The New Shape of Australian Class Actions

In 2010, the Australian class action market was a relatively modest ecosystem — a handful of plaintiff-side practices, a small number of litigation funders operating under evolving regulatory conditions, and a body of law that was still working through foundational questions about how the Part IVA regime of the Federal Court Act actually functioned in practice. Fifteen years on, the landscape is almost unrecognisable.

The transformation has been driven by several overlapping forces, and understanding where the market stands today requires attention to each of them.

The litigation funding maturation

The litigation funding sector has, over the past decade, moved from the frontier of legal services to something approaching institutional status. Funders including IMF Bentham (now Omni Bridgeway), Litigation Capital Management, and a range of international entrants have developed sophisticated origination processes, underwriting disciplines, and portfolio management approaches that would not look out of place in a private equity context.

The regulatory framework governing funders has, after a prolonged period of uncertainty, found a more stable form. The requirement to hold an Australian financial services licence for funded class action schemes was introduced, contested, refined, and ultimately absorbed into standard operating practice. The practical effect has been a degree of rationalisation in the funding market — the cost of regulatory compliance creates barriers to entry that had not previously existed — without fundamentally disrupting the economics of funded litigation.

For defendants and their counsel, the involvement of a sophisticated litigation funder in a proceeding changes the dynamics in specific and important ways. A funded plaintiff group is, almost by definition, better resourced than an unfunded one. The funder has conducted its own due diligence on the merits and is prepared to carry the financial risk of a contested proceeding to judgment. The traditional defence strategy of imposing procedural attrition on an underfunded opponent is simply unavailable.

Securities class actions: the dominant category

Securities litigation has become the dominant category of class action in Australia by case count and, arguably, by significance. The continuous disclosure obligations imposed on listed entities under the Corporations Act, combined with the ease with which shareholder classes can be constituted, have created a fertile environment for pleadings that allege disclosure failures following share price movements.

The quality of these cases varies enormously. Some involve genuinely significant alleged failures of disclosure obligation, with strong documentary records and clear causal cases on shareholder loss. Others represent what defence counsel describe, sometimes with justification, as strike suits — opportunistic filings in which the causal case is thin and the primary objective is a nuisance settlement.

The courts have grown more sophisticated in their management of this variation. The case management of securities class actions, particularly in the Federal Court, has evolved towards a model in which early attention to the strength of the case on common issues — the question of whether the liability allegations are genuinely meritorious — is used to filter cases more efficiently. The common question determination, resolved before the individual questions of reliance and loss, allows courts to identify cases that do not warrant full trial at a point before the expenditure of the most significant resources.

The defence perspective

For corporations and their D&O insurers, the class action environment creates strategic challenges that did not exist in anything like their current form twenty years ago. The cost of defending a major securities class action, even one that is ultimately dismissed or settled on favourable terms, is substantial. The settlement pressure created by the cost of defence alone is a genuine phenomenon, and defendants who settle for amounts below what they might have spent on a defence are not necessarily acting irrationally.

The most sophisticated defendant-side strategy now involves early engagement with the factual record — understanding what the documentary evidence will show about the timing and content of internal discussions about disclosure decisions — and a rigorous analysis of the causal question before the matter becomes expensive. Defendants who wait for the plaintiff's evidence to define the factual landscape are consistently at a disadvantage.

Looking ahead

Several questions will shape the next phase of Australian class action development. The first-in-the-door principle, which has created incentives for rushed filings in cases where multiple funders are competing for a class, has attracted judicial criticism and may be subject to legislative reform. The treatment of common fund orders following the High Court's engagement with the question has created some uncertainty that is yet to fully resolve.

More fundamentally, the class action regime will continue to serve as a proxy for debates about the appropriate role of private litigation in the enforcement of corporate law standards. Those debates are unlikely to be resolved anytime soon. In the meantime, the work continues — and for practitioners on both sides of the record, it remains some of the most demanding, intellectually serious, and consequential litigation the Australian system produces.