Getswift judgment is a class apart

In a lengthy and erudite judgment on 23 May 2018, Justice Lee of the Federal Court set out the history of competing securities class actions and considered the principles for how they ought to be case managed. 

His introductory comments about the class action landscape were reminiscent of many concerns articulated by defendants and insurers about the commercial approach of litigation funders and the potential for disproportionate returns – especially, as he observed on several occasions, because virtually all securities class actions to date have settled without a litigation funder being called upon to pay.

While accepting that case management is always discretionary he spoke approvingly about a proper certification process – something many defendant commentators have sought for some time.  Recognising that Part IVA does not provide for such a process he emphasised the power of s33N to be used as a control mechanism but noted if he was wrong about that s33ZF gave the Court the widest possible power to deal with Class actions.

In all he thought the Court had broad powers to stay, declass, administer or enjoin competing class actions on various grounds.  His comments about abuse of process, when taken in the context of legitimately commenced class actions, are likely to be controversial.

There are a multitude of considerations in balancing the merits of competing class actions.

Unable to distinguish in any meaningful way between (for example) the competency of legal representatives, or the perceived scope and merits of the competing actions, or on a variety of other grounds, he ultimately favoured the action which proposed:

1. The funder’s fee be capped at the lesser of
         a. a multiple of the legal costs incurred (2.2 or 2.8 times, depending upon the time of resolution); or
         b. 20% of the net proceeds after deduction of costs and expenses; and
   
2. Court supervision – by a referee – of costs as they are incurred.

After conducting an (admittedly imperfect) comparison of likely costs he calculated that this model was likely to give class members the greatest comparative return.

He also noted that representative plaintiff had made novel suggestions about joint experts on causation and loss which made that action more attractive.

He ultimately decided to permanently stay the first two of the actions commenced in favour of the third.  In doing so he made clear that

1. Absent any dilatory conduct by promoters of other class actions, a race to the Court will not decide which gets to proceed; and
2. Pre-proceedings “book building” whereby firms gather clients who sign up to funding agreements is an irrelevance in an “open class” action where a common fund order is ultimately sought.

It seems that there is an underlying tone of disquiet in the judgment about litigation funders promoting securities class actions for their profit, which made the less onerous funding costs of the “successful” action an attractive point of distinction.  This is good news for defendants and insurers – as is endorsement of a funding model which is a long way from a flat fee of 30% - 40%.

But there is also a theme that it is for the Court, and not any interventionist regulation, to manage the competing considerations.  Is he suggesting the VLRC and ALRC should keep their “hands off”?

It remains to be seen whether the disappointed funders and firms seek to appeal and whether the Full Court would seek to intervene into what is a case management decision.  My feeling is that the Full Court may feel obliged to entertain an appeal in order to comment upon the several matters of principle which Justice Lee’s decision touches upon