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Access to justice and the evolution of class action litigation in Australia.

[The federal and Victorian class action regimes are intended to .facilitate aggregation of multiple claims. Aggregation can improve efficiency t)v combining similar claims and can enhance access to justice by providing a mechanism to litigate small claims. This article considers whether these efficiency and access aims are being achieved. The authors argue that whilst some developments in class action jurisprudence have been consistent with these legislative aims, other have not. Several features of Australian class action jurisprudence and practice have hampered the healthy development of the legislative regimes, including adverse costs orders, unclear threshold requirements, evasive posturing and unresolved class communication issues. Finally, having identified these difficulties, the authors propose reform possibilities and priorities.]

I   Introduction
II  The Origins and Purposes of Class Action Proceedings in Australia
        A History
        B Purposes
             1 Access to Justice
             2 The Regulatory Role of Class Actions
        C The Present Situation
III Some Recurring Fears about Class Action Litigation
        A Fear of 'Entrepreneurial Litigation'
        B Fear of 'United States-Style' Flood of Litigation
IV  Specific Difficulties for Claimants in Class Actions
        A Tactics of Delay and Attrition
        B Section 33N and 'Declassing' a Proceeding
        C Constitution of the Class
        D Security for Costs
        E Costs in Class Actions
        F Personal Costs Orders
        G Actions against Multiple Respondents
        H Settlement of Class Actions
        I The Opt Out Notice
        J The Representative Party
        K Summary
V   The Role of Institutional Litigation Funders in Australia
VI  Conclusion


Class action litigation has developed gradually in Australia since the introduction of Federal Court grouped proceedings legislation some 15 years ago. (1) Initial low levels of interest--no doubt the product of unfamiliarity with the nature, purpose and potential of the new type of action--have gradually given way to increased use. Notwithstanding this evolution, class action litigation in Australia is still young and the case law is still developing.

This article considers the evolution of class action litigation from the perspective of those wishing to bring or to join such an action. We argue that although some developments have been positive, significant obstacles remain for class action applicants. The purposes of this article are to identify those obstacles, to explain why they are inconsistent with the aims of class action legislation, to describe their impact on the development of the class action regime in Australia, and to make recommendations for reform.

One source of difficulty for applicants is departure in some judicial decisions from the aims of class action legislation. There is little doubt about what those aims are; an examination of parliamentary debates, the Law Reform Commission report that recommended enactment, (2) judicial decisions since enactment, academic literature, and the legislation itself reveals general agreement. The legislation was intended to provide a mechanism that promotes efficiency through aggregation of claims, enabling the pursuit of legitimate claims by people who might not otherwise be able to do so. Notwithstanding this general agreement, some decisions are in effect inconsistent with the intent of the legislation. These decisions have had negative consequences for class action applicants and have hampered the development of a healthy class action regime.

Another factor that has contributed to the difficulties faced by class action applicants in Australia is a tendency to assume that traditional civil procedure rules, attitudes and practices can be relied upon to determine the way in which class actions are conducted. This tendency is primarily the result of a conception of civil liability that focuses on compensation and legal representation of individual plaintiffs rather than on large classes of plaintiffs. Several concerns underlie such an individualised conception of civil justice. Broadly, they stem from a perceived need to discourage 'entrepreneurial litigation' and a 'United States-style litigation explosion', as well as views that equate class action lawyers with 'ambulance chasers' and suspicion of any litigation funding arrangement that departs from traditional practices.

Part II of this article briefly explains the intent of the class action legislation. In Part III, we consider several prevailing attitudes about class actions and explain why they impede the development of the class action jurisdiction. We then identify and analyse, in Part IV, specific features of class action litigation in Australia that create unwarranted obstacles for class action applicants. To this end, we consider why such obstacles exist and offer suggestions as to how their adverse impact upon access to justice can most effectively be addressed. In Part V we consider the growing role of institutional litigation funders in Australian class action litigation. The debate that has accompanied this development reflects many of the themes we explore in this article, including suspicion of alternative funding models and fear of entrepreneurial litigation. However, we note with encouragement judicial comments that endorse the need to embrace new rules and models for the funding and conduct of class actions in Australia.

Class actions are political in the sense that they are a public example of large numbers of ordinary citizens--whether they be consumers, shareholders, cartel victims or others--in conflict with large corporations or government. They bring to the fore fundamentally differing views about the nature and proper boundaries of civil litigation and the roles of key players in that system, especially judges, lawyers, parties, large corporations and the state.

We endorse a liberal approach to interpreting the legislation on which the federal and Victorian class action regimes are based and because of this have chosen to write this article from the perspective of class action applicants. We argue that some of the developments in class action litigation and jurisprudence are inconsistent with the access to justice and efficiency aims of that legislation. It is our intention that this article might encourage debate about the health of Australian class action regimes and about reform priorities.


A History

The first Australian class action regime was enacted in 1992, though representative procedures themselves were not new. Such procedures have existed in English rules of court since 1883, (3) and were given broader application in 1901. (4) In Australia, these procedures found expression in the rules of court of the Australian states and territories, (5) However, with few exceptions, they were not given a liberal interpretation and fell into disuse. (6) The inadequacy of these procedures led to inquiries by government-funded law reform bodies, and ultimately to the current Australian class action regime. (7)

In 1988, a report by the Law Reform Commission (now the Australian Law Reform Commission ('ALRC')) entitled Grouped Proceedings in the Federal Court was tabled in federal Parliament. (8) Following debate, the class action regime now found in Part IVA of the Federal Court Act was enacted and took effect on 5 March 1992. A similar regime relating to class action proceedings commenced in Victoria was passed by the Victorian Parliament; this is found in the Supreme Court Act 1986 (Vic) Part 4A, and took effect from 1 January 2000. Because most Australian class action litigation has been conducted in the Federal Court, the emphasis of this article is on the Commonwealth legislation and on cases decided pursuant to that legislation. However, the federal and Victorian class action regimes are for all present purposes identical, and accordingly our analysis applies equally to both Acts.

B Purposes

The policy and purposes underlying Part IVA of the Federal Court Act were identified in the second reading speech for the Bill that introduced it:
   The Bill gives the Federal Court an efficient and effective
   procedure to deal with multiple claims. Such a procedure is needed
   for two purposes. The first is to provide a real remedy where,
   although many people are affected and the total amount at issue is
   significant, each person's loss is small and not economically
   viable to recover in individual actions. It will thus give access
   to the courts to those in the community who have been effectively
   denied justice because of the high cost of taking action.

   The second purpose of the Bill is to deal efficiently with the
   situation where the damages sought by each claimant are large
   enough to justify individual actions and a large number of persons
   wish to sue the respondent. The new procedure will mean that groups
   of persons, whether they be shareholders or investors, or people
   pursuing consumer claims, will be able to obtain redress and do so
   more cheaply and efficiently than would be the case with individual
   actions. (9)

1 Access to Justice

The second reading speech confirms that promoting access to justice is a central aim of the class action regime. The regime was established with the intention of providing a mechanism for individual citizens to seek redress through the courts for civil wrongs committed by governments, corporations and other defendants that are usually more powerful than any individual claimant.

The availability of such a mechanism is of increasing importance in a global economy in which civil wrongs are often committed on a mass scale by large and powerful entities. These entities enjoy the advantages that accrue in litigation and dispute resolution to those with 'deep pockets' and the status of 'repeat players'. (10) In his classic statement about the power and resource advantages enjoyed by repeat players (11) over 'one-shotters' (12) in litigation, Marc Galanter describes the negative impact of this power imbalance upon the capacity of citizens to obtain effective redress in courts. (13) Galanter identifies the class action as a mechanism capable of addressing this problem. In his view, because the class action enables individuals to aggregate their claims, it can reduce power imbalances between repeat players and one-shotters. (14)

This rebalancing is clearly one aim of the legislation. It is intended to create power in numbers that would be non-existent if claims were pursued individually, and to provide a mechanism that ensures that a greater number of those claims will be litigated. Judicial comments about the role of commercial litigation funders in class action litigation have underscored this power balance issue. (15) There has also been judicial acknowledgement that the class action mechanism makes it possible to pursue legitimate claims arising from mass wrongs that would not be addressed if individuals were left to seek a remedy on their own. (16)

2 The Regulatory Role of Class Actions

The role of private litigation and tort law as regulatory tools has long been recognised. (17) This is also true of class actions, as the Law Reform Commission has acknowledged:
   Enabling people to have increased access to legal remedies in court
   proceedings could render the substantive law more enforceable and
   thus encourage a greater degree of compliance with laws the purpose
   of which is to prevent or discourage activities which cause loss or
   injury to others. This is an important consequence of any change in
   procedural remedies. Respect for the law should be enhanced if
   access to remedies is facilitated. (18)

One example of the regulatory role of class action legislation is the rise of shareholder securities class actions in Australia. These actions are widely viewed as a form of 'private enforcement'--a method of regulating business entities that exists alongside the provisions of corporate and consumer legislation. (19) Securities class actions are now well established in the United States and Canada and are steadily developing in Australia. They provide shareholders with a practical mechanism to recover compensation from corporations and their officers for breaches of the law that cause shareholders to lose money. By contrast, the regulatory regimes operate to penalise corporations and their officers who breach the law, but do not usually operate to compensate shareholders for their losses.

In this way, shareholder class actions contribute to a culture of good corporate governance. For example, Jeremy Cooper, the Deputy Chairman of the Australian Securities and Investments Commission ('ASIC') has stated that shareholder class actions have a useful role to play in 'maintaining the integrity of the equity capital market.' (20) The Australian Shareholders' Association Ltd ('ASA') has provided further support for such a role in a recent letter to the Federal Court that requested an expedited hearing application in a shareholder class action. (21)

The regulatory role of class action litigation in Australia has also recently been discussed in the context of institutional litigation funders. This issue is considered in Part V below.

C The Present Situation

The federal and Victorian class action regimes share many features that promote the policy and objectives of class action litigation. Nevertheless, the ability of claimants to obtain redress is still limited in ways not contemplated by the legislation. For example, there are only two firms in Australia that frequently act for applicants in this area--even though the procedure has been available for over 14 years. Given the ability of lawyers to locate and practise in profitable areas, this is a good indicator of how difficult it is to run class action litigation. One reason for these problems is the perpetuation of several fears about class action--fears which, in our view, are unsubstantiated.


A Fear of 'Entrepreneurial Litigation'

A recurrent concern directed at class actions is that they are opening the door to entrepreneurial litigation. Class actions, it is said, provide a gateway to a proliferation of predatory litigation run by opportunistic class action lawyers. These comments are often accompanied by concerns about the dangers of United States-style litigation, in whose jurisdiction such litigation is said to be endemic. (22) These concerns indicate a failure to appreciate how class actions work; indeed, they are contrary to the very notion of the modern class action. The potential consequences of this antipathy were recognised by Justice Stephen Charles in 1996, when his Honour stated:
   Class actions are unlikely to flourish in Australia without a change
   in attitudes, both in the profession and the judiciary.... Many
   Australian judges may still view class actions as predatory
   litigation instituted for the advantage of entrepreneurial
   lawyers. (23)

Fear of entrepreneurial litigation is also evident in the following comments of Callinan J, which his Honour made when considering the constitutional validity of the Victorian class action legislation:
   The question here is not whether, by their nature, group or class
   proceedings are oppressive to defendants, give rise to
   entrepreneurial litigation, in fact proliferate and prolong court
   proceedings, undesirably substitute private for public law
   enforcement or are contrary to the public interest, with
   disadvantages outweighing a public interest in enabling persons
   who have been damnified but who would not, or could not bring the
   proceedings themselves, to be compensated for their losses. The
   question simply is whether the Victorian Act is valid.

   [T]he problems to which I have just referred are likely to be
   aggravated by the increasingly competitive entrepreneurial
   activities of lawyers undertaking the conduct of class or group
   actions, in which, in a practical sense, the lawyers are often as
   much the litigants as the plaintiffs themselves, and with the same
   or even a greater stake in the outcome than any member of a group.
   This reality is likely to be productive of a multiplicity of group
   actions throughout the country. (24)

A similar sentiment was expressed by Spender J during an application to strike out pleadings in Philip Morris (Australia) Pty Ltd v Nixon. (25) His Honour offered as possible characterisations of the case, 'the Ben Hur of ambulance chasing' and 'the big Ben Hur extravaganza'. (26)

Concerns about entrepreneurial litigation do not appear to have any empirical foundation. Lawyers have been making money from litigation for a long time--long before modern class action regimes existed. However, certain features of the modern class action regime are sufficiently different from traditional litigation practices to make some lawyers and judges uncomfortable. (27)

One of these features is the nature of the relationship between the class lawyer and the members of the class. In a typical class action, the class is so large that it is impossible (or, at least, impracticable) for class lawyers and members of the class to interact in a manner that conforms to the traditional solicitor-client relationship. In particular, communication patterns will be different, for two main reasons. First, the size of the class may make it difficult or impossible for the lawyer to communicate with each individual member--as he or she would do with an applicant in a two-party dispute. Second, there may be many members of the class who have little if any interest in ongoing communication with the class lawyers, no expectation of that type of communication, or no inclination to monitor the activities of the class lawyers. This state of affairs is a foreseeable product of the class action format. One of its purposes is to create a vehicle for determining claims so small that they could not otherwise be pursued. (28) It is in the aggregation of the small claims that the determination is made possible, but it is because of the small size of most claims that many class members will take a laissez faire approach.

