Insights

Australian Court of Appeal

Australian Court of Appeal Endorses Stay of Competing Class Actions

In Short

The Background: The competing class actions, particularly in relation to shareholder claims, have increased in Australia due to the incentives in the Australian legal market, namely minimal regulation of litigation funding and high rates of return for lawyers and funders.

The Result: Consequently, methods for dealing with competing class actions have become urgent. In Wigmans v AMP Ltd [2019] NSWCA 243, a five-judge Court of Appeal endorsed the use of a stay to address competing class actions and provided guidance on how a court should employ a multifactorial approach to determine which class action(s) to stay.

Looking Ahead: This is the second Australian appeal court to endorse the use of a stay. However, competing class actions may be addressed in a number of ways. Other approaches, such as consolidation, may also be employed.

Background

Five sets of competing open shareholder class actions were commenced against AMP Limited ("AMP") arising from disclosures made before the Financial Services Royal Commission. The first, the Wigmans proceeding, was commenced in the Supreme Court of New South Wales ("Supreme Court of NSW"). The remaining four were commenced in the Federal Court and transferred to the Supreme Court of NSW by decision of the Full Federal Court. The five proceedings substantially overlapped in the facts alleged, the causes of action pleaded and their group membership. Two of the sets of proceedings were consolidated ("Komlotex/Fernbrook proceedings") so that five became four. Otherwise, all parties sought to stay all of the other class actions, except their own.

The judge at first instance applied a multifactorial analysis to determine which of the proceedings should progress. Her Honour identified the following relevant factors to be taken into account in the present case:

  • the competing funding proposals, costs estimates and net hypothetical return to group members;
  • the proposals for security for costs;
  • the nature and scope of the causes of action advanced;
  • the size of the respective classes;
  • the extent of any bookbuild;
  • the experience of the legal practitioners and availability of legal resources;
  • the state of progress of the proceedings; and
  • the conduct of the representative plaintiffs to date.

Her Honour ultimately chose to stay all proceedings except the Komlotex/Fernbrook proceedings and placed most weight on the funding proposal that minimised the cost to group members. Komlotex/Fernbrook utilised a "no win, no fee" model that involved group members only being required to pay legal fees upon a successful outcome, and with no litigation funder, so that there was no funding commission.

New South Wales Court of Appeal

A five-judge Court of Appeal considered three proposed grounds of appeal brought by Wigmans. As the appeal was in relation to an interlocutory order, leave to appeal was required. Leave was not granted for grounds 2 (conducting a comparison of returns to group members under the funding proposals was not permitted or, if allowed, was not based on a rational foundation) or 3 (if a multifactorial approach was allowed, the judge erred in how it was conducted).

Ground 1 addressed what principles are to be applied where one defendant is the subject of multiple "open" class actions. The test proposed by Wigmans was that if the first class action was regularly commenced, then for it be stayed, it must be shown to be "clearly inappropriate". Moreover, subsequently filed class actions are necessarily duplicative and as a result vexatious and oppressive, and ultimately an abuse of process.

President Bell wrote the lead judgment. While the proposed approach did not create a rigid "first filed" test, it would, in practice, cast an onus that would be very difficult to discharge for later plaintiffs; it was not appropriate. His Honour found that although the order of filing of proceedings is a relevant consideration in any application to stay proceedings, the common law has never favoured a "first filed" rule as a means of resolving which of the competing proceedings should proceed. Moreover, the case law relied on by Wigmans demonstrated that the resources of the plaintiffs in group proceedings and the availability of funding to such parties have been treated as relevant considerations.

President Bell then turned to section 58 of the Civil Procedure Act 2005 (NSW) which mandates how judges are to determine, inter alia, stay applications, including by mandatory reference to the overriding purpose "to facilitate the just, quick and cheap resolution of the real issues in the proceedings". Section 58 provides a broad power and discretion to grant a stay of proceedings. The primary judge exercised the discretion vested in her by the Civil Procedure Act by reference to a range of relevant considerations and in a manner that was open to her and undertaken without error.

His Honour also observed that there is no "one size fits all" response to competing class actions and approaches, other than a stay may be used. However, it is the strong policy of the law to avoid a multiplicity of proceedings.

Justices of Appeal Meagher and Payne added that in determining how to address competing class actions, "the persons whose interests must be given primary consideration are the represented group members and the defendants", not the funders and law firms that are competing in the class actions marketplace.

Four Key Takeaways

  1. The decision in Wigmans v AMP Ltd [2019] NSWCA 243 provides further guidance as to how competing class actions may be addressed. It is clear that a stay may be pursued.
  2. However, uncertainty persists due to the no "one size fits all" response, permitting multiple approaches other than a stay. Moreover, even if a stay is to be adopted, which class action will proceed will depend on a multifactorial analysis.
  3. A key factor will be the funding of the class action and how a court evaluates the rates and methods of charging legal fees and litigation funding fees. Class action financing has been an area of innovation which is likely to continue.
  4. From a defendant's perspective, the courts have recognised that defendants should not have to face multiple class actions with the same allegations—multiplicity is to be avoided where possible.

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