Class Actions (VCE SSCE Legal Studies): Revision Notes
Class actions
What is a class action?
A class action (also called a group proceeding or representative proceeding) is a legal process that allows multiple people with similar claims against the same defendant to join together in a single court case. This mechanism has become increasingly common in Australian civil disputes.
Requirements for commencing a class action
For a class action to be commenced, three conditions must be met:
- Seven or more people must have claims against the same defendant
- Similar circumstances – all claims must relate to the same, similar or related circumstances
- Common issues – the same legal questions must need to be resolved for all claimants
Worked Example: Meeting Class Action Requirements
If thousands of consumers purchased contaminated jam from the same batch and became seriously ill, they could form a class action. Let's examine how all three requirements are satisfied:
- Seven or more people: ✓ Thousands of consumers are affected (well above the minimum)
- Similar circumstances: ✓ All consumers experienced the same circumstance (eating contaminated jam from the same batch)
- Common issues: ✓ The same legal issues apply to all claimants (whether the manufacturer breached its duty of care and caused harm)
Since all three requirements are met, this situation is suitable for a class action.
How class actions work
The lead plaintiff
A lead plaintiff (or representative plaintiff) is the individual who initiates the class action and represents all group members. This person:
- Is named in court documents
- Takes responsibility for commencing the proceedings
- Represents the interests of the entire group
The lead plaintiff carries significant responsibility and potential financial risk, which is why litigation funders often play a crucial role in supporting class actions.
Group members
Group members are all other individuals who form part of the class action. Unlike traditional litigation, group members have a very limited role:
- They are not named in court documents
- They do not give instructions to lawyers
- They do not appear in court
- They do not discover documents or give evidence
- They may not even know a class action has been commenced on their behalf
The group is broadly described in the statement of claim rather than listing individual names.
Case Example: Cosmetic Surgery Class Action (2022)
In March 2022, a class action was commenced in the Supreme Court of Victoria against a cosmetic surgery business and five doctors. The group was described as:
- All persons who suffered loss or damage from cosmetic surgery performed by one or more defendants
- All persons who suffered loss or damage from surgery at specified clinics
The alleged harm included severe pain, disfigurement and psychological injury due to alleged negligence.
This example demonstrates how groups are defined broadly by circumstances rather than by naming individual members.
Opt-in and opt-out mechanisms
Once a group is defined in the claim, every person meeting that description is automatically included in the class action unless they take action to remove themselves.
Opt-out: Most class actions use an opt-out system. Group members are assumed to be part of the proceedings unless they file a notice with the court to exclude themselves. If someone opts out:
- They will not be bound by any court decision or settlement
- They may pursue their own separate legal action
- They will not receive any compensation awarded to the group
Opt-in: Some class actions require group members to actively register their participation.
Critical Decision for Group Members:
Opting out of a class action has significant consequences. While it preserves your right to pursue an individual claim, you forfeit any compensation that might be awarded to the group. Group members should carefully consider this decision, as individual litigation can be costly and time-consuming.
Court supervision
The court plays an active role in managing class actions:
- Settlement approval – The court must approve any settlement agreement between parties to ensure it is fair and reasonable for group members
- Cost approval – The court reviews and approves legal costs and litigation funder fees
- Protection of group members – Court oversight ensures vulnerable group members are not disadvantaged
Since most class actions settle through mediation rather than going to trial, the court's primary function is approving settlements rather than determining liability and damages. This supervisory role is essential for protecting the interests of group members who are not actively involved in the proceedings.
Costs in class actions
Responsibility for costs
Lead Plaintiff's Financial Risk:
If a class action fails, the lead plaintiff alone is responsible for:
- All legal costs of the proceeding
- Any adverse costs order (paying the defendant's legal costs)
This significant financial risk means not everyone is willing to act as lead plaintiff. This is why litigation funders have become essential to the class action system.