It is theoretically true that aggregation is not a prerequisite to commencing a class action. It is possible to identify one plaintiff, proceed with that person as the lead plaintiff, attempt to resolve the common issues, and only then identify class members after those common issues have been resolved. In practice, however, this is not the way class action litigation has evolved. In most cases, the class lawyer, lead plaintiff or litigation funder will require aggregation. Lead plaintiffs are hesitant to take the lead without some assurance that there is substantial interest in the case. (29) Identifying a group of other aggrieved parties at the outset indicates to a lead plaintiff that the case is of sufficient interest to justify the risks associated with being the representative party. Early aggregation may also satisfy such a party that he or she will not have to bear the costs burden alone. For similar reasons, litigation funders commonly insist on some assurance at the outset that the level of interest and number of claims will be sufficient to justify the financial risk of funding the case. (30) Class lawyers have similar concerns. (31)

Early aggregation is also consistent with the aims of the class action legislation because it has the capacity to promote efficiency and access to justice. (32) It also ensures that the people affected by a claim receive early notice of that claim. This is reinforced by the fact that there are notice provisions in the legislation, the purpose of which is to inform class members of the claim and of their rights and responsibilities as class members. (33)

A related source of discomfort is the role of class lawyers in advertising or soliciting for people to join the class. The practice of soliciting for business by lawyers has been a controversial issue for those charged with regulating the legal profession. (34) However, solicitation is now expressly authorised by rules of professional conduct in Australia, (35) and in any event it is inherent in the nature of a class action and the goals of the legislation that some solicitation will be required. Under Part IVA of the Federal Court Act, for example, group members must receive notice of the commencement of a class action. (36) This can amount to solicitation, as John C Coffee Jr suggests:
   Solicitation is common in entrepreneurial litigation, where the
   socially desirable role of the lawyer is to aggregate claims that
   are by themselves unmarketable. Often, clients are simply unaware
   that they possess actionable claims. Thus, attorneys must pursue
   clients, since the clients will not ordinarily come to the
   attorneys. The traditional prohibition on client solicitation
   embodied the twin fears that clients retained through unsolicited
   legal advice would be overcharged and underrepresented. These
   dangers are not imaginary, but the relevant question about them
   is: dangerous compared to what? Clients who never learn of their
   legal rights receive even less representation and are economically
   worse off. (37)

It may be the degree of solicitation, rather than solicitation per se, that is the subject of concern. Some solicitation--indeed, a considerable amount compared to traditional litigation--will be required to aggregate claims. Achieving this aggregation is central to the class action legislative scheme. (38) Professional regulation, legal ethics, and judicial oversight of the conduct of class actions are among the ways in which solicitation and other aspects of the conduct of litigation can be controlled. However, to equate class action solicitation with ambulance chasing demonstrates a failure to understand the purpose and mechanics of the class action regime, and the necessary attributes of class action lawyers operating effectively within that regime.

B Fear of 'United States-Style' Flood of Litigation

Another recurrent concern is that class actions may encourage in Australia civil litigation practices similar to those thought to exist in the United States. This is a frequent theme in discussions about common law litigation and civil justice reform and is not restricted to a consideration of class actions. (39) It is usually expressed as a belief that there is 'litigation mania' or an explosion in the United States, where cases with no merit are allegedly brought and pursued solely to hinder respondents and to bring about a nuisance value settlement. (40) For example, consider the following exchange about commercial class action funding arrangements, which occurred in oral argument on the application for special leave to appeal to the High Court in Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd, where McHugh J enquired:
   In any of the cases has it ever been put forward for the continued
   justification of this public policy that this sort of litigation
   increases pressure on the courts and adds to the cost of the
   administration of justice? (41)

To this counsel responded:
   Well, your Honour, I do not know of any, as it were, research which
   has identified the extent to which there is such a burden. If Fostif
   becomes the law, I think your Honours can take it as almost a moral
   certainty that a whole new industry is going to take place. One has
   heard anecdotal stories of the United States of people wandering
   around businesses sort of setting up class actions like they are
   going out of style. (42)

Arguments that there has been an explosion of litigation in the United States have been criticised on various bases. Some commentators have observed that these arguments are unsupported by empirical evidence and are instead the product of untested elite perceptions. (43) Others have treated them as isolated anecdotes and war stories, influenced by unarticulated values and preconceptions. (44) The question of whether there is any empirical proof for claims about a United States-style litigation explosion has been hotly debated, and is one beyond the scope of this article. However, regardless of the view one takes of this debate, there are features of class action practices in Australia that make it unlikely that any such litigation mania would occur here.

First, class actions are very expensive to run. No applicant, applicant lawyer or litigation funder would spend the millions of dollars necessary to conduct a large class action unless there is reasonable certainty of recovery. (45) There is little if any incentive to pursue an unmeritorious claim. Second, the rule that 'costs follow the event' is a substantial disincentive; it operates so that unsuccessful litigants pay the majority of the successful parties' legal costs. This rule does not apply in the United States, where an unsuccessful class action applicant is not usually obliged to pay the respondents' costs. One of the reasons given in the Grouped Proceedings in the Federal Court report to refute concerns about 'blackmail litigation' was the deterrent effect of the risk of an adverse costs order. (46) The class action legislation preserves that disincentive by requiring the named applicant to pay the respondent's costs in the event of loss. (47)

A realistic appraisal of the evolution of class actions since 1990 strongly suggests that there has been no flood of litigation in Australia and that business interests have not been impeded by such litigation. (48) The ALRC estimates that by the year 2000 there were 20 class actions before the Federal Court. (49) In December 2005, the Chief Justice of the Federal Court estimated that there had been 166 class actions in that Court concluded by that date, with 158 finalised and eight still on foot. (50) In addition, the ALRC has confirmed that concerns about a flood of litigation have not materialised:
   Representative proceedings legislation was received with trepidation
   by some potential respondents, concerned at 'legal
   entrepreneurialism', 'US style litigation' and 'sensational' claims.
   Some lawyers and companies continue to express these concerns,
   although in consultations with the Commission, some lawyers agreed
   that there is no present evidence of unmeritorious claims or any
   litigation explosion as a result of the representative proceedings.

   Contrary to the concerns surrounding the introduction of the
   procedure in the Federal Court, none of the dire consequences
   predicted have actually materialized in the past five years. There
   has been no flood of class action litigation. Instead there has
   been a gradual adoption of the procedure in many appropriate cases
   with more than adequate restraint and control being exercised by the
   Court as Judges and the profession seek to come to grips with a
   procedure which undoubtedly has the potential to contribute
   significantly to the administration of justice. (51)

Those class actions that have been commenced do not appear to have been unduly burdensome for the courts, with the ALRC reporting that, 'procedures for representative proceedings generally appear to be working well and in accordance with legislative intentions. The Federal Court does not view such cases as more problematic than other complex cases.' (52)

For all these reasons, it is unlikely that there will be any sudden increase in the number of class actions. The "costs follow the event' rule and the expense of running a class action will continue to operate as disincentives. (53) Indeed, there may be a risk that, if the following issues are not addressed, use of the class action regime will decline below an optimal level. We are not suggesting that the class action door should open to anyone who wishes to gain entry. In ordinary civil litigation there are various ways to keep unmeritorious claims out of the system--or to dispose of them summarily--and there is no reason why class action litigation should be any different. We argue however that since the enactment of the Federal Court Act some developments have limited the availability of the class action regime in a manner that is contrary to the legislation's fundamental aims. In the following Part we explain why they impede the healthy development of class action litigation and recommend ways in which some of these developments might be reversed--or at least their worst effects mitigated.


A Tactics of Delay and Attrition

It has long been accepted by judges and regulators that the class action mechanism aims to increase the efficiency of litigation, reduce expense and minimise complexity. (54) The challenges of funding and conducting class actions are compounded when these aims are ignored. However, an examination of the Australian case law reveals that respondents often try to resist claims by invoking technical arguments about the requirements and appropriateness of the class action mechanism. (55) These arguments take many forms, including attacks on pleadings, (56) arguments that the number of common issues is not sufficient to justify the matter proceeding as a class action, (57) and arguments that not all members of the class have a cause of action against all respondents. (58)

Such attempts are antithetical to the aims of class action legislation, reducing efficiency, increasing expense and adding considerable complexity to proceedings. This state of affairs was criticised by Finkelstein J on appeal in Bright v Femcare:
   There is a disturbing trend that is emerging in representative
   proceedings which is best brought to an end. I refer to the numerous
   interlocutory applications, including interlocutory appeals, that
   occur in such proceedings. This case is a particularly good example.
   The respondents have not yet delivered their defences yet there have
   been approximately seven or eight contested interlocutory hearings
   before a single judge, one application to a Full Court and one
   appeal to the High Court. I would not be surprised if the
   applicants' legal costs are by now well in excess of $500 000. I say
   nothing about the respondents' costs. This is an intolerable
   situation, and one which the court is under a duty to prevent, if at
   all possible.... [I]t is not unknown for respondents in class
   actions to do whatever is necessary to avoid a trial, usually by
   causing the applicants to incur prohibitive costs. The court should
   be astute to ensure that such tactics are not successful. (59)

In Bright v Femcare the applicant's wasted costs and disbursements exceeded $1 million. The action was eventually discontinued because the class action mechanism was not providing effective relief. This may be pointed to as evidence that the action should not have been instituted in the first place, and to justify the manner in which the respondent conducted the litigation. However, it might well be asked: did the claim fail to provide effective relief because it was an inappropriate matter to have ever been brought as a class action, or because of the intensity with which the defendants resisted it? Consider that there were two appeals to the Full Court of the Federal Court and two appeals to the High Court--even before the applicant had received a defence. The applicant won both Federal Court appeals. (60) The High Court had not heard the appeals to it at the time the case was discontinued as a class action. It is at least possible that the resulting expense contributed to the applicant's decision to terminate the class action.

The applicant's success in the Federal Court appeals suggests that the decision to bring the claim as a class action was appropriate. A consideration of the facts of Bright v Femcare offers further support for this view. (61) One of the functions of the class action regime is to provide a mechanism for resolving common questions. Among the common questions that could have been resolved in Bright v Femcare were whether the device was defective, whether the brochures distributed by the respondents provided sufficient information, and whether the device came out of calibration with repeated use. One outcome of the decision to terminate the claim as a class action was that many of the claims proceeded--and were ultimately settled--as individual medical negligence claims against doctors and hospitals in New South Wales, Queensland and Victoria. Any suggestion that this would have been less expensive than the class action mechanism to resolve the common questions is, as Finkelstein J remarked, 'inherently unlikely to be true.' (62)

Analysed on its merits, then, there is at least some evidence that this was an appropriate case to proceed as a class action. Perhaps this is what prompted Finkelstein J to describe as 'disturbing' the trend towards excessive numbers of interlocutory proceedings in class actions, and to attribute this trend, in part, to respondents' tactics of doing 'whatever is necessary to avoid a trial, usually by causing the applicants to incur prohibitive costs.' (63)

In most of the cases in which defendants have challenged use of the class action mechanism, they have been unable to argue successfully that the case would be run more efficiently as individual claims. (64) In our opinion, the aim is usually to ensure that the class action proceeding stops, making it likely that the individual claims will not run at all. If this is not the specific aim, then it is the result--for, as many judges and commentators have observed, the only way that most of these claims can be pursued at all is through the vehicle of the class action. Mansfield J recognised this reality in Gugliehnin v Trescowthick [No 2]:
   I am also mindful that an order under s 33N at this stage would
   effectively put out of court the group members. They are large in
   number. Their claims are relatively small ... It would simply be
   uneconomic for their individual claims to be pursued. It would also
   not be in the public interest including for the efficient and
   effective use of the court's resources to hear and determine one
   claim of one holder of the Holdings securities at 3 April 2001,
   without the other holders of Holdings securities at that time (and
   the respondents) also being bound by the determination of issues
   common to those other potential claims. (65)

These issues may be better understood by considering them within the factual context of King v GIO Australia Holdings Ltd. (66) Mr King, the representative applicant, had a claim for about $3000 damages. He could not have sued GIO, its directors and advisers for that sum because of the cost to bring and to defend such a claim. It was only through the mechanism of the class action that he was able to assert his own small claim. The legal costs of opposing the class action claim totalled approximately $30 million. Because of the availability of the class action regime, 22 000 shareholders received compensation of $97 million for corporate behaviour that had been roundly condemned. (67) After the class action had commenced, GIO's conduct also became the subject of an ASIC prosecution that was ultimately successful. (68) It is highly unlikely that any shareholder would have received compensation without the class action.

Class actions are commonly claims for significant monetary damages because they are commenced to address mass wrongs. It is understandable and appropriate that such large claims are strenuously defended by the respondents to the actions. However, the cost dynamics of class actions mean that even if the chances of success in a strikeout application are low, it is usually financially worthwhile for a respondent to make one. By this and related methods, some respondents have adopted a strategy whereby repeated applications are made to strike out proceedings combined with other applications on various technical points--and multiple appeals are pursued, almost regardless of merit or cost.

It would be naive to think that court processes are not misused by both plaintiffs and defendants. This problem is a recurring theme in discussions about civil justice reform. For example, Lord Woolf made the following observations in Access to Justice. Interim Report to the Lord Chancellor on the Civil Justice System in England and Wales:
   In the absence of any effective control by the court itself,
   however, the timetable is frequently ignored, and the lack of firm
   supervision enables the parties to exploit the rules to their own
   advantage. Such exploitation is endemic in the system: the
   complexity of civil procedure itself enables the financially
   stronger or more experienced party to spin out proceedings and
   escalate costs, by litigating on technical procedural points or
   peripheral issues instead of focusing on the real substance of the
   case. All too often, such tactics are used to intimidate the weaker
   party and produce a resolution of the case which is either unfair or
   is achieved at a grossly disproportionate cost or after unreasonable
   delay. (69)

Similar comments have been made about civil litigation in Australia. (70) Numerous interlocutory applications, and their consequent appeals, have become a feature of class actions in Australia. They have adversely affected the efficacy of such litigation as a remedy. They increase the costs of bringing an action, which inevitably reduce the willingness of applicants to bring them. The assertive case management philosophies expressed by Finkelstein J in Bright v Femcare and by Mansfield J in Guglielmin v Trescowthick [No 2] are the most effective way of counteracting this negative trend.

B Section 33N and 'Declassing' a Proceeding

Federal Court Act s 33N(1) provides that the Federal Court may, on its own motion or upon application by the respondent, order that a proceeding no longer continue as a class action if:

(a) the costs that would be incurred if the proceeding were to continue as a representative proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or

(b) all the relief sought can be obtained by means of a proceeding other than a representative proceeding under this Part; or

(c) the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members; or

(d) it is otherwise inappropriate that the claims be pursued by means of a representative proceeding.

This section has proved to be fertile ground for challenges to class action proceedings. Many statements of the law of class actions in Australia have occurred while considering s 33N. For example, the comments of Finkelstein J in Bright v Femcare were made in the context of a s 33N application by the respondents. His Honour criticised the strategy adopted by respondents of repeated applications, and then appeals, on issues related to pleadings, particulars and other procedural matters. (71)

As early as 1995, the adoption of s 33N in the Victorian legislation was strongly criticised. Chief among the criticisms presented in a report prepared for the Attorney-General's Law Reform Advisory Council was the extent to which s 33N had 'generated unnecessary litigation as most defendants, opposing class suits, have invariably relied on one or more [of the s 33N provisions] to argue that the court should stop the claims being pursued by means of a representative proceeding.' (72) We endorse the view set forward in the report that the Federal Court's power to terminate a proceeding, once it has satisfied the threshold requirements to proceed as a class action, ought to be very limited. (73)

In most class actions there are both common and individual questions in contention between the parties. Respondents often argue that some balance should be made between the individual and common issues and that, if the individual issues predominate, the case should be struck out as a class action. It is not difficult for such a respondent to generate numerous examples of individual questions which might be said to outweigh the common questions. (74) Notwithstanding the High Court's rejection of this approach in Wong v Silkfield, (75) similar arguments are still occasionally advanced. (76)

These arguments are misconceived. If there are any substantial common issues of law or fact, it is inherently more efficient to resolve them in one action for all group members than to have many trials on the same point. Any common question of fact or law which has some weight or significance need only be determined once in a class action, and thereby bind all class members and the respondent. Even if the proceedings are then 'declassed', the class action would still have saved significant amounts of time, costs and resources for the parties and the court. (77) If there is a strong case on the common questions and a judgment favourable to the applicant is obtained, the result is often settlement on a global basis. This avoids further litigation on individual issues and results in further savings for the parties and courts.

