Keeping it classy
26 Jul 2023
Industry experts discuss the global class actions landscape and what comes next
Image: imageflow/stock.adobe.com
Bryan Gray
Brand ambassador
Goal Group
Ronald Koo
Principal lawyer
Maurice Blackburn
Charlie Morris
Chief investment officer, EMEA & APAC
Woodsford
Ben Phi
Managing director
Phi Finney Mcdonald
How has the class action landscape evolved over the past few years?
Bryan Gray: Class action litigation has become a prominent feature of the legal landscape in Australia and other jurisdictions in recent years. It was only in 1988 that the Australian Law Reform Commission (ALRC) issued its first recommendation that a class actions procedure be introduced in the Federal Court of Australia.
In the report, the federal court expressed its aim to retain “access to justice” by reducing the cost of court proceedings to the individual, while improving the individual’s ability to access legal remedies.
In 2018 the ALRC issued a further report (ALRC Report 134), which focused on the integrity, fairness and efficiency of the class action process. It found that contrary to fears that there would be an ‘explosion’ of litigation in class action matters, these fears had, in large measure, not materialised.
To date, the cases that have been brought under the regime reflect a broad range of both commercial and non-commercial causes of action, including shareholder and investor claims, anti-cartel claims, mass tort claims, consumer claims for contravention of consumer protection law and environmental claims.
A significant development has also been the growth of third-party litigation funding. Another important development has been the expansion of the range of cases that can be brought as class actions. While class actions were initially limited to consumer and investor disputes, they are now being used for competition law, product liability and environmental disputes.
I think we are likely to see future cases involving greenwashing as more shareholders hold the companies they invest in to account for factors such as net-zero commitments.
An interesting feature of the Australian class action landscape has been the relatively high rate of out-of-court settlements. According to an Australian Securities and Investments Commission (ASIC) report, approximately 90 per cent of class actions in Australia settle before going to trial. This is in part due to the risks associated with going to trial, particularly in complex cases, as well as the costs of litigation.
Ben Phi: The Australian class action landscape remains heavily influenced by the availability of litigation funding and the limited introduction of solicitors’ contingency fees in the Supreme Court of Victoria via group costs orders (GCOs).
The current Australian Federal Government has unwound many of the measures taken by the previous government that were intended to reduce the availability of litigation funding and reduce access to justice. As plaintiff law firms increasingly look to self-fund shareholder class actions under the Victorian GCO regime, litigation funders have been increasingly open to funding different kinds of actions – most notably competition, consumer and environmental contamination claims.
There continues to be a number of overlapping or competing class actions being introduced by different law firms in relation to the same underlying claims. The courts have grappled with this challenge by determining which proceeding (or proceedings) should continue. They evaluate a range of factors that include the proposal to fund the proceeding, the scope of the claims and group member definition, and the manner in which the proceeding has been conducted. Courts have also had to manage overlapping claims brought in different jurisdictions, by transferring or connecting certain proceedings.
In the last three years, a much higher proportion of class actions have been going to trial rather than settling. This has increased costs and the timeframe to settle. It has also led to complexities in resolving the claims of the class after a successful judgment. While a party-to-party costs order might require respondents to pay 50 to 70 per cent of the applicant’s costs, the overall costs to be deducted from any settlement are generally much higher than a pre-trial settlement.
Ronald Koo: Lawyers are now permitted to charge their legal costs as a percentage of any recovered amount in a class action. This has only been introduced in the state of Victoria and is limited to class actions. By enabling legal costs to be charged as a percentage of any amount recovered, GCOs have generally simplified the economics of a class action and provide clarity regarding likely returns for group members.
GCOs are also achieving their intended aim of increasing competition in the class action market and encouraging downward pressure on pricing. Some of the GCO funding structures proposed in various cases have seen proposed total legal costs fall to unprecedented levels.
The second landscape shift has been the continuing increase of competing actions where two or more proceedings are separately commenced but relate to overlapping legal and factual matters.
There is now a relatively established body of case law on the likely assessments that a court will undertake when seeking to resolve competing proceedings. However, there remains uncertainty as to how those assessments will be determined.
The competitive environment is unlikely to abate; this is simply a reflection of Australia being a mature class actions jurisdiction.
Charlie Morris: Collective redress is becoming commonplace. In an increasingly globalised world, where consumers and other stakeholders interact and do business with large multinational corporations, the only viable way for those consumers and stakeholders to have proper redress — in the event they are wronged — is through collective action.
While certain jurisdictions, such as the US and Australia, have long benefitted from class action regimes (which continue to develop and mature), other jurisdictions have been slower to catch on. However, that is changing fast — there is real momentum as governments and authorities around the world seek to implement class action regimes.