Litigation funders
To address the cost burden, most class actions involve a litigation funder – a third party that:
- Pays all legal costs associated with the action
- Takes on responsibility for costs if the action fails
- Receives a percentage of any settlement or damages awarded (typically 20-40%)
The use of litigation funders has become a standard feature of class actions in Australia, making them more accessible to ordinary people who could not otherwise afford to litigate. While funders take a substantial portion of settlements, they also assume the financial risk that would otherwise fall on the lead plaintiff.
Group costs orders
In Victoria, plaintiff law firms can now 'fund' class actions themselves by obtaining a group costs order from the court. This allows the law firm to charge a fee calculated as a percentage of any settlement or award. This development has:
- Increased access to justice by enabling smaller claims to proceed
- Allowed claims to be funded when litigation funders are not interested
- Provided an alternative funding model
Group costs orders represent an important innovation in class action funding, particularly for cases that might not attract traditional litigation funders but still merit pursuit.
Cost sharing if successful
When a class action succeeds, costs are deducted from the total damages awarded. This means:
- All group members effectively share the legal costs
- Individual group members receive their portion after costs are deducted
- No group member bears costs alone
Since 2017, over one billion dollars has been distributed to group members through Victorian class actions.
Types of class actions
Historical development
Early Class Actions in Australia:
One of Australia's first class actions occurred in 1995 when law firm Slater and Gordon represented over 1,000 people who suffered salmonella poisoning from contaminated peanut butter. This landmark case demonstrated the potential of class actions to provide access to justice for large groups of affected individuals.
Other landmark class actions include:
- Business owners suing Esso following the Longford gas explosion (1998)
- Claims arising from the Victorian Black Saturday bushfires (2009)
- Multiple bank fee class actions for repayment of excessive fees
Categories of class actions
1. Shareholder class actions
Shareholders make claims about being misled regarding a company's financial position or operations.
Example: National Australia Bank Shareholder Class Action (2010)
Shareholders brought a claim against National Australia Bank, alleging the bank failed to disclose material information.
Outcome: The case settled for $115 million plus costs, demonstrating the significant compensation that can be achieved through shareholder class actions.
2. Product liability class actions
Consumers who purchased defective goods or services join together to claim compensation.
Examples:
- Defective airbags in vehicles
- Contaminated soy milk
- Harmful herbicides
- Defective medication
3. Employment class actions
Employees group together to claim underpayment or compensation for poor working conditions.
Example: Domino's Pizza Underpayment Class Action
A class action was commenced against Domino's Pizza for alleged systematic underpayment of workers. This type of action allows numerous employees who individually have relatively small claims to collectively pursue compensation.
4. Natural disaster class actions
Group members who suffered loss from natural disasters claim against parties responsible for the damage.
Case Example: Black Saturday Bushfires (2009)
The Black Saturday bushfires in Victoria resulted in multiple class actions, demonstrating both the scale and complexity of natural disaster litigation:
Murrindindi bushfire class action:
- Settled through court-led mediation
- Settlement total: $300 million
- Resulted in significant cost and time savings compared to individual litigation
Kilmore East-Kinglake bushfire class action:
- Settled after a 200-day trial
- Involved 40 expert witnesses
- Used a paperless 'e-trial' system
- Settlement total: $494 million (the largest class action settlement in Victorian history)
These cases illustrate how class actions can efficiently handle mass tort situations arising from catastrophic events.
Appropriateness of class actions
Not every dispute is suitable for a class action. The following factors determine appropriateness:
Mandatory Requirements:
For a class action to proceed, these conditions must be met:
- At least seven people must have claims arising from the same or similar circumstances
- Claims must be against the same defendant
- If these conditions are not met, a class action cannot proceed
Funding considerations:
- A plaintiff law firm or litigation funder must be willing to fund the claim
- Claims under $1 million are less likely to attract funding
- Claims over $5 million are more likely to be funded
Practical Factors to Consider:
Beyond the mandatory requirements, several practical considerations affect whether a class action is appropriate:
- Someone must be willing to act as lead plaintiff
- The size of individual claims must make the action economical
- Very small claims may not be worth the effort and cost
- The complexity of coordinating group members must be manageable
Individual circumstances:
- If one group member suffered significantly greater harm, they may prefer to conduct their own proceeding
- This allows them to keep the entire settlement rather than sharing with other group members
Strengths and weaknesses
Understanding the advantages and disadvantages of class actions helps explain their role in the civil justice system. Many of these features relate directly to the principles of justice.
