Introduction

The class action framework in Australia continues to evolve. Australia is one of the most popular destinations for large class actions in the world. It has a mature litigation funding market and a favourable class actions statutory framework. Class action law and practice is now well developed, but some aspects require judicial or legislative clarification. Within the next 12 months, Australia’s highest court will answer several fundamental questions of class action law and practice. Growth areas for class actions include privacy and cybersecurity, consumer claims and ESG and climate change.

Litigation Funding

Litigation funding continues to support a high level of class action activity in Australia. Australia has one of the most advanced markets for litigation funding in the world. It continues to be a popular destination for domestic and overseas litigation funders. Developments in Australia have shaped the litigation funding market globally.

The recent introduction of US-style contingency fee arrangements in the Supreme Court of Victoria in 2020 has fundamentally changed the Australian litigation funding market and by extension the destination of class actions. In recent times, the Australian funding market has been largely divided into (i) “group costs orders” for class actions commenced in the Supreme Court of Victoria and (ii) “common fund orders” (CFOs) for class actions commenced in the Federal Court of Australia (as well as the New South Wales Supreme Court).

CFOs have differed from GCOs in three respects. First, GCOs are paid to the solicitors acting for the plaintiff, whereas CFOs are paid directly to a litigation funder. Second, GCOs are often made at an early stage of the proceeding. CFOs can only be awarded at the conclusion of proceedings. Third, in general, GCOs have tended to result in a greater net return to group members. What they have in common is that both are usually calculated or expressed as a specified percentage of the amount of any award or settlement.

The GCO legislative regime is unique to Victoria and has been a magnet for claims to be filed in that court. One potential limitation arises from legislation in Australia (“cross-vesting legislation”) generally requiring proceedings within Australia to be determined in the more appropriate forum. In the Arrium class action proceedings (Bogan v The Estate of Peter Smedley (Deceased) [2023] VSCA 256), the Victorian Court of Appeal declined to transfer the proceedings to the New South Wales Supreme Court even though New South Wales had stronger connecting factors than Victoria. The court held that the fact a GCO had been made was a relevant factor in exercising the discretion whether to transfer (or “cross-vest”) the proceeding to New South Wales, and the GCO would not “travel” (or remain in force) in the court of another Australian jurisdiction. The proceeding has been removed to the High Court for determination. The High Court will determine whether a GCO is in fact relevant to a transfer and whether a GCO travels to another court (which would otherwise not have had the power to make a GCO). The High Court’s decisions will likely have significant implications for the ability of a plaintiff (or a plaintiff’s solicitors) to choose to file a class action in Victoria to take advantage of the GCO regime.

Developments in GCOs

The Supreme Court of Victoria has now developed a relatively mature jurisprudence in relation to GCOs. The principles are also relatively well-settled and have been restated in a number of decisions (a recent summary appears in – eg, Norris v Insurance Australia Group Ltd [2024] VSC 76 at [13]-[18]). While the court made use of contradictors in early applications for GCOs, it is now not unusual for a GCO to be made on application from the plaintiff, with little or no submission from the defendant, but subject to interrogation from the court.

Matters on which the court has placed emphasis in determining whether to make a GCO have included:

• the certainty provided to group members that they will recover no less than a specified percentage of any settlement or damages award, subject only to further order of the court;
• comparison of likely returns to group members under a GCO with realistic alternative funding models;
• the proportionality of the costs to the complexity of the issues and the amount in dispute in the proceedings;
• whether the return to the law practice bears a proportionate relationship to the risk undertaken; and
• the ability to amend a GCO, in particular to prevent any windfall gain.

GCOs have been made within a range of 14–40%, with a median rate of 24.5%. In one decision (Warner v Ansell Limited [2024] VSC 491) the court accepted that a 40% rate of return may be considered proportionate or reasonable on a prima facie basis for a resolution amount of up to AUD50 million, but that a “more conventional rate” of 25% is appropriate for any part of the resolution amount that is above AUD50 million as reflecting a more proportionate and reasonable rate of return.

The GCO regime does not mean that there is no longer a role for litigation funders in the Supreme Court of Victoria; it is not uncommon for a law firm to enter into an agreement with a third-party funder to pay part of the legal costs or share adverse costs risk, in exchange for a share of GCO proceeds (eg, 5 Boroughs NY Pty Ltd v State of Victoria (No 5) [2023] VSC 682 at [35]-[40]).

