Class Action Centre

Panel discussion “Achieving Finality to Class Action Litigation”

June 24, 2017


Wayne Attrill: [00:00:08] Right everyone. Final session of the day. Thank you for making it this far.

 Wayne Attrill: [00:00:18] This is our panel discussion on achieving finality in class action litigation. And it's turned out to be a rather more complex topic than I thought when we first looked at proposing this as one of the sessions for today. So the way we're going to deal with it is that we have a very learned and expert panel for you and I'm going to pose about half a dozen questions five questions. Each question will be posed to a particular panel member then the panel will discuss the question. And we very much want your involvement as well. All right so we're looking for this to be an interactive session with our audience. Let me first of all introduce the panel to you. First of all, on my left here is the Honourable Justice Jack Forrest. Justice Forrest's résumé in the conference materials is remarkably perhaps commendably brief. It runs to two sentences and says something like he signed the Victorian bar role in 1978 and was appointed in 1998. However, there is more to His Honour than that. As you all know of course in between 2009 and 2014 he case managed and presided over the trial of the Kilmore East Kinglake Bushfire Class Action the trial ran for more than 200 days and had evidence from over 100 witnesses. The claims for ultimately settled and of course for the past two years the Court has been supervising a settlement distribution scheme that we now know all about.

Wayne Attrill: [00:02:02] Sitting next to His Honour is Jason Betts a partner at Herbert Smith Freehills and one of the best known I guess respondent lawyers in the class action litigation area in Australia and Jason has not only appeared and most of the major class action litigation in this country but he's also a co-author of the leading textbook on class actions. A book that I seem to refer to increasingly frequently. Sitting in the middle of the panellists Simone Degeling - Professor at the University of New South Wales She is the co-director of the research initiative and she is a specialist in private law and particularly equity. And what's interesting with Simone is that she comes from outside of our fraternity and is bringing a different perspective I think to bear on some of the issues we'll be talking about today. Next to Simone is Bill Petrovski another well-known litigant this time on the applicant side. But Bill in fact is retained by a wide range of clients in class actions. He's one of the co-founders of the firm William Roberts Lawyers and has been involved in his in a number of bushfire cases including Springwood in Canberra. He has been involved in shareholder class actions and he brings a wealth of experience to the panel. And last but by no means least right at the end there is Brett Jordan who goes by the rather august title of Senior Technical Claims Advisor major finance financial loss lines at the insurer AIG. Now AIG as you will all know is probably Australia's leading insurer in the D and O and PI lines of insurance. Brett has had the honour perhaps the dubious honour of being involved in the resolution of the majority of high profile corporate collapses in shareholder class actions in Australia over the last seven to eight years.

 Wayne Attrill: [00:04:13] Often in the hot seat as the primary layer insurer in in relation to the respondents' exposure in those cases. So that makes up our panel.

 Wayne Attrill: [00:04:23] And now turning to the first question. And this is one for Bill Petrovski. Obviously, this issue of achieving finality in class action litigation intersects with a number of different issues and one of them is should it be easier to settle multiple claims pre-commencement that is prior to having to commence a Part 4A proceeding. And if so how can we achieve this Bill? What do you think is the answer to that question?

 Bill Petrovski: [00:04:56] I'm not sure whether I've got all the answers but I certainly can articulate some of the issues which I've certainly encountered in trying to settle what would be class actions before their commencement. The usual scenario one gets in this space is that claimants have entered into a litigation funding agreement and signed a retainer with a law firm and this is likely to be a large proportion of potential claimants but not all the claimants in line with pre-litigation requirements genuine steps taken to engage to settle the dispute pre-commencement. Now despite genuine willingness I think on the parties to settle in in the current framework where Part 4A doesn't deal. It only deals with class actions once they commence and the commencement itself it becomes really difficult and significant challenges start to really mount. And a lot of the time the wheels quite often start coming off at that stage for various reasons despite the party's intentions and willingness to actually resolve the dispute. Litigation funding agreements have provisions in most cases for settlement of claims pre-litigation. Usually by a vote system and this often is a good enough mechanism to settle a class action. But it only works if there is a willingness to settle with the identified group of claimants. So it's possible to do so in that instance and for example in that in that case the defendant is able to get some benefit of individual releases from those from those group of claimants now. In the current era in the current environment where we're seeing competing class actions and multiple class actions quite understandably. What defendants become worried about at this early stage is if they settled with a closed group of persons or the identified group of claimants at this stage. Is there going to be another class action or group action coming in after that settlement is concluded. What Jason I think calls the tail risk quite often and it's one of it's really the initial challenge which one has to deal with in this type of environment. So essentially this first challenge one is dealing with the quantum of that tail risk. What does that mean. How much is that tail risk if the tail risk is too great. How does a defendant really obtain certainty for themselves? And how does one bind all those tail risk claims to a settlement. And in that context and in the context of that uncertainty one has the challenge of working out the figures or figure of any settlement as well. So when one looks for a solution in that environment it really the parties at that stage can I guess agree on a settlement figure or different pools for different type of claimants. And really can then seek to utilise the Court regime at the end can agree to for example a commencement of a proceeding which includes an agreed open class definition and a regime then subsequently for class closure. In some of the usual forms of registration and exchange of data to discern tail risk I identify the quantum of claims and have appropriate barring orders to then bind the whole group and obtain certainty for the defendant. I guess queries whether this is in fact a somewhat a guess contrived settlement mechanism which utilises the Court's process and whether this is in fact the proper use of the Court's process.

