Early Warner Class actions on the rise Law Reporter

  • Date:01 Jul 2005
  • Type:CompanyDirectorMagazine
In two separate developments during the last week of June, lawyers representing plaintiffs in the corporate and trade practices areas have signalled that they are prepared to utilise class (or representative) actions in seeking damages (or similar relief) on behalf of their clients in relation to two areas of great importance to company directors.

Class actions on the rise

In two separate developments during the last week of June, lawyers representing plaintiffs in the corporate and trade practices areas have signalled that they are prepared to utilise class (or representative) actions in seeking damages (or similar relief) on behalf of their clients in relation to two areas of great importance to company directors.

The first relates to alleged breaches of duties owed by directors to companies; the second flows from alleged breaches of the Trade Practices Act (TPA).

To date class (or representative) actions in Australia have been few and far between. This is so notwithstanding the availability of procedures under the rules of both the Federal Court of Australia, and the various States/Territories Supreme Courts. Many high profile class actions have experienced a rather "rocky road" either in the preparation of the appropriate litigation and/or the pursuit of the litigation through successful court cases.

In the Full Federal Court of Australia in the second last week of June, in a matter involving a class action against the directors of the Aristocrat Organisation, the particular litigation raised the related question of how such class actions might be funded. Could they be funded by third party funders along the lines that was tried successfully in recent Fostif litigation in the New South Wales Supreme Court (Early Warner, May).

As the author understands the position, the matter was the subject of heated argument in the Full Federal Court.

It is also understood that the Federal Court judges may not be quite as receptive as the New South Wales Court of Appeal was to allow the utilisation of outside funding to support such class actions.

The decision of the Full Federal Court in this particular matter will be awaited with a great deal of interest.

In the last week of June it has been suggested by a leading law firm that class actions may be an appropriate recourse to be utilised by certain smaller stores - outlets against Woolworths and other retail organisations on the basis that the larger companies were conducting their activities in breach of certain provisions of the TPA.

It is neither relevant nor appropriate to discuss the details of these matters, other than to reflect upon the fact that they indicate that we may see more US style class action litigation in Australia than we had seen previously.

The Australian Competition and Consumer Commission has suggested on more than one occasion that the class action regime provided for under the TPA is not as effective as it might be. It has sought amendments to the legislation to ensure that it can be more user friendly.

On the other hand, critics of the views put forward by the ACCC counter with the argument that the rules of the Federal Court are more user friendly than the rules under the TPA or could be used.

It will be interesting to see whether the views expressed by various persons are in this context, are in fact justified by the results in court cases.

The costs indemnity rule which applies in Australia (the loser pays all unless the judge decides otherwise) will continue to be a major stumbling block in any kind of class action litigation.

The willingness of certain law firms to carry the burden of funding class action litigation and actions of a similar nature, could mean much more litigation in Australian courts than we have seen previously.

The continued success of regulators in running actions against directors for breaches of duty may spawn further civil litigation - what is generally referred to in the US as follow on suits. So far we have been "spared" the enormous amount of commercial litigation that occurs in the US in this regard but perhaps the climate is changing.

The next two to three years promise to be very interesting indeed. In this context we are likely to see greater opportunities for litigation with the introduction of new legislation being considered in a number of areas (occupational health & safety being one of the favourite areas). Appropriate insurance and defence indemnity arrangements will become very important indeed in these difficult times.

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