The Court recently handed down its first settlement approval of a proceeding in which a GCO had been made: Allen v G8 Education Ltd (No 4) [2024] VSC 487. The decision included the first consideration by the court of whether to amend a GCO. The court determined not to vary the GCO, having considered evidence of, among other things, the law firm’s charges on an hourly basis, its return on investment, and a calculation of its internal rate of return. The court indicated that such evidence would generally be of assistance in future applications, while noting that a settlement approval was not an occasion for a hearing de novo as to the appropriateness of a GCO. The law firm appeared as intervenor in the application and made submissions in support of the amount of the GCO in its favour.

Developments in CFOs

There have been important recent decisions by the Full Federal Court of Australia that seek to clarify and extend the operation of CFOs.

Between 2016 and 2019, the Federal Court regularly made CFOs at an early stage of the class action proceedings. In 2019, the High Court in BMW Australia Ltd v Brewster (2019) 269 CLR 574 (“Brewster”) ruled that the federal class action regime (and its New South Wales equivalent) did not empower courts to make commencement CFOs. This led to uncertainty as to whether CFOs could still be made at settlement of class actions. Whilst the Federal Court continued to make settlement CFOs from 2019 to 2023, a split in authority at first instance culminated in the decision at first instance in Davaria Pty Limited v 7-Eleven Stores Pty Ltd (No 13) [2023] FCA 84, holding that the Federal Court did not have power to make a CFO at settlement. As a result of that decision, a question of law was referred to the Full Court in a separate and unrelated proceeding to determine the issue of power to make a CFO at settlement. In Elliott-Carde v McDonald’s Australia Limited [2023] FCAFC 162, the Full Court of the Federal Court (Beach, Lee and Colvin JJ) confirmed that the Federal Court has the power to make settlement CFOs if the court is satisfied that it is just to do so. Nevertheless, some uncertainty has persisted in the absence of authoritative determination by the High Court of Australia in light of its decision in Brewster.

Then, in R&B Investments Pty Ltd (Trustee) v Blue Sky (Reserved Question) [2024] FCAFC 89, the Full Federal Court went further and held that the power to make CFOs extends to making a so-called “Solicitors’ CFO” providing for a percentage of the settlement or judgment sum to be distributed to solicitors acting for the class action (otherwise than as payment for costs and disbursements). The Full Court rejected arguments that Solicitors’ CFOs would give rise to an impermissible fiduciary/professional conflict of interest. The Full Court held that whether it is just to make a Solicitors’ CFO will require an individual evaluation of the evidence before the court and the terms of the proposed CFO in a particular case, including whether the solicitors have adhered to their professional and fiduciary obligations to group members.

Unlike in Elliott-Garde and Davaria above, a party to the proceedings (the defendants to the proceedings) was able to file special leave applications to the High Court of Australia. Special leave has been granted. The High Court will now determine the power to make a Solicitor CFO and is also likely to finally determine whether there is power to make a CFO at settlement in favour of funders. The applicants have indicated they also intend to seek to have Brewster overruled. If the High Court upholds the Full Federal Court’s decision that there is a power to make Solicitors’ CFOs it might reverse the trend of increased filings of class actions in the Supreme Court of Victoria.

Competing Class Actions

With higher volume of class action filings has come increased competition for carriage of representative claims. Adapting means of avoiding multiplicity of proceedings developed in chancery practice, courts have developed principles for resolving carriage disputes by weighing relevant discretionary factors. Four recent trends stand out.

First, competition appears to be driving improvements in headline funding terms available to group members. In Victoria, Professor Morabito has found that against the median rate of around 24.5% across all GCOs, the median GCO rate was 21.2% across four claims in which multiplicity contests were joined. In DA Lynch v Star Entertainment Group [2023] VSC 56, Nichols J awarded carriage to a class action which proposed a GCO rate of 14% (adjusted downwards from the plaintiff’s initial proposal of 22%), the lowest GCO rate approved by the courts to date.

The availability of GCOs is also placing downward pressure on funding commissions. According to Professor Morabito, in the post-GCO landscape, the funding commissions approved by courts pursuant to CFOs have decreased from approximately 23.9% to 21.1%. Greentree v Jaguar Land Rover Pty Ltd [2024] FCA 1209 illustrates this dynamic; Lee J invited one funder to proffer terms limiting its commission to the same ceiling fixed by a competing GCO proposal.