As we argued in the preceding section, s 33N applications are often made not out of a concern that the proceedings will be more efficiently and effectively conducted for the group members as individual proceedings, but rather in the expectation that the individual cases will not be conducted at all if the proceeding is 'declassed'. In response to the respondent's arguments in Bright v Femcare that the case could be more efficiently run as individual proceedings--an argument accepted at first instance but rejected on appeal--Finkelstein J stated:
   The only foundation for the finding that the costs of many
   individual actions are likely to be less than the cost of one
   representative proceeding is an unsubstantiated assertion by the
   solicitor acting for the first respondent. I say that the allegation
   is unsubstantiated because the solicitor provided no explanation how
   it might be that one action is likely to be less costly than many
   separate actions. For my own part, in the absence of a compelling
   explanation I would place no weight on such a statement because it
   is inherently unlikely to be true. Moreover, ... the total number
   of group members is not yet known. That circumstance alone is
   sufficient to render irrelevant the solicitor's evidence: How could
   he say that one representative action would be more costly than many
   actions when he is unable to specify the number of actions with
   which the comparison is being made? In any event l simply do not
   accept that one action can cost more than what may amount to
   hundreds of actions. (78)

The majority in Bright v Femcare confirmed that a key consideration under s 33N is whether it would be cheaper to run the matter as a class action or as individual actions. Their Honours also confirmed that whether it is 'in the interests of justice' that a matter no longer continue as a class action must be balanced against the legislative aims of efficiency and access to justice. (79)

It may be that the combined effect of Wong v Silkfield (80) and the restrictive manner in which the courts have interpreted Federal Court Act s 33N are sufficient to counteract the significant impact that the provision can have on the legislation's underlying aims. It is likely that the number of respondent applicants under s 33N have declined over time, as case law and judicial attitudes have defined its boundaries--though no apparent empirical evidence supports this view. However, as stated above, respondents still advance such arguments. The provision is too wide, especially s 33N(1)(c) and (d), and we suggest that discussion about legislative reform should strongly consider their removal.

C Constitution of the Class

Federal Court Act s 33C states that an applicant may begin a representative proceeding for some or all of the persons satisfying the s 33C criteria: that is, the persons having claims that arise out of the same, similar or related circumstances giving rise to a substantial common question of law or fact. This provision has frequently been used to enable persons to group together in a class action and to agree upon a way of bringing their claims forward, whether that be agreement as to the solicitor they will all retain, agreement as to contributions to a 'fighting fund', or agreement to obtain litigation funding.

Many class actions have been commenced and completed in which the claim is brought by an applicant on behalf of identified group members. In such cases, class members are usually set out in a schedule or list, even though it encompasses only some of the persons affected by the alleged wrong that is the subject of the action. Such lists have been the result of agreements between group members about the best way forward in particular cases, and have meant that not all victims of an alleged wrong fell within the class definition. (81)

In two recent decisions however, the ability of claimants to take this course has been significantly restricted. (82) In Aristocrat, (83) the group definition in the statement of claim was limited to the applicant and other persons 'for whom the solicitors for the Applicant have instructions to act at any particular time' who had acquired certain shares during a nominated period ('the solicitor criterion'). Stone J noted that the solicitors only accepted instructions from persons who entered into a retainer agreement with them, and that it was a term of each retainer agreement that the person also enter into a funding agreement with a nominated commercial litigation funder. Her Honour held that the solicitor criterion imposed an impermissible 'opt in' requirement contrary to the 'opt out' regime in Part IVA. (84)

In Media World, (85) Hansen J of the Supreme Court of Victoria followed and extended the operation of Aristocrat. Media Worm concerned an application by a group of experienced investors, who alleged that loss had been caused by the respondent's misleading conduct. These investors had considered their options for recovery, taken advice from several solicitors, selected one firm and finally elected to commence a class action on behalf of only those in their group. The class definition in the initial statement of claim was similar to that in Aristocrat, but was later amended so that the group members were identified by a schedule of the names of those who initially instructed the solicitors. The applicant contended that a group of claimants was entitled to bring an action for its own benefit and to specify itself in a list, without having to sue for all potential group members, and that this practice was not restricted by Part 4A of the Victorian Act. The applicant argued that there was no continuing obligation to retain particular solicitors because, once on the schedule, a person who ceased to retain the solicitors could still remain a group member. This was said to distinguish the situation from that in Aristocrat.

Hansen J rejected this distinction because the list had been compiled using the solicitor criterion, which his Honour held amounted to an impermissible opt in process for the same reasons given by Stone J in Aristocrat. (86) At the time of writing, the appropriate consequential orders to be made in Aristocrat and Media World are yet to be determined. For that reason, we will not analyse the decisions in detail and will only comment generally on their potential effect.

In our experience, victims of a mass wrong who are interested in pursuing a case often take the view that the litigation should be for the benefit of those who agree upon common arrangements for its efficient conduct. These arrangements might include, for example, contributing to a fighting fund, agreeing to particular funding arrangements, or agreeing to use and follow reasonable advice of shared solicitors. However, unless people can band together, class actions can only commence if a representative party comes forward. Such a party agrees to meet the cost of bringing the case for the benefit of all, and bears all the risk of an adverse costs order--yet obtains no benefit that could not be obtained in an individual action. This is a significant disincentive to use of the regime.

The decisions in Aristocrat and Media World may therefore reduce the efficacy of the class action mechanism. As a result, other mechanisms for aggregating claims, either in old-style representative proceedings or multiple applicant actions, will attract renewed attention. This would be an unfortunate outcome, because it was the difficulty associated with those other mechanisms for aggregating claims that led to the introduction of class actions in the first place. At the time of writing, there are at least two large claims in excess of $97 million that will not run as class actions as a direct result of the Aristocrat and Media Worm decisions. (87)

D Security for Costs

Until recently, security for costs was not a major concern in class actions. Courts were disinclined to make orders that might have the effect of forcing group members to contribute to a pool of funds to conduct the action. Such orders were considered to be contrary to the spirit of Federal Court Act s 43(1A), which limits the availability of costs orders to the named parties. (88) There was also concern that such orders might force applicants to bring their claims separately or abandon them altogether. (89)

In Bray v F Hoffman-La Roche Ltd, (90) Merkel J referred to his earlier decision in Woodhouse v McPhee. (91) In that decision, his Honour expressed concern that costs orders made by reference to the resources of a class would undermine the intent of the legislation:
   it would be incongruous and anomalous for Parliament specially to
   confer a direct costs immunity under s 43(1A), inter alia to afford
   represented persons greater access to justice, and then for the
   courts indirectly to remove the effect of that immunity by making
   orders for security for costs on the basis that the applicant is
   bringing the proceedings for the benefit of others who ought to
   bear their share of the potential costs liability to other parties.
   In my view, in order to deal with that incongruity and anomaly the
   fact that an impecunious applicant is bringing apt IVA proceeding
   for the benefit of represented persons, whilst a relevant
   consideration in favour of granting security, ought not of itself
   be as significant a consideration as it might otherwise be in
   favour of the granting of security. (92)

However, upon appeal to the Full Court, (93) Finkelstein and Carr JJ took a contrary view. Finkelstein J found that the characteristics of group members should be taken into account as a relevant factor in determining whether to make an order for security for costs. (94) Carr J found that whether an order should be made may depend on the financial circumstances of the group members and whether an order for costs might stifle litigation. (95)

If applications for security for costs may be determined by reference to the financial circumstances of group members, there is a real risk that many class actions will be unable to proceed. Applicants with small claims--and it is beyond dispute that this is one class of litigant for whom the legislation was enacted--may be unable or unwilling to pay the large security for costs orders made on the basis of the financial characteristics of group members over whom the applicant has no influence or control. This is particularly so where the order would be for a much larger sum than if the applicant had brought an individual claim. The class action regime is designed so that people and entities that fit within a specified class are members of that class unless they take an active step to opt out. In circumstances where group members may be large and financially strong, but have no interest in contributing to the costs of the litigation, there is a risk that the claim of the representative party may be stopped as a result of a security for costs order. This would undermine s 43(1A) and would also have the tendency to stifle genuine claims.

It may be suggested that it is unfair for respondents to incur costs with no prospect of security for those costs, in circumstances where there are some class members who are not the lead plaintiff but who have the resources to post security. This argument is unsound in principle and unworkable in practice. Defendants in class actions receive the same protection as that which they receive in other actions--that is, the court has discretion to make an order for security against the plaintiff. Nevertheless, the fact that no order can be made against a class member is often argued to be unfair. Such an argument presumes that respondents are entitled to greater protection in class actions--in the form of security for costs orders--than in other actions. It may be that this argument would be sounder in principle if an impecunious plaintiff was intentionally put forward as the lead plaintiff to ensure that no order for security could be made. However, there is no empirical proof that this occurs in practice. To the contrary, we suggest below that lead plaintiffs in major Australian class actions have usually been people of means. (96)

Significant practical problems are also raised by the suggestion that class members ought to be subject to security for costs orders. For example, consider the issue of unidentified class members. A decision to grant security for costs could not be based upon their resources, because there would be no evidence from which such an assessment could be made. One need only contemplate how such an order might be framed and enforced to realise that it would be impracticable. For the same reason, it cannot be suggested that class members of means should identify themselves, come forward and agree to assume the burden of a security for costs order, barring which the named plaintiffs and other class members will be unable to proceed with their action. This places a lead plaintiff at the mercy of class members over whom that lead plaintiff has no control. It follows that it must be the identified class members, not the unidentified ones, whose means would be considered by the court when deciding whether to make a security for costs order. However, the same issues of control exist. Just because they are identified does not mean they will agree to assume the burden of a security for costs order. A further problem is that if only the identified class members risk being subject to such an order, this would create a greater incentive for class members to remain unidentified until such time as the case has drawn to a close.

Two examples of class composition serve to illustrate these difficulties. The first class is that in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd, (97) the second from King v GIO Australia Holdings Ltd. (98) Both classes included some large corporations, each of which retained independent solicitors. These corporations identified themselves to the class lawyers but did not become lead plaintiffs. They presumably would have been advised that they could remain in the class without assuming the lead plaintiff burden and without taking any active part or interest in the litigation. They probably adopted that course because they thought that it was in their commercial best interests to do so. In such cases, is it practicable to suggest that their membership in the class and their means ought to be taken into account by a judge when making a security for costs order against an impecunious lead plaintiff? Taking this argument to its logical conclusion, if identified class members refuse to step forward and agree either to be the lead plaintiff or to take responsibility for a security for costs order, then everyone suffers--including the lead plaintiff, whose assets may be insufficient to meet such an order. (99)

The Bray v Hoffman Appeal decision may limit the willingness of individuals to become lead plaintiffs and lawyers to take on a class action. This would impose a significant restriction on use of the regime. Legislative change is required to make clear that only the applicant's resources are relevant to the determination of a security for costs application.

E Costs in Class Actions

The cost of conducting class actions means that a significant proportion of the damages payable to group members will often be consumed by solicitor--client costs. This cost is exacerbated by the satellite litigation--technical challenges, attacks on pleadings and other interlocutory applications--that has become commonplace in such actions. As the size of the damages 'pool' is reduced by the increasing solicitor-client costs, the action becomes less valuable for the group. One way of addressing this difficulty is for courts to respond favourably to requests for indemnity costs against respondents. However, Australian courts have hitherto proved reluctant to make such orders. (100)

Other jurisdictions have adopted various strategies to address these problems. In the United Kingdom, for example, conditional fee agreements may provide for an 'uplift' or 'success fee' of up to 100 per cent. (101) This is four times greater than the maximum amount permitted in those Australian jurisdictions that permit any uplift or success fee at all. The Canadian courts have also recognised the need to allow class lawyers' fees to reflect both the work done and the risk of non-payment. In Parsons v Canadian Red Cross Society, Winkler J restated the principle in the following terms:
   If the [Class Proceedings Act] is to achieve the legislative
   objective of providing enhanced access to justice then in large
   part it will be dependant upon the willingness of counsel to
   undertake litigation on the understanding that there is a risk that
   the expenses incurred in time and disbursements may never be
   recovered. It is in this context that a court, in approving a fee
   arrangement or in the exercise of fixing fees, must determine the
   fairness and reasonableness of the counsel tee. Accordingly, the
   case law that has developed in Ontario holds that the fairness and
   reasonableness of the lee awarded in respect of class proceedings
   is to be determined in light of the risk undertaken by the
   solicitor in conducting the litigation and the degree of success
   or result achieved. (102)

These United Kingdom and Canadian approaches address specific problems facing claimants by limiting the extent to which solicitor-client costs reduce damages awards and by increasing the willingness of lawyers to undertake such litigation. Reform of the rules regarding success fees would be consistent with the other common law jurisdictions. Such reform is an essential component of an integrated response to the problems created by the resource demands, cost and risk inherent in class action litigation. Recent comments of state law societies, in the context of discussions about the rise of commercial litigation funding in Australia, advocate this type of integrated approach. (103)

F Personal Costs Orders

A further difficulty facing applicants in class actions is the prospect of their lawyers being held responsible for adverse costs. No complaint can legitimately be made when a lawyer is ordered to pay the respondent's costs personally because of irresponsible recklessness, (104) abuse of process or similar conduct. However, the prospect of a costs order being made against the representative applicant's lawyers because the lawyers 'promoted' the litigation is an entirely different matter. Even the threat of seeking such an order can create difficulties for applicants in class actions. (105)

One of the arguments used to justify the availability of personal costs orders against lawyers who act on a conditional fee basis is that those lawyers 'promote' the litigation and should therefore be liable to pay adverse costs directly. (106) However, the threat of such an order can act as a significant deterrent, and may discourage lawyers from entering the market for class action legal services. In Tobacco Control Coalition Inc v Philip Morris (Australia) Ltd, (107) for example, the respondent tobacco companies threatened to apply for costs orders against the representative applicant's solicitors. They did so on the basis that the applicant company had been established solely for the purpose of bringing the action. As a consequence, the solicitors for the applicant withdrew, (108) As Lindgren J observed in Cook v Pasminco Ltd [No 2], it is important that solicitors remain free 'to undertake cases that appear to have little prospect of success', including class actions. (109) It would be a perverse result if conditional fee arrangements 'consistent with the highest standards of the profession' (110) operated to expose the solicitors providing the arrangement to liability for adverse costs orders.