 Bill Petrovski: [00:09:24] But putting that aside I guess there's the next challenge. At pre-commencement. Before you sort of if you agree on all of that and you want to embark on the next stage there needs to be some certainty that the Court is actually going to have a fair settlement when its exercising its as Justice Lee said protective role under Part 4A. It needs to be satisfied of many facets of the case including prospects of success. And if there is going to be for example any discount given for problems with recover-ability it needs to have particular information before it is that the parties need to be pre-litigation satisfied that if they are going to put up something before the Court that it's actually going to likely be approved by the Court. Now what this obviously then requires the parties to do is to have some sort of disclosure of information and more so from the defendant's side of documents to go to the liability and the prospects of the case and potentially particularly if there are going to be discounts for the means of the comfort of the defendant to be able to pay a judgment. Then potential insurance policies. So. One can see very quickly. I guess the hesitation of a defendant to provide this type of disclosure at such an early stage and the potential strategic disadvantage in circumstances where the settlement may fall through or ultimately not be approved by the Court. So I think this is certainly possible with a lot of will but certainly plenty of challenges. So I really think that this is just some food for thought. Not necessarily a solution for the academics in this room to potentially work with. I think some legislative change to perhaps introduce a fast track or light what I call a light settlement regime which essentially takes the burden off the Court and lessens the thresholds maintains fairness and provides finality for both the respondent and the claimants. Essentially an introduction of a regime which allows group members to really make a fairly informed commercial decision rather than one on the substantive analysis that normally happens during an approval process. This is I guess the role of the Court in this type of regime would be more of a supervisor of the process to make sure that appropriate information goes out to group members and a facilitator of the Court process and it could be then an opt out process as well. And then the remaining group members could be left to vote and it could be a higher threshold vote which is in number and value of course. And I think this type of regime is not a totally alien one in fact it exists in the Corporations Act at the moment for Schemes of Arrangement which will function in a very similar way and such a regime maybe more attractive for I guess shareholder type actions where you have a significant number of group members who are sophisticated investors that can look after their own interests and make a decision whether to vote or not. So Wayne I think that's all I've got to contribute on that topic.

Wayne Attrill: [00:13:10] Do any of the other panelists have anything that they would like to add to that?

Jason Betts: [00:13:16] I would like to add that I think pre-commencement I've been involved in defending in advising defendants who've settled pre-commencement and to be honest I still lay awake at night wondering if that was the appropriate thing to do. If I can call it in the post MCI-era for absent the protection of Section 33ZB of the Federal Court Act the res judicata that comes from judgment in the Federal Court or that the settlement principles that apply. I think it's a very uncomfortable position to try and resolve claims pre-commencement on the assumption which is right that there will be a closed class. Bill's talking about a proposal that's in the stratosphere of settlement only class actions which is embraced in the United States but maligned in part because they're seen as a lawyer driven exercise. That the conundrum that we face in our system is there's no commerciality associated with settling class actions. If you do it pre-commencement you cannot achieve finality post-commencement. You must operate within the guidelines of the Federal Court's protective powers and ultimately the test for settlement is it fair and reasonable. That's not a commercial test. The answer may lie in legislative reform as Bill says may be the focus of that reform would be on whether for certain kinds of early resolutions the test adopted by the Court is a lower standard focusing less on that protective function and more on the commerciality of the deal early exchange of documents and information is okay. But once you go down that path you quickly evaporate the attraction of the early settlement which is low cost and low risk of claim expansion both of which aren't too conducive with the early exchange of information. So like Bill I don't offer a good solution but it is a bit of a conundrum with our current system.

[00:15:22] I've got it also. That's more of a practical consideration in that. The only pre-litigation settlement that I can immediately recall was the matter of Downer EDI which was Clive and myself. As Jason was pointing out, I wonder given what the way it panned out whether Clive would have been so keen to go down that path were it to happen today. But even if he was in a practical sense he probably couldn't in the post MCI-era for the simple reason that you have competing funders who come in and say well in order to get it approved I'm going to have to effectively commence proceedings and go through the approval process so why don't I just get in first commence the proceedings now in circumstances where I have no discovery I have no real idea. I mean Jason and myself have one like this no real idea what my claim is. I'm just going to commence my proceedings and see what happens. And in that space Clive for instance could not sit back realistically and collect his closed class clients and seek to resolve it pre-litigation so that you know there needs to be some mechanism to deal with that practical problem in order for pre-litigation settlements to occur which I think they should. They're more efficient, they're cheaper. You know why wouldn't you normal litigation works that way.

