This is part two of Inq’s investigation into the Coalition’s war on class action funding. Read part one here.
The government’s recent moves on class action litigation funding, with the establishment of a parliamentary inquiry and the tightening of rules on funding, are sure to please the Liberal Party base and provide cover for corporate friends and allies.
The Liberal Party, alongside business, has opposed class action litigation since it was introduced. Back in 1991 Peter Costello, then in opposition, slammed it as “a step on the way to making Australia a more litigious society”.
In the years since, big name companies to have faced class actions include the likes of Woolworths, Santos, BHP Billiton and Crown Resorts.
The federal government, too, has been a defendant. It has recently agreed to pay a $200 million settlement on a contaminated land case brought with the backing of litigation funders.
The government now faces a settlement on a robodebt class action, which will perhaps run into the hundreds of millions of dollars, being run on a no-win-no-fee basis by veteran plaintiff lawyer Peter Gordon.
So who stands to gain when the government moves to tighten litigation funding under the cover of COVID-19?
Take it to the bank
In the last two years, Australia’s big four banks and financial institutions have emerged as the single biggest category for class actions.
There are multiple cases against Westpac, Commonwealth Bank and associated entities, as well as the AMP and IOOF flowing from revelations of egregious behaviour at the banking royal commission.
Separately, labour hire firms supplying workers for mining companies operating in Queensland and NSW are facing a raft of class actions relating to alleged underpayment of entitlements and employment misclassification.
Law firm Ardero has filed actions against Hays, Workpac and One Key. The mining companies affected include BHP Billiton and Glencore.
Other large employers including retailers like Woolworths, Big W, Coles and On The Run — the flagship retail chain of the Peregrine Corporation, South Australia’s largest private employer — are facing class action claims to recover underpayments owed to employees.
These actions, too, are funded by third party litigation funders.
An explosion of class actions: true or false?
Late last year, before COVID-19 came along, The Australian began reporting on an “explosion” in litigation funding which “threatened investment and jobs in Australia, with more than $10 billion in claims lodged against businesses in 2018-19”.
Yet the figures and the crisis they portend appear to not be backed by the facts.
Professor Vince Morabito of Monash Business School became so frustrated with claims of an “explosion” in class action litigation he set about correcting the record in a paper titled “Shareholder Class Actions in Australia — Myths v Facts“, published at the end of last year.
Morabito has carved out a unique role in the world of class action litigation. He is a former employee of law firm Clayton Utz. He declares that he has received research funding from the federal government (via the Australian Research Council), defendant and plaintiff law firms as well as litigation funders. The Australian Law Reform Commission relied on his data sets among others in its 2018 inquiry into litigation funding.
Morabito’s analysis showed there have been 634 class actions in Australia over the last 27 years — representing an average of 23 class actions per year.
This is compared to 1300 cases filed in the Canadian province of Quebec (population 8 million) over an equivalent time. In Ontario, 1459 cases had been filed for an average of 54 cases per year.
On the basis of that, he concluded that “no objective or balanced assessment of this figure could lead to the conclusion that over the 27 years in question, the floodgates have opened”.
“What about the 56 class actions in 2017-18, and 59 class actions in 2018-19?” Morabito asked. “In dealing with this question I am forced to provide again data … which has been conveniently forgotten or ignored by those who claim that Australian class actions are out of control.”
Morabito’s analysis demonstrated there was duplication of claims, giving a false impression of higher numbers. He said it was crucial to note that the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry had revealed “numerous instances of misconduct” in its final report.
(Law firm Allens this year published 2019 data also showing there had been a “significant” rise in consumer class action claims against banks, superannuation trustees and insurers following the banking royal commission.)
Morabito also scrutinised claims that class actions were making life impossible for Australia’s company directors by analysing the 122 shareholder-funded class actions taken out since 1992.
He concluded that despite “vigorous and regular attacks on shareholder class actions put forward on behalf of company directors” the data showed that historically no action was taken against individual directors in three out of four cases — and even less in 2018-19, when when only 10% of the shareholder class actions included directors among the respondents or defendants.