Skip to content.

Home

Allens Arthur Robinson

Focus: Civil Justice Reform – June 2008

VLRC civil justice reform report: class actions

In brief: The Victorian Law Reform Commission has conducted a wide-ranging review of the Victorian civil justice system, with a view to reducing the cost, complexity and inefficiency of civil proceedings. Following a lengthy consultation process with stakeholders and the release of two exposure drafts, the VLRC released its Civil Justice Review report on 28 May 2008. Partner Peter O'Donahoo (view CV) and Senior Associate Susie Stone explore some of the more contentious proposals on class actions and litigation funding. Over the coming weeks, the proposals dealing with the role of experts and pre-trial examinations and discovery will be the subject of further Focus articles.

How does it affect you?

  • The VLRC's report contains 177 recommendations across a variety of areas, including the use of alternative dispute resolution, standards of participants' conduct in civil litigation, and the cost of litigation. For companies that tend to be involved in complex, large-scale litigation, the recommendations of most interest are those dealing with:
    • class actions;
    • litigation funding;
    • the role of experts; and
    • pre-trial examinations and discovery.
  • The Victorian Government has indicated that it will now consider the VLRC's proposals carefully. If accepted, their impact on the civil justice system is likely to be significant.
Class actions

Chapter 8 of the Victorian Law Reform Commission's (VLRC) report, Improving Remedies in Class Actions, makes nine recommendations with respect to class actions.

Technical amendments to the existing provisions

Two of the VLRC's recommendations address 'technical' issues concerning the interpretation of Part 4A of the Supreme Court Act 1986 (Vic) (the Act) (and Part IVA of the Federal Court of Australia Act 1976 (Cth), which contains equivalent provisions). In order to resolve two particular areas of legal controversy, the VLRC recommends that:

  • there should be no legal requirement that all class members have legal claims against all defendants in class action proceedings, but all class members must have a legal claim against at least one defendant; and
  • there should be no legal impediment to a class action being brought on behalf of a smaller group of individuals or entities than the total number of persons who may have the same, similar or related claims, even if the class comprises only those who have consented to the conduct of proceedings on their behalf.

The first recommendation raises the prospect of disparate claims being heard together, thereby increasing the cost, length and difficulty of the class action and outweighing the intended benefits of the class action procedure. On this point, the VLRC suggests that even if it is not a legal requirement that all class members have a claim against all defendants, the court nonetheless retains the discretion to order that certain claims not proceed as part of the class action proceedings if such claims are truly disparate.

With respect to the second recommendation, there is a real risk that allowing groups of individuals to band together to pursue a class action may lead to multiple proceedings by various groups or individuals with similar claims against the same defendant. The resulting burden on both defendants and the court's time and resources would run counter to the aim of reducing the cost and inefficiency of the civil justice system. The VLRC, however, points to the existing powers of the court to stay new proceedings until existing proceedings are determined, or to order that different proceedings be consolidated, as being sufficient to address this issue.

Cy-pres remedies

Of the remaining recommendations with respect to class actions, the VLRC's key recommendation is that the Supreme Court should have the discretion to order cy-pres remedies (effectively, public interest distribution of damages) in class actions where:

  • there has been a proven contravention of the law;
  • a financial or other pecuniary advantage has accrued to the person contravening the law as a result of such contravention;
  • the loss suffered by others, or the pecuniary gain obtained by the person contravening the law, is capable of reasonably accurate assessment; and
  • it is not possible, reasonably practicable or cost effective to identify some or all of those who have suffered a loss.

Under this recommendation, moneys could be redistributed from a defendant to a public interest group selected by the court through a cy-pres trust where the proper recipient of those moneys cannot be identified. In effect, the courts would be adopting a role traditionally reserved for the legislature.

Moreover, there is risk that people outside the group on whose behalf the class action proceedings are brought, might subsequently commence further proceedings in circumstances where the defendant has already 'disgorged' the amount of the loss and damage suffered by those persons. While the VLRC acknowledges this risk and refers to some possible means of addressing it, no recommendations are made.

The balance of the VLRC's recommendations deal with how the power to order cy-pres remedies might be exercised. For example, it recommends that:

  • the power to order cy-pres-type remedies should include a power to order payment of some or all of the amount available for cy-pres distribution into the Justice Fund (discussed below); and
  • subject to leave of the court, people other than the parties to the class action proceeding may be permitted to appear and make submissions in connection with any hearing at which cy-pres orders are to be considered by the court.

Return to top

Litigation funding

The VLRC makes eight recommendations regarding litigation funding, based on the perceived need to achieve greater access to justice in the civil justice system (see chapter 10 of the VLRC's report). The key recommendation is that a new funding body, the Justice Fund, be established to:

  • provide financial assistance to parties with meritorious civil claims; and
  • provide indemnity for any adverse costs order or order for security for costs made against the party assisted by the fund.

The remaining seven recommendations address the operation of the Justice Fund. It is clear that the Justice Fund, if implemented, would have a significant impact on class action litigation. Indeed, the VLRC's report notes that while the operation of the Justice Fund would not be limited to class actions, it 'is likely to be in demand in class action litigation and likely to derive substantial revenue from class action proceedings'. In this context, one of the VLRC's recommendations is that the Justice Fund should seek to become self-funding, including by taking a share of the total amount recovered by the class in assisted class actions, or by receiving funds by court order in cases where cy-pres-type remedies are available.

Of most concern for potential defendants, the VLRC recommends limiting the legal liability of the Justice Fund for adverse costs. In particular, the VLRC recommends that, during its first five years of operation, the liability of the Justice Fund for any order for costs or security for costs made against the funded party should be limited, by statute, to the value of the costs incurred by the assisted party, which the Justice Fund is required to pay to the lawyers acting for the assisted party under the funding agreement. The Justice Fund would have a discretion to pay some or all of the shortfall between the amount ordered by way of adverse costs or security for costs against the assisted party and the amount of such costs for which the Justice Fund is liable. Similarly, the VLRC recommends that, at any stage of the proceedings, the Justice Fund or the assisted party could apply to the court for an order limiting the amount of costs that the assisted party may be ordered to pay to any other party if the funded party is unsuccessful in the proceedings. These recommendations would effectively subvert the costs indemnity rule that applies in Australia, leaving defendants exposed to substantial legal costs that cannot be recovered, even in the event of success.

It should be noted that the VLRC does not address the need for regulation of third-party, commercial litigation funders, because this issue is currently being considered by the Standing Committee of Attorneys-General. The only recommendation made by the VLRC is that parties should be required to disclose in the course of the proceeding the identity of an insurer or litigation funder that exercises control or influence over the conduct of the insured or assisted party, and the court should have discretion to order disclosure of a party's insurance policy or funding arrangement if it thinks such disclosure is appropriate. It remains the case that litigation funders are not subject to regulation as to the percentage of damages they can retain or the control they can exercise over the conduct of proceedings. Further, in absence of prudential regulation, defendants facing funded proceedings cannot be sure that they will be able to recover the costs of successfully defending those proceedings from the funder.

Return to top

Conclusion

The VLRC's recommendations with respect to class actions and the funding of litigation raise particular concerns for potential defendants. The State Government's response to those recommendations will be keenly anticipated.

Return to top

For further information, please contact:

Return to top

Bookmark with

What are these?

[Recent publications]

Recent Litigation & Dispute Resolution publications