[00:16:51] Yeah. So this raises this whole issue around closed classes versus open versus open classes. And the common fund mechanism which is seen as a way of making open classes financially viable for funders to support. And we'll be talking about that in a little bit later on in this session. I wonder if there's anyone in the audience that would have a question or an observation to make. And we now have a microphone by the way so if you do - Professor Legg.

Professor Michael Legg: [00:17:27] Just a quick comment on the idea of pre-commencement. How are the group members protected because the Court is not there under Section 33V to be able to determine whether that settlement should be approved? So you wind the you have the settlement. Group members are bound but there's no Court oversight.

[00:17:51] That's right. That's I think that's the point. They're not protected in that situation. But equally there is a freedom to for that to resolve commercially. I think that's the problem. Can we live with pre-commencement resolution philosophically? We can in conventional proceedings which don't involve this protective element. It's a good question but the answer is there is no protection other than I suppose the more a question for Bill than me the fiduciary obligations that Bill would owe his client base.

[00:18:22] And I'm not sure if they would extend out to the putative claim group that goes beyond the client base the hard questions.

[00:18:30] The real question is, sorry, you go, I was just going to say leaving aside the practical problem which Wayne alluded to of unknown group members obviously the general doctrines of private law would kick in. Leaving aside the fiduciary paradigm you'd have notions of unconscionability anyone and doctrines of duress. All of those would apply to any settlement as they were to any other agreement.

[00:18:59] And arguably they may still be relevant even with the Court's approval to be relevant - relevant in that context as well.

Jason Betts: [00:19:09] How do you resolve the claim in the context of what you just raised. Who are you settling with - is just the applicant or the proposed applicant and what's their authority to bind the group members for whom their lawyer also acts. Is it a - it's not statutory, is it contract. I don't know. Possibly yeah it could be through the contractual funding agreement that all other funded group members have signed the right of the applicant to settle on their behalf. Do I need releases with all group members or can I rely on the contract? These are tough questions. The one that I did I didn't know. As I say I still got a lot less hair now than I had when I struck that deal. But all these questions were live and unless they're answered I think pre-commencement resolution becomes pretty tricky.

[00:20:00] So Jason do you think that actually that means there's actually less legal risk in going through a Court supervised resolution procedure. To the extent that there is more comfort in 33ZF or 33V. Blessing of blessing of it to the extent that all those other risks might be more might be minimised.

Jason Betts: [00:20:21] I think there's less legal risk with major qualifications that we'll talk about associated with the process of closing a class. And frankly the antion and res judicata issues that arise from settlements and judgments but enormously more expensive. So it's a real trade-off.

Wayne Attrill: [00:20:41] All right well. Very interesting discussion. Let's move on to the next question and this is one for Justice Forrest. What are the different forms of class closure orders that have been adopted by parties. Is it appropriate that a consequence of failing to register an interest in a class action is the banning of any further claim against the respondent? How does that sit with the structure of Part 4A perhaps if I could just explain to anyone that's not familiar with this typically even if a class action has commenced on a closed class basis that is that the group consists of only those claimants who have entered into a funding agreement or a retainer agreement with a particular law firm. Often that class is later opened to it to cover all potential claimants and then closed again so as to so as to finalise the group of claimants that would be entitled to participate in a settlement. And that's precisely to enable the parties to achieve finality. Now one of the consequences of that process may be that if the group member doesn't register so those that haven't signed a funding agreement or a retainer agreement if they don't register then they may not be entitled to participate in the settlement. And in some cases they may also their rights may be extinguished completely. That is they can't participate in any subsequent judgment. So that's the background now over to Your Honour.

Justice Forrest: [00:22:18] Can I start if I may with an observation if you're ever minded to read the Law Reform Commission Report of 1988 which preceded the introduction of Part 4A of the Federal Court Act. You'll think it was drafted by someone living on Mars. It has no resemblance now to how we conduct class action litigation in this country at all it envisaged open classes and it envisaged mass tort claims and really no more than that. Over 25 years the development of the sophistication of the litigation has been extraordinary. And it's remarkable. And I come from a tort background which means I'm an outlier at this proceeding. It's remarkable how the tort type claims which dominated at the start of the Part 4A proceedings have now become a minor player and the shareholder and commercial cases have taken and with the combination of litigation funding have taken over the major role as Vince Morabitos' experience has demonstrated now that's a precursor to talking about these a class closure. I can only talk about it from a tort background because that's my experience as both a counsel and as a judge. Almost all the cases that we have the tort cases in the state and in Victoria and I think also in New South Wales are issued open class actions. So they start life generally as an open class action. The question then becomes for the judge and for the parties at what time if at all do you determine to close the class and I pose that question why do you close the class. Well the reason to do it is to ensure or say I'm sorry to facilitate the resolution of the case. All of us have all of our states now and federal level have Civil Procedure Acts which mandate that we endeavour to resolve cases rather litigate them out. The original structure of the Federal Court Act and then the state acts that are based upon it was essentially to have open classes litigated either to conclusion or settlement. But I don't think our founders ever considered the consequences of trying to settle open class claims. So the end result is that in virtually every case we have at some point of time along the way the class is closed. The question then becomes for the judge and for the parties when to do it.

