In brief: Multiple class actions against the same company have become an increasing feature of the class action space, particularly in securities class actions.
The decision of Justice Lee of the Federal Court on 23 May 2018 in Perera v GetSwift Limited  FCA 732 is the latest decision to address the issue and comes a week before the much anticipated release of the Australian Law Reform Commission's Discussion Paper in its Litigation Funding Inquiry.
Whilst his Honour stressed the fact-specific nature of his decision, the case provides useful guidance on the principles applicable to determining which class action should proceed, and whether to permanently stay, de-class or otherwise manage the other competing class actions.
Ultimately, Justice Lee determined to allow the last of the three competing class actions to be commenced to proceed, after taking what was referred to as a "comparative multifactorial assessment". This involved analysing a range of factors such as the comparative estimates of likely returns to group members, funding models, and the willingness of the legal advisers to contemplate novel ways of managing legal costs and expert evidence. His Honour made orders permanently staying the other two proceedings, and began the process of making a common fund order and settling an opt out notice.
On 19 January 2018, the media reported issues with
GetSwift's customer contracts and forecasts, leading to the
announcement of a trading halt and then suspension of its shares.
When GetSwift recommenced trading, its share price had dropped
This led to three competing class actions, all in the Federal Court, and commenced in the following order:
- The Perera Proceeding, with Squire Patton Boggs, backed by International Litigation Partners No 18 PTE Ltd. The funding agreement provided for a commission between 25% to 40% but, in submissions, they proposed that a common fund order be made with payment of the lesser of 25% of net proceeds or 22.5% of gross proceeds;
- The McTaggart Proceeding, with Corrs Chambers Westgarth, backed by Vannin Capital Operations Limited. The funding agreement provided for a funding commission of 10% if proceeds were received by the end of 2018, 20% if received before September 2019, and 30% if received thereafter (in each case, applied to gross proceeds). During submissions, the McTaggart applicants indicated that they would be content with a common fund order which provided essentially the same terms as their funding agreement; and
- The Webb Proceeding, with Phi Finney McDonald, backed by
Therium Capital Management Limited. The proposed funding model
(there was no signed agreement) provided a funding commission that
was the lesser of:
- a multiple of the expenses Therium paid in the proceedings, being 2.2 times if settlement occurred by 12 April 2019 or 2.8 times if settlement occurred after 12 April 2019; or
- 20% of the net litigation proceeds (ie settlement sum less approved professional fees and disbursements).
The Relevant Period in each case was the same and, whilst not identical, the claims sought to be advanced were broadly similar.
Judgment in Perera v GetSwift Limited
In a lengthy judgment that provides a useful history of the class action regime in Australia and the powers afforded to the Court by the Federal Court Act, Justice Lee identified that what was required was a "multifactorial assessment" that required a comparative analysis involving a "broad evaluative assessment and synthesis of all of the factors".
Key factors analysed in multifactorial assessment
The proposed common funding models
As a critical threshold issue, Justice Lee proceeded on the assumption that the case would settle rather than proceed to hearing, based on the fact that no securities class actions in Australia has ever resulted in a final judgment.
Whilst his Honour was hampered by the lack of common assumptions between the three contenders as to issues such as the steps required before mediation, he synthesised the three proposals and compared them, reaching the conclusion that the funding proposal put forward by the Webb parties was more likely to result in a greater return to group members than the others.
The two-tier funding model proposed in the Webb Proceeding was superior: rather than being based on a simple percentage commission, the funding model proposed to link the funder's commission to either legal costs or litigation proceeds, depending on which of the two was lower. Therefore, the funder's risk would increase incrementally as legal costs increased. Justice Lee considered that this would produce a more direct correlation between the amount ventured and the likely return, avoiding the potential for a windfall return in the event that there is a late settlement at a very significant settlement sum, and it would help to facilitate the making of an early common fund order.
Measures for controlling legal costs
In a somewhat novel approach, Phi Finney and Therium suggested a Court-appointed referee to conduct periodic reviews of the reasonableness of the applicant's legal costs (the other parties did not address this suggestion). Justice Lee considered this a very considerable advantage in that it would allow for an iterative process with a referee making interim reports that would address any unnecessary costs at an early stage. It would allow for consideration of, for example, the reasonableness of the proposed approach to discovery.
Measures to control expert costs
Phi Finney and Therium were also the only ones to accept that there was any scope for the Court to appoint (or for the parties to jointly engage) a forensic economist to assist the Court in respect of matters of loss, causation and quantum. Although yet to form any definitive views as to whether to adopt this proposal, Justice Lee considered that it could potentially save significant costs.
There were other factors that Justice Lee did not put much weight on because they were of less consequence or largely equal amongst the three competing class actions, which included:
- The experience of the law firms and legal resources available;
- The state of preparation and order in which the proceedings were commenced: this factor should not be given weight because it could encourage hasty decision-making and poorly thought through pleadings. Although the Webb Proceeding was the last to commence, Justice Lee considered that its funding structure and terms presented real advantages;
- The funding resources available including for security for costs: each funder could provide security and would likely have sufficient funds;
- The substantive merits of the proceedings generally and of each applicant's case;
- The existence of funding agreements (where only the Perera and McTaggart Proceedings had signed agreements): again, of less relevance given the common fund orders; and
- The number of group members involved: this should not be given any real weight where common fund orders would be sought. There would also be no prejudice as they could sign up to the class action that proceeds.
The Webb Proceeding to proceed
In circumstances where the Webb Proceeding had proposed innovative ways of seeking to reduce legal costs (the costs referee and a court appointed expert), and given its partly costs-based funding model was superior to the alternatives, Justice Lee held that the Webb Proceeding would continue.
The other Proceedings to be permanently stayed
Justice Lee considered carefully the Court's power to permanently stay the other proceedings or, in the alternative, to declass, consolidate, close the class in the other actions, or order a joint trial. Justice Lee determined that he had the power to permanently stay the Perera and McTaggart Proceedings on the grounds that their continuation would constitute an abuse of process. In circumstances where their claims could still be pursued (in the Webb Proceeding), to allow a duplication of open class actions to proceed "when they perpetuate unnecessary multiplicity...would bring the administration of justice into disrepute".
An early common fund order and an opt out notice
All parties had no difficulty in the Court making an early common fund order. Justice Lee considered that there are significant advantages of making an early common fund order. It would in particular provide for a level of certainty (eg group members can make an informed decision as to whether the funding regime is appropriate at the time of opt out). Further, as a common fund order is an interlocutory order, it can be varied if a matter emerges which materially changes the initial assessment.
The precise terms of the order and the opt out notice is still to be determined and the Perera and McTaggart parties (and their funders) were given leave to appear on the opt out notice issues.
Useful guidance for managing competing class actions
The complications caused by competing class actions are not just an increasing feature in the class action landscape, but a key issue under consideration by the ALRC. Notwithstanding the caution by Justice Lee as to the fact-specific nature of the exercise, the GetSwift decision provides helpful guidance as to the factors to take into account when managing competing class actions, or at least those with significantly similar common issues for consideration, relevant time periods, and case theories.
It also illustrates the willingness of the Courts (and hopefully also the applicants' advisers) to consider constructive ways to manage these cost heavy claims in a way that will hopefully be fair not only to group members but also to the corporate and individual defendants and their insurers. Of particular interest are the suggestions for managing plaintiffs' costs and of novel ways to structure funding agreements.
|Amanda Ryding||Lucy Chen|
|Colin Biggers & Paisley|
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.