Competing class actions & beauty parades – and the winner is…?

Lee J’s recent decision in Perera v GetSwift Ltd (GetSwift)¹ to allow only one overlapping class action to proceed (the Webb Proceeding) and to permanently stay the other two Federal Court actions (Perera and McTaggart) is likely to have far reaching consequences because of the Court’s findings as to the determinative “discrimens” between the three competing actions.  It also highlights unresolved complications arising from the existence of funding agreements with group members in the stayed proceedings.

After a “multifactorial” assessment (i.e. a beauty parade) of the competing actions, Lee J concluded that many factors were equal but the “partly cost-based” terms proposed in the Webb Proceeding, and the measures offered for controlling legal costs, were superior to the other proposals.  While conscious of the limitations of the modelling, Lee J was “satisfied that the Webb Proceeding was very likely, in most scenarios at all stages of the proceedings, to produce a better return for group members to whom the Court has special responsibilities of a protective nature”.²

Background

Three separate funded open class actions were brought against GetSwift on behalf of shareholders of GetSwift.  The cases proposed to be advanced were substantially the same.  None of the applicants advocated for consolidation or for permitting each open class proceeding to continue to a joint initial trial. 

Orders were sought from the Court to resolve the multiplicity.  The Court assessed the comparative merits of the competing proposals and determined which competing class action ought to proceed, and so consequently which ought to be permanently stayed. 

Summary of competing proposals

• Perera proposal – 103 class members with 2,575,804 shares, funded by ILP18, funding agreements and retainer agreements entered into, funding commission between 25% and 40% (based on amount of shares held), proposed common fund order involving payment the lesser of 25% of net proceeds or 22.5% of gross proceeds (capped at not greater than 25% of net proceeds), provision of security for costs by cash deposit, bond or insurance cover, no suggestion regarding involvement of referee or Court appointed expert

• McTaggart proposal – 208 class members with 1,545,374 shares, funded by Vannin (Malta), funding agreements entered into but no retainer agreements, funding commission of 10% if proceeds received before the end of 2018, 20% if received before 26 September 2019 and 30% if received thereafter, proposed common fund order in the same terms, provision of security for costs by ATE insurance or cash deposit and $250,000 currently held on trust, no suggestion regarding involvement of referee or Court appointed expert

• Webb proposal – no funded group members, no funding agreement, retainer agreement only between applicant and solicitors, commission “proposed” to be of the lesser of 2.2 times expenses paid by the funder if settlement agreement entered into on or before 12 April 2019, (or 2.8 times thereafter) or 20% of the net litigation proceeds, provision of security for costs by ATE policy and deed of indemnity or cash plus suggested Court appointed referee to conduct periodic review of legal costs incurred and acceptance of scope for the appointment of one expert forensic economist to assist the Court in respect of matters of loss causation and the quantification of loss and damage (as opposed to each party having their own expert).

Summary of key findings

While the Court stressed that each instance of competing class actions needs to be managed by reference to their own “bespoke” circumstances, some of the findings may have broader ramifications.  Key findings made by the Court included:³

1. There was no reason why the claims cannot be vindicated in one proceeding as there were no significant differences in the scope, causes of action or case theories for the proceedings. Duplicate proceedings are not in the interests of justice. They lead to increased costs and inefficiencies (including likely additional costs to be recovered at any settlement) and are unnecessary for enforcing the applicants’ and group members’ substantive rights.  Also, to allow duplicate proceedings would involve an element of vexation to be occasioned to the defendant GetSwift, and would not provide an efficient and effective means of dealing with claims.⁴
2. Each of the proceedings were at a sufficiently equal state of preparation.
3. There was no operative delay, no difference in the experience or competence of the legal practitioners, and no difference in the suitability of the applicants’ claims to obtain findings about common issues.
4. There was also no reason to doubt that any of the funders would fail to comply with security for costs obligations, payments to legal representatives, and no reason to doubt their financial capacity to do so.
5. Significant weight was not given to the existence of signed funding agreements with group members, as the Court wished to avoid encouraging pre-action book building when common fund orders are sought. The Court was also not concerned about the absence of a ‘deadlock’ provision in a funding agreement to resolve issues which may arise in the settlement context between applicant and funder, because the Court can make orders clarifying the funding terms.
6. The Court preferred the Webb proposal because in the Court’s view it produced a more direct correlation between the amount ventured or “risked” and the likely return to the funder, and was very likely to produce a better return for group members.
7. The Court also placed weight on Webb’s proposals which purported to increase efficiency such as the appointment of court appointed experts in relation to questions of loss and causation, and the appointment of a referee to monitor legal costs of the applicant during the course of proceedings.
8. Because of the availability of the opt out procedure, no significant prejudice would be occasioned by only allowing one proceeding to continue.   

Unresolved issues

There are a number of unresolved issues arising from the key findings, including as to how the Court will deal with:

• a funder of the stayed proceedings seeking to enforce contractual promises requiring payment of its commission from compensation received via the Webb Proceeding. Lee J considered it would be premature to express even preliminary views about what could be done in this scenario.  However, his Honour acknowledged the relevance of this issue to the extent it bears upon whether the course he decided upon is practicable, and as to the issue of what should be said in any opt out notice to the funded group members about the possibility (notwithstanding the common fund order) that they may still be subject to some future claim by the funders.

• a group member exercising their statutory right to opt out of the non-stayed proceedings and seeking to run their own actions or join together with others and commencing a further class action. Lee J referred to this scenario as “unsatisfactory”, however it remains to be seen how the Court would respond to this situation.

The existence and terms of the funding agreements in the Perera and McTaggart proceedings were viewed as being a complication because they do not contemplate competing class action or stays.  The Court also sought to avoid encouraging pre-action book building because “[t]o give active encouragement to the existence of funding agreements in the context of competing class actions would serve to undermine the benefit occasioned by the rise of the funded class securities class action”.⁵ While recognising the funder’s sunk costs of the book build, the Court did not consider the deprivation of the hoped for commercial return to be a significant prejudice that was of particular importance. 

And the winner is Webb but…?

An appeal is likely including in respect of the findings that many factors were equal. If leave to appeal is allowed, the Full Court will provide further clarity around the complications arising from competing and overlapping funded class actions. In the meantime, it is evident from this judgment and from the just released ALRC discussion paper⁶ that the class action landscape will continue to evolve and change at pace.   This judgment demonstrates again the Court’s willingness to be proactive in its supervisory and protective role in relation to group members.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).