Justice Forrest: [00:25:06] Most of us in this and I think takes up Bill's point. But one of the problems about pre-action and early action and early proceeding determinations is that it's too early to try and fix on whether the class should be closed or not. And there are a number of decisions of courts both federal and state where judges have refused to close the class. Two reasons. Firstly it might be too early. And secondly it may be it may not be useful. There may be no real prospect of negotiations. So the short point is what's the point in closing the class. Once we get to the point of closure of determining to close the class the issue then becomes for us on what terms and at what as I've said already at what time. If the parties come to us and say we are negotiating in this case but we really need to get a feel of what the defendant's liable for. We will entertain that and we'll entertain it seriously because it's in our interests as well as everyone's else as for the case to be resolved. The problem that confronts us and the problem that's on the screen is what we make of the terms of class closure. It's now relatively simple to make such to make orders closing the class to simply give it time for people to register and then they file their form either with the Court or with the solicitors and they're registered on the list and able to participate in the settlement. The difficulty is what flows.

Justice Forrest: [00:26:47] If the case is then settled what happens to those who have registered or haven't opted out and that's the point that this raises. We've had orders made in some cases where there has been no penalty. In other words the person who sits the outlier who sits not registered not opted out. But part of an amorphous group. Simply sit outside the scheme. And in Kilmore East which we've spoken about today. The personal injury settlement allows for just that. I for my part I have no real problem with it. With property damage. In talking about tort cases moment. Property damage or commercial claims being terminated as part of it as part of the resolution of the case.

Justice Forrest: [00:27:37] Other words if you haven't registered or opted out then you're out of Court.

Justice Forrest: [00:27:43] I think most of the people who are involved in these type of cases will know by reason of publicity about the opt out and the registration that they need to be part of the process or opt out of the process. So that seems to me to be effective. The concern I've had and I've had in Kilmore East was whether we should apply it to personal injury claims particularly of people who were under a disability. And the end result is we have this amorphous group who may be no one I don't know. There may be people I don't know who haven't registered who haven't opted out are still under that scheme could bring a case. I think that the worry about it is overstated. A number of them would face limitations issues. A number of them would in any event not be in a position to mount such a case. And I think at the end of the day the concern about what might be a handful of people holding up a resolution of a case where the insurer defendant wants to settle but wants a guarantee that the settlement will shut out anyone who hasn't registered or opted out. It's a greater imperative for the common good than individual than the couple of individuals who might not have registered. Now having said that I didn't take that view in Kilmore East because that was a personal injury claim. But the question of class closure is a is one that has vexed us all as to when to do it how to do it and secondly if we do it on what terms I think we're getting it right generally - both at a federal and state level - it seems now to be common practice. And my experience is with the cases that I've managed. There have been no real anomalies arising out of it. I think that really completes what I want to say Wayne.

Wayne Attrill: [00:29:43] Any of the panel have a perspective. Brett, I think you had a view on class closure and the steps that group members need to take to participate.

Brett Jordan: [00:29:59] This is, as Justice Forrest said, insurers imperative in settlement negotiations is to get certainty. And you know in theory you had to use the example His Honour used that those people who were not members of the class could bring standalone proceedings separately which are not of themselves a class action they're just a pure personal injury claim provided there within the statute of limitations. And that poses a risk for insurers that the risk is far greater in the shareholder class action space and in the context of an open class it becomes very difficult for insurers in particular because it’s their money to settle a matter in circumstances where they don't know. The plaintiffs don't know who constitutes the class who might register what their loss might be and therefore what the ultimate quantum of the claim might be and that creates a big impediment if you like the settlement of claims. Now one might say well there was a judgment to this effect. Well what should happen is the plaintiffs should get the share registry and we can add it all up and assess the quantum of the claim based on the assumption that every single shareholder who traded during the period is a member of the class the problem is that there was a statement at a previous conference to the effect that you know there hasn't yet been a flood of litigation. You know the whole thing is proceeding smoothly so let's leave the status quo that that model is based on the presumption that insurance will remain in place and there will be valid insurance cover for these types of claims. You know the situation would be much different I think from a political perspective if the answer were yes the aggrieved shareholders get compensated but the net result is that the company fails. And for argument's sake five thousand people lose their jobs. The take the position of such person. They're sitting there saying well I don't have a job anymore because some shareholders said my CEO should have disclosed that we weren't going to be as profitable as we thought a month prior to when he did you see so that there needs to be a balance so as to ensure that economically speaking that the class action environment is sustainable from the perspective of insurers because if they move out of the area and it starting in a way there's a UK insurer called Nova who announced on Monday that they're getting out of what we call the financial lines space. But there needs to be this balance between if you like economic sustainability and compensation for parties who are genuinely aggrieved in the most efficient possible way.

