Continued focus around consumer claims
It is highly likely that consumer claims will continue to dominate the class action landscape into 2022. As class action activity resulting from the Financial Services Royal Commission tails off, promoters are likely to shift their focus to emerging issues in a broader range of consumer-facing sectors.
As class actions often follow or accompany regulatory enforcement action, the objectives and priorities of our regulators provide a reliable indicator of class action risk. ASIC and the ACCC continue to have a sharp consumer protection focus, with higher levels of enforcement activity to deter misconduct.
ASIC's stated enforcement priorities for 2021 to 2022 include responding to elevated risks to consumers in areas such as:
- poor product design and governance, mis-selling and failure to comply with conflict of interest requirements and disclosure obligations; and
- digital and other financial sector scams and failure to adequately manage cyber risks that harm consumers,
with a focus on regulated sectors including financial advisers, investment managers, superannuation, and insurance. With class action activity already occurring in many of these areas, we expect this to continue in the near term.
Re-evaluating shareholder class action risk
Over the last few years, there have been a string of judgments and legislative developments that have impacted shareholder class action risk. In particular:
- despite having waited more than two decades for the initial judgment in a shareholder class action, decisions have now been delivered in three proceedings. While none of these decisions have sounded in an award of damages for group members, that may change following the recent successful appeal of the first instance decision in the Worley class action; and
- temporary reforms to continuous disclosure laws have been made permanent in an effort to combat the upward trend of opportunistic class actions. Under the reforms, it must be established that a listed entity acted with ‘knowledge, recklessness or negligence’ in order to sound a breach of the continuous disclosure provisions of the Corporations Act or a related contravention of the statutory misleading or deceptive conduct laws.
These developments are impacting the dynamics in shareholder class actions, with defendants and their insurers increasing their appetite to run proceedings to judgment. While this may lead some promoters to think twice before commencing proceedings, it is too early to suggest that shareholder class action risk is evaporating. The uptick in filings observed in the final quarter of 2021, which included a number of shareholder class actions, indicates that while promoters may be more carefully scrutinising these claims they remain an attractive form of class action for promoters to pursue.
Climate change
In line with an uptick in climate-related litigation in 2021, climate change issues are looming larger in the potential class action risk equation. For example:
- Litigation by activist shareholders and investors alleging 'greenwashing' (organisations marketing unfounded eco-friendly credentials) increases potential exposure for companies making public net zero emissions commitments and other disclosures associated with managing climate change-related risks. Exposure may arise in the form of a shareholder class action alleging:
- failure to disclose environmental or climate-related matters that should have been in the context of a company's continuous disclosure obligations; and/or
- misrepresentation as to the effectiveness of governance systems relating to climate‑related matters, including how emissions targets will be met.
- There has been an increasing recognition of positive climate-related duties owed by governments and corporations to a broader class of people. In March 2021, a Dutch court held that Shell owed positive duties to Dutch residents to reduce scope 1, 2 and 3 emissions. This follows the 2019 Urgenda decision that the Dutch Government had breached its duty by failing to take adequate steps to reduce emissions. The Federal Court of Australia recently recognised the existence of a duty of care owed by government decision-makers to Australian children to act on climate change. While the Australian duty is at this stage limited to governments, strategic litigants may seek to expand the duty to private entities.
- Success by litigants in traditional environmental damage class actions, including flood-related actions, may embolden claimants to pursue similar claims in future, particularly where climate-related physical impacts are concerned.
Privacy and data breach claims
Although we have seen a small but growing number of data breach claims in recent years, the challenges for plaintiffs in demonstrating a legal basis for their claims and quantifying loss has dampened what might otherwise have been fertile ground for class action activity (following trends in the US and other jurisdictions).
However, with reforms to the Privacy Act on the horizon, privacy and data breach class action risk remains an area to watch. The government's review of the Privacy Act has focussed on strengthening privacy protections for individuals and improving transparency and accountability in data handling practices. The Attorney General's recently released Discussion Paper outlines a proposed model for the introduction of a direct right of action.
If the Privacy Act is amended to include a direct right of action, it would allow plaintiffs to bring a claim in the Federal Court against an entity for interference with their privacy (being a breach by the entity of the Privacy Act). The Court could award a broad range of remedies, including compensation for emotional distress and mental harm.
A direct right of action would remove a key barrier plaintiffs and promoters currently face in taking action against organisations for interferences with their privacy. At present, the Privacy Act's representative complaint regime only permits individuals to complain to the Office of the Australian Information Commissioner, who may then investigate. Notably, data breach class actions have been a feature of the US and UK class action landscape for a number of years, providing Australian class action promoters with a ready blueprint for the running of such claims. This is a high-risk area we all need to watch closely.