The litigation funding industry in Australia has experienced significant change and development in recent times as it attempts to define its role in the domestic legal market. In our publication of 4 September 2006 (Litigation Funding: In the Public Interest) we commented on the High Court of Australia's ruling in Campbells Cash & Carry Pty Limited v Fostif Pty Limited  HCA 41 (Fostif) which provided significant momentum for development and regulation of the litigation funding industry. In our subsequent publication of 25 July 2007 (Litigation Funding: Redefining the Boundaries) we reported on the interlocutory judgment in P Dawson Nominees Pty Ltd v Multiplex Limited  FCA 1061 (Dawson v Multiplex) in which the Federal Court of Australia identified economic benefits in restricting class membership of class actions to exclude "free-riders" ie. "persons who make no direct or indirect contribution toward the costs of the action".
Decisions such as Fostif and Dawson v Multiplex have fuelled class actions in Australia and the demand for litigation funding. The experience of Wotton + Kearney in several shareholder class actions has been that litigation funding is becoming prevalent to the extent that it may be considered the "norm" in class actions brought by aggrieved investors. This increase in demand has brought with it increased opportunities for international litigation funders to compete in the market.
Against the backdrop of increasing competition between law firms and litigation funders to conduct class action claims on behalf of aggrieved investors, the Australian Securities and Investments Commission (ASIC) also appears to be seeking a more proactive role in large investor claims. Under section 50 of the Australian Securities and Investments Commission Act 2001 (Cth) ASIC has the authority to pursue civil legal action on behalf of investors if it is deemed to be in the "public interest". ASIC recently announced that it would exercise that authority by commencing class action proceedings on behalf of aggrieved investors seeking damages arising from the collapse of the Westpoint Group.
Competing Centro proceedings
The clamber to act for and fund shareholders in class actions may leave the Federal Court of Australia with a dilemma. On 9 May 2008 aggrieved investors commenced proceedings against Centro Retail Limited, Centro MCS Manager Limited, Centro Properties Limited and CPT Manager Limited (collectively known as Centro). Maurice Blackburn Lawyers are acting for the plaintiffs in those proceedings which are backed by the Australian litigation funder IMF (Australia) Ltd (IMF). It is expected that separate but almost identical proceedings will be commenced shortly against Centro by another group of aggrieved shareholders represented by Slater & Gordon Lawyers with the financial support of the US-based Commonwealth Legal Funding (CLF).
It seems unlikely that either Maurice Blackburn / IMF or Slater & Gordon / CLF will want to cede control of the Centro proceedings in circumstances where each group of players is seeking to strengthen its role in the domestic class action and litigation funding markets. If that is the case then it appears that the Federal Court of Australia may be required to consider whether one of the Centro proceedings should be stayed, and if so, to make a difficult determination as to which proceedings should take priority. Alternatively, the Court may choose to consolidate the Centro proceedings. If the two proceedings are consolidated the Court may still be required to determine which law firm and litigation funder will retain the decision-making "control" of the consolidated proceedings.
Australian approach to competing proceedings
There is very limited authority in Australia on the Court's approach to competing proceedings. The issue was briefly considered in Johnson Tiles Pty Ltd v Esso Australia Ltd  FCA 56. In his judgment Merkel J held that there was no "first come first served" rule in respect of representative proceedings commenced under Part IVA of the Federal Court of Australia Act 1976 (Cth) (the Act). In other words, subsequent proceedings will not automatically take a back seat simply because they were not filed first. His Honour added that the Federal Court of Australia has power under the Act to direct which representative proceedings are to continue if there are multiple proceedings concerning the same subject matter. Merkel J did not however elaborate on the factors that the Court will consider in making that direction.
Legislative guidance in the US
In the absence of clear judicial guidance on the issue in Australia it is useful to look to the US experience. Unsurprisingly there are a number of US decisions relating to the determination of which group of investors within a single proceedings should be selected by the Court to act as the lead plaintiff(s) with effective "control"
of the proceedings. Those decisions have been guided by section 78u-4(3) of the Private Securities Litigation Reform Act 1995 (US) (PSLRA) which provides that the court will appoint a "lead plaintiff" (including in consolidated proceedings) who is the "most capable of adequately representing the interest of class members". Section 78u-4(3) includes a rebuttable presumption that the most adequate plaintiff is the plaintiff with "the largest financial interest in the relief sought by the class".
Rule 23(b) of the Federal Rules of Civil Procedure 1938 (US) (FRCP) provides guidance on how class Counsel should be selected. It identifies several factors to be considered by the court in making that determination including but not limited to:
- The work Counsel has done in identifying or investigating potential claims in the action;
- Counsel's experience in class actions and complex litigation;
- Counsel's knowledge of the applicable law; and
- Counsel's resources which are available to represent the class.
Appointing lead plaintiffs in the US
The legislative guidance provided by the PSLRA and FRCP in the United States has assisted the Courts in making a determination as to who should "control" proceedings on behalf of a class of plaintiffs. This judicial discretion provided by the PSLRA and FRCP has not surprisingly led to exceptions. This was highlighted by the decision of the Court in Laperriere v Vesta Insurance Group (1998) U.S. Dist. LEXIS 23619. In that case the Court decided that the lead plaintiff would be decided "by a coin toss, to be conducted in the courtroom" on the basis that the Court was unable and/or unwilling to decide between competing plaintiff groups, each of which could more than adequately represent the plaintiffs. The parties agreed to serve as co-lead plaintiffs before the coin toss took place.
The concept of appointing co-lead plaintiffs with equal votes in the decision making process was adopted in Re Oxford Health Plans, Inc.
Securities Litigation (1998) 182 F.R.D. 42 (Re Oxford). In his judgment Brieant J held that it was in the best interests of the class to have co-lead plaintiffs because it would:
"...allow for pooling, not only of the knowledge and experience, but also of the resources of the plaintiffs' counsel in order to support what could prove to be a costly and time-consuming litigation."
The Federal Court's dilemma
Under Section 22 of the Act the Federal Court of Australia has the power to ensure that multiplicity of proceedings is avoided. Order 29 rule 5 of the Federal Court Rules 1979 (Cth) also provides the Court with the discretionary power to consolidate proceedings where common questions of law or fact arise.
However it seems that the Federal Court of Australia would have some difficulty however in justifying a legal basis to prefer one litigation funder and/or law firm to represent lead plaintiffs in the Centro proceedings to the exclusion of their "competitors", or alternatively to choose which proceedings to stay.
It remains to be seen whether the parties agree of their own accord to consolidate the Centro proceedings and agree to share "control" with co-lead plaintiffs. In the absence of such an agreement the Court may be left in the position of having to justify a preference for one litigation funder and law firm over the others in deciding to stay one of the proceedings. That would be particularly difficult in circumstances where both law firms have experience in representative proceedings and significant financial backing from litigation funders.
To avoid making that decision the Federal Court of Australia may seek to consolidate any related Centro proceedings and follow the approach adopted in Re Oxford of appointing co-lead plaintiffs. The decision, if made, would further redefine the rapidly changing class action and litigation funding landscape in Australia. This issue highlights the growing need for legislative intervention to regulate the litigation funding industry and to provide the Courts with some guidance (and litigants with some certainty) in dealing with issues arising in funded litigation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.