Second, courts have shown growing concern to regulate the process of competition over funding terms between rival claimants. In Victoria, recent decisions emphasise the importance of “one-bid” procedures, and the integrity of those procedures, in serving the overarching purpose: Edwards v Hyundai [2024] VSC 301. In the Greentree dispute, the Full Federal Court overturned Lee J’s grant of a subsequent opportunity to improve its bid to one funder as a denial of procedural fairness: Jennings v Jaguar Land Rover Australia Pty Ltd [2024] FCAFC 62.

Third, as the Supreme Court of Victoria experiences more filings of class actions, there have been increased incidences of competing class actions being filed in different courts. Since 2019, a joint protocol of the Federal Court and Victorian Supreme Court has provided for case management before judges from both courts concurrently to resolve multiplicity issues. In Edwards v Hyundai Motor Company Australia Pty Ltd [2023] FCA 1134 and Jowene Pty Limited v Downer EDI Limited [2023] FCA 924, Federal Court class actions were transferred to the Supreme Court of Victoria under that protocol.

Fourth, courts’ willingness to take pleadings at face value in carriage disputes is diminishing. In Star Entertainment Group, noting a trend of claimants advancing longer claim periods, broader group member definitions, or further causes of action, Nicholls J cautioned against “adopting a ‘broadest case is better’ approach”, noting that this could result “in the encouragement of the formulation of claims designed to win carriage”.

Imitation or replication of earlier filings by later entrants has also attracted closer scrutiny. Identity of pleadings has been held against later claimants in carriage contests, where that identity bespoke a lack of due diligence and independent judgement on the part of those acting for the later claimant.

Class Closure Orders

“Class closure orders” in the Australian context may generally be described as orders requiring group members in an open class to register in order to participate in any settlement of a proceeding, under threat of having their claims extinguished by the settlement for no compensation if they neither register nor opt out.

Whether there is power to make such orders has been the subject of much debate in recent years. In Victoria, there is a specific power to make such orders in its class action statute (Supreme Court Act 1986 (Vic), Section 33ZG). In other jurisdictions, there is no such express power. The Federal Court however, has frequently made such orders under Section 33ZF of the Federal Court of Australia Act 1976 (Cth).

In two decisions, Haselhurst v Toyota Motor Corporation Australia Ltd [2020] NSWCA 66; 101 NSWLR 890 and Wigmans v AMP Ltd [2020] NSWCA 104; 102 NSWLR 199, the NSW Court of Appeal held that it was beyond power to make a class closure order, and to issue a notice to group members advising them of a plaintiff’s intention to seek such an order. The court reasoned in each case that such orders were neither necessary nor appropriate to ensure that justice was done in the proceeding, and would create a conflict of interest between registered and unregistered group members, all of whom are represented by common lawyers.

However, in Parkin v Boral Ltd (Class Closure) [2022] FCAFC 47; 291 FCR 116, the Full Federal Court came to a different view to that adopted in Wigmans. The court considered the decision in Wigmans to be “plainly wrong”, as being inconsistent with the breadth of the notice power conferred upon the court, based upon an incorrect premise as to the right of group members not to take positive steps prior to the resolution of common questions of liability, and placing undue weight on conflicts of interest the court considered to be inevitable.

The NSW Court of Appeal, sitting as a bench of five, recently returned to the question in Pallas v Lendlease Corporation Ltd [2024] NSWCA 83. The court considered that its earlier decision in Wigmans was not “plainly wrong” and that the Federal Court in Parkin had not expressed sufficiently persuasive reasons to justify that conclusion.

An appeal in Pallas was heard by the High Court in November 2024 and can be expected to resolve the split which has emerged between the NSW Court of Appeal and the Federal Court on this issue.

On issues of discretion, in Alford v AMP Superannuation Ltd (No 2) [2024] FCA 423, the court declined to make a class closure order sought by a defendant over a plaintiff’s opposition, reasoning that in the circumstances of that case registration would not be necessary for most group members to be able to be paid their share of any settlement or judgment.

In Kilah v Medibank Private Ltd (No 2) [2024] VSC 519, the court considered it appropriate to make a class closure order which would expire shortly after an early mediation (rather than, as the defendant had sought, the day before trial), among other things on the basis that such an order was more conducive to settlement at mediation.

Emerging Areas for Class Actions

The range of areas for class actions continues to expand and evolve.

