Class actions reform report tabled in Victorian parliament

Yesterday, the Victorian Law Reform Commission's (VLRC) long-awaited report into class actions and third-party funding was tabled in the state parliament. A copy of the report is available here.

The VLRC report has made a series of recommended changes to Victoria's class action regime, with the stated objective of improving access to justice.

The VLRC report comes at a time of increased scrutiny of class actions, with the Australian Law Reform Commission (ALRC) currently undertaking a similar review into the class actions regime in the Federal Court of Australia. The ALRC report is due to be completed late this year. In May 2018, the ALRC released a discussion paper on the changes it was contemplating recommending to the federal government.

Allowing lawyers to charge contingency fees

Consistent with the approach outlined in the ALRC discussion paper, the VLRC report has recommended that lawyers be permitted to charge contingency fees in a number of different matters, including class actions.

The Commission has recommended that contingency fees be allowed in class actions, subject to:

• The representative applicant making an application to the court for approval of a common fund for a "litigation services fee".
• The plaintiff firm acting for the class members agreeing not to charge any other fees to class members, including: professional fees at an hourly rate; costs associated with obtaining insurance for adverse costs or other disbursements.
• The plaintiff firm agreeing to indemnify the representative applicant for any adverse or security for costs orders.

Relevantly, the Commission did not recommend a specific cap on the amount that a plaintiff firm could charge in contingency fees. It reasoned that if a cap was introduced it was likely that firms would routinely seek the maximum amount.

The report noted that there are differing opinions within the legal community as to whether allowing contingency fees in class actions would result in lawyers diversifying their practice and acting in matters with smaller claim values than presently the case, or whether it would cause increased competition between law firms to act in large claims. The implications for allowing contingency fees to be charged in class actions will necessarily be closely considered by Australian companies and their insurers.

Protecting class members from security for costs or adverse costs orders

The Commission has proposed that the court be given discretion on whether to make security for costs or adverse costs orders in a class action, in order to make the role of becoming a representative applicant less daunting and to encourage third parties to consider providing financial support to a class action proceeding. It noted that similar powers given to overseas courts have resulted in adverse costs orders being significantly reduced for matters of public interest or where a test case had been pursued.

The Commission therefore proposes that Victorian legislation be amended to provide that, when considering making orders relating to security or adverse costs, it may take into account:

• the function of class actions in providing access to justice;
• whether the case is a ‘test’ case or involves a novel area of law; and
• whether the class action involves a matter of public interest.

While the Commission's recommendation would be in line with its stated purpose of improving access to justice, any changes to the usual "costs follow the event" rule could have significant implications for defendants and their insurers.

The immediate effect would be to open up the prospect of a successful defendant being unable to recover its costs following. Such a change may also provide plaintiffs with more encouragement to run proceedings to judgment, rather than settling the matter at an early stage, given that there would be less risk of an adverse costs order being made. Finally, there is a risk - which is difficult to quantify - that changes of this kind may encourage the commencement of proceedings which are less meritorious and more speculative.

Managing competing class actions

In contrast to the ALRC's proposals, the Commission has not recommended any legislative amendments be made to manage competing class actions against the same defendant.

It has instead proposed that the Supreme Court practice note be amended to provide guidance on how competing claims should be managed, in line with recent judicial decisions on this issue. It reasoned that imposing statutory obligations on the court to manage competing class actions could create a "one size fits all" approach, which recent judgments have cautioned against.

Of note, the VLRC report has expressly recommended that a "certification" process for class actions (where a proceeding is reviewed by the court to assess suitability through the class action regime before it proceeds against a defendant) is unnecessary for Victoria. It reasoned that a certification process would increase costs and delay by increasing the number of pre-trial steps for both plaintiffs and defendants. The Commission determined such a step was unnecessary in circumstances where the court already has wide powers to case manage class actions.

However, in respect of competing class actions that are commenced in different jurisdictions, the Commission has proposed that a national "judicial panel" be established to make decisions on which venue is the most appropriate for competing class actions to be heard. The VLRC report noted that managing competing class actions is especially difficult where they are commenced in different courts, given that current cross-vesting legislation does not allow a judge to "pull" a competing proceeding out of one forum and into another. The Commission proposes that a senior judge from each jurisdiction with an established class actions regime be appointed to the panel, which would decide on the appropriate forum for a set of competing class action proceedings to be heard.

Other recommendations

In addition to the major recommendations summarised above, the VLRC report has also recommended that:

• the ability for plaintiff firms and their funders to obtain common fund orders be enshrined in legislation;
• the disclosure obligations of plaintiff lawyers be increased, including the requirement that they provide clear documentation regarding the funding terms and a "summary statement" which explains the proceeding in plain English for class members;
• guidelines are issued to all legal practitioners regarding their duties and responsibilities when acting for group members in a class action proceeding;
• the Supreme Court practice note be amended to provide for the appointment of an independent "contradictor" in some class action settlements, who would assist the court in assessing the terms of settlement on behalf of group members; and
• plaintiff lawyers, upon request of the court, be required to provide a memorandum of their expected legal costs and disbursements at the first case management conference of a class action.

Next steps

It is expected that the Victorian government and the Supreme Court of Victoria will now consider the VLRC report and its recommendations. Unlike other jurisdictions, a formal response to a law reform commission report is not required by the government.

A number of the recommendations would require changes to existing legislation to be enacted. However, the Commission has made several references to the fact that a national model for class actions is desirable. Accordingly, many recommendations propose consultation with other branches and levels of government in order to implement uniform changes to class actions regimes across the country.

Given the ALRC is preparing its report on recommendations to class actions in the Federal Court, in our opinion it is likely that any action on addressing the proposed reforms will not take place until after the ALRC's report is published later this year and been widely considered.