Wayne Attrill: [00:33:35] I think we might move on to the next question because I'm just conscious that time is moving on and we have some other slides to present on the fifth question. But thank you to both panelists for that those responses so Question Three brings up this the concept of the common fund and do the panel think that this common fund order is the answer to claim finality and the risk of multiple proceedings. And if not what are its limitations. And I think Brett Perhaps if I start with you.

Wayne Attrill: [00:34:16] What's your view from the insurers perspective.

Brett Jordan: [00:34:21] A lot of the principles I just outlined apply to this that the short answer is in my view no. But then with the common fund principle is firstly a bit of a sliding scale if you like. And secondly more applies to providing in my view certainly for in particular plaintiffs' lawyers in terms of getting their fees paid at a certain and high rate. The principle itself says that the if you like proposed pool of settlement consists of a common fund which people subject certain limitations can access equally with the effect that for instance a law firm can charge for their services a party who is not registered as part of the class. Now the practical effect of that in my view is that it encourages what I would call fly by night litigation funders so they can come in you know as opposed to the IMF model purport to represent a singular or lead plaintiff assert that the rest of the potentially aggrieved shareholders form part of a common fund and that they can pursuant it to their funding arrangement effectively charge all those members at a rate of you know whatever the number is 30 40 20 percent of the settlement so if you ask me it sort of encourages lazy and fly by night practice rather than providing certainty of settlement and in many ways acts in reverse because the easier you make it for people to come in to a claim the more likely it is you're going to have competing claims piggyback claims. What have you which are all those things which detract from certainty of closure.

Wayne Attrill: [00:36:39] So the fundamental question is for the panel is has that has the inception of the common fund order solved the problem of multiple class actions that is more than one class action being conducted in relation to the same underlying dispute.

Jason Betts: [00:36:58] One quick response. I think the answer to question is resoundingly no. There are three problems that the common fund order as it's envisaged by the Money Max decision does nothing to alter the statutory right of group members to opt out of proceedings and therefore secondly has no impact on what was largely no impact on the ability of a competing closed class to be filed concurrently with the initial open class that is subject to a common fund order. Nothing in Money Max affects any of what I've just said. That's the killing ground of finalities. So no. Thirdly it's not even clear to me how attractive a common fund order as it's as it's currently envisaged by the Full Court would be to a funder. It provides no certainty around the commission it provides no certainty as to who's participating in the class because you would still need a process to register to participate in that proceeding subject to questions about whether the common fund class action would seek an aggregate damages award and not have a registration process. But that's unusual. So it actually has zero impact on finality. What it might do is encourage more open classes to be filed. But after that equation finality is exactly as it is now.

Wayne Attrill: [00:38:20] Well with that restrained and somewhat ambiguous response from Jason I think. I think we have we have answered the question three. And at the same time. And you'd be amazed how these subjects kind of morph into different areas. But we've also raised the next question of the regulation of litigation funders so that was particularly productive discussion. Question Four. And this is one for Simone. How far can a settlement go in extinguishing unpleaded and/or non-common claims of group members. What impact does this have on the practice of issuing opt out class closure and settlement notices to group members. Is there a fiduciary dimension to class action settlements?

Simone Degeling: [00:39:08] I'd like to focus particularly on the last part of that question and I say in the wake of cases like Willmott Forests. I think it's clear that we are we should be thinking about the fiduciary dimension to class action settlements. So as a member of the non-plus class action cognoscenti if I'm permitted to label myself that way I think that we have to remember that a statute may create or suggest a course of dealing in itself including the Federal Court of Australia Acts Class Actions Regime. And so therefore that statute may shape and inform the parties' conduct. And so equity will then respond to that pattern of dealing. So fiduciary obligations may be created in and around a statute. So obviously lawyers may owe an obligation of undivided loyalty to their clients but independently of that other transactions or communications which occur as part of the of the class actions regime may separately create fiduciary obligations which raise obligations of undivided loyalty. So then where does that place us. Well. A particular a particular flashpoint for fiduciary conflict as shown by the Willmott Forests Class Action is in fact the conduct of settlement, the terms of any settlement and settlement distribution and for those who may not remember that case that was a managed investment scheme where there were different classes of investors there was an opt out procedure and a class closure procedure which happened simultaneously. The group members had to return if I recall notices in fact to the lawyers for the applicant and so then there was a sub-group which is a bit like Judge the group discuss it you are describing for the Kilmore is it or you know where there were people who had not opted out and not registered but whose claims were nonetheless going to be affected by the res judicata and therefore compromised in the claim and so they were basically going to lose. They're in a lose-lose situation because they weren't going to be entitled to participate in the recovery because they hadn't registered but their claim was going to be compromised because of the operation of the statute. And so the judge the judge in that case did not approve the settlement in the action. He cited conflict as being one of the reasons he mentioned separately lawyer's conflict and there was also a conflict. It was the duty of conflict suggested. There was also the conflict between the lawyer's obligations to their clients those with whom they had a retainer and the other group members. And we may interpolate. I mean I suppose that's what I'm asking us to think about whether the other conflict he was referring to was in fact a fiduciary duty conflict. So I think that issue is now front and centre and I think that we can find even if we don't think that there is a fiduciary obligation arising in virtue of a solicitor client status based relationship there may be other transactions for example returning notices which may create for example an agency or some other course of dealing which will then perhaps create a fiduciary relationship.

