Insights

24/05/19

Competing class actions: first in not best dressed

On 23 May 2019, the NSW Supreme Court handed down its decision on which of the five shareholder class actions filed against AMP Ltd (AMP) will be allowed to proceed. Only one proceeding (which was a consolidation of two of the class actions) was permitted to proceed, and the Court ordered that the remaining three proceedings (including the most advanced proceeding) be permanently stayed.  The chosen proceeding is the only one of the competing AMP class actions which is not funded by a third party litigation funder, and the lack of third-party funding played a key role in the Court’s decision to award carriage to that proceeding. Following this decision, we are likely to see increased competition from law firms to devise ‘the lowest cost’ model in class actions and a trend towards plaintiff firms acting on a ‘no win no fee’ basis and self-funding security for costs, potentially without the involvement of litigation funders.

Background

Five competing shareholder class actions were filed against AMP in May and June 2018, raising allegations of breach of continuous disclosure obligations and misleading and deceptive conduct concerning alleged ‘fee for no service’ conduct (i.e. the charging of ongoing financial advice service fees in circumstances where the advice was not provided). 

Four of the class actions were filed in the Federal Court, and one was filed in the NSW Supreme Court. Faced with multiple class actions in different jurisdictions, AMP filed an application with the Federal Court to have the Federal Court actions transferred to the NSW Supreme Court, while the representative plaintiffs in each of the Federal Court actions separately filed notices of motion in the NSW Supreme Court seeking to have the NSW action transferred to the Federal Court. On 29 August 2018, the Full Federal Court ordered that the Federal Court actions be transferred to the NSW Supreme Court.

The carriage motions

Each representative plaintiff for the five AMP class actions filed an interlocutory motion seeking a determination as to which one (or more) of the class actions should continue, in light of the multiplicity of proceedings arising out of substantially the same factual background. The representative plaintiffs for two of the class actions, Fernbrook (Aust) Investment Pty Ltd v AMP (Fernbrook proceeding) and Komlotex Pty Ltd v AMP Ltd (Komlotex proceeding), also applied to proceed as a consolidated proceeding (without objection from the other parties).

The appropriate approach to determining carriage

As a threshold matter, Ward CJ addressed an argument raised by the representative plaintiff in Wigmans v AMP Ltd (Wigmans proceeding). Ms Wigman argued that the Wigmans proceeding should be awarded carriage without the Court undertaking the comparative, multifactorial analysis of the class actions conducted by the Full Court of the Federal Court of Australia in GetSwift, because:

  • the other four class actions were an abuse of process; or
  • as a matter of policy, the first to file should be favoured, particularly when the first-filed proceeding is more progressed.

Ward CJ rejected both arguments and found that the multifactorial approach taken in GetSwift was the appropriate mechanism to resolving multiplicity issues across representative proceedings.

With respect to abuse of process, Ward CJ held that the commencement of the other class actions was not an abuse of process because at the time they were commenced, the opt-out regime had not been concluded in the Wigmans proceeding. This meant that none of the competing representative plaintiffs could be said to be a party to the Wigmans proceeding, and consequently the other class actions did not fall foul of the principle that a person may not pursue multiple legal proceedings seeking the same relief against the same defendant.

Notably, Ward CJ stated that had the opt-out period expired in the Wigmans proceeding, the abuse of process argument would have had more force “if a member of the class in one set of proceedings chose not to opt-out of that proceeding but also at the same time sought to pursue a separate proceeding seeking substantially the same relief arising out of substantially the same set of facts against the same defendant.

With respect to the proposal that the first-to-file should be favoured, Ward CJ found that adopting Ms Wigman’s approach could reduce competition among solicitors and funders and would “fail to give weight to the admonition (on understandable policy grounds) in GetSwift Appeal against encouragement of a ‘first mover’ advantage.”

The ‘beauty parade’ – which action should continue? 

The Court ultimately decided to consolidate the Fernbrook and Komlotex proceedings, award carriage of the AMP class action to that consolidated proceeding, and permanently stay the other three class actions. Her Honour decided that only one of the class actions should be allowed to proceed because they were “essentially duplicative” and “the continuation of more than one of the competing representative proceedings would be inimical to the facilitation of the just, quick and cheap resolution of the real issues in these proceeding”.

In comparing the multiple class actions filed against AMP, Ward CJ considered the following factors:

  1. the competing funding proposals, costs estimates and net hypothetical return to members;
  2. the proposals for security for costs;
  3. the nature and scope of the causes of action advanced (and relevant case theories);
  4. the size of the respective classes;
  5. the extent of any bookbuild;
  6. the experience of the legal practitioners (and third party litigation funders, where applicable) and availability of resources;
  7. the state of progress of the proceedings; and
  8. the conduct of the representative plaintiffs to date.

