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The landscape
Class actions are an established form of litigation that have grown significantly in Australia over the two decades and have become the fastest growing species of litigation in Australia.
Outside of the United States, Australia is perhaps the preferred jurisdiction to file a class action by those that promote them. The Federal laws governing the Australian class actions (or 'representative proceedings' as they are termed in the statute) regime have existed since 19921. Five states have also enacted their own regimes, based substantially on the Federal model.
There are three key threshold requirements for commencing a class action in Australia. They are, relevantly:
- there must be claims by seven or more persons and the claims must be against the same defendant;
- the claims must arise out of the same, similar or related circumstances; and
- there must be at least one substantial common issue of law or fact.
Other notable features of the Australian class action regime include that class actions work on an opt-out model. This means that a class action proceeding can commence and progress without the consent or awareness of all group members. A class may, however, be defined in a way that requires persons to effectively "opt in" to the class action (by way of retainer with a plaintiff law firm or third-party funder). Once a class action proceeding has been commenced, any settlement must be approved by the Court. These requirements ensures that the Court is satisfied that the settlement is fair and in the interests of the class members.
By the end of 2023, close to 1000 class actions had been filed across all Australian courts, with an overwhelming majority of these proceedings filed in the Federal jurisdiction. Currently, class actions are being filed at the rate of approximately one new case per week in Australia.
The legal landscape in Australia continues to evolve, driven by an ever-changing risk profile, legislative reforms, developments in case law, the increased accessibility of litigation funding and the introduction of contingency fees in one Australian jurisdiction. Against this backdrop, businesses must navigate a changing terrain and strengthen their approach to mitigating class action risk.
Class action risk goes beyond listed companies and financial services, with growing class actions in the areas of privacy and data , employment, mass tort, consumer. These factors continue to make the Australian class action market fertile and that, understandably, should give Australian business real cause for concern."
Jason Betts
Global Co-Head of Class Actions
Current developments
Together, shareholder and consumer claims account for the largest percentage of class actions filed in 2023.
Prominent shareholder class actions have include cases commenced against Worley, IOOF, Iluka, CBA and Myer. Consumer claims are also prominent, such as those against automotive manufacturers for defective vehicles or misleading and deceptive conduct concerning emissions standards.
The fact that multiple competing class actions can be commenced is a problematic feature of Australia's system. It is common for competing class actions to have near-identical group definitions and to cover substantially the same allegations. This inevitably leads to delay and increased costs as well as an inefficient use of Court resources.
Australian class actions are either funded by third parties or by plaintiff law firms acting on a 'no-win, no-fee' basis. Third party funding has been a significant factor that has shaped the Australian class actions market and an area that has sparked calls for reform. As a result of litigation funding arrangements courts have developed ways to recover some form of payment by group members to litigation funders, limiting unfunded group members from being able to "free ride". Victoria has also introduced a US-style contingency fee regime, in which courts may make an order allowing a plaintiff law firm to charge legal fees based on any award or settlement recovered in the proceeding. This contrasts with the strict prohibition against contingency fees in all other states and territories but at the date of writing, this prohibition is being challenged in ongoing proceedings.
Class actions have evolved from a niche legal issue into a significant strategic risk for corporate Australia. Our Rethinking Risk survey revealed that 68% of respondents were more concerned about class actions today than they were five years ago. This shift is being driven by heightened exposure to cyber threats, a climate of increasing regulatory scrutiny and renewed focus by class action promoters on consumer and employee related claims.
Melissa Gladstone
Partner
Future trends
Herbert Smith Freehills Kramer recently reported the results of a landmark survey conducted on leading lawyers and executives from large Australian businesses.
The report found that 55% of respondents were concerned about facing a class action and 68% said their level of concern had increased over the preceding five years.
Cyber risk is emerging as a top concern. This follows several high-profile data breaches since 2022 that have resulted in privacy-related class actions against companies such as Medibank and Optus. Like their counterparts in the UK and US, Australian companies are now at material risk of flow-on class action claims arising from a cyber incident that are driven by plaintiff law firms and funders. Risks in government, and the healthcare and insurance industries are likely to be particularly acute, given the level of personal data held.
Recent changes to Australia's Privacy Act announced in 2024 could lead to further class actions, including the introduction of a direct right of action for privacy breaches.
Environmental or climate change-related class actions are also perceived as a growing area. Increased environmental and shareholder activism is contributing to heightened scrutiny of business environmental practices. Corporate governance is another area that continues to be highly exposed, particularly given the prevalence of shareholder claims related to continuous disclosure and other regulatory compliance issues. There has been a notable decline in the number of securities class actions filed as, at the date of writing, the Federal Court dismissed three securities class action which proceeded to trial and two prior securities class actions were determined which did not result in an award of damages in favour of the class members.
Next steps for business
Focus on underlying causes of class actions: Responses to a Herbert Smith Freehills Kramer survey revealed that Australian businesses are increasingly focused on improving corporate governance, ensuring compliance with industry standards and legal requirements, and working to avoid cyber incidents.
Dedicated risk assessments: More businesses should actively conduct dedicated risk assessments for class actions rather than discussing the issue only as part of broader risk conversations. A dedicated assessment should consider all potential legal and business risks associated with products, services and corporate activities.
Observe regulatory trends: It is not uncommon for class actions to manifest following attention from regulators such as the Australian Competition and Consumer Commission (ACCC), Australian Securities and Investments Commission (ASIC) and Australian Transaction Reports and Analysis Centre (AUSTRAC). Watching overseas trends can also provide early warnings of related class actions in Australia.
Proactive planning: It is clear that Australian businesses understand the disruption caused by class actions, including reputational risks, financial costs, effects on employees, and share-price impacts. By planning ahead, businesses can mitigate uncertainty and maximise their litigation success.
Footnote
1. See Part IVA of the Federal Court Act 1976 which commenced on 5 March 1992.
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.