Simone Degeling: [00:42:53] What would the consequence be. Well, at its highest, you might then ask whether that's going to lead to a collateral attack on the security of your settlement distribution on the security of your settlement because you might have a group member who might say well maybe I can get the loss of my chance against the lawyer for breach of fiduciary duty. So on one ground you might say well if there's a breach maybe it's going to be something the Court is going to take into consideration in 33V.

Simone Degeling: [00:43:31] And on another level it may lead to consequences for lawyers to be thinking about. Either way it's something which should inform our practice in the conduct of class actions. How we structure groups how we think about conflict. And I think I mean that's certainly something that the Federal Court practice note directs us to address in the management of the settlement process.

Wayne Attrill: [00:43:59] So it Willmott Forests was an unusual case because it imposed burdens and benefits unevenly on group members. So for those of you who are not familiar with the case. There was a settlement entered into but the settlement resulted in no compensation being paid to group members. And this was a case in which a part some of the group members had actually contributed to the costs including security for costs so they got some of their legal fees refunded as a result of the settlement. Those who had not contributed got absolutely nothing out of the settlement. But on the other side of it the settlement proposed that there would be binding and enforceable admissions I suppose made that loan agreements that all group members had entered into with the lender would be enforceable against those group members and they would not be entitled to raise any individual defenses. So you can see immediately the sort of concern that would activate an equity kind of intervention is that you've got an uneven distribution of benefits and a and a very unfair imposition of some obligations on group members who had absolutely nothing to do with the settlement itself. So I think one of the interesting things that comes out of that case of course is that Justice Murphy declined to approve the settlement. And so you know we might say that that's an example of where the system has been working as intended.

Wayne Attrill: [00:45:42] But of course the point that Simone makes is that there were a number of fiduciary and conflicts issues which were raised in that case and it behooves us all to be alive to them in relation to future settlements. So thank you for that. And can I also say that this will be the focus of some further work that the University of New South Wales will be doing as part of the research initiative.

Wayne Attrill: [00:46:09] So finally and we're just about back on time. We're going to finish with I think the ultimate question which is ‘Is it time to legislate to achieve finality?’. And if so what type of legislative change is necessary.

Wayne Attrill: [00:46:26] Now Jason Betts will be leading this discussion and he has in fact produced some slides for us with some ideas for reform.

Jason Betts: [00:46:37] So over to you. Jason I know the time so I can persist. Very broad topic. Briefly is it time to reform to deal with the question of competing and multiple proceedings to achieve a greater level of finality in our system. It's a sophisticated audience and everyone will have their own views on that. Do we care enough about it statistically? Only about 15 percent historically of all Australian class actions have been associated with multiplicity of proceedings. But it's an old statistic and in recent years it's reasonably rare in the shareholder class action space to see a class action opportunity proposed by just one litigation promoter. Usually there's a threat at least of competing class actions. So there is an issue there as practitioners will all have different views about whether it's worthy of addressing legislatively. Secondly I want to say that this proposal that I'm about to outline I don't put forward as a workable alternative. What I wanted to do is to demonstrate that in an effort to try to address the problem of multiple proceedings one is required to grapple with some really hairy questions and fundamental doctrinal shifts in our system. We have said we would have to do things according to an incredibly different system and that is the argument. And I'm not sure that it could be achieved in consistently with the current philosophy of Part 4A.

[00:48:07] And lastly the theme that might emerge from this proposal again I don't put it forward is workable or something I embrace but I do put it forward to show you the difficulties is that unless we're in this balance in this constant fight under Part 4A between freedom to litigate opt out do your own thing and finality which are often at two ends of the spectrum. If the balance would need to tip significantly towards finality for something like this to be achievable. So with those typical lawyer qualifications let me just throw out for discussion some concepts that could underpin our reform proposal and let me identify the real challenges with it as we go forward. So the goal here would be to minimise competing proceedings. I've included it because simply while I am in controversial territory I may as well go hell for leather a proposal around the appointment of a lead plaintiff a concept foreign to Australian law at the moment but embraced in the States. So some concepts. One that it would be a requirement that class action could only be filed on an open basis in an effort to reduce competing closed classes. Totally contradictory to the current Australian law established by P Dawson and Multiplex that closed classes are permissible. Secondly uncontroversially the case the open class would be assigned to a case management judge. But at an early stage a very early stage by class action standards a notice would be promulgated to all putative group members. Let's call it a notice of filing in point 3 on the slide that would notify putative group members of certain things. One would be the easy stuff. The definition of the group and the key allegations. The next would be providing or putative group members with an opportunity to step forward and apply to be the lead plaintiff. Highly controversial. It is embraced in the United States under the PSLRA in respect of securities claims.