G Actions against Multiple Respondents

Federal Court Act s 33C, and its analogue in the Supreme Court Act 1986 (Vic), requires that at least seven persons have claims against the same person or persons, and that the claims must arise out of the same, similar or related circumstances.

The first of these requirements has generated significant litigation. Some of the resulting decisions have had a deleterious effect on the availability of class actions as a remedy; in our view, they are incorrect and contrary to the intention of the legislation. These decisions have interpreted s 33C as requiring all class members to have claims against all respondents. Accordingly, if there is one applicant suing multiple respondents on behalf of a class then the applicant and every group member must have a personal claim against each respondent. (111) This position was confirmed by the Full Court of the Federal Court in Philip Morris, but is contrary to some earlier cases (112) and has subsequently been rejected by other courts. (113)

There are good reasons to question the correctness of Philip Morris. First, the aims of the class action legislation call for a broad interpretation 'that gives full effect to the benefits foreseen by the drafters.' (114) There is nothing in the language of Part IVA to justify an interpretation that compels a multiplicity of proceedings; indeed, this would be inconsistent with its aims. (115) Second, in several earlier decisions, the cases were permitted to proceed as class actions notwithstanding that not all of the class members were claiming against every respondent. (116) Third, other jurisdictions with similar provisions have not adopted the narrow Philip Morris approach, preferring instead a broad interpretation more consistent with the legislative aims. (117)

More recent decisions indicate that some judges do not accept the narrow interpretation. In Bray v F Hoffman-La Roche Ltd, Merkel J stated:
   While it is clear that s 33C(1)(a) requires that the applicant and
   each group member have a claim against the respondent it is not
   altogether clear that the same requirement was intended to apply
   where there were multiple respondents. As I later explain, the
   present case affords a good example of how the strict application
   of s 33C(1)(a), in a case involving more than one respondent, might
   give rise to requirements and limitations that have little to do
   with the purpose or efficacy of pt IVA. However, as a single judge
   I am bound to apply the principles enunciated by the Full Court in
   Philip Morris. (118)

When this matter reached the Full Court, the majority (comprising Finkelstein and Carr JJ) expressly rejected Philip Morris, deciding that each group member did not need to have a claim against each respondent. Finkelstein J stated:
   It seems to me that if Philip Morris be correctly decided, we are
   heading back in the direction of 1852. This result, so it seems to
   me, is so undesirable that it should be avoided at all costs
   unless, of course, parliament has mandated it in clear and
   unambiguous language. I am of the very firm view that there is
   nothing in the language of s 33C(1), when considered in isolation
   or in its setting, which requires that result.... I will not place
   a construction on s 33C which requires separate proceedings to be
   instituted. If it were impermissible to bring such an action, all
   the objectives of pt IVA, the reduction of legal costs, the
   enhancement of access by individuals to legal remedies, the
   promotion of the efficient use of court resources, ensuring
   consistency in the determination of common issues, and making the
   law more enforceable and effective, would be undermined. (119)

In contrast to the majority, Branson J considered herself bound by Philip Morris, but gave it only qualified support. (120)

Since these comments were made, there have been conflicting decisions. (121) So long as the issue remains unresolved, it will continue to cause practical difficulties for applicants in class actions involving multiple respondents. The resulting uncertainty is especially troublesome in complex commercial cases, in which wrongful conduct is frequently caused by various parties who may be responsible to varying degrees. The practical consequence of the narrow Philip Morris approach is that class actions can be used only against respondents whose wrongdoing is common to all class members. This is the result notwithstanding the fact that the case of some group members against individual wrongdoers may be stronger than the case that is common to all class members.

The Philip Morris approach also leads to artificial arguments about pleadings. Applicants are routinely exposed to interlocutory litigation on this issue which is expensive and can involve significant delay. (122) Some cases have been discontinued as a result. (123) In our opinion, tobacco litigation has taken a different course in Australia as a result of this interpretation of Federal Court Act s 33C. In practical terms, such a narrow approach has meant that claims for injury caused by smoking cannot be joined. (124)

The disturbing effect is that greater limitations may operate upon claims made in class actions than upon those made in individual actions. (125) Legislative amendments are necessary to incorporate the view of the Bray v Hoffman Appeal majority. Because of the approach taken in Philip Morris, a prudent applicant's lawyer may be required to balance the procedural advantages of a class action for his or her clients against the desirability of pleading a case against each respondent that is potentially liable. Given the uncertainty of the law on this point, prudence requires class lawyers to proceed on the basis that a court will, if asked, adopt the narrow interpretation of s 33C in a case involving multiple respondents.

H Settlement of Class Actions

Settlement difficulties are not unique to class action litigation in Australia. Settlement has been one of the areas of greatest attention in class action jurisprudence in North America, where the law is more developed. (126) One of the challenges is to ensure that the interests of class members are adequately protected. (127) A related issue is that the interests of the applicant and respondent and their lawyers may have converged by the time they agree on a settlement proposal, which means that any potential conflict of interest between the class representative and the other class members would not be mitigated by adversarial arguments. In Lopez v Star World Enterprises Pty Ltd, Finkelstein J noted that a judge's job in ensuring the fairness of a settlement 'is indeed an onerous one, especially where the application is not opposed.' (128) This is why it has been suggested that a hearing to approve a settlement is 'more akin to ex parte proceedings than adversarial ones.' (129)

Accordingly, to ensure that the interests of class members are protected, it is essential for the court to have a significant role in the approval or rejection of proposed settlements. (130) This is the approach that courts in Australia have adopted. (131) A class action cannot be settled or discontinued without the approval of the court. (132) The test is whether the proposed settlement is fair, reasonable or adequate in the interests of group members. In considering whether a proposed settlement satisfies this test, the courts will have regard to such factors as: the complexity and duration of the litigation; the reaction of the class to the settlement; the stage of the proceedings; the risks of establishing liability and damages; and the reasonableness of the settlement, in light of the best recovery and the risks of litigation. (133)

Notwithstanding these measures, other problems arise in the context of settlement. Some respondents seek to settle directly with group members rather than communicating offers through the solicitors for the class. The North American jurisprudence on this issue is clear: once a class is certified, such communications are prohibited. (134) Australian courts have preferred to regulate rather than prohibit such conduct. (135)

One risk of direct communication between respondents and class members is that class members may be misled about aspects of the claim or terms of the proposed settlement. Whilst it is impossible to know in advance whether a respondent will mislead a class member about the case or a settlement offer in a direct communication, it is clear that the interests of the two parties differ. There is therefore a real risk that communication between the respondent and the class members may not be entirely accurate and balanced.

A related problem is that it is often impossible for class members to be provided with independent legal advice about direct communications received from a respondent. For example, in the GIO class action, GIO contended that it was entitled to make individual settlement offers. In that case there were potentially 50 000 class members after the opt out period was closed. If the respondent had made 50 000 individual offers, then the best that the solicitors for the class could have done was to write 50 000 letters containing generic advice for those class members. The solicitors for the class could not have provided individual advice to those class members which took account of their individual situations.

In every class action, there are individual issues relevant to each individual class member's case. In a misleading and deceptive conduct case like the GIO class action, for example, there were individual questions as to the reliance by each class member on the misleading conduct and the quantification of damage. Similarly, in a mass tort class action like the Esso class action, where there were potentially more than one million class members, there were questions as to the existence of a duty of care in relation to the type of damage suffered by each class member and issues regarding quantification of the individual damage of each class member. (136) If settlement offers to class members are made in person, (137) it is impossible for the solicitors for the class to be present at each of those negotiations.

The potential negative consequences of this approach are evident when one considers how events unfolded in the Tasfast class action. That case involved a constitutional challenge to the Victorian class action legislation that went to the High Court, where the constitutional validity of the legislation was upheld. (138) While the case was on foot, loss adjusters for the respondents approached various class members directly and told them that the case would be appealed, that this would take several years, and that they could get 60 per cent immediately or risk getting nothing in several years. By the time the plaintiffs succeeded in the High Court, many of the claims had been settled for less than full value. (139) If the loss adjusters had been required to communicate the offer to settle for 60 per cent of the value of claims to the class lawyers, those class lawyers could have communicated the offers to the class members in a way that would have been more balanced and that would have drawn attention to the strengths as well as the weaknesses of the claims. This might have encouraged more class members to remain in the class action. The best response to this risk is for courts and class lawyers to ensure that communications from respondents are accurate and balanced. (140)

Finally, allowing individual offers of settlement is contrary to one of the central aims of the class action legislation, because it has the potential to reduce the size of the class to a point where it becomes uneconomical to continue. The cost-benefit analysis conducted by class members, the class representative and the class lawyers at the beginning of the action can be altered significantly if respondents are allowed to 'pick off' class members after the opt out date has passed. (141) No individual shareholder or other claimant is likely to be able to spend the large sums necessary to pursue an individual claim; his or her claim can only be pursued in the context of a class action. (142) The costs incurred in pursuing a class action can only be met if there is a large class with significant damages entitlements from which any solicitor-client costs incurred by the applicant's lawyers can be paid. Without such a class the applicant cannot be reimbursed for the fees that he or she has incurred for the benefit of the class. If the applicant's lawyer has conducted the case on a conditional fee basis, this diminishes the economic viability of pursuing the class action. If the respondent is able to reduce the class by settling with class members individually after the expiry of the opt out period, the economic viability of the class action may be lost and persons who would otherwise be able to make a claim will be unable to do so. This defeats the purpose of the legislation, which is one reason why it has been prohibited by some courts in the United States. (143)

Another significant effect of allowing respondents to pick off some class members by settling their claims after the opt out date is the increased burden of class legal costs which may ultimately fall on the remaining class members. The class members who individually settle may take the benefit of the litigation that has generated the settlement offer without being required to meet the same share of the legal costs incurred by the remaining class members. (144) Taken to its logical conclusion, the class action brought by the representative party may generate settlement offers being made by the respondent to all the class members, yet the representative party may be forced to meet all the costs of the proceedings without obtaining a fair share of these costs from other class members. (145)

One of the factors upon which respondents tend to rely to justify their right to communicate with unrepresented class members is that it is permitted by the traditional rules of professional conduct. (146) In our view this is another example of the unsuitability of using traditional rules to determine the manner in which class actions can best proceed. Although traditional rules of professional conduct may have permitted a lawyer to contact an unrepresented party, or respondents or their agents to contact group members directly, those rules were devised long before class action regimes were introduced. For the reasons previously explained, there are sound reasons for circumscribing contact between respondents and group members to a greater extent in class action proceedings than in other civil actions.

Two issues should be included in any contemplated reform of settlement procedures. First, endorsing Rachael Mulheron's suggestion, is a need for greater clarity regarding the criteria that courts use to determine whether settlement agreements will be approved. (147) Second, settlement communications between respondents and class members should take place only through the class lawyer. Even if this reform is not implemented, clearer guidelines are required on the extent to which respondents may communicate directly with class members.

I The Opt Out Notice

The consent of a person to be a class member is not required. (148) Instead, eligible parties are deemed to remain class members unless they opt out (149) before a date fixed by the court. (150) Class members are notified, usually by publication in newspapers, of the commencement of the proceedings and their right to opt out. The form and content of opt out notices must be approved by the court and are specific to each case. (151) However, opt out notices are now very similar.

The main challenges faced by applicants are disputes about the wording of such notices and the costs associated with their publication. One common respondent tactic is to seek to have the notice worded so that it is biased against participation in the class action. In the GIO class action, for example, some respondents sought to set out all of the negative consequences for class members if they stayed in the proceedings and none of the positive consequences of remaining in the class, (152) Another recent decision illustrates that this tactic is still employed on occasion. (153)

In large class actions, the cost of notices can be prohibitive, (154) In the Esso class action, Esso Australia Pty Ltd proposed a notice regime that required multiple large advertisements to be taken out in newspapers throughout Australia. To do so would have cost the applicant more than $400 000. (155) As with other aspects of class action litigation explored in this article, robust judicial supervision has proved to be the most effective way to control the opt out notice process and the time and costs issues that can arise.

J The Representative Party

A significant practical difficulty in class actions is finding a group member who is willing to be the representative party rather than just an ordinary group member. Both the federal and Victorian class action regimes provide that, except in limited circumstances, costs orders can only be made against the representative party or the respondent and not against the group members. (156) The exposure of a group member to costs liability is therefore so advantageous compared to that of a representative party that almost all claimants would elect to be group members. Any prospective class member must be advised of these costs issues, and any prospective representative party must be advised of the costs advantage enjoyed by a class member over a class representative. When such advice is given, people who were otherwise keen to bring a class action will often decline to be the representative party because of concerns about an adverse costs order. (157) Concern about the potential negative impact of the costs shifting rules figured prominently in the deliberations of the ALRC. (158) One expert commentator has observed that it is difficult to see 'who, properly advised, would agree to become a representative plaintiff' because of the adverse costs rule. (159)

A further concern sometimes expressed in discussions about class actions is that applicants' solicitors 'invariably select a man or woman of straw as the representative applicant [so as to] ensure that there is often no prospect of a respondent recovering their costs.' (160) The reality of class action litigation reveals that these concerns are ill-founded. A consideration of a number of Australian class action cases reveals that applicant's lawyers do not select representative parties because of their lack of resources and resulting inability to pay any adverse costs order.

In the GIO class action, for example, the applicant was an ordinary working Australian with approximately $150 000 equity in his family home in suburban Sydney. (161) In Spangaro v Corporate Investment Australia Funds Management Ltd, (162) the applicant was a businessman with significant assets. In Bray v Hoffman First Instance, (163) the initial applicant was an employed teacher with significant assets, and the second applicant was a pensioner who purchased a house in her name whilst the case was on foot and had equity of approximately $70 000 in that home. (164) Indeed, the final substituted applicants in that case were three Australian companies of significant worth. In the Esso class action the first applicant was a large tile company with a multi-million dollar turnover. (165) In all of these cases it would probably have been possible to find a woman or man of straw to be the representative party, but in none was that strategy adopted.

Even if such a strategy had been employed, there is nothing in either the legislation or ethical and professional conduct rules that places an obligation on an applicant's legal advisers to choose a representative party of means. In Cook v Pasminco Ltd [No 2], (166) for example, the respondents sought an order for costs against the applicant's solicitors personally for various reasons, including that they had strategically chosen a representative applicant who was an undischarged bankrupt. In the absence of evidence as to how the applicant was selected, Lindgren J did not draw an inference that the solicitors invited her to be the named applicant because of her status as an undischarged bankrupt. His Honour went on to make the following observations:
   faced with a number of potential representative parties, solicitors
   are not obliged to make a choice in the interests of the
   prospective respondent. No doubt a variety of factors may lead to
   one person rather than another becoming [the] representative party,
   such as: the proximity of the person to the solicitors' office;
   ease of communication between the solicitors and the person; degree
   of interest and involvement: likely performance as a witness: the
   facts of the individual cases.

