What to do if a class action is threatened or filed

By Belinda Thompson, Alex Tolliday
Class Actions

It pays to be prepared

In this short video, we outline the key steps that should be taken as soon as you are informed of a potential class action; or when a class action is filed.


Watch time: 3:52 min
Read time: 2:15 min

Introduction - Belinda Thompson

When a class action is threatened or filed, the key to managing any commercial and legal consequences is a mix of speed and preparation.

In this short video, we will outline the three immediate and essential steps that should be taken as soon as you are informed of either a threatened action or the filing of a claim, namely:

  1. engage a team;
  2. prepare to defend the action; and
  3. consider the legal and commercial impacts.

Engage a team – Alex Tolliday

When picking your legal team it is important to remember that class actions are a specialist form of litigation—one requiring a deep understanding and vast experience when responding to these unique cases.

You also need to organise an internal team that will work with your external advisors. This internal team will be essential to ensure that instructions can be provided quickly and that internal reporting to the company is managed effectively.

Prepare to defend the action – Belinda Thompson

As soon as a class action is filed or threatened, you need to begin preparing the company to defend the action.

Some of the key initial steps that should be taken to prevent headaches down the line include:

  • (insurance) checking the company's insurance position and notifying the insurer of the circumstances or claim as soon as possible;
  • (strategy) developing a litigation strategy, taking into account the legal and commercial exposure;
  • (document management) practicing good document management by ensuring relevant records aren’t erased, and establishing reporting structures to protect legal professional privilege and limit the creation of new documents relating to the matter; and
  • (identifying experts) moving swiftly to retain experts and identify likely witnesses. These will be crucial to the outcome of the proceeding and it is important to ensure they are 'locked in' early.

Consider the legal and commercial impacts – Alex Tolliday

In addition to legal exposure, class actions can have a substantial impact on a company's commercial operations. It is therefore vital these commercial implications are considered and managed from the outset. Some examples that should be front of mind include:

  • continuous disclosure obligations;
  • commercial exposure and the drivers behind the claim; and
  • broader commercial and reputational impacts.

Let's explore each of those briefly.

Continuous disclosure obligations

For listed companies, if a claim has commenced you need to consider issusing a short market disclosure acknowledging this. Don’t forget—further updates may also be required throughout the life of the matter.

Commercial exposure

It is important to understand the size of the claim and the potential exposure of the company as soon as possible—this is to ensure the company's response is proportionate to the risk it faces. When looking to quantify the potential liability, consider not just the number of potential plaintiffs but also the nature of the alleged loss and damage—some class actions involve a large number of plaintiffs but the actual compensation available to each class member can end up being very small. 

Broader commercial impacts

Class actions tend to attract media attention and, accordingly, a high degree of reputational risk. From the outset your company should consider ways to limit these broader impacts, including issuing:

  • internal communications explaining the issue to staff and the company's response; and
  • external communications to the media and business partners to manage reputational risk.

Depending on the nature of the claim, it may be worthwhile engaging professional PR assistance in this process.

Conclusion - Belinda Thompson

Remember, class actions are complex forms of litigation where expert assistance is vital. The better prepared you are, the faster you'll be able to respond if and when an action is threatened or commenced.

Class actions checklist

We recommend reviewing the list below to ensure your business is in the best position to handle the commercial and legal consequences of a class action:

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Engage legal team
Retain lawyers and counsel with class action expertise. Class actions are a specialist form of litigation and it is essential to engage a legal team with relevant experience responding to the issues which arise in this unique form of litigation.

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Take care of documents
Quarantine relevant documents and limit the creation of any new material relating to the subject matter of the claim to a core team, including your legal team.

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Manage communications
Prepare communications protocols and scripts for responding to queries from employees, the media or group members. Carefully consider any media engagement. Maintain business as usual engagement with stakeholders.

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Notify insurer
Consider the insurance position and provide a notification of any relevant circumstances relating to the claim. Consider the process for engaging with and updating insurers.

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Develop a strategy early
Assess the parameters of the claim, including whether there would be utility in challenging any aspects of the pleadings or pursuing claims against third parties.

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Build a team
Consider the establishment of a board or other committee to ensure that instructions can be provided swiftly and that internal reporting is managed effectively.

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Consider legal exposure
Commence work developing a preliminary assessment of your potential liability, including through a review of key documents and speaking with key witnesses. This assessment will inform the strategy applied to the class action.

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Be alive to activity of class action promoters
Consider the applicable funding structures and status of any book building initiatives of the class action promoters.

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Consider disclosure obligations
If a class action is commenced, issue a brief market disclosure once the claim is served (if applicable), acknowledging the commencement of the proceeding.

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Identify experts
Consider relevant disciplines of expert evidence which may be relevant to issues of liability and quantum. Move quickly to retain experts before conflicts start to emerge.

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Consider commercial exposure
Assess the potential size and composition of the class to form an early view of the possible quantum of the claim. Consider the value of time required to defend the proceeding and the potential reputational impact.

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Lay witnesses
Identify and contact potential witnesses who may need to provide input in preparing the defence and evidence. Consider whether it may be necessary to negotiate any ongoing cooperation arrangements with employees who exit the business.