not as if you have to use technology any differently to the way you would use it normally in litigation, so it’s not a major driver of any change at this stage,” he says.

Mr Lewis suggests the major change over the last two years has been the move to online registration, which is particularly beneficial for class actions involving large sign-ups during the book build stage.

“Under the Legal Profession Act and various other legislations, a group member can enter into a retainer and a funding agreement online now, rather than the old way of having it sent out via mail or email, scanning it, signing it and sending it back.”

He continues: “It can all be done online now, as you would for your driver’s licence or your home insurance, it’s no different.”

Looking to the future, Mr Lewis believes technology will continue to be a tool used by all lawyers for all types of litigation, including class actions, but to what extent it will change the way class actions are run remains unknown.

While Mr Lewis’s firm, ACA Lawyers, recently secured funding from JustKapital for their class action against rival law firm Slater and Gordon, he flagged the outcome of shareholder class actions as another unknown. To date, no shareholder class action matter has gone to a judgement.

“The big issue for both plaintiff and defendant law firms in shareholder class actions is the issue of causation, or whether the Australian courts are ready to embrace the concept of indirect causation, so that’s one issue for the future,” he says.

Mr Lewis believes cases are going to become more heavily defended in the coming years, and while more firms may try to get in on the action, he says, class actions aren’t for everyone.

“Some solicitors without the knowledge and expertise may find the going very difficult if they try to bring claims without having properly prepared them,” he says.

“I think there’s a warning for naive people who think they can just jump in and run a class action.”