   Assume now that one prospective representative party is a person
   whose means appear to be sufficient to meet, wholly or partially,
   an adverse costs order, while another is almost insolvent.
   Solicitors are not subject to any legal or ethical obligation to
   choose the former. Certainly they could not be criticised for
   choosing the latter. It might even be suggested (I express no
   view) that they owe a duty to the former to choose the latter,
   unless other factors suggest a different choice! (167)

The successful class actions to date in Australia have been possible because, notwithstanding these difficulties, some claimants have been prepared to take on the significant risks associated with being the representative party.

K Summary

Adverse costs orders, unclear threshold requirements, evasive posturing, and unresolved class communication issues continue to number among the main challenges faced by applicants in Australian class actions. We have analysed these challenges from the perspective of the access to justice and efficiency aims of the class action regime and have made some recommendations for change. Although we have identified a number of negative developments, we have also shown that many judges are willing to reject traditional approaches and attitudes in favour of the assertive case management role that is necessary if the aims of the legislation are to be achieved.

The following Part discusses the rise of litigation funding and its potential impact on the conduct of class actions in Australia.


In the Grouped Proceedings' in the Federal Court report, the Law Reform Commission recommended that third party funding of class actions be permitted, provided that any consideration for such funding would not be a share of the proceeds or the subject of the action. (168) The report explicitly acknowledged the capacity of third party funding to 'enabl[e] less wealthy individuals or groups to gain access to the courts' as one of the factors justifying such funding. (169) However, this was one of the recommendations in the report that was not enacted by the Parliament. Nevertheless, at least since 2003, commercial litigation funders have been prepared to fund Part IVA class actions. (170) They have increasingly been recognised by courts as making positive contributions towards the aims of the legislation and as accommodating the commercial realities of class action litigation. (171)

Early decisions invoked the doctrines of maintenance and champerty to invalidate litigation funding agreements with commercial funders. (172) However, this resistance to litigation funding has since given way to judicial endorsement of the constructive role that it can play in the conduct of litigation. The leading case is Fostif Appeal. (173) At first instance, the funding agreement was found to be invalid as champertous. The Court of Appeal acknowledged a need for change in attitude toward litigation funders:
   These changes in attitude to funders have been influenced by
   concerns about access to justice and heightened awareness of the
   cost of litigation. Governments have promoted the legislative
   changes in response to spiralling costs of legal aid. Courts have
   recognised these trends and the matters driving them. 'Ambulance
   chasing' still has negative connotations in many quarters, but it
   is now widely recognised that there are some types of claim that
   will simply never get off the ground unless traditional attitudes
   are modified. These include cases involving complex scientific
   and legal issues. The largely factual account in the book and
   film A Civil Action has demonstrated the social utility of funded
   proceedings, the financial risks assumed by funders, and the
   potential conflicts of interest as between group members in mass
   tort claims propounding difficult actions against deep-pocketed
   and determined defendants. (174)

Mason P observed that these changes and the principles on which they are based 'were reflective of goals consonant with the Overriding Purpose Rule ... and contemporary attitudes to civil litigation.' (175)

The effect of Fostif Appeal is that defendants have been confined to a narrow scope within which they can challenge the participation of a commercial litigation funder. (176) According to Mason P, a court would not be concerned about the arrangements between an applicant and a litigation funder unless those arrangements amounted to an abuse of process. They would only constitute an abuse if 'they have corrupted or have a tendency to corrupt the processes of the Court in the particular litigation'. (177) Barring such circumstances, it is 'simply no business of a defendant to be taking up the cudgels on behalf of the funded litigants.' (178)

In their submissions in support of their applications for special leave to appeal to the High Court, the applicants challenged this 'taking up the cudgels' comment, describing it as 'the notion that a respondent vexed with a champertous proceeding no longer has standing to complain of that circumstance.' (179) Among the issues that the High Court was asked to consider were: whether the Court of Appeal erred in holding that champerty no longer exists in modern law; (180) whether the public policy consideration underlying the torts of maintenance and champerty received inadequate attention from the Court of Appeal; and the constitutional question whether, given the participation of a litigation funder in the case, there was a 'controversy' of the kind required for the exercise of the judicial power of the Commonwealth. (181)

The respondents argued that the appropriate test was whether there had been an abuse of process and that, far from abusing court processes, the participation of the litigation funder actually assisted them. They also submitted that as this was a representative action, the intense judicial supervision that occurs in such cases would be sufficient to monitor and address any issues of improper use of court process. Counsel for Fostif Pty Ltd cited examples of class actions in which issues that arose regarding the participation of a litigation funder were addressed and dealt with at first instance and by intermediate courts. (182)

Leave to appeal was granted and a review of the High Court transcript reveals the Court's sensitivity to the role of class actions and commercial litigation funding in addressing access to justice issues. (183) It also exhibits caution about intervening in individual cases without more evidence about the nature of the funding arrangements, and awareness of the significant public policy issues raised by the appeals. In its recent decision, a majority of the High Court--comprising Gleeson CJ, Gummow, Hayne, Kirby and Crennan JJ--held that there was nothing about the litigation funding arrangement in that case that was either an abuse of process or contrary to public policy. (184)

These decisions reveal strong judicial endorsement of the capacity of commercial litigation funding to enhance access to justice. The judgments also reflect a realisation that complex class litigation entails significant commercial risks, and an awareness that funders of litigation can make positive contributions to its responsible conduct and management. As French J stated in QPSX Ltd v Ericsson Australia Pry Ltd [No 3]:
   Where [litigation funding agreements] involve the creation of
   budgets by funders knowledgeable in the costs of litigation it may
   inject a welcome element of commercial objectivity into the way in
   which such budgets are framed and the efficiency with which the
   litigation is conducted. The formulation of a budget limiting the
   amount of funding provided is, of course, different from the
   assumption by the funder of control of the conduct of the
   litigation. The court is in no position to pass definitive
   judgments on questions of the overall economic benefits to be
   derived from legitimate litigation funding arrangements. But the
   development of modern funding services in commercial litigation may
   be seen as indicative of a need in the market place to which those
   developments are legitimate responses. It is not for the court to
   judge them as contrary to the public interest unless it be shown
   that a particular arrangement threatens to compromise the integrity
   of the court's processes in some way.  (185)

Support for the growing role of commercial litigation funders has also come from the legal profession. The Law Council of Australia published a submission in favour of litigation funding in which it stated that such funding provides an important means of improving access to justice and should be encouraged. (186) The Council endorsed national regulations to protect consumers and create certainty for litigation funders. These views have been reiterated by the President of the Council, who encouraged the state and territory Attorneys-General to 'strike an appropriate balance between ensuring consumers are protected and facilitating the role of litigation funders in the judicial process', (187)

The Law Institute of Victoria has echoed the recommendations put forward by the Law Council of Australia. In a recent comment on general issues regarding the costs of litigation, the Chief Executive Officer of the Law Institute of Victoria noted the decline in legal aid funding for civil cases during the past 15 years. He observed:
   This creates a substantial access to justice issue for many
   individuals and businesses with meritorious cases who do not pursue
   them because they simply cannot afford to bring the action. While
   we can complain and protest about this situation and insist that
   additional funding be made available for legal aid to fund civil
   matters, the priority will be criminal matters.

   In these circumstances it is timely for the legal profession,
   governments and other bodies to look for other solutions to this
   problem. The growth of litigation funders is to be encouraged and
   it is clear that many cases would not have been pursued but for
   the involvement of funders. (188)

There have been some concerns expressed that support for commercial litigation funding may give rise to speculative claims. (189) While the development of commercial funding of class actions has the capacity to increase the number of class actions brought, there is little chance that the increase will include unmeritorious or speculative claims. The evidence indicates that litigation funders are very careful about the risks they assume; they gain nothing from funding and losing bad cases. It is reasonable to expect a publicly-listed litigation funder, with obligations to its own shareholders, or other private companies with obligations to their investors, to be careful not to embark upon speculative litigation. Evidence of their approach confirms that this expectation is reasonable. (190)

In the absence of commercial litigation funding, the result is that fewer solicitors are available to claimants. This is due to the limited number of law firms with the size, experience and preparedness to take on class action litigation on a contingency basis. Few firms could bear the cost and fewer still have shown that they are willing to do so. We are not suggesting that commercial litigation funding will ameliorate all issues of access to justice faced by class action claimants. Commercial litigation funders handle very large cases, leaving many smaller companies and individuals who will continue to face barriers to the enforcement of their legal rights. Other approaches and innovations are possible, including: state-funded and not-for-profit litigation funding; litigation insurance; and a relaxation of the rules regarding contingency fees. These options were among the suggestions made by the Law Council of Australia in response to the recent debate about litigation funding and access to justice. (191) Access to justice is undeniably a central aim of class action legislation, and commercial funding is no panacea for that objective. However, a robust commercial litigation funding market does represent a positive step towards its attainment.


In this article we have considered the development of class action litigation in Australia from the perspective of actual and potential applicants. We have identified the main factors that, in our view, are hampering the regime's continued development. Chief among these is the satellite litigation that has become an entrenched feature of class action proceedings and greatly increased their cost and duration. We have also described the outmoded and unsubstantiated attitudes, still prevailing in some quarters, that equate the pursuit of class actions with ambulance chasing, and that predict without examination or evidence a flood of litigation. Finally, we have identified examples of how rigid adherence to traditional litigation practices can impede rather than enhance access to justice and efficiency in class action litigation. Finally, we have made some constructive suggestions about issues that should be included on a reform agenda.

Approximately 10 years ago, one judge expressed the following view of the role, and the potential, of class action proceedings:
   Representative proceedings, especially those involving more than
   one respondent, need close judicial supervision.... The
   procedure has the potential to handle cases more efficiently than
   otherwise and to resolve cases that might otherwise remain
   unresolved. Its use will often require innovative answers to
   practical problems. Imaginative case management, and sensible
   attitudes by both bar and bench, will ultimately demonstrate that
   the representative proceeding provides a valuable addition to
   traditional procedures. (192)

These comments are as relevant now as they were when originally made. They capture the essential role of the judge in the conduct of class action proceedings, and emphasise the need for imagination and innovation. Perhaps most significantly, they remind us of the capacity of class actions to 'resolve cases that might otherwise remain unresolved.' (193)

(1) See Federal Court of Australia Act 1976 (Cth) pt IVA ('Federal Court Act').

(2) Law Reform Commission, Grouped Proceedings in the Federal Court, Report No 46 (1988).

(3) See Rules of the Supreme Court 1883 (UK) O 16 r 9, which provided that 'where there are numerous persons having the same interest in one course or matter, one or more of such persons may sue or be sued ... on behalf or for the benefit of all persons so interested', as cited in M D Chalmers and M Muir MacKenzie, Wilson's Supreme Court of Judicature Act (4th ed, 1883) 222.

(4) See Duke of Bedford v Ellis [1901] AC 1.

(5) See, eg, Supreme Court Rules 1957 (Vic) O 16 r 9.

(6) See, eg, Temperton v Russell [1893] 1 QB 435; Markt & Co Ltd v Knight Steamship Co Ltd [1910] 2 KB 1021; John v Rees [1970] Ch 345; Prudential Assurance Co Lid v Newman Industries Ltd [1981] Ch 229; R J Flowers Ltd v Burns [1987] 1 NZLR 260; Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398.

(7) See, eg, Law Reform Committee of South Australia, Report Relating to Class Actions, Report No 36 (1977); Law Reform Commission, above n 2.

(8) Law Reform Commission, above n 2.

(9) Commonwealth, Parliamentary Debates, House of Representatives, 14 November 1991, 3174 (Michael Duffy, Attorney-General). Similar comments have been made in the Victorian legislature in relation to that state's class action regime: see Victoria, Parliamentary Debates, Legislative Council, 4 October 2000, 429, 430-2 (M R Thomson, Minister for Small Business). For recent judicial consideration of the purposes of Federal Court Act pt IVA, see Dorajay Pty Ltd v Aristocrat (2005) 147 FCR 394, 422-3 (Stone J) ('Aristocrat'). This case is discussed below in Part IV(C).

(10) Marc Galanter, "Why the "Haves" Come Out Ahead: Speculations on the Limits of Legal Change' (1974) 9 Law and Society Review 95, 97, where the author describes 'one-shotters' as 'those claimants who have only occasional recourse to the courts', and 'repeat players' as those 'who are engaged in many similar litigations over time'.

(11) Ibid 98. Galanter refines the definition of repeat player to an '"ideal type" ... a unit which has had and anticipates repeated litigation, which has low stakes in the outcome of any one case, and which has the resources to pursue its long-run interests'. However, Galanter observes that repeat players will not necessarily exhibit all the features of this ideal type: at 98. For example, in the context of mass tort class actions, there will be some situations in which a typical repeat player--such as an asbestos manufacturer or a tobacco company--might have high stakes in a particular case because of the disastrous financial consequences of a loss.

(12) Ibid. Galanter's one-shorter will usually be a smaller unit than a repeat player and 'his claims may be so small and unmanageable ... that the cost of enforcing them outruns any promise of benefit': at 98. Applicants in a mass tort class action will not exhibit all the features of typical one-shotters, because of the capacity of the class action mechanism to narrow the power gap between applicants and respondents. It does this, for example, by giving applicants the power that comes from strength in numbers and access to experienced class action lawyers who, because of their experience, might themselves exhibit some of the features of repeat players.

(13) Ibid 97-8, where the author argues that it is best to think of the one-shorter and repeat player categories as a 'continuum rather than as a dichotomous pair'.

(14) See ibid 150-1 (citations omitted): 'The intensity of the opposition to class action legislation ... indicates the "'haves'" own estimation of the relative strategic impact of [class action proceedings]'. Galanter cites an official who supported Governor Ronald Reagan's veto of the California Legal Assistance programme: 'What we've created ... is an economic leverage equal to that of a large corporation. Clearly that should not be': at 151 fn 144.

(15) See, eg, Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 63 NSWLR 203, 226 (Mason P) ('Fostif Appeal'). His Honour also commented on 'deep-pocketed and determined defendants' and the ability of litigation lenders 'to make the forensic decisions necessary to deal with determined and well-informed opponents': at 235.

(16) See also below Part IV(A) for a discussion on the tactics of delay and attrition.

(17) This understanding has led to the label of 'private Attorneys-General' being applied by some observers to those who bring class actions. See, eg, Peta Spender, 'Securities Class Actions: A View from the Land of the Great White Shareholder' (2002) 31 Common Law World Review 123, 124; Deborah R Hensler et al, Class Action Dilemmas: Pursuing Public Goals for Private Gain (2000) 71-3; Barry Lipp, 'Mass Tort Class Actions under the Federal Court of Australia Act: Justice for All or Justice Denied?' (2002) 28 Monash University Law Review 361, 364. For examples of concerns about the role of 'litigation as a governance tool', see Deborah R Hensler, 'Revisiting the Monster: New Myths and Realities of Class Action and Other Large Scale Litigation' (2001) 11 Duke Journal of Comparative and International Law 179, 211-2.