In Europe, the EU has introduced the Collective Redress Directive, which EU Member States are in the process of implementing. In the UK, the collective action regime in the Competition Appeal Tribunal (implemented in 2015) is maturing, and the UK’s Supreme Court gave important guidance on how representative actions can be brought in its 2021 decision in the case of Lloyd versus Google.
Scotland’s first class action regime was introduced in 2020. In June 2022, New Zealand’s Law Commission published its final report on class actions, making numerous recommendations for the implementation of a class action regime. These are just a few examples of how class action regimes are becoming more prevalent, jurisdiction by jurisdiction.
Another key factor driving this change is the ever-burgeoning litigation funding industry. As legal aid has all but disappeared, providers of litigation finance have stepped in to enable these actions for mass redress to be pursued, removing the risks involved in litigation from the consumers and other stakeholder claimants.
This allows them to access justice against well-resourced opponents, which would not have been previously possible.
What role do class actions play in an active ownership or investment stewardship strategy for funds and other institutional investors?
Morris:As stewards of their investee companies, investors have a responsibility to hold companies to account. The UN Principles of Responsible Investment (UN PRI) actively promote engagement by stakeholders, including institutional investors and with their investee companies. This includes collaborative engagement, where stakeholders combine to take action together.
When early engagement efforts flounder, the UN PRI acknowledges the importance of escalating engagement, and, if necessary, litigation. If and when that becomes necessary, class actions are a vital tool in an institutional investor’s armoury.
They allow investors to act collectively, bringing power in numbers and increasing the prospects of holding their investee companies to account while changing behaviours for the greater good and for the long term.
Koo: For institutional investors with an active ownership strategy, class actions offer an avenue to achieve potentially significant litigation outcomes without having to exert much individual effort or upfront expense.
Class actions also enable participants to send a signal to the market that investors are concerned about improving market integrity and corporate governance and the adherence to disclosure laws.
Australian regulators such as ASIC have publicly acknowledged the de facto regulatory role that class actions play in maintaining the integrity of the equity capital market.
Whether an institutional investor is driven by financial compensation, active ownership, ESG considerations or investment stewardship, class actions are an important mechanism for achieving those drivers in a manner that is economically viable. It rebalances dynamics in large-scale litigation.
Gray: At Goal Group, we see class actions sitting alongside a wider active ownership or investment stewardship strategy. From my experience in the Australian market, large institutional investors typically engage with the companies they invest in, either directly or through external asset managers they appoint, to try to change poor company behaviour. Sometimes this engagement is successful and sometimes it’s not. Often, the only remaining option investors have is to dispose of their holding.
With the significant number of companies that a major pension fund or fund manager invests in across multiple jurisdictions, it’s not always possible to engage directly with each of the companies who may have been involved in wrongful conduct.
Participating in a class action alongside other impacted shareholders provides an efficient mechanism for redress and accountability. They can send a message to boards and management that they are serious about holding the company accountable for its actions and are looking to promote good corporate governance.
Many institutional investors are also seeking to promote their strong ESG objectives in line with the values of their members or clients. Participation in class actions can also support these ESG objectives by promoting corporate responsibility and accountability in areas such as climate change impact, labour and human rights violations and diversity action. Such actions can help to drive the behaviours of company management towards more sustainable business practices.
Phi: Class actions strengthen investment stewardship strategies by providing a consequence for the company’s failure to proactively implement appropriate forms of governance. Ensuring that companies are accountable for legal wrongdoing carries longer term benefits through increased awareness and compliance. Further, class actions offset investor losses. Active institutional investors can also play a critical role in improving settlement outcomes at mediation.
What factors are currently hindering effective participation in class actions, globally?
Phi: Probably the biggest challenge is complexity. There are significant and material differences in class action regimes that apply in different jurisdictions. Some jurisdictions have no class actions procedure, while others limit class actions to specific causes of action.
In those jurisdictions, there may be an inferior regime, such as a consolidation or grouping of large claims, or a ‘test case’ approach. Where class actions are prevalent (Australia, the US, Canada, Israel), the biggest challenge is to establish high participation rates among group members, which requires multi-channel communications to ensure as much of the group as possible is made aware of the litigation.
Gray: The primary challenge to effective class action participation is access to data. In most cases, accurate holding and transactional data is a key requirement. Oftentimes, the courts require this information to be certified by a custodian or, in some jurisdictions, by the local custodian in a particular market.
Goal has established strong working relationships with all of the major custodians who are servicing our clients and we are usually able to access securities transactions and holding data from seven to 10 years ago.
