The risk is evolving and real
Class action risk remains a significant factor for doing business in Australia. Perhaps more than in any other year, filings in 2023 reflect a broad-based risk that is not focused on particular issues, conduct or sectors.
Based on the fewer filings in 2022 and other broader indicators, in last year's report we noted the possibility that class action risk may be subsiding from the record levels seen in prior years—with a return to the levels of the mid-2010s potentially on the cards. Despite the number of filings in 2023, we think that remains a possibility, particularly given:
- the absence of clear trends in the 2023 filings;
- the fact that the record filings in 2018-2021 were largely driven by claims against the banks and other financial services companies in the immediate aftermath of the Financial Services Royal Commission; and
- the unusually high percentage of competing claims bolstering the 2023 filings.
There also remains a range of other developments that will impact the complexion of class action risk in the coming years, including:
- the impact of the reduced regulatory burden (and increased certainty) for litigation funders;
- increasing familiarity and understanding about the way in which the Supreme Court of Victoria is dealing with applications for contingency fees;
- important legal developments affecting prospects for shareholder class actions and consumer claims; and
- emerging areas of risk (in particular, data privacy, digital asset platforms and climate change).
These issues, and other new developments, are addressed in the following sections of this report.
Class action funding
2023 saw some interesting developments in class action funding as the regulatory environment became more certain for funders following the election of the Labor Government in 2022, and as funders and plaintiff law firms continued to develop innovative funding models. A number of interlocutory decisions illustrate how the funding landscape continues to evolve.
- In October, the Full Federal Court resolved the uncertainty about whether common fund orders could be made at the settlement stage of a class action. Following the High Court's 2019 decision in Brewster, which held that early-stage common fund orders were beyond power, a divergence emerged in the Federal Court about whether Common Fund Orders (CFOs) could be made at a later stage in a class action proceeding (eg at settlement, or following judgment). In a development welcomed by litigation funders, the Full Court in Elliott-Carde v McDonalds Australia Ltd held that the court has the power to make a CFO at the settlement stage under its settlement approval powers.
- Also in October, in the context of a carriage application, Justice Lee of the Federal Court expressed the view that a 'solicitors' CFO'—a funding proposal that would include a commission-based payment to the plaintiff's solicitors—was not precluded by Part IVA of the Federal Court of Australia Act 1974, notwithstanding the general prohibitions on solicitors entering into a costs agreement that provides for contingency fees. Justice Lee has since referred the question of the Federal Court's power to make a 'solicitors' CFO' to the Full Court for determination this year.
- In Victoria, Group Costs Orders (GCOs) permitting plaintiff lawyers to recover contingency fees have been permitted since 2020. In July 2023, the Victorian Court of Appeal considered the question of whether, if a class action proceeding were transferred from Victoria to another jurisdiction, a GCO made in the Victorian Court could 'travel' with the proceeding, notwithstanding the unavailability of GCOs in the transferee court. The Court of Appeal held that a GCO would not be enforceable on transfer, although it also held that the existence of a GCO is a factor relevant to whether a proceeding should be transferred from Victoria to another state. That decision has been removed to the High Court for determination.
Consumer and automotive claims
Consumer claims were a standout once again in 2023, accounting for around 40% of all class action filings. This reflects an even higher proportion of claims than in previous years, notwithstanding the overall growth in filings. We expect strong rates of consumer claims across all sectors to continue in 2024.
Following past trends, automotive manufacturers and suppliers remained a key target for consumer claims, focusing on alleged defects in popular vehicle models. Interestingly, all of these new filings occurred in the first half of the year, prior to the Full Federal Court's decision in Toyota v Williams. That decision concerned the availability and calculation of damages for the 'reduction in value' of goods as a result of a defect—a mainstay of previous auto class actions and a driver of substantial damages awards.
In summary, in Toyota v Williams, the Full Court held that:
- When assessing 'reduction in value' damages, it is appropriate to have regard to events that occurred after the time of supply, such as the provision of a fix or other repairs (or even the potential availability of one). Previously, some first-instance judges had not been prepared to take subsequent repairs into account.
- The court also emphasised the need to focus on the residual utility of the goods notwithstanding the defect (such that, if a vehicle remained useful and safe to drive, then the quantum of any damages might be expected to be reasonably modest).
The Toyota judgment was a welcome shift for auto (and other goods) manufacturers. However, special leave has since been granted to both parties to appeal to the High Court. While too early to tell, we expect plaintiff law firms and litigation funders may be adopting a 'wait and see' approach until the High Court clarifies the law and they can assess how favourable the landscape remains.
Another noticeable trend in 2023 was claims relating to the sale of allegedly unsuitable or risky financial products, especially to vulnerable consumers. This included class actions alleging the sale of so-called 'junk insurance' products and 'addictive' online games, as well as suggestions of 'overcharging' of insurance premiums and loan interest rates. These actions—which commonly allege the making of misleading representations or unconscionability—are one to continue to watch. This is especially so in light of ASIC's robust 2024 enforcement agenda, with its focus on the misuse of financial products. We expect this will continue to generate ample opportunities for entrepreneurial class action promoters in the year ahead.
