Beauty parades are here to stay

“Auctions” or “beauty parades” are here to stay in class actions and so we will continue to see a race to file with multiple law firms and multiple funders vying for the ”prize” of being selected as the winning firm to conduct the action.

The High Court’s hammer has fallen on the competing class action debate, ruling, but only by a slim majority with a very strong and strident minority, that the “beauty parade” process in selecting which of multiple competing class actions should proceed is appropriate and lawful.

The High Court’s judgment has confirmed that a court confronted with this dilemma may select one proceeding based on what it considers to be in the best interests of group members and permanently stay the other proceedings, with the relevant factors to consider varying from case to case.

In contrast, the minority said it was no business of the Court to pick winners and predict financial outcomes, that there is no basis or authority to do so (compared to specific legislation in the US as part of the US “class certification” process) and that the court should prefer the first in time filed case unless there is a juridical reason to prefer a later case. 

In its decision, and somewhat contrary to the recent Brewster decision which went the other way,[1] this majority embraced the more broadly based and flexible case management approach to dealing with the new and novel situations we often see thrown up in class actions.

Background

Following the evidence given by AMP executives at the Banking Royal Commission, five sets of class action proceedings within seven weeks were started on behalf of shareholders of AMP over AMP’s fees for no service scandal. Each class action was commenced on an “open” basis, thereby seeking to represent all relevant investors (as opposed to a “closed” class of identified investors).

The first proceeding was brought by Ms Wigmans on 9 May 2018 in the NSW Supreme Court (Wigmans Proceedings). Subsequent to the start of the Wigmans Proceedings, four other proceedings were brought in the Federal Court of Australia.  Eventually, the four other proceedings were transferred to the NSW Supreme Court, and two of the proceedings consolidated. The two consolidated proceedings came to be led by Komolotex Pty Ltd (Komolotex Proceeding). The Komolotex Proceeding differed from the other proceedings as it was to be run on a “no win, no fee” basis, which importantly involved no funding commission. Each litigant in the four competing proceedings sought orders that the other proceedings be permanently stayed. 

On 23 May 2019, Ward CJ in Eq determined the applications by undertaking a “multifactorial analysis” of “relevant factors to be considered and balanced in a qualitative appraisal” determining that the Komolotex Proceeding would provide the best net return to group members. Her Honour went on to rule that the Komolotex Proceedings were to continue as an open class action, whilst the remaining three proceedings (including the Wigmans Proceedings) were permanently stayed. 

Ms Wigmans subsequently appealed the stay of her proceeding to the NSW Court of Appeal, which was ultimately unanimously dismissed. On 17 April 2020, Ms Wigmans was granted special leave to appeal to the High Court.

High Court decision – majority

On 10 March 2021, the High Court of Australia delivered its much anticipated judgment in Wigmans v AMP.[2] Gageler, Gordon and Edelman in the majority held, that there is no “one size fits all” approach and that the representative proceeding commenced first in time is not guaranteed to prevail. In matters involving competing actions, where the interests of the defendants are not differentially affected, the majority said it is necessary for the Court to determine which proceeding going ahead would be in the best interests of group members.

The relevant factors to consider will vary from case to case and cannot be exhaustively listed, with litigation funding arrangements to be treated as not irrelevant, but not a “mandatory consideration”.

The majority found numerous bases in the Court rules and legislation permitting the Court to deal with multiple class actions and to adopt a flexible approach in determining how to make any assessment.  This contrasted with the more prescriptive legislation and rules in the US and Canada around their “Class Certification Process” and “Carriage Motions” respectively with the majority saying:

But the decision not to adopt the United States or Canadian procedures in Australia does not end, or dictate the outcome of, the process of identifying the relevant considerations for the Supreme Court in deciding which of the competing representative proceedings is to proceed.[3]

The majority rejected Ms Wigmans’ submissions that there was a presumption or rule favouring the first in time filed action finding that such an approach would be “unworkable” and that the authorities cited do not support such a rule or presumption.[4]

The Court said multiple suits were and remain to be resolved by the exercise of discretion informed by all the relevant circumstances.[5]

In relation to the considerations relevant to the exercise of the power to grant a stay, the majority said:

The starting point is that multiplicity of proceedings is not to be encouraged and that competing representative proceedings run by different firms of solicitors, with different funders, may in principle be inimical to the administration of justice. But, as was earlier stated, there is no "one size fits all" approach. Multiplicity may be addressed by a variety of means instead of, or in addition to, staying one or more of the proceedings.[6]

Whilst the first in time approach is not favoured as a means of resolving which of the competing proceedings should go ahead, the order of filing still remains a relevant consideration. This is less relevant in cases where the competing proceedings have been commenced within a short time of each other. By contrast the greater the gap in time between the start of proceedings may give rise to a stronger case for later proceedings to be stayed, all other matters being equal. 

Noting the breadth of the mandatory and discretionary consideration in Pt 6 of the CPA informing the power to grant a stay, the majority held that the relevant point of time is not just limited to the time of filing and may extend to facts and matters arising after filing. The actions (or inactions) of group members, and more generally the degree of expedition the parties have approached the proceeding, including if they have been timely in their interlocutory activities, are all factors likely to be relevant.

Approach to competing litigation funding arrangements 

The majority said “The task undertaken by the primary judge was not a judgment regarding a matter of "mere" case management but a larger task of ensuring that justice is done in the competing representative proceedings which have been commenced under Pt 10 of the CPA where all courts must be astute to protect the best interests of group members”.[7]

It was recognised that although there was no error in the primary judge’s approach, that is not to say this was the only manner in which a Court might determine which competing proceeding should go ahead. In actions where there are “complex and interrelated considerations and real potential for conflicts of interest” the majority said that an “adversarial” approach is to be preferred over a judge acting as “inquisitor”.

The majority also looked at alternative approaches that were not explored in argument on appeal including:

• the appointment of a special referee to inquire into the litigation funding arrangements and the more particular questions the primary judge dealt with on the basis of assumptions;[8] and
• requiring the parties to engage and fund a contradictor to represent common group members.[9]

To conclude, the majority made the following remarks:

Adopting one or more of these approaches, the court's task could not be characterised as an "auction process". It would instead be more akin to that used when considering the position of trustees, liquidators, attorneys or persons under disability and would include considerations such as prospects of success and cost of the proceedings. No less significantly, it would allow for conflicts of interest and the best interests of the group members to be neutrally and squarely addressed.[10]

Minority decision

Kiefel CJ and Keane J in the minority found the lower courts erred by not allowing Ms Wigmans her right to pursue her case as the first in time case should prevail unless there is a juridical basis to prefer a an action filed later.

Other key findings included:

• that, in relation to beauty parades, “neither the CPA nor the Supreme Court's inherent power to prevent abuse of its processes authorises the Supreme Court to make a selection of the sponsor of representative proceedings”;
• in relation to the forward looking assessment as to which proceeding will result in the highest net return to group members, they noted the CPA contains no equivalent provision to those in the United States where courts are required to make an evaluation of the competing claims in order to select the sponsor judged best able to maximise the return to class members;[11] and
• their comprehensive review of the provisions of the CPA in relation to case management and representative proceedings “demonstrated that the CPA does not contemplate the exercise performed by the primary judge”[12]. 

Outcomes

The High Court’s judgment will invariably lead to continued competition in the Australian litigation funding market. It appears that where there are competing open class actions and where the interests of the defendant are not differentially affected, with no significant difference in the progress of the class actions, one of the most significant factors to the Court’s determination will be the net return to group members. 

Funders and firms will be pitted against each other to maximise the net return to group members, by way of reducing their commissions or costs (and ultimately their return on investment). Theoretically this should drive funders’ commissions and costs to approach competitive equilibrium, reflecting the value of the services provided and the risk undertaken.

However, the fact that the auction process is lawful does not mean that it is the  only means to resolution, as reinforced by the majority. Many other ways remain for the court to manage competing or overlapping class action proceedings, including[13]

• closing the class in all but one proceeding, and allowing the other proceeding to continue as an open class with a joint trial of all the proceedings;[14]
• consolidating the proceedings and/or consolidating the funding;[15]
• de-classing one or more sets of proceedings; and
• a joint trial of all proceedings.

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).