(18) Law Reform Commission, above n 2, 33.

(19) Spender, above n 17. See also John C Coffee Jr, 'The Regulation of Entrepreneurial Litigation: Balancing Fairness and Efficiency in the Large Class Action' (1987) 54 University of Chicago Law Review 877.

(20) Jeremy Cooper, Deputy Chairman, AS1C, 'Corporate Wrongdoing: ASIC's Enforcement Role' (Paper presented at the International Class Actions Conference, Melbourne, 2 December 2005) 15 < ICAC2005_speech_021205.pdf/$file/ICAC2005_speech_021205.pdf>, where Cooper commented that:
   ASIC cautiously welcomes the emergence of the shareholder class
   action in Australia as a 'self help' mechanism whereby shareholders
   are able to seek damages for loss incurred at the hands of directors
   and advisers who negligently or dishonestly cause loss to those

   Vigilant shareholders and a vigorous, but appropriately balanced,
   shareholder class action landscape, will play an important part in
   maintaining the integrity of the equity capital market in years to

   The regulatory role of securities class actions has recently been
   a recurring theme in the Australian print media: see, eg, Marcus
   Priest, 'Class Actions Put Heat on Executives', The Australian
   Financial Review (Sydney), 8 July 2005, 56. This has been
   especially so in the wake of class actions against GIO Australia
   Holding Ltd ('GIO'): King v GIO Australia Holdings Ltd [2000] FCA
   1543 (Unreported, Wilcox, Lehane and Merkel JJ, 1 November 2000);
   and Aristocrat Leisure Ltd: Aristocrat (2005) 147 FCR 394.

(21) Letter from Stuart Wilson (Chief Executive Officer, ASA) to the Associate to the Presiding Judge (Federal Court of Australia), 12 October 2005. The ASA stated in its letter that:

We consider that the protections afforded to potential investors in shares against:

* the omission of information from a prospectus; and

* misleading or deceptive statements in a prospectus;
   by sections 710, 728 and 729 of the Corporations Act 2001 are
   critical to the interests of shareholders and potential
   shareholders, and to the proper operation of the Australian capital

   Given the vast sums of money that are regularly raised on the ASX by
   use of prospectus type documents, and the interest of the many tens
   of thousands of potential investors who rely upon them in making
   decisions as to whether to purchase shares, we consider that the
   appeal in this matter is of real public importance and respectfully
   request that its hearing be expedited.

See Cadence Asset Management Pty Ltd v Concept Sports Ltd (2005) 147 FCR 434 for the outcome of the appeal.

(22) See, eg, Craig Phillips, 'Class Actions--Quo Vadis? The Case for Restriction of Expansion' (Paper presented at the Corporate Law Conference, Melbourne, 24 September 1998) [7.1]-[7.4], as cited in ALRC, Managing Justice: A Review o)c the Federal Civil Justice System, Report No 89 (2000) 477-8 fn 249. See also Public Interest Advocacy Centre for Coalition for Class Actions (NSW), Representative Proceedings in NSW: A Review of the Law and a Proposal for Reform (1995) 25, as cited in ALRC at 477-8 fn 249; A Burrell and N Reece, 'Law Firms Duel for the Supremacy of a Class Act', The Australian Financial Review (Sydney), 16 July 1999, 26; Lucinda Schmidt, 'The Writ Stuff', Business Review Weekly (Melbourne), 23 July 1999, 64.

(23) Justice Stephen Charles, 'Class Actions in Australia' (Paper presented at the Australian Bar Association Conference, San Francisco, 18 August 1996).

(24) Mobil Oil Australia Pty Ltd v Victoria (2002) 211 CLR l, 73, 77 (citations omitted).

(25) (2000) 170 ALR 487 ('Philip Morris').

(26) Transcript of Proceedings, Nixon v Philip Morris (Australia) Ltd (Federal Court of Australia, Spender J, 10 November 1999) 258. These concerns are not restricted to the judiciary, but are shared by some members of the legal profession. This is evident in the following comments reported in Kate Marshall, 'Lawyers Win in GIO Class-Action', The Australian Financial Review (Sydney), 15 August 2003, 51, made at the time of the GIO class action:
   defence lawyers warned that corporate Australia could expect an
   explosion of class actions as 'entrepreneurial' plaintiff lawyers
   seize the opportunity to make money out of disgruntled shareholders
   by getting around fee restrictions.

   A litigation partner at Clayton Utz, Stuart Clark, said he had been
   warning anyone who would listen about the danger of 'Wild West
   bounty hunters' turned class-action litigators.

(27) On the one hand, the High Court has stated that 'no win, no charge' or conditional tee arrangements for impecunious litigants are consistent with the highest standards of the profession: see especially Clyne v New South Wales Bar Association (1960) 104 CLR 186, 203 (Dixon C J, McTiernan, Fullagar, Menzies and Windeyer JJ). On the other, entrepreneurial lawyers who bring class actions for large groups of plaintiffs, many of whom would not otherwise have the resources to pursue their claims, have been the subject of criticism: see, eg, above nn 24-6 and accompanying text.

(28) See above Part II(B).

(29) See below Part IV(C), (1), where we discuss the nature of the risks assumed by lead plaintiffs and the challenge of identifying a class member who is willing to assume those risks.

(30) See below Part V, where we consider the role of litigation funders in class actions, and the type of risk analysis they conduct before deciding to fund a class action.

(31) Federal Court Act s 33ZJ has not had the effect of reducing the need for aggregation. That provision makes it possible for lead plaintiffs to deduct from a damages award the difference between the 'party and party' costs that the defendant must pay and the solicitor-client costs that the lead plaintiff must pay to his or her lawyer. The provision is triggered, however, only where there has been an 'award of damages'--not where a case has settled. Comments made by Sackville J in Courtney v Medtel Pty Ltd (2002) 122 FCR 168, 188 ('Courtney') suggest that it is theoretically possible to construct a class action settlement in such a way that it is or includes an 'award of damages', but we are unaware of any case in which this has occurred. Lead plaintiffs, class lawyers and litigation funders would not be willing to forego aggregation and the security it provides on the basis that they might eventually succeed in having s 33ZJ construed in their favour in the event of a settlement. However, Federal Court Act s 33ZF does confer broad powers upon judges to make any order that they think is 'appropriate or necessary to ensure that justice is done in the proceeding'. This might conceivably be used to achieve in a settled case what is contemplated by Federal Court Act s 33ZJ for a case involving an 'award of damages'.

(32) These two aims featured prominently in the Grouped Proceedings in the Federal Court report: see Law Reform Commission, above n 2. See also above Part II(B).

(33) It may be that the need for early aggregation has become more pronounced as class actions have become more complex and expensive, and as institutional litigation funders have increasingly been relied upon to fund class action litigation. We are unaware of any empirical research that has considered this question.

(34) See, eg, APLA Ltd v Legal Services Commissioner (NSW) (2005) 219 ALR 403. See also John B Attanasio, 'Lawyer Advertising in England and the United States' (I984) 32 American Journal of Comparative Law 493.

(35) See Christine Parker, 'Regulation of the Ethics of Australian Legal Practice: Autonomy and Responsiveness' (2002) 25 University of New South Wales Law Journal 676, 694-5.

(36) Federal Court Act s 33X(1)(a).

(37) Coffee, above n 19, 900 (citations omitted).

(38) Use of the 'ambulance chaser' and 'bounty hunter' labels also tails to account for cases that come to class action lawyers through referrals from other lawyers or approaches by prospective members of a class. See Hensler, 'Revisiting the Monster', above n 17, 196-7.

(39) See ibid 180 (emphasis in original), where Hensler comments: 'Many ordinary Americans seem to think that class actions are a new-tangled litigation device invented by greedy plaintiff attorneys. (Outside the United States, the characterization is "greedy American plaintiff attorneys.")'.

(40) In debates preceding enactment of the Federal Court of Australia Amendment Bill 1991 (Cth), which instituted the Federal Court's class action regime, Senator Michael Tate stated:
   we have set our face firmly against some features of the American
   legal system such as contingency fees, which appear from my
   observations over there recently to drive the American legal
   system, rather than the merits of the issues themselves.

Commonwealth, Parliamentary Debates, Senate, 13 November 1991, 3025 (Senator Michael Tate, Minister for Justice and Consumer Affairs) (emphasis added).

(41) [2005] HCATrans 777, 15 (McHugh J, 30 September 2005).

(42) [2005] HCATrans 777, 15 (N C Hutley, 30 September 2005) (emphasis added).

(43) See Marc Galanter, 'Reading the Landscape of Disputes: What We Know and Don't Know (and Think We Know) about Our Allegedly Contentious and Litigious Society' (1983) 31 UCLA Law Review 4, 61-2. See also Stephen Burbank, 'The Roles of Litigation' (2002) 80 Washington University, Law Quarterly 705, 705-6.

(44) Galanter, 'Reading the Landscape of Disputes', above n 43, 71, where he asks: 'Could one imagine public health specialists or poultry breeders conjuring up epidemics and cures with such cavalier disregard of the incompleteness of the data and the untested nature of the theory?'

(45) See below Part V, in which we expand on the risk analysis inherent in litigation funding. See also Burbank, above n 43, 709 (citations omitted), where the author makes a similar argument in the context of litigation in the United States, referring to the empirical research conducted by Professor Herbert Kritzer into contingency tees as having debunked a resilient myth that
   the contingency tee is to blame for much of the supposedly
   frivolous litigation with which our courts are supposedly
   burdened. Of course, this myth is all the more surprising in the age
   of Law and Economics, since one would assume that, as rational
   actors, contingency fee lawyers pick and choose their cases, mindful
   that the dollars spent on losers are their own. Professor Kritzer's
   work has provided evidence that this assumption is correct and thus
   that those who regard frivolous litigation as a serious problem
   should look elsewhere for a whipping boy.

(46) Law Reform Commission, above n 2, 34, 144-5.

(47) The Grouped Proceedings in the Federal Court report states that 'the costs rules in grouped proceedings would act as a stronger disincentive to the commencement of blackmail suits than is the case for individual actions': ibid 145. These costs rules have been described in academic literature as a considerable barrier to bringing a class action: see Rachel Mulheron, The Class Action in Common Law Legal Systems (2004) 438; Vince Morabito, 'Federal Class Actions, Contingency Fees, and the Rules Governing Litigation Costs' (1995) 21 Monash University Law Review 231, 232.

(48) In addition to judicial concerns about legal entrepreneurialism, discussed above in Part III(A), concerns have also been voiced by some members of the legal profession about the negative impact that class actions are likely to have on doing business. For example, in 2004 The Australian Financial Review published an article by two senior Australian company lawyers which concluded that '[i]f the business community fails to lobby for legislative change at the federal, state and territory levels, class actions will become much more of an impediment to doing business in Australia': Stuart Clark and Greg Williams, 'Class Actions a Growing Threat', The Australian Financial Review (Sydney), 11 March 2004, 79. It is not clear from the article what type of legislative change should be the objective of the business community's lobbying; whether it is that the rights of persons to bring an action against members of the business community when they are aggrieved be removed, or that their ability to instigate or participate in a class action against members of the business community be taken away. The former is an extraordinary proposition but in reality the outcomes would be the same. Whether it is the underlying legal right or the availability of a class action procedure by which to enforce that right that is removed, the result would be to make ordinary people who have claims against members of the business community less willing and less able to pursue those claims.

(49) ALRC, above n 22, 479.

(50) Chief Justice Michael Black, Federal Court of Australia, 'Untitled' (Speech delivered at the International Class Actions Conference, Melbourne, 2 December 2005). See also Matt Drummond, 'ASIC Talks Up Class Actions', The Australian Financial Review (Sydney), 5 December 2005, 5.

(51) ALRC, above n 22, 477-8 (citations omitted). In this passage, the ALRC refers to Neil Francey, 'Class Action' (Paper presented at the New South Wales Bar Association Continuing Legal Education Programme, Sydney, 9 February 1998) [20].

(52) ALRC, above n 22, 479 (citations omitted).

(53) A related question is whether the 'costs follow the event' rule ought to be a part of a class action regime. In a report prepared for the Attorney-General's Law Reform Advisory Council, a recommendation was made against including the rule in the Victorian class action legislation: see Vince Morabito and Judd Epstein, Attorney-General's Law Reform Advisory Council, Class Actions in Victoria--Time for a New Approach, Project No 16 (1995) [7.22]-[7.28].

(54) See, eg, Sreika v Cardinal Financial Services Ltd [2000] FCA 1647 (Unreported, Tamberlin J, 23 November 2000) [9]; Batten v Container Terminal Management Services Ltd [2000] FCA 1493 (Unreported, Kiefel J, 22 October 2001) [12]; Wong v Silkfield Pty Ltd (1999) 199 CLR 255.

(55) See, eg, Bright v Femcare Ltd (2001) 188 ALR 633; Bright v Femcare Ltd (2002) 195 ALR 574 ('Bright v Femcare'); King v GIO Australia Holdings Ltd [2000] FCA 1543 (Unreported, Wilcox, Lehane and Merkel JJ, 1 November 2000); Aristocrat (2005) 147 FCR 394.

(56) See, eg, Petrusevski v Bulldogs Rugby League Club Ltd [2003] FCA 61 (Unreported, Sackville J, 14 February 2003); Philip Morris (2000) 170 ALR 487; Bright v Femcare (2002) 195 ALR 574.

(57) See, eg, Bright v Femcare (2002) 195 ALR 574, 577-83 (Lindgren J); Guglielmin v Trescowthick [No 2] (2005) 220 ALR 515, 527-31 (Mansfield J).

(58) See, eg, Philip Morris (2000) 170 ALR 487, 517-20 (Sackville J); Bray v F Hoffman-La Roehe Ltd (2003) 130 FCR 317, 344-6 (Carr J) ('Bray v Hoffman Appeal').

(59) (2002) 195 ALR 574, 581-2.

(60) See ibid; Femcare Ltd v Bright (2000) 100 FCR 331.

(61) The claim was brought by women who had undergone the Filshie clip sterilisation procedure against the inventor of the device and its Australian distributor. There were two groups of claimants: the women in one group had become pregnant after undergoing the sterilisation procedure, while the women in the second group had to undergo a second medical procedure as a result of the defective device.

(62) Bright v Femcare (2002) 195 ALR 574, 606. This issue is also considered below in the context of applications under Federal Court Act s 33N: see below n 78 and accompanying text.

(63) Bright v Femcare (2002) 195 ALR 574, 607-8.

(64) Cf ibid 606, where Finkelstein J noted that these arguments are unpersuasive.

(65) (2005) 220 ALR 515, 533.