However, on occasion, obtaining this information from prior custodians has proven difficult, particularly where there has been a change of custodian along the way — the custodian may have left the market entirely. Working alongside the custodians, Goal has obtained access to their online systems, so our team is able to obtain more timely answers to data queries.
Obtaining data for some of the antitrust class actions, such as futures data or foreign exchange transactional data, has been more challenging than securities data. In some cases, custodians have simply not been able to provide this information and that has precluded some of our clients from participating in these cases.
In certain jurisdictions, there are particular data requirements. In the UK market, there is a need to demonstrate reliance on particular statements made by corporations or information that they disclose to the market. Given the reliance framework operating in the UK, it has been incumbent on the client to demonstrate what type of information they relied upon when making investment decisions.
Morris: The main challenges are posed by defendants, their insurers and the political lobbyists who seek to stymie meritorious legal claims by shutting down class action mechanisms.
This often makes it more difficult for claimants to obtain funding for their actions.
Particularly in opt-in group actions, but also in opt-out class actions, defendants seek to make participation as burdensome as possible in the hope that a ‘war of attrition’ will cause meritorious claims to be abandoned or cause class members to withdraw or opt out.
The cost of bringing class actions is often prohibitively high. Litigation finance assists in unlocking these actions.
However, there are a large number of valuable actions which are not pursued because the significant cost of pursuing them is not justified by the potential returns. J
urisdictions that introduce class action regimes must work hard to devise a regime that is inexpensive and efficient, as that will allow for greater access to justice for harmed stakeholders.
Koo: As mentioned above, one the biggest changes in Australia in the last five years has been the rise in competing actions where two or more proceedings are separately commenced in relation to factual and legal issues that overlap.
Competing proceedings have caused some difficulties for the institutional investors who seek to participate in Australian class actions. This is due to the complexity of navigating competitive situations and deciding on which, if any, proceeding to join.
A further challenge to effective participation tends to be the considerable resourcing required to monitor and participate in recovery actions within Australia (and also other jurisdictions). Few institutional investors have dedicated resources to commit to recovery activities. These are likely some of the reasons why we have observed increased interactions with third-party recovery specialists or claim aggregators.
Institutional investors appear to be outsourcing more frequently to such service providers, which tend to be fluent with class action developments in our jurisdiction and are able to reduce the reporting and monitoring costs for both sides.
As law firms now compete in class actions against the same companies, how do participants decide which action to support? What can we expect to see in terms of trends?
Koo: The key consideration for group members, when faced with competing proceedings, is to assess which proceeding is likely to maximise a group member’s recovery return. The maximisation of one’s recovery is largely driven by the overall total pricing.Traditional funding structures tend to be more costly when compared to cases with GCO (lawyer contingency fee) structures. In traditional funding structures, group members must pay both funders and lawyers. Group members have to pay a funding commission to the funder and, on top of that, the legal costs of the firm running the proceeding.
By comparison, the majority of GCO arrangements approved to date have been ‘all-in’ structures where the total fee rates have found an equilibrium of around 22 to 27.5 per cent of any outcome. In other words, GCOs operate as a cost cap and, in those cases, group members can expect a recovery of 72.5 to 78 cents in every dollar returned — regardless of the costs incurred by a law firm.
Therefore, any relative cost assessment between competing proceedings should account for additional layers of cost and the total financial impact on one’s potential return.
A law firm’s recovery track record should also be considered for competitive proceedings. A firm’s track record is arguably the best indicator that group members have to determine how competing firms are going to perform, and who is likely to end up with a strong recovery for group members.
For instance, in Australian listed securities class actions, Maurice Blackburn is the only Australian firm to date that has managed to obtain a recovery sum exceeding AUD $100 million. It has now achieved this eight times.
Gray: Over the past few years, we have seen a number of competing law firms undertake class actions for the same corporate failure. In some cases, as many as three different law firms can commence proceedings against a company at the same time. This occurs in Australia and in other jurisdictions around the world. It makes it very difficult for Goal’s institutional clients to determine which action to support.
Many of those clients ask for our advice on which action to support, but we make it clear that Goal doesn’t provide advice or recommend particular legal firms. Goal’s role is to be an impartial independent administrator that provides a highly efficient process to ensure our clients can participate effectively in the case of their choice.
However, to assist them, we work with each of the competing law firms to obtain all the facts on the case in pursuance – merits of their case, funding arrangements and relevant documentation. We then distil these responses into a report for our client. It outlines all of the information we have available to help them decide which case to support.