Shareholder class actions

Historically, shareholder class actions have constituted a significant proportion of class actions commenced in Australia. Typically, as with the vast majority of class actions, shareholder class actions are settled prior to any trial or judgment and often for substantial settlement sums. Shareholder class actions received a boost by the decision of the Federal Court (Beach J) in TPT Patrol Pty Ltd v Myer Holdings [2019] FCA 1747 (“Myer”) confirming the availability of market-based causation (like in the United States). However, there have been three recent judgments where shareholders have failed to secure an award of damages in high-profile class actions against large, listed corporates: Crowley v Worley Limited (No 2) [2023] FCA 1613; Zonia Holdings Pty Ltd v Commonwealth Bank of Australia Limited (No 5) [2024] FCA 477; and McFarlane as Trustee for the S McFarlane Superannuation Fund v Insignia Financial Ltd [2023] FCA 1628. Those judgments have raised significant questions about how causation, loss and damage can be established and quantified by plaintiffs in shareholder class actions. Those judgments have also raised questions about the kind of expert evidence necessary to establish and quantify loss and damage, including event study expert evidence.

Appeals have been filed in the Worley and Commonwealth Bank decisions with the former to be heard in March 2025 and the latter to be heard in November 2024. The Worley appeal also invites the Full Court to consider the correctness of Myer on market-based causation. The outcome of these appeals, including any further appeals to the High Court, will likely have significant implications for the shape and attractiveness of shareholder class actions in Australia.

ESG and climate change class actions

Environmental, social and governance (“ESG”) and climate change issues continue to dominate corporate governance in Australia and globally. There is also an emerging global trend of using public international law principles or instruments, directly or indirectly, to attack large corporates in relation to climate change issues, especially where those corporates have extolled their adherence or commitment to those norms. The obligations contained in the Paris Agreement to achieve net zero is a notable example. It now appears widely accepted that Australian law requires any material exposure to climate change risks to be adequately disclosed and incorporated into various financial disclosures mandated by the Corporations Act. Companies that fail to adequately disclose those risks or make climate-related commitments without a reasonable basis will be vulnerable to shareholder class actions for misleading and deceptive conduct. Many disclosures relating to climate change and climate change risk constitute future matters. As such, those disclosures will be regarded as misleading unless made with a reasonable basis. Overseas experience also suggests there is real potential for class actions in tort for nuisance or negligence for a company’s contributions to climate change where those contributions have led to very adverse environmental outcomes for local communities. Such claims might also extend to parent companies located outside of Australia where those adverse environmental outcomes arose from the acts and omissions of foreign subsidiaries over which the foreign parent exerts substantial control and influence. To be sure, claims of this kind are likely to prove challenging under Australian law, but the potential for properly constructed class actions in this area still exists.

Privacy and cybersecurity

Significant data breach class actions continue to make their way through Australian courts, against a background of important legislative changes. Plaintiffs have adopted different strategies in their prosecution of claims against ASX-listed Medibank, in relation to a data breach that occurred in October 2022. A consolidated consumer class action is running in the Federal Court based on misleading or deceptive representations about the company’s cybersecurity controls. A consolidated shareholder claim against Medibank is on foot in the Supreme Court of Victoria, which focuses on the company’s alleged breaches of continuous disclosure obligations in relation to its IT controls. Another consumer class action has been filed in the Federal Court against the Optus group, relating to a data breach that occurred in September 2022. Around 10 million current and former Optus customers are potentially affected.

These claims commenced before the anticipated amendments to the Privacy Act currently making their way through Parliament. The Privacy and Other Legislation Amendment Bill 2024 provides, for the first time, an express statutory tort cause of action for serious privacy breaches. An important threshold issue for claims brought under the anticipated legislation is that claims will be limited to intentional or reckless breaches, and there is no cause of action for negligence. Claimants will therefore have to meet the higher standard of demonstrating reckless disregard in relation to any allegedly inadequate cybersecurity controls. More favourably for claimants, the Bill allows for substantial monetary claims for emotional distress. This in part addresses the question to date whether affected persons in data breach cases have a more than nominal damages claim where there is no obvious economic loss.