Jason Betts: [00:50:07] They're lead plaintiff provisions I'll come back to it later. The only echo of this in Australia to date has been Justice Finkelstein in Centro who basically faced with two competing in a sense class actions raised the possibility of a litigation committee to balance to manage both the parties did not take His Honour up on that offer but it was contemplated within the judgment that that's an issue that could be grappled with. And lastly the notice and I'll come back to lead plaintiff in a moment the notice would indicate that there'd be a what I'm calling just for the sake of today's discussion a registration hearing at a very early stage. Now if I could go to the next slide the registration hearing would deal with a couple of things under this hypothetical. Firstly, the Court would determine the lead plaintiff for the case. The race to the Courthouse is irrelevant. Just because you are there first doesn't mean you're going to be the lead plaintiff. And nor does it mean you're going to be the funder. Very controversial. Let me come back to that in a moment. The second thing that would be determined is the form of a common fund order. The presumption in this model is that a common fund order will be made. The reason for that is that it might be said that without that inducement that incentive this whole proposal would be fairly unattractive to someone who's thinking about promoting a class action because you just don't know at the end of the day if you're going to be there and who you're going to be able to recover a commission from.

Jason Betts: [00:51:33] So I think you would need to enshrine the Money Max concept of common fund as a presumption. If there is a funder involved and thirdly it would and this is where we get to the finality component. The Court would be required to mandate a form of notice of participation a notice what we would call now a Class Closure Notice at an early stage by which everyone who wishes to participate in that claim would need to register. There would be consequences of not registering. There's a whole other seminar we could devote to the question of what those consequences are. For example, total extinguishment of the claim of your individual claim that's the most controversial form of that consequence and of course the right to opt out of proceedings. The shareholder class actions entered onto a national register now as if all of those concepts weren't controversial enough. Here's some of the biggest ones I've saved till the end. What's the criteria for determining whether or not you'll be the lead plaintiff? I don't know but it would be difficult and it would invite a beauty parade. And there are serious consequences for that. But it could include some of the concepts I put on the slide a capacity demonstrated capacity understanding of the representative role the quantum of the individual loss pausing there a member in the United States the lead plaintiff is presumed to be the party with the greatest financial interest often an institutional shareholder.

[00:53:03] That leads to the question of whether or not they're retail or institutional that might be relevant to the decision and largely to combat circumstances that are risen in respect of one player in the class action market at the moment. A presumption that you would be unsuitable to be a lead plaintiff if you've been a lead plaintiff in a certain number of cases previously over a certain number of years. Again, you need to be careful. This is a serious threat to the right to litigate but it's a concept. The last two are the clangers. Firstly, there would need to be I think an amendment to the cross-vesting legislation to require or at least for there to be a presumption that any other similar subject matter claim of any kind brought against that defendant is as of right transferred to the case management judge dealing with the open class action again that that's in it that's not the law in Australia. And lastly and most significantly there would need to be I think a presumption or a rule that restricted persons opting out of the class action to commence or participate in other any other form of aggregate proceeding. Now obviously under this regime they can't go out and commence another open class and they are sorry they can't go out and commence another closed class. They have to come in and commence an open class. But they could commence some sort of multi-plaintiff proceedings that falls outside this regime and that would defeat the entire purpose of the proposal. What I've just suggested I'll pause there only contradicts just about every fundamental tenet of the Australian class action regime.

Jason Betts: [00:54:39] But I couldn't think of a way to achieve finality that was less violent to the Act and if it is time for legislative reform to answer your question Wayne it's a really tricky question that I think would involve people such as you in the room really coming together to really debate the pros and cons of this. But what I am left with a feeling of is unless we were prepared to severely restrict the individual right to litigate that there may not be a solution that provides finality in shareholder class actions.

Wayne Attrill: [00:55:13] Is there a possibly a less extreme middle ground which would be that I mean the problem we've got with competing class actions at the moment is that we don't really have a Court step that's designed to select one of the competing actions as the if you like the approved action the one that goes ahead so currently the only way to deal with that is there's either private arrangements between the groups of litigants and funders so they either agree to cooperate or the competing actions are case managed together or one of the actions is stayed. So you know one of the examples that you might draw on from overseas is that is the notion of a carriage motion from the Canadian experience. What do you think of that Jason in terms of if there are multiple class actions arising out of the same dispute that there is a specific hearing by the Court which the Court determines which of those class actions is the most appropriate in the interests of group members?