There is some evidence that competing class actions may create competition that reduces commission charges to shareholders. As a result, we will likely see continued class action competition.
In the Australian market, there is a mechanism to allow the Australian Federal Court to manage competing class actions and promote efficient resolution of claims. The Australian Federal Court can consolidate cases, issue stay orders or transfer competing class actions between state jurisdictions to ensure the interest of group members are protected and the proceedings are conducted in a fair and efficient manner.
Morris: Over time, participants will, and will need to, become more sophisticated when analysing different propositions that are presented to them. Competition between law firms and their funders in the class action space is generally a positive development for class members. Although it can sometimes be confusing and difficult to choose which action to support, the competition is healthy and tends to result in lower cost and much better returns for class members.
Phi: Group members are encouraged to speak to advisors and put questions to the firms conducting competing class actions, to determine which offers the better option. While some group members will wait until the court determines the carriage questions, those that are engaged in the process and understand the strengths and weaknesses of competing actions can ‘vote with their feet’ and provide a strong basis for a particular firm to be preferred, while being mindful of all the options on the table.
This rewards firms that have carefully calibrated their strategy to provide better outcomes for group members, as well as those firms that consistently provide quality and timely client service to the group members on whose behalf the proceeding is brought.
Securities class actions in the UK are a relatively recent development. How do you think the UK class actions landscape is evolving?
Morris: The UK doesn’t have a specific class action regime for securities class actions, therefore most securities actions in the UK have been brought as ‘group actions’ where each investor is a named party to the litigation. This has occasionally resulted in investors being burdened by the travails of litigation, such as providing disclosure and evidence.
However, in some of the most advanced Woodsford securities actions in the UK, significant gains have been made in recent times. For example, in the Woodsford actions brought against RSA, Serco and G4S, the English Court ordered a split trial, effectively bifurcating the defendant’s liability from claimant-side issues, with the defendant’s wrongdoing to be examined at a first trial.
More recently, Woodsford securities actions in the UK have been brought by way of representative action, where one investor, acting on behalf of many others, seeks declarations from the court that the defendant has knowingly breached its disclosure obligations (both to it and the investors it represents).
Again, this should ensure that ‘common’ or defendant-side issues are addressed first before investors are required to prove ‘individual’ issues, such as reliance, causation and loss. The defendants facing these representative actions have sought to fight them hard, in some cases filing strikeout applications.
The first such applications are due to be heard in the Woodsford actions against Reckitt Benckiser and Indivior in November 2023, with judgment to follow. The outcome of those applications could be transformative for securities actions in the UK; watch this space!
Phi: While the UK’s class actions regime is nascent, it has the potential to become one of the world’s leading class action jurisdictions. Competition class actions are increasingly plaintiff-friendly, enabling an ‘opt-out’ mechanism that has supported litigators acting on behalf of entire classes, resulting in competition class actions increasing six-fold over the last year.
The case of Lloyd v Google has arguably increased the power and scope of the ‘representative proceeding’ mechanism to include shareholder class actions, potentially allowing investors to passively participate in class actions as they would in Australia, Canada or the US.
As the UK class action landscape continues to develop, we expect it will remain favourable to plaintiffs, and will likely offer a new and significant avenue for large scale investor redress.
Gray: The UK has a relatively new class action landscape compared to the US, but it seems like it has been growing in recent years. We have seen more cases being initiated which we’ve presented to our clients and that they have participated in.
Several UK law firms we work with have indicated that the Lloyd v Google case provided some useful clarification relating to representative class actions, even though the case was in the context of data protection.
In late 2021, Richard Lloyd brought an opt-out class action against Google in the UK Courts on behalf of more than four million iPhone users who were allegedly affected by a Safari system workaround that Google had implemented. This allowed Google to harvest browser generated information (BGI) from iPhone users without their knowledge.
Google used this BGI to target advertising that generated significant revenue for the company. Lloyd argued that the four million iPhone users should be compensated for the value of their BGI used without their knowledge.
Ultimately, Lloyd’s claim failed. However, the court did make several interesting comments supporting the use of representative actions. These actions can include a claim where no individualised assessment is needed in situations where the entitlement can be calculated. This is on a basis that is common to all members of the class. They also stated that there is scope for a bifurcated process. If the damage claim did require individualised assessment, there may be merit in the process being split to allow a first stage representative action. This would decide common issues of fact or law. A second stage of proceedings would be introduced to determine individual damages and liability issues.
The law firms we have spoken to believe this may assist them to take an initial action without having to deal with specific issues of damage impact or reliance in the early stages. It will be interesting to see how the UK class actions landscape changes, but whatever happens we will be here to support client participation in the UK and in other jurisdictions around the world.
