INSIGHT

Class action risk: interim update

By Jenny Campbell, Belinda Thompson, Alex Tolliday, Dennis Xin
Class Actions

Filings are down, but impact too early to call 5 min read

2022 is shaping up as the year that bucks a number of long-running class action trends. Filings are materially down on prior years, and the claims that have been filed are somewhat at odds with recent trends. It remains to be seen whether this represents a genuine shift in class action risk, or an anomaly driven by short-term uncertainties for litigation funders.

This interim update outlines the shift in class actions trends so far this year, and will assist you with assessing how your class action risk profile might be changing.

Our annual class action risk report will be published in the new year to provide a broader and more holistic assessment of the impact of current trends and developments on class action risk into 2023 and beyond.

Class action filings materially lower

The headline trend is that class action filings are materially down for the first nine months of 2022, compared to prior years.

As can be seen from Figure 1, 2022 is shaping up as potentially the quietest year for class action filings in a decade. Projected filings for the full year (based on filings to date) are roughly equivalent to the filing levels seen in the mid-2010s—well below the heights of the last five years.

In part, this apparent downturn is an anomaly caused by a flurry of claims filed late in 2021 in an attempt to get in ahead of proposed legislative reform which would adversely affect litigation funders. This resulted in claims being filed earlier than would have otherwise been the case, which artificially inflated 2021 filings and had a corresponding deflating effect on filings in the first half of 2022.

That said, even accounting for that one-off phenomenon, there is still a marked downturn in filings so far in 2022. Likely reasons include:

  • we seem to be coming to the end of the pipeline of class actions filed against banks and other financial services providers following the Financial Services Royal Commission; and
  • generalised uncertainty in the litigation funding environment, with the change of government expected to bring more favourable conditions for funders (a process which is now in train but yet to be completed).

1_class-action-filings.png

Figure 1. Class actions by filings

A mixed bag of class actions being filed

In recent years we have reported a strong increase in the proportion of claims filed on behalf of consumers and employees/workers, and a marked reduction in the proportion of shareholder class actions. Those trends have not disappeared altogether, but there is a clear swing back to shareholder claims so far this year, with shareholder claims accounting for just under half of all claims filed. That said, the number of shareholder claims filed has not materially increased year on year—instead, this trend reflects the muted filing levels in other type of claims.

The non-shareholder filings this year are an unusual 'mixed bag' of claims that are not particularly reflective of the trends coming through in recent years. So far this year the non-shareholder filings have included:

  • consumer claims in respect of app store commissions and cosmetic surgery outcomes;
  • a claim by investors against an online trading platform in respect of allegedly unsuitable product offerings;
  • a claim by property owners against a developer for alleged building defects;
  • claims by employees in respect of rest breaks and vaccination policies; and
  • claims against the Government in respect of strip searches at music festivals and treatment of young detainees.

2_class-action-filings-by-type.png

Figure 2. Filings by type

A broad range of sectors

In 2021, the government sector overtook the banking and financial services sector to become the biggest target for class action filings.

So far this year no particular sector has been a clear focus for new class action filings. The banking and financial services, government, healthcare and technology, media and telecommunications sectors all have roughly similar filing levels.

All the same, we've seen:

  • a steady increase in the proportion of class actions filed in the technology, telecommunications and media sector over the past few years—this is a trend we expect to continue given the increasing focus of data/privacy issues and also that many businesses in this sector are mass consumer-facing businesses (although those factors are not the reason for the increase in filings in this sector this year—this year's claims are by shareholders, employees and investors);
  • no class actions filed against the banks or other targets of the Royal Commission so far in 2022; and
  • no claims against manufacturers this year, however there appears to be an increase in investigations announced into potential class actions in the auto sector that may turn into filings over the next year.

3_class-action-filings-by-sector.png

Figure 3. Class actions by sector 2022 (to end September)

What does it all mean for class action risk?

There are signs that class action risk may be subsiding from the record levels seen in recent years—with a return to the levels of the mid-2010s potentially on the cards.

The tailing off of Royal Commission claims is obviously a significant factor. It remains to be seen whether the reduced regulatory burden (and increased certainty) for litigation funders under the current government will reignite entrepreneurial funding of a broader range of class actions. There are, of course, a range of other factors at play, including the availability of contingency fees for lawyers in class actions in the Supreme Court of Victoria, important legal developments in shareholder class actions and emerging areas of risk (in particular, data privacy and climate change)—all of which have the potential to materially impact class action risk in the coming years. We will address these issues, as well as any other new developments, in our annual review of class action risk in early 2023.

If you would like to discuss how these trends and risks impact you, please contact the Allens class actions team below.