November 21, 2018

Swiftness does not mean ‘first past the post’

On 20 November 2018, the Full Court of the Federal Court upheld a decision to permanently stay two out of three open class actions against GetSwift Limited.[1]

With an increased number of competing class actions being commenced, the Full Court took the opportunity to provide general guidance on the range of factors to be considered and the possible options open to a docket judge in dealing with competing open class actions.  Some of the key inquiries to be undertaken include:

  1. an assessment of the various funding and costs models to identify which model is likely to best motivate the class applicant's solicitor and funder to work assiduously to achieve the best outcome for the applicant and all group members; and
  2. identifying which legal team is likely to secure the best result for the class.

Background facts

Three representative proceedings were filed against GetSwift Limited earlier this year following a significant decline in its share price as follows:

  • on 20 February 2018, a first law firm filed a representative proceeding on behalf of Dwayne Perera as the lead applicant (Perera Proceeding);
  • on 26 March 2018, a second law firm filed a representative proceeding on behalf of Shaun and Samantha McTaggart as the lead applicants (McTaggart Proceeding); and
  • on or about 13 April 2018, Raffaele Webb, represented by a third law firm, was granted leave to file a representative proceeding (Webb Proceeding). 

The filing of multiple actions meant that the Court was faced with three competing open class actions, represented by three different law firms and financially backed by three different litigation funders.

The primary judge requested the respective parties to come up with a detailed proposal of how to deal with the competing class actions, and if only one proceeding was to go forward, which one and why. The submission of each of the applicants was required to include modelling of the comparative returns to the group members.

The parties all agreed that only one proceeding should go forward. Unsurprisingly each applicant submitted that their proceeding should be preferred. 

There were a number of options available to the primary judge as follows:

  1. The proceedings be consolidated. This approach was adopted in Johnson Tiles Pty Ltd v Esso Australia Limited[2], but in circumstances where the two competing law firms entered into a joint venture agreement to work cooperatively together and engage only one set of counsel.
  2. One or more of the proceedings be declassed pursuant to section 33N(1) of the Federal Court of Australia Act 1976 (Cth).
  3. The 'wait and see' approach. This approach was adopted in Cantor v Audi Australia Pty Ltd (No 2)[3] where there were five competing open class actions.
  4. A permanent or temporary stay or one or more of the proceedings.
  5. Class closure of one or more of the proceedings. This approach was adopted in McKay Super Solutions Pty Ltd (Trustee) v Bellamy's Australia Ltd[4]. In that case, each competing applicant was content to proceed as a closed class as a fall-back position.

The primary judge decided that only one proceeding should continue on a long term basis, and that proceeding should be the last past the post, being the Webb Proceeding.  At first instance the Perera Proceeding and the McTaggart Proceeding were permanently stayed.

Perera and McTaggart sought leave to appeal the primary judge's decision to stay their respective proceedings to the Full Court of the Federal Court[5].

Appeal dismissed

Perera and McTaggart were granted leave to appeal.  However, the appeal itself was dismissed on the basis that the primary judge's decisions that:

  • the Court has the power to stay two of the three competing class actions; and
  • it was appropriate to stay the Perera and McTaggart Proceedings and allow the Webb Proceeding to go forward,

fell within the proper exercise of his discretion. 

One size does not fit all

The Full Court acknowledged that different judges may take a different view on what is the most appropriate course of action and there is no silver bullet for resolving the case management problems that arise from competing class actions. 

The Full Court also made the following comments for further consideration:

  • The Court should not give an undue focus to lower courts and funding charges.  Doing so is likely to promote a 'rush to the bottom' by funders and solicitors keen to win the tender, as has already been seen in the market.
  • The focus should be on selecting the proceeding with a funding and costs model likely to best motivate the applicant's solicitor and funder to work assiduously to achieve the best outcome for the applicant and group members and to take responsible risks in that regard. 
  • The Court should be astute to select the proceedings with the legal team that is most likely to achieve the largest settlement or judgment.
  • The Court must strongly discourage a rush to the Court in large and complex class proceedings.  The Court should consider ordering a standstill in the first filed proceeding to allow other solicitors or funders reasonable time to undertake proper due diligence.
  • When considering a selection process for determining which proceedings ought to be stayed, if that is the determined course, that the interests of the applicant and group members are not damaged in the process and that the process is not unduly expensive.

A friendly reminder

Whilst the Full Court acknowledged the important role solicitors and litigation funders play in providing access to justice, it was critical of the general failure of solicitors and litigation funders to reach an agreement when it comes to consolidating proceedings. The comments of the Full Court in GetSwift serve as a friendly reminder not to forget that the interests of the parties and the group members should always be paramount.

1. Perera v GetSwift Limited [2018] FCAFC 202.
2. (1999) ATPR 41-679; [1999] FCA 56
3. [2017] FCA 1042.
4. [2017] FCA 947.
5. Perera and McTaggart also appealed other ancillary decisions but those matters are outside the scope of this update.