Brand ambassador
Goal Group
Ronald Koo
Principal lawyer
Maurice Blackburn
Charlie Morris
Chief investment officer, EMEA & APAC
Woodsford
Ben Phi
Managing director
Phi Finney Mcdonald
How has the class action landscape evolved over the past few years?
Bryan Gray: Class action litigation has become a prominent feature of the legal landscape in Australia and other jurisdictions in recent years. It was only in 1988 that the Australian Law Reform Commission (ALRC) issued its first recommendation that a class actions procedure be introduced in the Federal Court of Australia.
In the report, the federal court expressed its aim to retain “access to justice” by reducing the cost of court proceedings to the individual, while improving the individual’s ability to access legal remedies.
In 2018 the ALRC issued a further report (ALRC Report 134), which focused on the integrity, fairness and efficiency of the class action process. It found that contrary to fears that there would be an ‘explosion’ of litigation in class action matters, these fears had, in large measure, not materialised.
To date, the cases that have been brought under the regime reflect a broad range of both commercial and non-commercial causes of action, including shareholder and investor claims, anti-cartel claims, mass tort claims, consumer claims for contravention of consumer protection law and environmental claims.
A significant development has also been the growth of third-party litigation funding. Another important development has been the expansion of the range of cases that can be brought as class actions. While class actions were initially limited to consumer and investor disputes, they are now being used for competition law, product liability and environmental disputes.
I think we are likely to see future cases involving greenwashing as more shareholders hold the companies they invest in to account for factors such as net-zero commitments.
An interesting feature of the Australian class action landscape has been the relatively high rate of out-of-court settlements. According to an Australian Securities and Investments Commission (ASIC) report, approximately 90 per cent of class actions in Australia settle before going to trial. This is in part due to the risks associated with going to trial, particularly in complex cases, as well as the costs of litigation.
Ben Phi: The Australian class action landscape remains heavily influenced by the availability of litigation funding and the limited introduction of solicitors’ contingency fees in the Supreme Court of Victoria via group costs orders (GCOs).
The current Australian Federal Government has unwound many of the measures taken by the previous government that were intended to reduce the availability of litigation funding and reduce access to justice. As plaintiff law firms increasingly look to self-fund shareholder class actions under the Victorian GCO regime, litigation funders have been increasingly open to funding different kinds of actions – most notably competition, consumer and environmental contamination claims.
There continues to be a number of overlapping or competing class actions being introduced by different law firms in relation to the same underlying claims. The courts have grappled with this challenge by determining which proceeding (or proceedings) should continue. They evaluate a range of factors that include the proposal to fund the proceeding, the scope of the claims and group member definition, and the manner in which the proceeding has been conducted. Courts have also had to manage overlapping claims brought in different jurisdictions, by transferring or connecting certain proceedings.
In the last three years, a much higher proportion of class actions have been going to trial rather than settling. This has increased costs and the timeframe to settle. It has also led to complexities in resolving the claims of the class after a successful judgment. While a party-to-party costs order might require respondents to pay 50 to 70 per cent of the applicant’s costs, the overall costs to be deducted from any settlement are generally much higher than a pre-trial settlement.
Ronald Koo: Lawyers are now permitted to charge their legal costs as a percentage of any recovered amount in a class action. This has only been introduced in the state of Victoria and is limited to class actions. By enabling legal costs to be charged as a percentage of any amount recovered, GCOs have generally simplified the economics of a class action and provide clarity regarding likely returns for group members.
GCOs are also achieving their intended aim of increasing competition in the class action market and encouraging downward pressure on pricing. Some of the GCO funding structures proposed in various cases have seen proposed total legal costs fall to unprecedented levels.
The second landscape shift has been the continuing increase of competing actions where two or more proceedings are separately commenced but relate to overlapping legal and factual matters.
There is now a relatively established body of case law on the likely assessments that a court will undertake when seeking to resolve competing proceedings. However, there remains uncertainty as to how those assessments will be determined.
The competitive environment is unlikely to abate; this is simply a reflection of Australia being a mature class actions jurisdiction.
Charlie Morris: Collective redress is becoming commonplace. In an increasingly globalised world, where consumers and other stakeholders interact and do business with large multinational corporations, the only viable way for those consumers and stakeholders to have proper redress — in the event they are wronged — is through collective action.
While certain jurisdictions, such as the US and Australia, have long benefitted from class action regimes (which continue to develop and mature), other jurisdictions have been slower to catch on. However, that is changing fast — there is real momentum as governments and authorities around the world seek to implement class action regimes.
