A timely decision as the Financial Services Royal Commission rolls on
It hasn’t taken long for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services to claim its first casualties and with less than a month until the Commission’s interim report is due, there will likely be further casualties to come. As a direct consequence of this, plaintiff law firms and litigation funders are already identifying their targets for securities class actions, with Supreme Court and Federal Court claims already filed against AMP in relation to matters referred to during the Royal Commission hearings.
Against this backdrop, it is timely that the Federal Court has recently handed down the decision of Perera v GetSwift Limited  FCA 732 dealing with the potentially complex and, given the Royal Commission, particularly relevant issue of competing class actions. The decision also corresponds with the delivery of the Australian Law Reform Commission (ALRC)’s Class Action Proceedings and Third-Party Litigation Funding Discussion Paper No 85 (Discussion Paper), which was prepared in response to the Federal Government’s Terms of Reference for the Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Inquiry).
GetSwift Limited was (and is) a technology company founded in 2015. It listed in 2016. After listing, GetSwift Limited, at various times, made announcements to the ASX about agreements and partnerships signed with clients. Shortly after announcing a $75 million capital raising, in January 2018, the Australian Financial Review reported that GetSwift Limited had allegedly failed to inform the market that some of its client agreements had been terminated and further, that the company had announced revenue forecasts tied to a funding agreement prematurely. Following this, the company’s shares were placed in a trading halt and then suspended from official quotation pending the company’s response to questions from the ASX. GetSwift Limited’s responses did little to ease concerns about the company and following re-instatement, it is alleged that its share price declined by approximately 82.5%.
Initially, 2 open class actions were commenced against GetSwift Limited in the Federal Court at the instigation of 2 different law firms, each with the support of different litigation funders (the Perera and McTaggart proceedings). These were followed by another class action, commenced by a different law firm and litigation funder, and initiated by an interlocutory application seeking leave for Mr Webb to intervene in both of the other proceedings (the Webb proceedings). Accepting that the open class actions were overlapping and that something had to be done about this, the Perera, McTaggart and Webb applicants each asserted that their case was the one that should proceed and that ancillary orders should be made to facilitate this.
In a detailed decision traversing the history and development of class action proceedings in Australia (with reference to guidance that could potentially be ascertained from North America), Justice Lee considered how the issue of 3 competing class actions should be resolved in a way that would ‘protect the processes of the Court, further the overarching purpose [of Part IVA of the Federal Court Act 1976 (Act)], and protect the interests of group members’.
In the decision, Justice Lee:
- noted the options identified by Justice Beach in McKay Super Solutions Pty Ltd (Trustee) v Bellamy’s Australia Ltd  FCA 947 (Bellamy’s) for resolving overlapping class definitions, including, consolidation, declassing, a wait and see approach, ordering a permanent stay or class closure;
- rejected the wait and see option in this case (whilst acknowledging it could be appropriate in others), given the desirability of group members to have certainty as to how the proceedings will be progressed;
- rejected consolidation as an option, given it had not been advocated by the parties and their agreement would be necessary; and
- for the reasons set out below, made directions to progress the Webb proceedings and ordered the Perera and McTaggart proceedings to be permanently stayed (whilst noting that he could have, but chose not to, make a declassing order).
In deciding that the Webb proceeding should proceed:
- Justice Lee (with assistance from the parties) identified at least 14 factors for consideration, many of which had been identified in by Justice Beach in Bellamy’s, and whose weight would depend on the circumstances of the case. These included:
- the experience of the legal practitioners, the resources that they made available to their clients and their estimated costs;
- the relative numbers of the registered funded applicants;
- the state of preparation of each proceeding, the respective merits of the common issue cases (as pleaded or as foreshadowed) and the respective strength of the individual cases of the representative applicants;
- issues relevant to the funding of the litigation, including whether security for costs was offered and its adequacy, the decision of some group members to enter funding agreements and the funding models (including whether they created an incentive for funders to maximise recovery for the group members);
- proposals made or adopted by the applicants to reduce and control costs, including expert costs;
- public policy issues (e.g. allowing a party like Mr Webb to sit back and decide whether to participate in the proceeding after the other parties had already committed resources and time to investigating and drawing the claim); and
- the comparative consequences that a permanent stay, closure or declassing order in each proceeding would have on those affected by such an order;
- Justice Lee made it clear that it was irrelevant which of the proceedings was commenced first, although he noted that delay (in the sense of tardiness) could be a relevant consideration. He also rejected the argument that Mr Webb had obtained any advantage by entering after the other applicants, noting that Mr Webb did not have access to any of the material filed by the other applicants and each party could and did put their best foot forward;
- Justice Lee considered that the funding model presented in the Webb proceedings, coupled with innovative ways Mr Webb had sought to reduce legal costs (e.g. by subjecting ongoing legal costs to the scrutiny of an independently appointed referee and being open to the prospect of a court appointed expert), meant that, in his Honour’s view, the Webb proceedings would likely produce a better return for group members;
- in relation to ordering the permanent stays, Justice Lee noted that:
- the Perera and McTaggart proceedings were commenced for a proper purpose and the orders would effectively interfere with the contractual arrangements between the applicants and their chosen funder. Given this, powerful and significant reasons were required in order for the Perera and McTaggart proceedings to be stayed;
- despite the above, a stay was necessary to protect the processes of the Court, further the overarching purpose of Part IVA of the Act, and protect the interests of group members and GetSwift Limited (principally from duplicity and costs). In addition, the Perera and McTaggart applicants could still pursue their claims through the Webb proceedings and each applicant still had a statutory right to opt out and maintain their own individual claim if they so wished;
- Justice Lee noted that if he was wrong and the Perera and McTaggart proceedings should not be stayed:
- equity would enjoin the Perera and McTaggart applicants from further conduct of their proceedings, given the continued conduct of duplicative proceedings would be contrary to good conscience and oppressively interfere with the proper conduct of Part IVA of the Act; and
- if he was wrong about this, he could (and would if required) make a declassing order under section 33N or 33Z of the Act, rather than allowing the multiplicity to continue. In Justice Lee’s view, ordering a permanent stay of the Perera and McTaggart proceedings, was preferable to a declassing order as it would present the parties with a better opportunity to resolve all claims together.
The decision has now been appealed and there will be many people eagerly awaiting the outcome of this.
Conclusion & Key Takeaways
Subject to the outcome of the appeal, Justice Lee’s decision is important for a number of reasons. The key takeaways are that:
- there is unlikely to be any significant practical advantage for claimants and their supporters in commencing class action proceedings first or engaging in pre-action book building where competing class actions are likely;
- at least at this time, there is no single approach to determining which set of completing class action proceedings should progress. Whilst the factors identified by Justice Lee as being relevant to the assessment of competing class actions should provide further guidance about how the issue of competing class actions will be determined by the courts, Justice Lee stressed that the remedial response is a case management decision and will be informed by the peculiar circumstances of the case;
- respondents and their insurers will be buoyed by, and should ultimately benefit from, Justice Lee’s robust protection of the Court’s processes and the parties from duplicity, inefficiencies and increased costs. Practically, parties may also be more inclined to seek orders permanently staying competing class actions, rather than seeking declassing orders, given Justice Lee’s stated preference for the former;
- on the issue of funding, the case is another example of the Federal Court giving its support to innovative funding models, common fund orders and dealing with these issues at an early stage of the proceedings; and
- given the continuing impact of the Royal Commission and the Federal Government’s Inquiry, the issue of competing class actions will be the subject of further judicial consideration and potential legislative reform.
 As at the date of his application, there were no funded group members in the Webb proceedings.