(66) [2000] FCA 1543 (Unreported, Wilcox, Lehane and Merkel JJ, 1 November 2000).

(67) See Anthony Hughes, 'Shareholder Lawsuits Are Here To Stay, Companies Warned', The Sydney Morning Herald (Sydney), 9 August 2003, 45.

(68) See Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617.

(69) Lord Woolf, Department for Constitutional Affairs, United Kingdom, Access to Justice: Interim Report to the Lord Chancellor on the Civil Justice System in England and Wales (1995) [5.5], which is available at <>. Lord Woolf also stated, at [5.6], that there was considerable evidence that individual plaintiffs in personal injury cases 'are often forced to settle for inadequate compensation because of the delaying tactics employed by defendants' insurance companies' and that discovery is sometimes used in larger, commercial cases 'as a tactical weapon to intimidate a financially weaker opponent or to test the opponent's seriousness in pursuing the action.'

(70) Justice G L Davies has expressed concern that inequality of resources in litigation 'may compel a poorer opponent to expend more money than he or she can afford by engaging in time and cost wasting procedures thereby compelling the poorer litigant either to compromise unfairly or to give up': Justice G L Davies, 'The Reality of Civil Justice Reform: Why We Must Abandon the Essential Elements of Our System' (2003) 12 Journal of Judicial Administration 155, 158. Davies J also opines that 'a consequence of the [reforms] aimed at reducing party control over the litigation process has also been to reduce the extent to which one party can manipulate the system to his or her advantage and to the disadvantage of the other': at 161.

(71) Bright v Femcare (2002) 195 ALR 574, 605-8. The comments of Mansfield J in Guglielmin v Trescowthick [No 2] (2005) 220 ALR 515, 533 were also made in the context of a s 33N application.

(72) Morabito and Epstein, above n 53, [6.16].

(73) See ibid [6.19].

(74) See Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] Aust Torts Reports [paragraph] 81-692, where the argument was made even though all claims arose out of one explosion and fire.

(75) (1999) 199 CLR 255.

(76) See, eg, Bright v Femcare (2002) 195 ALR 574, 577-83 (Lindgren J); and, more recently, Aristocrat (2005) 147 FCR 394; Rod Investments (Vic) Pty Ltd v Clark [2005] VSC 449 (Unreported, Hansen J, 18 November 2005) ('Media World').

(77) See, eg, Zhang v Minister of Immigration, Local Government and Ethnic Affairs (1993) 45 FCR 384, 403-5 (French J).

(78) (2002) 195 ALR 574, 606.

(79) Ibid 605-6 (Finkelstein J).

(80) (1999) 199 CLR 255.

(81) See, eg, Lek v Minister for Immigration, Local Government and Ethnic Affairs (1993) 43 FCR 100; Nguyen v Minister for Immigration, Local Government and Ethnic Affairs (1996) 66 FCR 239; Finance Sector Union of Australia v Commonwealth Bank of Australia (2001) 111 IR 241; Woodlands v Permanent Trustee Co Ltd (1995) 58 FCR 139; Cameron v Qantas Airways Ltd (1995) 55 FCR 147; Magnus v South Pacific Air Motive Pty Ltd (1997) 78 FCR 456; Magnus v South Pacific Air Motive Pty Ltd [2001] FCA 465 (Unreported, Wilcox J, 27 April 2001); McIntyre v Eastern Prosperity Investments Pty Ltd [No 3] [2002] FCA 406 (Unreported, French J, 8 April 2002); Spangaro v Corporate Investment Australian Funds Management Ltd (2003) 54 ATR 241; Marks v GIO Australia Holdings Ltd [No 2] (1996) 66 FCR 128.

(82) See Aristocrat (2005) 147 FCR 394; Media World [2005] VSC 449 (Unreported, Hansen J, 18 November 2005).

(83) (2005) 147 FCR 394.

(84) Ibid 426-31 (Stone J).

(85) [2005] VSC 449 (Unreported, Hansen J, 18 November 2005).

(86) Ibid [39]-[41]. See also Aristocrat (2005) 147 FCR 394, 431 (Stone J).

(87) Maurice Blackburn Cashman Lawyers is instructed in three shareholder claims (Challenger Financial Services Group Ltd, Multiplex Ltd and Australian Wheat Board Ltd) in which proceedings will be issued under state (New South Wales) representative proceedings legislation rather than under Federal Court Act pt IVA as a direct result of the Aristocrat and Media World cases.

(88) Federal Court Act s 43(1A) provides:
   In a representative proceeding commenced under Part IVA or a
   proceeding of a representative character commenced under any other
   Act that authorises the commencement of a proceeding of that
   character, the Court or Judge may not award costs against a person
   on whose behalf the proceeding has been commenced (other than a
   party to the proceeding who is representing such a person) except
   as authorised by ... in the case of a representative proceeding
   commenced under Part IVA--section 33Q or 33R.

(89) See, eg, Ryan v Great Lakes Council (1998) 154 ALR 584; Ryan v Great Lakes Council (1998) 155 ALR 447 ('Great Lakes Appeal'); Woodhouse v McPhee (1997) 80 FCR 529; Bray v Hoffman Appeal (2003) 130 FCR 317.

(90) (2002) 118 FCR 1 ('Bray v Hoffman First Instance').

(91) (1997) 80 FCR 529.

(92) Ibid 533, referred to in Bray v Hoffman First Instance (2002) 118 FCR 1; and cited in Bray v Hoffman Appeal (2003) 130 FCR 317, 347 (Carr J).

(93) Bray v Hoffman Appeal (2003) 130 FCR 317.

(94) Ibid 374.

(95) Ibid 348-9.

(96) See below nn 160-7 and accompanying text.

(97) (2000) 104 FCR 564.

(98) [2000] FCA 1543 (Unreported, Wilcox, Lehane and Merkel JJ, 1 November 2000).

(99) The effect of the judgments of Finkelstein and Carr JJ in Bray v Hoffman Appeal is that an order for security can be made in an appropriate case against class members. This decision is contrary to the intent of the legislation embodied in Federal Court Act s 43(1A) and explained in earlier cases and the Grouped Proceedings in the Federal Court report: Law Reform Commission, above n 2. It might be more acceptable if limited to cases in which one or more class members of substantial means intentionally put forward an impecunious lead plaintiff to avoid a security for costs order. There is a risk, however, that arguments about whether this had occurred would become one more basis on which to make interlocutory applications and appeals, thus exacerbating the problems that such procedures already cause in class action litigation: see above Part IV(A). Further, the potential evidence and proof issues raised by such a qualification may render it unworkable in practice.

(100) See Graham Barclay Oysters Pty Ltd v Ryan [No 2] (2000) 102 FCR 307, 463 (Kiefel J).

(101) Conditional Fee Arrangements Order 1995 (UK) s 3, made pursuant to the Courts and Legal Services Act 1990 (UK) c 41, s 58(2).

(102) (1999) 49 OR (3d) 281,287-8 (citations omitted).

(103) See below nn 187-8 and accompanying text.

(104) Cook v Pasminco Ltd [No 2] (2000) 107 FCR 44, 57 (Lindgren J).

(105) Information provided by Bernard Murphy, based on enquiries made of Maurice Blackburn Cashman Lawyers, indicates that partners and employees of that firm have been told by opposing solicitors on at least eight occasions that they would be subject to personal liability for the costs of proceedings.

(106) See, eg, Phillips, above n 22, [7.5]. Similar arguments have been advanced in the context of respondents' opposition to the financing of class actions by litigation funders: see below Part V.

(107) Tobacco Control Coalition Inc v Philip Morris (Australia Ltd [2000] FCA 131 (Unreported, Wilcox J, 9 February 2000) ('Tobacco Control Coalition').

(108) Ibid [9].

(109) (2000) 107 FCR 44, 46. In Canada, personal costs orders are available only 'in the most unusual and extreme of cases': Gordon McKee, 'Class Actions in Canada: A Potentially Momentous Change to Canadian Litigation' (1997) 8 Australian Product Liability Reporter 84, 89.

(110) Clyne v New South Wales Bar Association (1960) 104 CLR 186, 205 (Dixon CJ, McTiernan, Fullagar, Menzies and Windeyer JJ).

(111) Philip Morris (2000) 170 ALR 487, 514 (Sackville J). However it should be noted that the point was not argued directly; rather, there was a concession made by counsel for the applicant, which the Federal Court affirmed. See also Tropical Shine Holdings v Lake Gesture Pty Ltd (1993) 45 FCR 457, 462 (Wilcox J); Symington v Hoechst Schering Agrevo Pty Ltd (1997) 78 FCR 164, 166-7 (Wilcox J); Ryan v Great Lakes Council (1997) 78 FCR 309, 312 (Wilcox J) ('Great Lakes First Instance'); Finance Sector Union of Australia v Commonwealth Bank of Australia (1999) 94 FCR 179, 186-7 (Wilcox, Ryan and Madgwick JJ); King v GIO Australia Holdings Ltd [2000] FCA 617 (Unreported, Moore J, 12 May 2000) [14]. It is not, however, necessary for each group member to succeed against each respondent. In King v GIO Australia Holdings Ltd [2000] FCA 1543 (Unreported, Wilcox, Lehane and Merkel JJ, 1 November 2000) [7] (Wilcox, Lehane and Merkel JJ), the court found that a claim does not necessarily equate to a successful judgment and that the Federal Court Act s 33C requirement for a claim was therefore met even if the claim was ultimately unsuccessful. This case was followed in Guglielmin v Trescowthick [No 2] (2005) 220 ALR 515, 522 (Mansfield J).

(112) See, eg, McMullin v ICI Australia Operations Pty Ltd (1997) 72 FCR 1.

(113) See, eg, Bray v F Hoffman La-Roche Ltd (2003) 25 ATPR [paragraph] 41-906.

(114) See Hollick v Toronto [2001] 3 SCR 158, cited in Vince Morabito, 'Class Actions against Multiple Respondents' (2002) 30 Federal Law Review 295, 304, where the Supreme Court of Canada commented on the Ontario provision equivalent to Federal Court Act s 33C.

(115) See Bray v Hoffman Appeal (2003) 130 FCR 317, 372-4 (Finkelstein J).

(116) See Morabito, 'Class Actions against Multiple Respondents', above n 114, 308-13.

(117) See ibid 315:
   As was the case with the practice of the Federal Court in the
   pre-Philip Morris era, permitting the use of the class action
   device in multiple respondent suits, without requiring compliance
   with a principle such as the Philip Morris principle, has not
   generated problems for Canadian courts--in managing class
   proceedings--nor has it resulted in unfairness for either class
   members or defendants in Ontario and British Columbia. At the same
   time, this approach has expanded the availability of the class
   action device in multiple respondent suits thereby facilitating
   the attainment of the important social goals of class actions.

(118) (2003) 25 ATPR [paragraph] 41-906, 46 505 (emphasis added).

(119) Bray v Hoffman Appeal (2003) 130 FCR 317, 373-4.

(120) Ibid 358-9.

(121) In Milfull v Terranora Lakes Country Club Ltd (in liq) (2004) 214 ALR 228, 229 (Kiefel J), his Honour, relying on Bray v Hoffman Appeal (2003) 130 FCR 317, observed that the requirement that each group member have a claim against each respondent 'no longer prevails'. However, in Guglielmin v Trescowthick [No 2] (2005) 220 ALR 515, 522 (citations omitted), Mansfield J stated:
   Most recently Tamberlin J in Johnstone indicated that the
   observations of Finkelstein J are obiter dicta, and considered
   himself bound by Philip Morris. I propose to adopt the same
   course. The applicant, through senior counsel, did not ask me to
   act otherwise.

(122) See, eg, Symington v Hoechst Schering Agrevo Pry Ltd (1997) 78 FCR 164; Great Lakes First Instance (1997) 78 FCR 309; Finance Sector Union of Australia v Commonwealth Bank of Australia (1999) 94 FCR 179; Philip Morris (2000) 170 ALR 487; King v GIO Australia Holdings Ltd (2000) 174 ALR 715.

(123) See, eg, Philip Morris (2000) 170 ALR 487.

(124) See ibid. For a consideration of a similar trend in tobacco litigation in the United States, see Robert L Rabin, 'The Third Wave of Tobacco Litigation' in Robert L Rabin and Stephen D Sugarman (eds), Regulating Tobacco (2001) I76, 186, where the author states that one of the reasons for a new surge in individual tobacco litigation cases in the United States was doubt about the willingness of courts to approve consolidation of tobacco claims.

(125) Damian Grave and Ken Adams observe that Philip Morris (2000) 170 ALR 487 imposes a more restrictive requirement than is found in the traditional representative proceedings, which were thought to be too restrictive and were replaced by the more expansive Federal Court Act pt IVA: Damian Grave and Ken Adams, Class Actions in Australia (2005) 112.

(126) On the settlement of class actions, see generally Mulheron, above n 47, ch 11. See also Grave and Adams, above n 125, ch 13.

(127) For consideration of this issue from various perspectives, see Hensler, 'Revisiting the Monster', above n 17, 189; Lipp, above n 17, 387-96; Coffee, above n 19, 825-7; Mulheron, above n 47; Grave and Adams, above n 125, chs 13-14.

(128) (1999) 21 ATPR [paragraph] 41-678, 42 670. There have been numerous criticisms of virtually every aspect of the class action settlement process. See the exhaustive review of the authorities in Mulheron, above n 47, 392-3, where the author concludes that while concerns about potential abuse of the class action settlement process are legitimate, they 'may tend to be overstated, and in any event, are hardly restricted to class actions jurisprudence': at 393. For criticisms of some aspects of the class action settlement process in an Australian context, see Lipp, above n 17, 387-96.

(129) Susan P Koniak and George M Cohen, 'Under Cloak of Settlement' (1996) 82 Virginia Law Review 1051, 1105.

(130) For a summary of the unusual view of the Scottish Law Commission that judges should play a very limited role in the monitoring of class action settlements, see Mulheron, above n 47, 393. The Commission's opinion seems to be based on an outmoded conception of the role of judges and a desire to apply to class actions the same rules of procedure that are used in non-class action litigation. This tendency arguably hinders the healthy development of class action regimes.

(131) See, eg, Reiffel v ACN 075 839 226 Pty Ltd [No 2] [2004] FCA 1128 (Unreported, Gyles J, 1 September 2004). Although the courts have taken an active role in the process of approving settlements, there is still some uncertainty as to which settlements courts are required to involve themselves in approving: see Courtney (2002) 122 FCR 168 181-2 (Sackville J); Bray v F Hoffman-La Roche Ltd [2003] FCA 1505 (Unreported, Merkel J, 19 December 2003) [16]-[24].

(132) Federal Court Act s 33V.