In Europe, the EU has introduced the Collective Redress Directive, which EU Member States are in the process of implementing. In the UK, the collective action regime in the Competition Appeal Tribunal (implemented in 2015) is maturing, and the UK’s Supreme Court gave important guidance on how representative actions can be brought in its 2021 decision in the case of Lloyd versus Google.
Scotland’s first class action regime was introduced in 2020. In June 2022, New Zealand’s Law Commission published its final report on class actions, making numerous recommendations for the implementation of a class action regime. These are just a few examples of how class action regimes are becoming more prevalent, jurisdiction by jurisdiction.
Another key factor driving this change is the ever-burgeoning litigation funding industry. As legal aid has all but disappeared, providers of litigation finance have stepped in to enable these actions for mass redress to be pursued, removing the risks involved in litigation from the consumers and other stakeholder claimants.
This allows them to access justice against well-resourced opponents, which would not have been previously possible.
What role do class actions play in an active ownership or investment stewardship strategy for funds and other institutional investors?
Morris:As stewards of their investee companies, investors have a responsibility to hold companies to account. The UN Principles of Responsible Investment (UN PRI) actively promote engagement by stakeholders, including institutional investors and with their investee companies. This includes collaborative engagement, where stakeholders combine to take action together.
When early engagement efforts flounder, the UN PRI acknowledges the importance of escalating engagement, and, if necessary, litigation. If and when that becomes necessary, class actions are a vital tool in an institutional investor’s armoury.
They allow investors to act collectively, bringing power in numbers and increasing the prospects of holding their investee companies to account while changing behaviours for the greater good and for the long term.
Koo: For institutional investors with an active ownership strategy, class actions offer an avenue to achieve potentially significant litigation outcomes without having to exert much individual effort or upfront expense.
Class actions also enable participants to send a signal to the market that investors are concerned about improving market integrity and corporate governance and the adherence to disclosure laws.
Australian regulators such as ASIC have publicly acknowledged the de facto regulatory role that class actions play in maintaining the integrity of the equity capital market.
Whether an institutional investor is driven by financial compensation, active ownership, ESG considerations or investment stewardship, class actions are an important mechanism for achieving those drivers in a manner that is economically viable. It rebalances dynamics in large-scale litigation.
Gray: At Goal Group, we see class actions sitting alongside a wider active ownership or investment stewardship strategy. From my experience in the Australian market, large institutional investors typically engage with the companies they invest in, either directly or through external asset managers they appoint, to try to change poor company behaviour. Sometimes this engagement is successful and sometimes it’s not. Often, the only remaining option investors have is to dispose of their holding.
With the significant number of companies that a major pension fund or fund manager invests in across multiple jurisdictions, it’s not always possible to engage directly with each of the companies who may have been involved in wrongful conduct.
Participating in a class action alongside other impacted shareholders provides an efficient mechanism for redress and accountability. They can send a message to boards and management that they are serious about holding the company accountable for its actions and are looking to promote good corporate governance.
Many institutional investors are also seeking to promote their strong ESG objectives in line with the values of their members or clients. Participation in class actions can also support these ESG objectives by promoting corporate responsibility and accountability in areas such as climate change impact, labour and human rights violations and diversity action. Such actions can help to drive the behaviours of company management towards more sustainable business practices.
Phi: Class actions strengthen investment stewardship strategies by providing a consequence for the company’s failure to proactively implement appropriate forms of governance. Ensuring that companies are accountable for legal wrongdoing carries longer term benefits through increased awareness and compliance. Further, class actions offset investor losses. Active institutional investors can also play a critical role in improving settlement outcomes at mediation.
What factors are currently hindering effective participation in class actions, globally?
Phi: Probably the biggest challenge is complexity. There are significant and material differences in class action regimes that apply in different jurisdictions. Some jurisdictions have no class actions procedure, while others limit class actions to specific causes of action.
In those jurisdictions, there may be an inferior regime, such as a consolidation or grouping of large claims, or a ‘test case’ approach. Where class actions are prevalent (Australia, the US, Canada, Israel), the biggest challenge is to establish high participation rates among group members, which requires multi-channel communications to ensure as much of the group as possible is made aware of the litigation.
Gray: The primary challenge to effective class action participation is access to data. In most cases, accurate holding and transactional data is a key requirement. Oftentimes, the courts require this information to be certified by a custodian or, in some jurisdictions, by the local custodian in a particular market.
Goal has established strong working relationships with all of the major custodians who are servicing our clients and we are usually able to access securities transactions and holding data from seven to 10 years ago.
