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How can lawyers advise multinational companies in the changing class action landscape?
A High Court judgment late last year has changed the landscape of class action risk for multinational companies. Here, a BigLaw firm partner discusses how lawyers can advise on these new risks.
Jess Feyder
In October 2022, the High Court established both that foreign residents could be group members in Australian class actions and that persons who purchased a company’s shares on a foreign stock exchange could have their claims determined by the Federal Court of Australia. Both elements of the decision may increase the likelihood that more class actions will be brought against multinational companies in Australia’s courts.
“The High Court’s decision has the potential to significantly increase the Australian class action risk profile of multinational companies,” illuminated Mr Taylor, and as a consequence, this changes how lawyers must assess and advise multinational companies on these risks.
Several practical implications and uncertainties arise out of the decision, noted Mr Taylor.
For some companies, class action exposure was previously primarily assessed by reference to the geographical confines of Australia — meaning their risk profile has now changed because of the judgment, he explained.
“First, lawyers advising multinational companies should now change the way in which they see, and potentially assess, Australian class action risk exposure.
“Lawyers should actively consider whether foreign group members might exist and seek to identify the categories of those persons,” he said.
“Lawyers should also attempt to estimate the quantum of foreign group members’ claims,” explained Mr Taylor, “and they must also consider how best to communicate with foreign group members, especially in the context of advising their clients on an appropriate notification and opt-out procedure”.
“Secondly, when advising on mediation or settlement negotiations, lawyers will need to consider whether the Australian class action regime can successfully bind parties in overseas jurisdictions,” Mr Taylor said.
“Any uncertainty regarding the extent of overseas group members’ participation in an Australian class action and their inclusion in any settlement arrangements may have a deleterious impact on the ability to settle cases.
“Thirdly, lawyers should actively reconsider the terms of any responsive insurance policies to ensure that there is certainty around coverage for claims brought by both overseas investors in Australia and investors acquiring shares from overseas stock exchanges.”
The decision also poses another risk to multinational companies that are defending class actions in multiple jurisdictions relating to the same subject matter.
Group members may choose to remain anonymous until the very last moment (as they are allowed to do in Australia) and might seek to recover their losses in multiple class actions — giving rise to a risk of “double dipping” and overcompensation, said Mr Taylor.
“It is therefore important for Australian lawyers to coordinate with their overseas counterparts managing any similar class actions for the company in other jurisdictions to ensure that the company’s global defence strategy remains consistent and any settlement seeks to restrict overcompensation from occurring,” Mr Taylor advised.
“To mitigate this risk, lawyers advising multinational companies should also consider requiring group members seeking to claim loss in one class action to identify themselves and agree to provide a ‘global release’ in respect of their claims against the company in exchange for a share of the proceeds from that particular class action.
“However, the risk with such an approach is that a judgment by an Australian court (including settlement agreements and global release clauses) may not be binding or enforceable in other global jurisdictions where the company is being sued (particularly in some civil law countries),” he added. “This risk, among several others, exemplifies the practical implications and uncertainties for multinational companies that arise out of the High Court’s decision.”
