GetSwift Appeal: Carriage motions endorsed by Full Federal Court but no magic bullet for competing class actions

What you need to know

• The Full Federal Court has endorsed a selection process analogous to a carriage motion to decide which of several competing class actions should proceed.
• The Full Court concluded that the Court had power to grant a stay of two out of the three competing class actions and found no error with the first instance decision of Lee J (covered in our May update here) in exercising that power.
• However the Full Court indicated that there was no one right answer when dealing with competing class actions. Consolidation of proceedings, the "wait and see" approach and class closure are also valid case management tools.

What you need to do

• When faced with the threat of multiple class actions, consider the strategic implications of alternative case management approaches.
• Monitor developments in competing class actions, including the forthcoming recommendations of the Australian Law Reform Commission covered in our June update here.

The problem of competing class actions

Recent case law developments in class action procedure and securities class actions have made it easier to start a class action. In 2016 the Full Federal Court endorsed common fund orders for class actions in Australia: Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Limited (2016) 245 FCR 191 . This made it possible for lawyers and litigation funders to be paid out of a class member's share of a settlement or judgment whether or not the class member entered into a litigation funding agreement or retained the lawyers.

The extent to which conditions currently favour shareholder class actions in Australia is illustrated by the recent decision of the Full Federal Court in Wileypark Pty Ltd v AMP Limited [2018] FCAFC 143. After the revelation of matters by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, in a short space of time no fewer than five class actions were commenced against AMP Limited by different lawyers and litigation funders. While four of these were commenced in the Federal Court, they were transferred to the Supreme Court of New South Wales for case management together.

What are the case management options?

In Perera v GetSwift Limited [2018] FCAFC 202 the Full Federal Court dismissed an appeal against the decision of Lee J to allow one of three competing class actions to proceed and permanently stay two other proceedings advancing substantially the same claims.

The Full Court held that the Court has power to order a stay of competing class actions, whether that be in the exercise of its inherent power, or express and implied powers of case management, or in its equitable jurisdiction. Further, a selection process analogous to the Canadian carriage motion will be appropriate in some cases to select which of several competing class actions should proceed. That process involves the evaluation of the nature and scope of the cause of action, the theories advanced by counsel as being supportive of the claims, the state of preparation, the number, size and extent of involvement of the representative applicant, the priority of commencement, the resources, experience and competence of counsel and any conflict of interests.

However, the Court did not accept that a competing class action would amount to an abuse of process. Accordingly, a permanent stay is just one option for the Court to consider. There is no one right answer to the case management problem presented by competing class actions.

Other case management options for dealing with competing class actions were recognised by the Full Court as legitimate. These were the consolidation of class actions (where the parties agree), a "wait and see" approach (effectively postponing the decision) and an order closing the classes in all but one proceeding.

However the Full Court rejected the suggestion that a declassing order could be made in response to competing class actions.

The Full Court considered that a selection process is less helpful where a substantial number of group members have entered into agreements with a lawyer and litigation funder. In such cases it may be more appropriate to close all but one of the classes. For example, in GetSwift agreements had been signed by 200 group members in one of the proceedings which was stayed and 100 in the other. In contrast, in the case of McKay Super Solutions Pty Ltd (Trustee) v Bellamy's Australia Ltd [2017] FCA 947 over 1,500 group members had signed agreements in one of the proceedings and over 1,000 members in the other.

Problems with the selection process

In this case Lee J dealt with the competing class actions by a process akin to a tender for the carriage. This involved orders that the parties file affidavits and submissions addressing matters such as the terms of any common fund order sought, a cost estimate and proposals regarding security for costs.

While accepting that Lee J had the power to use the carriage motion style selection process and that it was appropriate in this case, the Full Court pointed out the following problems with that approach:

1. There is a risk of a "rush to the bottom" by funders and solicitors trying to win the tender, because lower legal costs and funding charges can be a key consideration.
2. The Court may be required to choose between legal firms to select the team most likely to achieve the largest settlement or judgment.
3. The Court must strongly discourage a rush to the Court in large and complex cases. It may be time for the Court to order a standstill in securities class actions for 90 days to allow other solicitors or funders to undertake proper due diligence.
4. As a selection process such as that used in the present case requires the parties to reveal the approximate size of their "war chest", the Court needs to be careful to avoid damaging the interests of group members by exposing them to trial by attrition.
5. A selection process such as that used in the present case is expensive, costing the three competing proponents here in the order of $300,000 to $500,000 each.

Implications for competing class actions

The decision confirms that the Court has the power to carry out a process analogous to a carriage motion in order to select one of several competing class actions to proceed while permanently staying others.

However the Full Court did not endorse this as the default or preferred case management tool to deal with competing class actions.

The decision will no doubt be studied carefully by the Australian Law Reform Commission, which recently proposed in its Discussion Paper that only open class actions should be permitted and as a default position only one should be allowed, unless efficiency or the interests of justice require more.

In the current securities class action climate, the problem of competing class actions will continue to cause increased legal costs for both sides, wastage of court resources, delay, and unfairness to respondents. Accordingly, further adjustments to the class action regime aimed at choosing one competing class action to proceed are likely to be welcomed by listed Australian companies.

Restrictions lifted on communications between solicitors for unsuccessful applicant and group member clients

Apart from the decision to stay two competing class actions, the GetSwift decision also involved the ancillary issue of an injunction restraining the solicitors for an unsuccessful applicant from communicating with group members, including their clients.

The Full Court considered that Lee J had properly exercised his discretion to restrain the solicitors for the unsuccessful applicant in communicating with group members in relation to whether they should exercise their right to opt out of the proceeding.

However, in respect of the group members who were clients of the solicitors for the unsuccessful applicant, the Full Court held that the possibility of conflict was not a sufficient basis for the restraint, and interference with the lawyer/client relationship was not justified in this instance. The Full Court set aside the order imposing restrictions on communications between the solicitors for the unsuccessful applicant and the group members which were their clients.

Managing procedural arbitrage

The GetSwift appeal did not directly address the issue of how to manage competing class actions brought in different Courts, as occurred in Wileypark Pty Ltd v AMP Limited. However, in related developments, the Victorian Law Reform Commission Report recently recommended a judicial panel be created to decide on cross-vesting of class actions relating to the same subject matter filed in different courts. See our update here.

Currently, a protocol is being prepared by the Courts with the intent that when competing class actions are filed in different courts, senior judges of those courts will convene a joint case management hearing to decide questions such as the case or cases to go forward and the forum in which the proceeding will be heard.

Meanwhile, whether the Courts have the power to make common fund orders remains controversial. In an interesting sign of judicial cooperation, a challenge is due to be considered in a rare joint sitting of the Full Federal Court and the New South Wales Court of Appeal on 4 and 5 February 2019 in the matters of Lenthal v Westpac Banking Corporation (Federal Court proceedings) and Brewster v BMW Australia (NSW Supreme Court proceedings).

Authors:  John Pavlakis, Partner; Andrew Westcott, Senior Expertise Lawyer; and Stephanie Stacey, Lawyer.