However, on occasion, obtaining this information from prior custodians has proven difficult, particularly where there has been a change of custodian along the way — the custodian may have left the market entirely. Working alongside the custodians, Goal has obtained access to their online systems, so our team is able to obtain more timely answers to data queries.
Obtaining data for some of the antitrust class actions, such as futures data or foreign exchange transactional data, has been more challenging than securities data. In some cases, custodians have simply not been able to provide this information and that has precluded some of our clients from participating in these cases.
In certain jurisdictions, there are particular data requirements. In the UK market, there is a need to demonstrate reliance on particular statements made by corporations or information that they disclose to the market. Given the reliance framework operating in the UK, it has been incumbent on the client to demonstrate what type of information they relied upon when making investment decisions.
Morris: The main challenges are posed by defendants, their insurers and the political lobbyists who seek to stymie meritorious legal claims by shutting down class action mechanisms.
This often makes it more difficult for claimants to obtain funding for their actions.
Particularly in opt-in group actions, but also in opt-out class actions, defendants seek to make participation as burdensome as possible in the hope that a ‘war of attrition’ will cause meritorious claims to be abandoned or cause class members to withdraw or opt out.
The cost of bringing class actions is often prohibitively high. Litigation finance assists in unlocking these actions.
However, there are a large number of valuable actions which are not pursued because the significant cost of pursuing them is not justified by the potential returns. J
urisdictions that introduce class action regimes must work hard to devise a regime that is inexpensive and efficient, as that will allow for greater access to justice for harmed stakeholders.
Koo: As mentioned above, one the biggest changes in Australia in the last five years has been the rise in competing actions where two or more proceedings are separately commenced in relation to factual and legal issues that overlap.
Competing proceedings have caused some difficulties for the institutional investors who seek to participate in Australian class actions. This is due to the complexity of navigating competitive situations and deciding on which, if any, proceeding to join.
A further challenge to effective participation tends to be the considerable resourcing required to monitor and participate in recovery actions within Australia (and also other jurisdictions). Few institutional investors have dedicated resources to commit to recovery activities. These are likely some of the reasons why we have observed increased interactions with third-party recovery specialists or claim aggregators.
Institutional investors appear to be outsourcing more frequently to such service providers, which tend to be fluent with class action developments in our jurisdiction and are able to reduce the reporting and monitoring costs for both sides.
As law firms now compete in class actions against the same companies, how do participants decide which action to support? What can we expect to see in terms of trends?
Koo: The key consideration for group members, when faced with competing proceedings, is to assess which proceeding is likely to maximise a group member’s recovery return. The maximisation of one’s recovery is largely driven by the overall total pricing.Traditional funding structures tend to be more costly when compared to cases with GCO (lawyer contingency fee) structures. In traditional funding structures, group members must pay both funders and lawyers. Group members have to pay a funding commission to the funder and, on top of that, the legal costs of the firm running the proceeding.
By comparison, the majority of GCO arrangements approved to date have been ‘all-in’ structures where the total fee rates have found an equilibrium of around 22 to 27.5 per cent of any outcome. In other words, GCOs operate as a cost cap and, in those cases, group members can expect a recovery of 72.5 to 78 cents in every dollar returned — regardless of the costs incurred by a law firm.
Therefore, any relative cost assessment between competing proceedings should account for additional layers of cost and the total financial impact on one’s potential return.
A law firm’s recovery track record should also be considered for competitive proceedings. A firm’s track record is arguably the best indicator that group members have to determine how competing firms are going to perform, and who is likely to end up with a strong recovery for group members.
For instance, in Australian listed securities class actions, Maurice Blackburn is the only Australian firm to date that has managed to obtain a recovery sum exceeding AUD $100 million. It has now achieved this eight times.
Gray: Over the past few years, we have seen a number of competing law firms undertake class actions for the same corporate failure. In some cases, as many as three different law firms can commence proceedings against a company at the same time. This occurs in Australia and in other jurisdictions around the world. It makes it very difficult for Goal’s institutional clients to determine which action to support.
Many of those clients ask for our advice on which action to support, but we make it clear that Goal doesn’t provide advice or recommend particular legal firms. Goal’s role is to be an impartial independent administrator that provides a highly efficient process to ensure our clients can participate effectively in the case of their choice.
However, to assist them, we work with each of the competing law firms to obtain all the facts on the case in pursuance – merits of their case, funding arrangements and relevant documentation. We then distil these responses into a report for our client. It outlines all of the information we have available to help them decide which case to support.
There is some evidence that competing class actions may create competition that reduces commission charges to shareholders. As a result, we will likely see continued class action competition.
