Insurance & Reinsurance
In a narrow 3:2 decision, the High Court of Australia dismissed an appeal by one of the unsuccessful law firms and funders against the stay of their class actions against AMP Ltd. The High Court's decision confirms that Australian Courts are empowered to broadly investigate the merits of multiple class actions to approve the proposal that provides the best returns to group members. In this case note, Clyde & Co Partners, Patrick Boardman, Janette McLennan, Christopher Smith and Nicole Wearne consider the implication of the decision on future shareholder class actions.
In April 2018, the share price of AMP Ltd suffered a sharp fall following evidence given by executives of AMP Ltd at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that AMP had knowingly charged some clients fees for no service.
Following this evidence, between 9 May and 7 June 2018, five law firms filed five open class representative actions on behalf of shareholders. Although each proceeding was slightly different, they all alleged a breach of AMP's continuous disclosure obligations and the ASX listing rules, as well as claims of misleading or deceptive conduct and statutory unconscionable conduct.
The proposed funding arrangements of each proceeding was different. Some were backed either by commercial litigation funders, others by law firms willing to act on a "no-win, no-fee" agreement. The first proceeding was filed in the Supreme Court of NSW. However, the four subsequent proceedings were filed in the Federal Court of Australia. The four Federal Court proceedings were subsequently transferred to the NSW Supreme Court. During this time, Maurice Blackburn and Slater & Gordon agreed to consolidate their proceedings into one action. The remaining four competing claims applied for a stay of each other's proceedings. AMP's position was neutral as between the competing actions but it supported an outcome in which it would face only one set of proceedings.
The primary judge approached the stay application by assessing the relative potential benefit expected to flow to group members from each of the competitors and used a multifactorial approach to determine the relative benefits. Ultimately, the judge determined that the Komlotex/Fernbrook proceeding funded by Maurice Blackburn would provide the best net return to members and stayed the three other proceedings. The proposal provided funding on a "no-win, no-fee" basis with a 25% uplift on professional fees if the resolution sum exceeded AUD80 million.
Ms Wigmans, the Appellant in these proceedings, was the representative of one of the losing proposals which proposed funding by a litigation funder on terms for up to 20 per cent of any recovery. Ms Wigmans' proceeding was filed first in time. She appealed the stay of her proceeding to the NSW Court of Appeal. The NSWCA dismissed the appeal, finding no error in the primary judge's decision. The High Court then granted Ms Wigmans leave to appeal.
The Appellants submitted that the primary judges "multifactorial analysis" was not authorised by s67 and s183 of the Civil Procedure Act 2005 (NSW) (CPA) or under the Court's inherent power. Ms Wigmans advanced a submission that where the later in time proceedings had no real juridical advantage over the proceedings first commenced, the Court should stay the other proceedings as vexatious. Therefore the onus was on the later proceedings to show that its action is not vexatious or oppressive.
Ms Wigmans submitted that this submission accorded with the settled common law approach to multiple proceedings by the same plaintiffs seeking the same relief against the same defendant.
Komlotex submitted that s67 of the CPA expressly conferred on the primary judge the power to stay other proceedings (irrespective of when filed). The “multifactorial analysis” applied by the primary judge sought to correctly achieve the overriding purpose of the CPA, being the just, quick and cheap resolution of the proceedings.
The Court split 3:2 in its decision. The majority (Gageler, Gordon and Edelman JJ) determined that the scope of s67 of the CPA was broad and did provide the Supreme Court with the power to stay competing group proceedings. The ability to stay proceeding must be read consistently with the CPA's intention to ensure the just and effective resolution of the issues in the proceedings. The majority accepted that “in the context of competing representative proceedings, the grant of a stay may be necessary or desirable to achieve the just and effective resolution of the issues”.
The majority dismissed Ms Wigmans’ “first-in-time” approach, finding that it would be unworkable and that the authorities relied upon by Ms Wigmans did not support the existence of a first-in-time rule of presumption.
The majority was at pains to point out that there was no "one size fits all" approach and that the Courts could deal with a multiplicity of proceedings in several different ways. This included:
The majority provided some important guidance on how judges should approach competing litigation funding arrangements in the future. The Court indicated that it preferred an adversarial approach over an inquisitorial approach. They suggested that appointing a referee or a contradictor or issuing a formal notice to group members would minimise the risk of conflicts between lawyers, funders, and group members and provide the best forum to determine the group members' best interest.
The minority (Kiefel CJ and Keane J) disagreed over the extent of the power of s67, finding that the section did not authorise the Supreme Court to make a selection of the sponsor of representative proceedings. The dissenting judges' issue was that the power could not be squared with the Supreme Court's fundamental function as the independent arbiter of the merits of the group members' claims.
The consequences of the decision are likely to be mixed. On the one hand, the procedure is expected to provide group members with a funding agreement that maximises their returns, and defendants (and their insurers) do not have to face, and incur costs of multiple class actions. On the other hand, the determination process will be slower and more costly for both plaintiffs and defendants (although defendants usually adopt a neutral position as did AMP) —particularly given the High Court's preference for the appointment of a special referee or a contradictor. The appointment of contradictory is now a regular feature of class actions and the courts favour this approach. In the first applications for group costs orders, Nicholls J proposed the appointment of a contradictor.
An unintended consequence of the High Court's suggested approach is that it may enliven the economic problem of "the winner's curse". Under the current model proposed, there is a tendency for the winning proposal to exaggerate the true financial "worth" of the proceeding. In practice, this could see a conflict between group members and their lawyers. To succeed in their bid, the plaintiff's lawyers may propose a funding proposal that cannot be profitably resourced and commits fewer resources. This problem would ultimately leave the group members with a less than satisfactory outcome.
However, since this issue was first agitated in the AMP class action, there has been a noticeable change in plaintiff firms' behaviour, which suggests that the chances of large numbers of competing class actions are now reduced.
We have observed that plaintiff lawyers are moving away from using litigation funders and the potential lottery of the so-called "beauty parade" method adopted by courts for dealing with multiple proceedings. This has probably arisen for a number of reasons – firstly it can be expensive for lawyers/funders to investigate and initiate a claim that may be taken away from them. Secondly, the extent to which commercial litigation funders can compete with "no-win, no-fee" proposals from the larger Plaintiff class action firms is unclear.
Plaintiff firms appear to be moving toward using "no-win, no-fee" agreements and a more co-operative approach in which leading firms agree to consolidate their competing proceedings into one action with both firms working together. In part, this move may be due to the Victorian Government's decision to allow contingency fees in the Supreme Court of Victoria. In 2020, the last six securities class actions filed were all filed in the Supreme Court of Victoria, all on a "no-win, no-fee" and with indications that the plaintiff's solicitors intend to make a group funding order, seeking fees to be paid on a contingency basis, as part of the proceedings.