Australian Class Actions Update: Class Actions to Remain a Material Risk

This edition of the Update covers two material developments in relation to class action risk in Australia:

• Recent legislative and regulatory developments, including the Federal Government's draft regulations to deregulate litigation funding in class actions and the Civil Procedure (Representative Proceedings) Bill 2021, which introduces a State-based class action regime in Western Australia.
• Recent developments in class action litigation, including the decision of the Full Court of the Federal Court of Australia on the enforceability of class action waiver clauses in standard consumer contracts in Australia.

KEY LEGAL AND REGULATORY DEVELOPMENTS

Litigation Funding 

Federal Government Releases Draft Regulations to Deregulate Litigation Funding in Class Actions

Many class actions in Australia are backed by third-party litigation funders. The Federal Labor Government has recently released draft regulations to wind back existing regulation of litigation funders imposed by the previous government and reinstate exemptions from the Australian Financial Services Licence ("AFSL"), the managed investment scheme ("MIS"), the product disclosure regime, and anti-hawking provisions on litigation funders that existed prior to August 2020.

The previous Coalition government had ended the unregulated status of litigation funding. It also introduced the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 that would have moved litigation funding regulation into legislation and cemented the need for an AFSL and application of the MIS regime, albeit with modifications for class actions. The bill was not passed, however, and it lapsed with the calling of the election.

The new Labor Federal Government is proposing to revert to the approach to litigation funding that was adopted when it was last in power, namely, no regulation other than a need to manage conflicts of interest. While minimal regulation of third-party litigation funding was originally championed on access to justice grounds, the class action funding market has grown and matured since, so now a better balance between protecting participants in class actions and litigation funding companies is thought to be needed. 

The effect of the reforms is to reduce compliance obligations and costs for litigation funders. This would in turn reduce protections for group members. It may also increase class action activity as barriers to entering the market are lowered and, as a result, greater resources are committed to financing claims. 

The Federal Government is also considering reforms to address the powers of the Federal Court to ensure fair and reasonable returns to class action members. The detail of these reforms is not yet known, but they may have a material impact on the economic attractiveness of class actions, or at least certain kinds of class actions, to funders. 

Civil Procedure Bill

Western Australia Passes Class Action Legislation 

The Parliament of Western Australia has passed the Civil Procedure (Representative Proceedings) Bill 2021, which introduces a State-based class action regime. The proposed regime is said to be substantially modelled on Part IVA of the Federal Court of Australia Act 1976 (Cth). However, it also includes some reforms adopted in New South Wales, and picked up by Queensland and Tasmania. If passed, it brings Western Australia more or less in line with the class action procedures that apply federally and on the east coast of Australia. Importantly, causes of action that accrued prior to the Bill coming into operation may be the subject of a class action. The Bill also provides for a review of its operation by the Attorney-General after 5 years. 

The Bill also abolishes the torts of maintenance and champerty in Western Australia. Many other Australian states had already legislated for this, and the use of the old torts to prevent litigation funding was consequently rejected by the High Court of Australia in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386. The abolition brings Western Australia in line with the other states and removes the torts as barriers to litigation funding.

The Bill does not seek to incorporate any reforms suggested by the various law reform reports published in the last few years. (See our previous Jones Day White Paper, "Australian Law Reform Commission Releases Class Action and Litigation Funding Report.") However, court rules and practice notes may provide additional direction as to how the class action regime will operate.

Western Australian class actions that attract Federal jurisdiction are likely to still be instituted in the Federal Court. However, these new procedural reforms will almost certainly generate an increased uptake of representative proceedings for State-based causes of action, such as contract and tort.