In the Australian market, there is a mechanism to allow the Australian Federal Court to manage competing class actions and promote efficient resolution of claims. The Australian Federal Court can consolidate cases, issue stay orders or transfer competing class actions between state jurisdictions to ensure the interest of group members are protected and the proceedings are conducted in a fair and efficient manner.
Morris: Over time, participants will, and will need to, become more sophisticated when analysing different propositions that are presented to them. Competition between law firms and their funders in the class action space is generally a positive development for class members. Although it can sometimes be confusing and difficult to choose which action to support, the competition is healthy and tends to result in lower cost and much better returns for class members.
Phi: Group members are encouraged to speak to advisors and put questions to the firms conducting competing class actions, to determine which offers the better option. While some group members will wait until the court determines the carriage questions, those that are engaged in the process and understand the strengths and weaknesses of competing actions can ‘vote with their feet’ and provide a strong basis for a particular firm to be preferred, while being mindful of all the options on the table.
This rewards firms that have carefully calibrated their strategy to provide better outcomes for group members, as well as those firms that consistently provide quality and timely client service to the group members on whose behalf the proceeding is brought.
Securities class actions in the UK are a relatively recent development. How do you think the UK class actions landscape is evolving?
Morris: The UK doesn’t have a specific class action regime for securities class actions, therefore most securities actions in the UK have been brought as ‘group actions’ where each investor is a named party to the litigation. This has occasionally resulted in investors being burdened by the travails of litigation, such as providing disclosure and evidence.
However, in some of the most advanced Woodsford securities actions in the UK, significant gains have been made in recent times. For example, in the Woodsford actions brought against RSA, Serco and G4S, the English Court ordered a split trial, effectively bifurcating the defendant’s liability from claimant-side issues, with the defendant’s wrongdoing to be examined at a first trial.
More recently, Woodsford securities actions in the UK have been brought by way of representative action, where one investor, acting on behalf of many others, seeks declarations from the court that the defendant has knowingly breached its disclosure obligations (both to it and the investors it represents).
Again, this should ensure that ‘common’ or defendant-side issues are addressed first before investors are required to prove ‘individual’ issues, such as reliance, causation and loss. The defendants facing these representative actions have sought to fight them hard, in some cases filing strikeout applications.
The first such applications are due to be heard in the Woodsford actions against Reckitt Benckiser and Indivior in November 2023, with judgment to follow. The outcome of those applications could be transformative for securities actions in the UK; watch this space!
Phi: While the UK’s class actions regime is nascent, it has the potential to become one of the world’s leading class action jurisdictions. Competition class actions are increasingly plaintiff-friendly, enabling an ‘opt-out’ mechanism that has supported litigators acting on behalf of entire classes, resulting in competition class actions increasing six-fold over the last year.
The case of Lloyd v Google has arguably increased the power and scope of the ‘representative proceeding’ mechanism to include shareholder class actions, potentially allowing investors to passively participate in class actions as they would in Australia, Canada or the US.
As the UK class action landscape continues to develop, we expect it will remain favourable to plaintiffs, and will likely offer a new and significant avenue for large scale investor redress.
Gray: The UK has a relatively new class action landscape compared to the US, but it seems like it has been growing in recent years. We have seen more cases being initiated which we’ve presented to our clients and that they have participated in.
Several UK law firms we work with have indicated that the Lloyd v Google case provided some useful clarification relating to representative class actions, even though the case was in the context of data protection.
In late 2021, Richard Lloyd brought an opt-out class action against Google in the UK Courts on behalf of more than four million iPhone users who were allegedly affected by a Safari system workaround that Google had implemented. This allowed Google to harvest browser generated information (BGI) from iPhone users without their knowledge.
Google used this BGI to target advertising that generated significant revenue for the company. Lloyd argued that the four million iPhone users should be compensated for the value of their BGI used without their knowledge.
Ultimately, Lloyd’s claim failed. However, the court did make several interesting comments supporting the use of representative actions. These actions can include a claim where no individualised assessment is needed in situations where the entitlement can be calculated. This is on a basis that is common to all members of the class. They also stated that there is scope for a bifurcated process. If the damage claim did require individualised assessment, there may be merit in the process being split to allow a first stage representative action. This would decide common issues of fact or law. A second stage of proceedings would be introduced to determine individual damages and liability issues.
The law firms we have spoken to believe this may assist them to take an initial action without having to deal with specific issues of damage impact or reliance in the early stages. It will be interesting to see how the UK class actions landscape changes, but whatever happens we will be here to support client participation in the UK and in other jurisdictions around the world.
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