Privacy and data breach claims
The last twelve months have seen a significant increase in class action risk associated with cyber incidents for Australian companies, accompanied by unprecedented scrutiny from government, regulators and consumers.
A clear pattern of data breach class actions has emerged, including both consumer and shareholder claims.
Since our last Class Action Risk Report, a further four class actions have been brought on behalf of Optus and Medibank Private customers and shareholders (totalling five) with subsequent consolidations resulting in three ongoing class actions:
- The Medibank consumer class action in the Federal Court of Australia relating to losses associated with the release of personal information arising out of the data breach, as well as emotional damage;
- The Optus consumer class action in the Federal Court relating to losses associated with the release of personal information arising out of the data breach, as well as emotional damage; and
- The Medibank shareholder class action in the Supreme Court of Victoria relating to allegations of financial losses by Medibank shareholders referable to the decline in share price after the data breach.
A key theme of these claims is cyberwashing - each case includes allegations relating to statements about compliance with data-handling and cybersecurity obligations. These types of claims are high risk for consumer-facing organisations, especially those with a significant volume of personal and sensitive data—including those in the healthcare or financial services sectors. We expect to see a significant shift in how plaintiffs will approach claims associated with cyber incidents due to changes expected to the Privacy Act 1988 (Cth), introducing a direct cause of action to individuals for breaches of the Act and the introduction of a statutory tort for serious invasions of privacy.
The current class actions have also turned the spotlight on legal professional privilege as it applies to cyber incident investigations, with the Federal Court finding Optus could not maintain a privilege claim over a report on an external review by Deloitte of the cyberattack and Optus's cybersecurity systems, controls and processes.
These developments have materially shifted the risk profile for organisations in relation to cyber incidents and it will be incumbent on companies to carefully consider how they should respond.
Employee claims
The proportion of employment class actions filed during 2022 and 2023 has remained relatively stable, comprising about 15% of filings each year. Most employment class actions filed in 2023 involved allegations of underpayment or breach of employment terms (or some combination of the two).
There are several notable trends in employment class action risk, including:
- The retail, hospitality, healthcare and government sectors continue to be the key sectors exposed to employment class action risk. However, we may see more sectors being targeted as class action promoters are diversifying and more plaintiff firms enter the arena.
- Consistent with the general trend in 2023 across all class action filings, there has been an increase in competing class actions, sometimes alongside proceedings brought by the Fair Work Ombudsman or unions. While courts have developed mechanisms for addressing competing class actions, they still have an impact on the cost, time and complexity for defendants responding to them.
- We have previously reported that several High Court decisions and law reforms had dealt a fatal blow to certain forms of employment claims—including those involving mischaracterisation of casual employees. However, the Federal Government's Closing Loopholes Bill may open the door for employees to bring claims against their employer for unpaid permanent employment entitlements (such as annual leave) on the basis that, even if their employment terms reflect casual employment, the reality of their position is that of a permanent employee. The Bill has been passed and is awaiting Royal Assent. The new laws regarding casual employees will come into effect six months after the Act receives Royal Assent.
All of this means businesses need to remain vigilant against an increasingly mainstay class action risk, including by reviewing existing casual arrangements and employment contracts to assess the risk the employees are permanent, and examining their compliance with industry awards and enterprise agreements in relation to payment of hours worked and provision of entitlements such as rest breaks.
Shareholder class actions
Shareholder claims have accounted for a substantial proportion of class action filings for over a decade. While reforms have been implemented with a view to stemming the tide of these claims, there are no indications that shareholder class action risk is poised to shift over the year ahead.
The trends that emerge from recent shareholder class action activity include:
- Increasing diversity in the conduct upon which the claims are made. While 'conventional' claims based on revisions to earnings guidance continue to trigger a substantial proportion of filings, plaintiffs are demonstrating an ongoing willingness to venture into unchartered waters, pursuing a broad base of claims including novel claims associated with the disclosure of cybersecurity risks.
- Ongoing (and stiff) competition between plaintiff firms to run shareholder class actions, with two thirds of all shareholder claims commenced in 2023 involving competing proceedings. This competitive landscape continues to place pressure on funding commissions and may lead some class action promoters to cast a wider net in assessing the viability of claims to pursue—potentially fuelling further growth in unique subject matter claims.
- The Supreme Court of Victoria being the jurisdiction of choice for shareholder class actions, with all shareholder claims filed in 2023 either commenced or transferred to the Supreme Court of Victoria. This appears to reflect a strong attraction among plaintiff firms to the GCO regime for shareholder class actions, potentially due to the relative ease with which these claims may be prepared, unlike other forms of class actions which often carry a higher degree of factual and legal complexity.
- Continuing willingness by parties to run shareholder class actions to judgment. We expect this trend to continue into 2024, with judgments currently reserved in a number of proceedings and additional trials scheduled to commence over the short term.