RECENT DEVELOPMENTS IN CLASS ACTION LITIGATION

Class Action Waiver Clause 

Full Court of the Federal Court Decision on Class Action Waiver Clauses

The Full Court of the Federal Court has delivered a significant decision upholding and enforcing a class action waiver clause against a cohort of an Australian class action who had contracted with the defendant under U.S. Terms and Conditions (Carnival plc v Karpik (The Ruby Princess) (Stay Application) [2022] FCAFC 149 (Karpik). The class action arises out of an incident in the early stages of the COVID‑19 pandemic in Australia where a significant number of passengers contracted COVID‑19 while on a voyage on the "Ruby Princess" cruise ship. 

The Full Court addressed whether the claims brought by a cohort of the class subject to the U.S. Terms and Conditions (U.S. subgroup) should have been stayed on the basis of a class action waiver clause and exclusive choice of venue clause in their contracts with Princess. The Court held by majority (Allsop CJ, Derrington J, Rares J dissenting) that the clauses were valid and enforced them against the lead plaintiff, a Canadian passenger who had booked the cruise through a Canadian travel agent. This result followed from rulings on two significant class action issues: 

• Whether the class action waiver clauses were consistent with Australia's legislative framework for opt‑out class actions; and
• Whether the class action waiver clauses could be enforced, given Australian legislation which voids unfair terms within consumer contracts.

The majority agreed with the trial judge that the class action waiver clauses in the U.S. subgroup's contracts with Princess were consistent with Australia's opt‑out regime of class actions. The optional nature of Australia's "opt‑out" class actions regime preserved plaintiffs' freedom of choice to participate in class action proceedings and it was consistent with that freedom for plaintiffs to agree to opt out of any representative proceeding prior to a dispute arising. 

The majority also held that the class action waiver clause was not unfair (and thus void) for the purposes of Australia's consumer protection legislation at least insofar as it operated with respect to the U.S. subgroup. Chief Justice Allsop held that the class action waiver clause had to be considered with the exclusive choice of venue and choice of law clauses. The Chief Justice held that the class action waiver clause was not an "unfair term" as the contrary conclusion would deprive Princess of the benefit of the exclusive choice of venue and choice of law clauses, clauses which were enforceable under the proper law and which the lead plaintiff accepted were not themselves "unfair" for the purposes of Australian law. However, Allsop CJ emphasised that his conclusions on both issues did not translate to standard form Australian consumer contracts, as contracts of adhesion, which sought to impose class action waiver clauses against Australian consumers.

Derrington J's reasons were much more broadly expressed. Derrington J held the class action waiver clauses were not unfair because they did not impede any substantive right to bring proceedings, merely the manner in which claims might be enforced. The plaintiff was required to bring their claim individually, rather than as part of a class action.

Rares J dissented on the basis that the class action waiver clauses were unenforceable as contrary to public policy. Opting out by contractual waiver occurred before the prescribed statutory notices had been issued, which meant the member was unable to give the informed consent contemplated in Australian class actions legislation. 

However, the Full Court judgment may not be the last word on these issues as the plaintiffs have sought special leave to appeal to the High Court of Australia.

CONCLUSIONS

1. Class action risk is expected to increase in Australia as a result of the Federal Government's plan for deregulation of litigation funding and the addition of a further class action regime in Western Australia. 

2. The reduction in regulatory requirements for litigation funding is likely to attract further resources for commencing class actions in Australia. This will probably generate more actions brought in relation to consumer, investor, product liability, employee, environmental and mass tort claims. The approach to shareholder claims remains less certain due to new additional restrictions on the main causes of action dealing with disclosure. 

3. As the Western Australian economy is characterised by its resources (iron ore, gold, liquefied natural gas), agriculture and services sectors, corporations operating in those areas may be exposed to greater class action risk with the passage of this new State-based class action regime.

4. On the majority decision in Karpik, class action waiver clauses will be treated as binding and enforceable in Australia, at least when they are: 

• Supported by exclusive choice of law and venue clauses; and 
• Directed to foreign class members. 

However, the judges' differing views on the validity of class action waiver claims indicate that a significant issue on the horizon will be whether such clauses will be permitted in standard form contracts with Australian consumers.