Jason Betts: [00:56:23] Too gentle - I think - to proceed I think for two reasons one that works of course where you've got competing class actions in the same jurisdiction not as helpful where they're filed in different jurisdictions Federal Court and say Victorian Supreme Court just as an example. That's a cross-vesting issue and could be overcome with less violence than I proposed. But the second point is more significant. I'm trying to think of a way to prevent the risk of the subsequent class action stultifying the efforts of the party in resolving the initial claim because that's where that's what has teeth. You cannot resolve a closed class without confronting tail risk. At the moment, the only way to confront tail risk is to grapple with the practice as schizophrenic as it currently is of class closure and this mechanism would radically bring to the commencement date all the questions about competing class actions and force them out of the woodwork. But as you say when it challenges the doctrine.

Wayne Attrill: [00:57:30] So on that final question do any of the panelists have a comment. Quick comment to make on this idea.

[00:57:41] One on One problem with competing class actions is presume is that one needs to ensure that if there were going to be competing cases that one did not actually running separate types of causes of action and accordingly it may not necessarily be a good outcome to choose one over the other and that I think could lead to significant injustices where for example the one that was stultified was actually potentially better one.

[00:58:22] I agree. One way to overcome that might be to embrace the United States procedure of the Court is being invited to examine the breadth of the allegations. If someone else came forward and said I want to run a case that involves slightly different allegations same subject matter then those allegations would be subsumed into the one approved claim but that we say that fast it sounds good but I am not sure it would draw deeply on consolidation principles and we all know consolidation. And the judge will know it better than any of us is. It is a tricky procedure.

Wayne Attrill: [00:58:59] Any comment or question from the audience.

[00:59:08] Question for Jason - just wait for - yeah.

[00:59:10] Jason I'm just interested to know obviously respondent facing multiplicity will have concerns about costs duplication. How do we achieve finality? I'm wondering when you were advising your clients whether you have regard to what I maybe describe as more strategic considerations regarding who you know which applicant you consider that your client would be best placed to face. How strategic do their considerations get on your side.

Jason Betts: [00:59:43] They do get strategic. Let me just waive privilege here forever. They do strategic but the name of a game is usually.

Jason Betts: [00:59:54] Fighting one battle. So if there is an opportunity to stultify one of the claims on a proper available basis - an abuse of process for example - I'd prefer to take that path and try to consolidate and combine. There are you know as a practitioner preferences as to which claim you may want to be defending but that they're the usual ones associated with the pleaded claim. But the critical theme through the advice is ensuring if possible that you're not combating applicants in multiple jurisdictions.

[01:00:27] Divide and conquer. Yeah in a sense.

Wayne Attrill: [01:00:31] Well thank you very much to all of the panelists. If we could show our appreciation.

Wayne Attrill: [01:00:43] Now we have pretty much at the end of today's proceedings. But I'm just I'll just call upon my colleague Clive Bowman to say a few closing words. Thank you very much.

Clive Bowman: [01:00:58] Thank you Wayne. Wikipedia defines a melting pot as a metaphor for a heterogeneous society becoming more homogeneous. The different elements melting together into a harmonious whole with a common culture. We have today at this conference a potential class action melting pot with the full spectrum of interests represented regulators academics litigation funders institutional shareholders law firms defence and plaintiff barristers insurers and judges from state and federal courts. We've been very privileged to hear from representatives of these interests as they have grappled with the theme of today's conference resolving class actions effectively and fairly. What is clear to me thinking about this topic and listening to the presentations is that resolution of many of the issues presented here today involves very complex balancing exercises in the context of group membership issues common fund orders and settlement approval enabling and facilitating mechanisms that provide a means for the resolution of mass claims without unduly infringing on doctrines of freedom of contract needs to be balanced with the protection of group members’ interests. In the context of settlement schemes as we heard today balancing between compensation being received on the merits and achieved and achieving an efficient and cost effective outcome. More broadly in the context of settlements. Group member interests need to be balanced as between themselves and holistically balancing the interests of achieving financial achieving finality of disputes as against not unfairly shutting out group members from pursuing their individual claims. The solution may lie in part in letting group members themselves make a choice. Clear and full disclosure in opt out notices provide group members with an informed choice of pursuing their own path or participating in the class action.

Clive Bowman: [01:03:18] The Guiding Light may well be the overarching purpose of just quick and cheap but these principles themselves involve a balancing exercise. For example, quick may not always be just it is probably too optimistic or idealistic to think that we have here a true melting pot consistent with the Wikipedia definition with different elements melting into a harmonious whole. But what we do have and what I think this conference has demonstrated is a preparedness to come together and discuss in a constructive way ideas for the resolution of what I think are very difficult issues. So, to the presenters I thank you very much for the preparation that you have done and for coming here to give us the benefit of your extensive expertise and to the audience. Thank you for coming and thank you for participating. Please join us for drinks. Thank you. 


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