Class Actions in Australia

Introduction

Class actions (known in Australia as representative proceedings or group proceedings) enable a representative party to bring proceedings on behalf of a group of persons who have claims arising out of the same, similar, or related circumstances. The federal regime, established by Part IVA of the Federal Court of Australia Act 1976 (Cth) (ss 33A–33ZJ), commenced operation on 4 March 1992 and created an “opt-out” model that has made Australia one of the most active class action jurisdictions in the common law world. Class actions are also available in Victoria (Part 4A of the Supreme Court Act 1986 (Vic)) and New South Wales (Part 10 of the Civil Procedure Act 2005 (NSW)), though the federal regime is the most widely used.

Part IVA of the Federal Court of Australia Act 1976 (Cth)

Part IVA establishes an “opt-out” class action system for the Federal Court. The regime allows a representative party (the lead plaintiff) to commence proceedings on behalf of group members (the class) without their consent. Group members are automatically bound by the judgment unless they opt out of the proceeding by a date fixed by the Court.

The regime was enacted following the Australian Law Reform Commission’s Report on Grouped Proceedings in the Federal Court (ALRC 46, 1988) and was modelled, in part, on the Ontario and Quebec class action regimes. It applies to claims arising under federal jurisdiction, including claims under the Corporations Act, the Competition and Consumer Act, and the Fair Work Act, as well as claims in tort and contract where the Court has jurisdiction.

The Seven Conditions for Commencement

Section 33C of the Federal Court Act sets out seven threshold conditions for the commencement of a representative proceeding: (1) seven or more persons must have claims against the same person; (2) the claims of those persons must arise out of the same, similar, or related circumstances; (3) the claims must give rise to a substantial common issue of law or fact; (4) the representative party must be a person who has a claim against the respondent; (5) the representative party must not seek damages exceeding $1,000 on their own behalf (unless the Court grants leave); (6) the representative party must not have a claim that is “inconsistent” with the claims of other group members; and (7) the proceeding must not be “otherwise inappropriate” to be brought as a representative proceeding.

The requirement of a substantial common issue is the defining feature of the regime. The common issue need not be dispositive of all claims; it is sufficient that there is a common issue that, if determined, will advance the resolution of the proceedings for all group members. The Court has adopted a flexible approach to this requirement, permitting class actions even where individual issues (such as causation or quantum) may need to be determined separately.

The Opt-Out Provision

Under s 33J of the Federal Court Act, group members are automatically included in the proceeding unless they opt out by written notice to the Court. The Court must fix a date by which group members may opt out, and must take reasonable steps to notify potential group members of the proceeding. This “opt-out” model (as distinct from the “opt-in” model used in the United States for some proceedings) ensures that group members who do not actively exclude themselves will be bound by the judgment, including any settlement.

The opt-out model has been central to the success of class actions in Australia. It ensures that even passive group members — those who may not be aware of the proceeding or who lack the resources to bring individual claims — can benefit from a successful resolution, while allowing those who wish to pursue individual claims to do so.

Common Fund Orders and Funding Arrangements

Class actions in Australia require funding, typically through third-party litigation funding or law firm contingency fees (which are permitted in Australia for class actions). A litigation funder agrees to pay the costs of the proceeding in return for a percentage of any settlement or judgment (typically 20–40%). The funder’s involvement has been a source of significant litigation.

The common fund order is a mechanism by which the Court orders that all group members (including those who did not enter into a funding agreement) contribute to the funder’s fees from the settlement or judgment proceeds. In BMW Australia v Barclay (2022) 275 CLR 307, the High Court held that the Federal Court does not have the power under Part IVA to make a common fund order binding on group members who have not agreed to the funding arrangement. The decision significantly affected the funding model for class actions and prompted legislative proposals to clarify the Court’s powers.

In Rafferty v Madgwicks (2022), the High Court further considered the regulation of litigation funding, holding that a funder’s security for costs undertaking must adequately protect group members. The decisions have led to increased scrutiny of funding arrangements by courts and regulators.

Settlement Approval

A class action cannot be settled without the approval of the Court (s 33V of the Federal Court Act). The Court must be satisfied that the proposed settlement is fair and reasonable in the interests of group members as a whole. The settlement approval process involves a hearing at which the Court considers the settlement terms, the amount of any legal costs, the funding arrangement, and any objections from group members. The Court may approve the settlement, reject it, or require modifications.

The Court’s role in settlement approval is protective: it acts as a guardian of group members’ interests, ensuring that the settlement is not the product of collusion or self-dealing by the representative party or their lawyers. The Court has developed guidelines for the approval of settlements, including the requirement for an independent “settlement scheme” to distribute the proceeds to group members.

Securities Class Actions

The most common type of class action in Australia is the shareholder class action (securities class action). These proceedings typically arise from allegations that a listed company breached its continuous disclosure obligations under s 674 of the Corporations Act 2001 (Cth) or s 677A of the ASX Listing Rules, by failing to disclose material information to the market. When the undisclosed information eventually becomes public, the share price falls, and shareholders who acquired shares during the period of the alleged breach claim compensation for their loss.

The High Court’s decision in TNT Best Practice (2022) and subsequent cases have clarified the test for market-based causation in securities class actions: shareholders need not prove that they relied on the non-disclosure; it is sufficient that the market was misled and that they acquired shares at an inflated price. This has lowered the bar for securities class actions in Australia.

Representative Proceedings Under State Supreme Court Rules

The state Supreme Courts also have rules permitting representative proceedings (formerly known as representative actions). However, these rules (e.g., r 7.10 of the Uniform Civil Procedure Rules 2005 (NSW); r 9.11 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic)) have been interpreted restrictively: they permit multiple persons with the “same interest” in a proceeding to be represented by one person. The High Court held in Carnie v Esanda Finance Corporation (1995) 182 CLR 398 that the rule requires a “common interest” and a “common grievance,” and that the remedy sought must be beneficial to all. The state representative action rules are rarely used for large-scale group claims, having been supplanted by the dedicated class action regimes in the Federal Court and in Victoria.

Class Action Reforms

The Australian class action landscape has been the subject of ongoing reform. The Australian Law Reform Commission’s Report on Class Action Proceedings and Third-Party Litigation Funders (ALRC 134, 2018) made 24 recommendations, including the introduction of a certification requirement (modelled on the US “class certification” process), enhanced disclosure requirements for litigation funders, and the establishment of a Court-controlled register of class actions.

Subsequent legislative reforms have addressed the regulation of litigation funding, the management of funders’ fees, and the protection of group members in the event of an adverse costs order. The introduction of mandatory and enforceable codes of conduct for litigation funders has been a significant development. The class action regime continues to evolve, with the courts and legislature balancing the competing objectives of access to justice, efficiency, and the protection of defendants’ rights.