(133) Williams v FAI Home Security Pty Ltd [No 4] (2000) 180 ALR 459, 465 (Goldberg J). For general comments on the role of the judge in the class action settlement process, see Michael J Legg, 'Judge's Role in Settlement of Representative Proceedings: Lessons from United States Class Actions' (2004) 78 Australian Law Journal 58, 65-72. Mulheron observes that 'one of the most notable features of the class action regimes in [Australia, Canada and the United States] is the complete lack of statutory guidance by which the court should exercise its discretion in approving settlement agreements': Mulheron, above n 47, 397. The author argues that it is necessary to develop and apply statutory criteria to the facts of a proposed settlement: at 397-8.

(134) It may be suggested that because there is a certification process in the United States but none in Australia, the United States prohibition on defendant communication with class members for the purpose of settling has little relevance in the Australian context. However, this may be a distinction of little consequence because, as some commentators have observed, the judicial scrutiny provided by the United States certification process is available through a variety of other mechanisms in Federal Court Act pt IVA. See, eg, Mulheron, above n 47, 26-7 fn 28, and the sources to which the author there refers. In effect, there is a certification process in Australia, albeit with a different name (or names)--for example, applications under Federal Court Act ss 33C and 33N.

(135) See Courtney (2002) 122 FCR 168, 189 (Sackville J); King v GIO Australia Holdings (2000) 100 FCR 209. In Courtney, a regulation order was made setting out the manner in which the defendants could communicate with class members. An interesting avenue of research may be to enquire into the cases in which such regulation orders have been made, and then to enquire of defendants whether they pursued their right to communicate with the class members as described in the order.

(136) See generally Johnson Tiles Pty Ltd v Esso Australia Ltd (1999) 94 FCR 167; Johnson Tiles Pry Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564.

(137) See, eg, Tasfast Air Freight Pty Ltd v Mobil Oil Australia Ltd [2002] VSC 457 (Unreported, Bongiorno J, 22 October 2002).

(138) See Mobil Oil Australia Pty Ltd v Victoria (2002) 211 CLR 1.

(139) For those who stayed within the class action, the predictions regarding delay were accurate. The respondent unsuccessfully argued its jurisdictional case in the Supreme Court of Victoria, the Court of Appeal and then the High Court, which took several years.

(140) The claim of some respondents that they are free to communicate directly with group members is overstated, and even those respondents who have described the right broadly have also acknowledged that they must approach such communications with a great deal of care: see Brooke Davie, 'Guidelines for Communications with Unrepresented Group Members' (2002) 13 Australian Product Liability Reporter 89; Stuart Clark, 'Class Action Defendants Are Free To Communicate with Class Members' (2002) 13 Australian Product Liability Reporter 33.

(141) Grave and Adams express the view that 'respondents have sought to, on occasion, compromise those group members' claims that are most likely to succeed or that are the larger claims in terms of quantum. The intended effect is to remove or diminish the applicant's prospects of recovering costs': Grave and Adams, above n 125, 458. Such tactics may have a chilling effect on the growth of the class action jurisdiction by adding to the list of factors that discourage lawyers from taking up these cases, especially on a 'no win, no fee' basis.

(142) See, eg, Guglielmin v Trescowthick [No 2] (2005) 220 ALR 515, 533 (Mansfield J).

(143) See, eg, Resnick v American Dental Association, 95 FRD 372 (ND Ill, 1982); Kleiner v First National Bank of Atlanta, 751 F 2d 1193, 1207 fn 28 (Vance CJ) (11th Cir, 1985). However, there appears to be no consensus among American judges on this issue: see Vince Morabito, 'Judicial Supervision of Individual Settlement with Class Members in Australia, Canada and the United States' (2003) 38 Texas International Law Journal 663, 717-20.

(144) See Grave and Adams, above n 125, 371-2 for discussion of Sackville J's comments about 'freeloaders' in Courtney (2002) 122 FCR 168.

(145) A similar though not identical problem has arisen in the United States in the context of individual plaintiffs withdrawing from the class alter considerable work has been done by the class lawyers. One solution that has been devised in such cases is for the withdrawing parties to contribute to the costs incurred to the point at which they have withdrawn. The rationale is that if they pursue individual actions, they will have the benefit of the work (for example, discovery) that has been conducted in the class action: see generally Coffee, above n 19, 915-17, 925.

(146) This argument was successfully advanced by the respondents in Courtney (2002) 122 FCR 168. Sackville J accepted that there is nothing to prevent communication with group members, providing that such communication 'does not infringe any other law or ethical constraint (such as a professional conduct rule which requires solicitors to communicate with a represented group member through the latter's own legal representatives)': at 183.

(147) See Mulheron, above n 47.

(148) Federal Court Act ss 33E, 33J.

(149) Federal Court Act s 33E, with the exception of persons described in Federal Court Act s 33E(2).

(150) Federal Court Act s 33J.

(151) Federal Court Act s 33X.

(152) King v GIO Australia Holdings Ltd [2000] FCA 1869 (Unreported, Moore J, 20 December 2000); King v GIO Australia Holdings Ltd [2001] FCA 270 (Unreported, Sackville, Hely and Stone JJ, 20 March 2001).

(153) Petrusevski v Bulldogs Rugby League Club Ltd [2003] FCA 1056 (Unreported, Sackville J, 8 October 2003).

(154) Johnson Tiles Pry Ltd v Esso Australia Pty Ltd [2001] VSC 284 (Unreported, Gillard J, 17 August 2001).

(155) Affidavit of N J Styant-Browne, filed on behalf of the applicants, Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (Sworn on 22 September 1999) [20]. See also King v GIO Australia Holdings Ltd [2000] FCA 1869 (Unreported, Moore J, 20 December 2000) [3], [13], [20]-[22].

(156) See Federal Court Act ss 43(1A), 33Q(3), 33R(2) and the equivalent Victorian provisions: Supreme Court Act 1986 (Vic) ss 33ZD, 33Q(3), 33R(2).

(157) In the GIO class action, approximately 70-80 of the people who telephoned the eventual class lawyers regarding their losses were asked whether they would agree to be the lead plaintiff in the contemplated litigation before one agreed to assume that role.

(158) See Grave and Adams, above n 125, 446-7.

(159) Garry D Watson, 'Class Actions: The Canadian Experience' (2001) 11 Duke Journal of Comparative and International Law 269, 275.

(160) ALRC, above n 22, 486.

(161) King v GIO Australia Holdings" Ltd [2000] FCA 617 (Unreported, Moore J, 12 May 2000) [4]-[8].

(162) (2003) 47 ACSR 285.

(163) (2002) 118 FCR 1.

(164) Bray v Hoffman Appeal (2003) 130 FCR 317, 323-5 (Cart J).

(165) See Johnson Tiles Pty Ltd v Esso Australia Pry Ltd [2003] VSC 27 (Unreported, Gillard J, 20 February 2003).

(166) (2000) 107 FCR 44.

(167) Ibid 49 50. Stone J later granted leave to appeal from the order of Lindgren J that the applicant's solicitors pay the respondents' costs, albeit on another ground: Cook v Pasminco Ltd [2001] FCA 1277 (Unreported, Stone J, 7 September 2001).

(168) Law Reform Commission, above n 2, 129.

(169) Ibid. The Law Reform Commission gave as examples of third party funders, trade unions, consumer groups and environmental organisations. Recent judicial comments in Australia endorsing third party tending by commercial litigation funders have also relied on the access to justice rationale: see, eg, Transcript of Proceedings, Welcome to The Honourable Chief Justice Martin (Supreme Court of Western Australia, Martin CJ, 1 May 2006) 19 <>; QPSX Ltd v Ericsson Australia Pty Ltd[No 3] (2005) 219 ALR 1, 14 (French J); Fostif Appeal (2005) 63 NSWLR 203, 226, 227 (Mason P); (Campbells Cash & Carry Fostif Pty Ltd [2006] HCA 41 (Unreported, Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ, 30 August 2006) [142] (Kirby J).

(170) For example, the publicly-listed litigation funder IMF (Australia) Ltd is presently funding shareholders to obtain redress for alleged misleading and deceptive conduct in actions against Aristocrat Leisure Ltd, Concept Sports Ltd, Sons of Gwalia Ltd and ION Ltd: IMF (Australia) Ltd, Funded Cases (2006) < page.asp?content=fundedcases>.

(171) See, eg, Fostif Appeal (2005) 63 NSWLR 203; QPSX Ltd v Ericsson Australia Pty Ltd [No 3] (2005) 219 ALR 1, 14 (French J).

(172) For a description of the development of the law of maintenance and champerty, see the judgment of Gummow, Hayne and Crennan JJ ill Campbells Cash & Carry Pty Ltd v Fostif Pty, Ltd [2006] HCA 41 (Unreported, Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ, 30 August 2006) [68]-[82].

(173) (2005) 63 NSWLR 203.

(174) Ibid 226 (Mason P).

(175) Ibid. The reference to the overriding purpose rule is to the Civil Procedure Act 2005 (NSW) s 56(1), which states: 'The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.'

(176) See also Spatialinfo Pty Ltd v Telstra Corporation Ltd [2005] FCA 455 (Unreported, Sundberg J, 22 April 2005).

(177) See Fostif Appeal (2005) 63 NSWLR 203, 229. For an endorsement of this aspect of the case, see the comments of Stone J in Aristocrat (2005) 147 FCR 394, 415.

(178) See also QPSX Ltd v Ericsson Australia Pty Ltd [No 3] (2005) 219 ALR 1, 3, 12 16 (French J), where his Honour notes the ability of the applicants to protect their own interests.

(179) Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd [2005] HCATrans 777, 7 (A C Archibald, 30 September 2005).

(180) In response to this submission, McHugh J stated:
   But, Mr Archibald, this is all about public policy. The judges made
   this particular aspect of public policy and the judges are entitled
   to change it. The reason for the change is that the courts have
   been influenced by concerns about access to justice and a
   heightened awareness of the cost of litigation. In those
   circumstances the view is taken by the Court of Appeal that what
   they referred to as the modem law in respect of champerty does not
   make this either champerty or an abuse of process.

Ibid (McHugh J).

(181) The 'controversy' issue was raised in Mobil Oil Australia Pty LM v Trendlen Pty Ltd, which was heard with the Fostif special leave application: Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd [2005] HCATrans 777, 6, 22 (Gleeson CJ, 30 September 2005). Mobil Oil Australia Pty Ltd v Trendlen Pty Ltd involved the participation of a litigation funder in a representative proceeding in New South Wales to recover petrol licence fees. Counsel for Trendlen Pty Ltd submitted that the effect of participation of a litigation funder in this case was 'the conversion of rights into instruments of commerce': at 7 (N C Hurley). A similar argument was made unsuccessfully in Aristocrat (2005) 147 FCR 394, 416 (Stone J), where Aristocrat Leisure Ltd failed to establish that the proceeding was an abuse of process.

(182) See Clairs Keeley (a firm) v Treacy (2003) 28 WAR 139; Clairs Keeley (a firm) v Treacy (2004) 29 WAR 479; Clairs Keelev (a firm) v Treacy [2005] WASCA 86 (Unreported, Steytler P, Roberts-Smith and McLure JJA, 10 May 2005). For a recent consideration of these cases, see Carman Yung, 'Litigation Funding: Officious Intermeddling or Access to Justice?' (2005) 15 Journal of Judicial Administration 61, 74-80.

(183) See Campbells Cash & Carry Pty Ltd v Fostif Pty, Ltd [2005] HCATrans 777 (30 September 2005).

(184) See Campbells Cash & Carry, Pty Ltd v Fostif Pty Ltd [2006] HCA 41 (Unreported, Gleeson CJ, Gummow, Kirby, Hayne, Callinan, Heydon and Crennan JJ, 30 August 2006) [88], where Gummow, Hayne and Crennan JJ stated:
   The appellants' submissions can be seen to fasten upon Firmstones'
   [the litigation funder] seeking out those who may have claims, and
   offering terms which not only gave Firmstones control of the
   litigation but also would yield, so Firmstones hoped and expected,
   a significant profit to Firmstones. But none of these elements,
   alone or in combination, warrant condemnation as being contrary
   to public policy or leading to any abuse of process.

(185) (2005) 219 ALR 1, 14. See also Jamie Richardson and Michael O'Brien, "Men in Tight Financial Situations: Litigation Funding in the 21st Century' (2005) 79(12) Law Institute Journal 26, 27, where the authors discuss the capacity of commercial litigation funding to enhance access to justice, and continue 'but beyond its obvious appeal to the impecunious, litigation funding may also offer a risk management tool for plaintiffs wishing to lay off downside litigation risks in return for a percentage of potential returns'.

In Spatialinfo Pty Ltd v Telstra Corporation Ltd [2005] FCA 455 (Unreported, Sundberg J, 22 April 2005), a litigation funding agreement required the applicant to notify the funders of the terms of any proposed settlement, and authorised the funder to request that the applicant obtain the advice of senior counsel whether settlement should occur and as to its terms. Sundberg J found that this was not inappropriate or excessive control, but 'merely protective of the funders' investment': at [32]. Similarly, Sundberg J found that the funder's right to terminate 'is an almost unavoidable feature of a litigation funding agreement.... [T]he funders would be very unlikely to fund a case without a right to terminate': at [33].

(186) See Submission to Standing Committee of Attorneys-General, in response to Litigation Funding in Australia, 14 September 2006 (Law Council of Australia).

(187) John North, 'Litigation Funding: Much To Be Achieved with the Right Approach' (2005) 43 Law Society, Journal 66, 69.

(188) John Cain, 'Aiding Access to Justice' (2005) 79(12) Law Institute Journal 6, 6, where the author endorses a scheme of moderate regulation of litigation funders.

(189) See Priest, 'Class Actions Put Heat on Executives', above n 20; Marcus Priest, 'Class Actions Diluting Disputes', The Australian Financial Review (Sydney), 26 August 2005, 56.

(190) Priest, 'Class Actions Put Heat on Executives', above n 20.

(191) North, above n 187, 68-9. See also Chris Dale, 'An End of Year Challenge" (2004) 78(12) Law Institute Journal 4, 4:
   Whatever may be said about the cost of litigation, one thing is for
   sure, there must be more inventive ways of funding it.... [W]hat
   else is available to meet the cost of litigation and overcome the
   suggestion that, in the superior courts at least, litigation is
   only available for the rich, very poor, large corporates or

(192) Justice Murray Wilcox, 'Representative Proceedings in the Federal Court of Australia: A Progress Report' (1996) 15 Australian Bar Review 91, 97-8.

(193) Ibid.


* BJur, LLB (Monash); Chairman of the Board, Maurice Blackburn Cashman Lawyers.

([dagger]) BA (St Mary's), LLB (New Brunswick), LLM (Cantab); Professor, Faculty of Law, The University of Melbourne.
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Author:Murphy, Bernard; Cameron, Camille
Publication:Melbourne University Law Review
Date:Aug 1, 2006
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