18 June, 2019
Funding model and return to members the key in competing class actions
What you need to know
- The Supreme Court of New South Wales (NSWSC) has decided that only one of the five competing class actions against AMP should proceed. Two proceedings were consolidated and allowed to proceed. The others have been permanently stayed.
- The selection process adopted the multifactorial approach of the Full Federal Court in GetSwift (see our update here).
- The factor afforded the most weight was the funding model. The successful proceeding was the one conducted on a 'no win, no fee' basis with no 'funding commission'.
Developments in managing competing class actions
Competing claims are a recent feature of the class action landscape in Australia. The problems of competing claims include increased legal costs, wastage of court resources, delay and unfairness on defendants. There have been a number of developments to effectively manage competing claims:
- A joint protocol entered into on 1 November 2018 by the Chief Justices of the Federal Court and NSWSC, whereby judges may convene a joint case management hearing to deal with competing class actions commenced in different courts.
- Reforms proposed by the Australian Law Reform Commission in January 2019 (see our update here). The proposal would give other potential claimants 90 days after a claim is filed to lodge a competing claim, followed by a selection hearing. Whether the proposal will be adopted through legislative reform is uncertain.
- Judicial consideration in the Federal Court in Getswift and the NSWSC in AMP, with both Courts adopting a multi-factorial approach to determine which claim is in the best interest of group members, allowing one proceeding to continue, and ordering a permanent stay over the others.
The selection process in AMP
After disclosures made by AMP executives during the banking Royal Commission, in a short space of time, five class actions were commenced by different lawyers and litigation funders. While four of these were commenced in the Federal Court, they were transferred to the NSWSC, following a number of interlocutory skirmishes.
The task for the NSWSC was how to manage the five claims. Chief Judge in Equity, Justice Ward, made clear at the outset that competing class actions did not necessarily amount to an abuse of process. Her Honour nonetheless concluded that it was appropriate that only one claim proceed. The 'selection process' that took place was treated as part of the Court's ordinary case management processes.
A number of factors were considered: the competing funding proposals, ability to provide meaningful security for costs, nature and scope of the claims, size of the classes, the extent of any bookbuild, the experience of the legal teams, progress of the proceedings, and conduct of the plaintiffs to date. The NSWSC accepted that it was appropriate to receive submissions from the defendant in relation to which of the competing class actions should be allowed to proceed, particularly with respect to security for costs.
The key factor: funding model
Most of the factors that were considered were not determinative. The 'first mover advantage' was given no weight, and there was no sensible basis to differentiate between well-qualified legal teams. Any perceived advantages in the pleadings of one claim over the others could be addressed in due course through pleading amendments.
Her Honour's decision essentially turned on the proposed funding models. The 'no win, no fee' model proposed by Maurice Blackburn was preferred in view of the following elements:
- No separate funding commission (given the absence of a third party funder).
- An incentive for lawyers to work to produce a higher settlement sum created by a 25% uplift in professional fees once a stipulated resolution sum is achieved.
- Comparable net return for group members based on standardized assumptions.
- No common fund order which, while not a significant factor, avoided uncertainty and delay given that the question of the validity of common fund orders is currently before the High Court.
- An undertaking to provide $5 million as security for costs, which took into account the concerns raised by AMP on the reliance on insurance policies proffered as security in some of the competing claims.
The Court cautioned that each case must turn on its own facts and 'no win, no fee' will not always provide the best return for group members.
What next?
There has been, to date, no 'one size fits all' approach in dealing with competing claims. The impact of the AMP decision on the class action landscape remains to be seen.
First, it avoids a multiplicity of proceedings. While there are a number of ways to manage competing claims (including consolidation, joint hearings, a stay of proceedings, and allowing one proceeding to continue as an open class and the others as closed classes), in both Getswift and AMP only one proceeding was permitted to continue.
Secondly, law firms may be encouraged to undertake claims without third party litigation funding. Whether law firms are willing to conduct claims on this basis remains to be seen, particularly as the vast majority of shareholder claims in recent years have been funded. In this regard, the Australian Law Reform Commission has recommended reforms to allow law firms to charge contingency fees (i.e. based on a percentage of the amount recovered by litigation). These reforms (if adopted) may increase the incentive for law firms to undertake class actions without third party litigation funding, although funders may still play a role in financing such actions by providing funding to law firms.
Thirdly, litigation funders will continue to develop their funding models in order to be the most attractive option where there are competing claims, particularly as the Courts will not always prefer the 'no win, no fee' model. In this regard, an appeal is currently underway in the Full Federal Court in relation to class actions filed against BHP. In the first instance, the Court found the funded arrangement to be in the best interests of group members. Innovation of funding models will occur in the context of an emphasis on returns for group members and a backdrop of increased Court scrutiny over funding arrangements (as seen in the context of common fund orders and settlement approvals). We have already started to see variations to the traditional fixed percentage model, including the incorporation of caps and staged increases in commissions.
Wigmans v AMP Ltd; Fernbrook (Aust) Investments Pty Ltd v AMP; Wileypark Pty Ltd v AMP Ltd; Georgiou v AMP Ltd; Komlotex Pty Ltd v AMP Ltd [2019] NSWSC 603
For further information, please contact:
Ian Bolster, Partner, Ashurst
ian.bolster@ashurst.com