Employee class actions

Representative claims brought on behalf of employees for unpaid wages and entitlements continue to be filed and prosecuted with regularity. Two notable proceedings in this area recently settled for some of the largest sums achieved to date in class actions. The federal government of Australia has agreed to settle a claim by First Nations people in the Northern Territory for around AUD200 million. The applicants claimed for compensation for work undertaken between 1933 and 1971, where little to no payment was received for the work and the workers instead were given food and items in kind. The beneficiaries of the settlement will include the spouses and children of the affected workers. This is the latest instalment in a series of cases brought in relation to the “stolen wages” of Aboriginal and Torres Strait Islander peoples, with earlier settlements having been reached with the Western Australian and Queensland governments.

At a state level, the Supreme Court of NSW approved a proposal to pay AUD230 million to settle a claim brought by junior doctors. The proceedings against the state of NSW and NSW Health sought compensation for unpaid wages for overtime, meal break entitlements and superannuation. The settlement covers more than 15,000 junior medical officers who worked long hours at NSW hospitals at the start of their careers during their internships and residencies. Similar proceedings continue in Victoria whilst proceedings in the Australian Capital Territory have settled.

Consumer claims

Numerous consumer class actions have been brought against global vehicle manufacturers in the past several years. Ford and Toyota owners were successful at trial in their respective cases in the Federal Court, in relation to their vehicles’ defective transmission systems. An important issue as to whether post-purchase events could be used to reduce the quantum of damages went on appeal to the High Court. The High Court ruled that damages should be determined by reference to the reduction in value of the defective vehicles at the time of supply. The free repairs offered by the manufacturers would not be taken into account. On the other hand, Volkswagen owners lost their case at trial in the Supreme Court of NSW in a matter concerning defective airbags manufactured by Takata. The High Court has now denied the car owners’ application for special leave to appeal and those proceedings are at an end.

A shift in consumer claims is evidenced by recent claims launched against mass retailers specialising in electronics, home appliances and home entertainment goods. These matters involve a much larger class than the vehicle cases, with smaller claims on a per class member basis. They also involve a move away from causes of action based directly on defective goods, to claims relating to extended warranties sold to customers.

A class action has been commenced in the Supreme Court of Victoria against ASX-listed JB Hi-Fi, on behalf of consumers who purchased extended warranty protections between 2011 and 2023. The proceedings target the selling of these policies to consumers already covered by the Chapter 3 guarantees in the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act (Cth) 2010). The guarantees include the right to goods of acceptable quality that are fit for purpose. Although consumers have statutory remedies of refunds, repairs and replacement of defective goods within a reasonable time after purchase, warranties were sold for initial periods during which the prospects of a defect were minimal. The plaintiffs also have a claim for misleading and deceptive conduct, based on misrepresentations made by the company as to their consumer rights which affected their capacity to act as properly informed consumers.

Two competing class actions have been brought in the Supreme Court of Victoria against the ASX-listed Harvey Norman group, which includes Joyce Mayne and the Domayne furniture brand. The allegations similarly target the upselling of warranties to consumers where those protections are already available to them under their statutory consumer guarantees. One of the filed proceedings includes a claim that the warranties are financial products, in circumstances where Harvey Norman did not hold the requisite financial services licence to sell the products.

International class actions and overseas claimants

Australian courts have been sympathetic to class action claims brought by overseas claimants. For example, the High Court of Australia has recently confirmed that the Australian class action regime permits class actions to be brought on behalf of group members who are not resident in Australia. A large class action was successfully brought in the Australian courts relating to a Montara oil spill which caused damage to thousands of Indonesian seaweed farmers. All of the group members were victims outside of Australia but jurisdiction was sufficiently established by reason of the defendants being Australian corporations.

This trend is expected to continue. Whether Australian courts will entertain the kind of claims that have been brought on behalf of overseas claimants in English courts is an open question. Specifically, the English Court of Appeal has allowed more than 200,000 Brazilian claimants to proceed with their claims against the defendant UK company (BHP Group plc) arising from the catastrophic collapse of the Fundao Dam in South-East Brazil. It can be expected, however, that claimants and funders will attempt to bring claims of this kind in Australian courts, especially where those claims relate to climate change and mass tort claims for environmental damage inflicted upon overseas local communities where there is no effective local remedy or class action mechanism and the alleged wrongdoer is a large corporate with its centre of gravity and assets in Australia. In many respects, Australian law is conducive to international claims of this kind because its class action framework and funding market is mature and the test of forum non conveniens in Australia is somewhat more relaxed (“clearly inappropriate forum”). At the same time, it remains to be seen how Australian courts will react to essentially foreign claims of this kind being litigated through Australian courts.