Ward CJ held that, with the exception of the first two factors, all factors were neutral across the competing class actions or should be given no weight. Consequently, the Court’s decision came down to:

  • the funding models, costs estimates and net hypothetical return to group members; and
  • the representative plaintiffs’ proposals for providing security for costs.

Funding models, cost estimates and net hypothetical return

Except for the Komlotex/Fernbrook proceeding, each of the class actions was to be funded by a third party litigation funder. In the Wigmans proceeding, a staged percentage-based model tied to the duration of the proceeding was proposed, whereas in the other two proceedings, a model was proposed by which the funder’s commission was calculated as the lesser of a fixed percentage and a multiple of expenses.

In the Komlotex/Fernbrook proceeding, which was not being funded by a litigation funder its solicitors proposed to be compensated on a ‘no win, no fee’ basis, with an uplift fee of 25% if there was a successful return of $80 million or more in the proceeding. 

Ward CJ noted the difficulty with placing weight on the incentives or disincentives created by particular funding models on solicitors and/or funders to achieve the best outcome for group members, finding that “there are arguable incentives and disincentives in relation to each of the possible funding models.”

In comparing the net hypothetical returns to group members for each of the competing class actions, Ward CJ relied on a comparison of the estimated legal costs based on certain standardised assumptions (such as likely hours), solicitor rates and funding costs. Ward CJ held that all the funding models were broadly comparable with the exception of the Wigmans model (likely because the hourly rates of Ms Wigmans’ solicitors were significantly higher).

Ward CJ also took into account the fact that common fund orders (CFOs) would be sought in all the proceedings funded by third party funders, which would cause some delay in the future. Her Honour found that this marginally favoured the Komlotex/Fernbrook proceeding, in which no CFO would be sought, although she stated that “in the absence of anything to suggest that the funders will not continue with the proceeding in the absence of a CFO this is probably not a significant factor.”

Overall, Ward CJ found that this factor favoured the Komlotex/Fernbrook proceeding because of the combination of:

  • an absence of a separate funding commission;
  • the incentive created by an uplift in fees only once a specified resolution sum is achieved;
  • the comparable return based on standardised assumptions; and
  • the fact that no CFO is being sought (which minimised uncertainty and delay associated therewith).

Despite the apparent emphasis in her decision on the fact that the Komlotex/Fernbrook proceeding was not funded by a third party funder, Ward CJ stated that a ‘no win, no fee’ model will not always or necessarily provide group members with the best return and that her decision should not create a precedent going forward in that regard.

Security for costs

Ward CJ held that this factor favoured the Wigmans and the Komlotex/Fernbrook proceedings equally over the remaining proceedings because:

  • security for costs had been paid into Court in the Wigmans proceeding in the amount of $5 million;
  • solicitors in the Komlotex/Fernbrook proceeding gave an undertaking that they would pay into Court $5 million by way of security; and
  • in the other proceedings, the proposal to provide security for costs by way of a deed of indemnity and/or an ATE insurance policy was not supported by sufficient evidence to ensure that the policy was an adequate form of security for costs.

Factors which the court gave no weight

The Court refused to give any weight to the fact that in one proceeding, the litigation funder had received signed funding agreements from substantial numbers of institutional investors. Ward CJ held that giving any weight to this factor would be contrary to the admonition in GetSwift against the adverse consequences of bookbuilding, and that it was not clear that institutional investors made the decision to participate in that proceeding based on any comparative analysis of the respective pleadings in the various proceedings, nor the funding arrangements in those proceedings.

The Court also gave no weight to the fact that the Wigmans proceeding was further advanced than the other proceedings because it was not advanced to a significant enough extent to warrant relying on this as a differentiating factor. However, Ward CJ noted that had all the other factors been equal, she may have relied on this factor as a basis for differentiation.

Key takeaways

The NSW Supreme Court’s decision in Wigmans v. AMP Ltd. firmly entrenches the competing class action “beauty parade” in the Australian class action landscape and continues the trend of permitting only one class action to proceed in respect of a particular issue against a defendant, absent extenuating circumstances. Ward CJ unequivocally adopted the comparative, multifactor approach of the Federal Court in GetSwift as the appropriate mechanism for managing competing class actions in the NSW Supreme Court.

The more significant aspect of Ward CJ’s decision is the importance that she placed on factors arising out of the third-party funding of the proceedings. Other than the issue of security for costs, all the matters which the Court relied on to award carriage of the proceeding to the Komlotex/Fernbrook proceeding arose (directly or indirectly) out of the fact that no litigation funder was involved in that proceeding. Whether decisions such as this will precipitate a decrease in third-party litigation funding of class actions in Australia remains to be seen.