Strengths
Access to justice:
- Group members do not pay costs upfront (costs are deducted from any successful settlement)
- Enables people who could not afford individual litigation to pursue claims
- Small individual claims become viable when grouped together
- Litigation funders and 'no win, no fee' arrangements reduce financial barriers
Breaking Down Financial Barriers:
Class actions fundamentally improve access to justice by removing the upfront cost barrier. A person with a $5,000 claim who cannot afford $50,000 in legal fees can participate in a class action at no cost, with legal fees only deducted if the action succeeds.
Efficiency:
- Courts handle one large case instead of numerous separate claims about the same issue
- Saves court time and resources
- Defendants respond to multiple similar claims in one proceeding rather than defending multiple separate cases
Convenience:
- Group members can pursue claims without the burden of active participation
- No requirement to attend court, give evidence, or instruct lawyers directly
- Particularly beneficial for those who lack time or confidence to litigate individually
Economic viability:
- Individual claims that are too small to pursue alone become cost-effective when combined
- Hundreds or thousands of small claims together justify the legal costs
Weaknesses
Cost Burden on Lead Plaintiff:
If the action fails without a litigation funder or 'no win, no fee' agreement, the lead plaintiff faces enormous costs. Although this scenario is rare due to the prevalence of litigation funders, it creates a significant risk for the individual who takes on this role.
Court resources:
- Despite consolidating claims, class actions are large and complex
- They consume substantial court time and resources
- Settlement approval processes can be lengthy
Concerns About Legal Fees:
Some fear that plaintiff lawyers benefit more from class actions than group members. While individual group members may receive small amounts, law firms can earn substantial fees. This has led to criticism that lawyers exploit the system, though proponents argue that without these financial incentives, many claims would never be pursued.
Litigation funder fees:
- Funders typically take 20-40% of the total settlement
- This significantly reduces the amount paid to group members
- May not reflect the actual loss suffered by individuals
Multiple competing actions:
- Different law firms sometimes commence separate class actions about the same issue
- This increases defendants' costs
- Has been identified as a problematic aspect of the class action regime
Communication challenges:
- Group members may not receive adequate information about the proceeding
- Some may not even know a class action is ongoing
- With thousands of group members, one-on-one communication is impossible
Exam guidance
When analysing class actions in exam questions:
For 'explain' questions:
- Define class actions clearly
- Outline the three requirements
- Describe the roles of lead plaintiff, group members and the court
For 'analyse' or 'evaluate' questions:
- Link strengths and weaknesses to specific principles of justice (fairness, equality, access)
- Consider both access to justice improvements and potential concerns about fairness
- Use case examples to support your analysis
- Balance positive aspects (access, efficiency) with criticisms (costs, communication issues)
For 'assess appropriateness' questions:
- Apply the factors listed in this note to the scenario
- Consider the number of claimants, similarity of circumstances, and claim size
- Evaluate whether funding would likely be available
- Weigh up whether benefits outweigh disadvantages for the specific situation
Key Approach:
When the question asks you to assess whether a class action is appropriate, systematically work through the requirements first (seven or more people, similar circumstances, common issues), then consider practical factors (funding, lead plaintiff availability, claim size). This structured approach ensures you address all relevant considerations.
Remember!
Key Points to Remember:
- A class action requires seven or more people with claims against the same defendant, arising from similar circumstances, with common legal issues to be decided
- The lead plaintiff represents the group and bears cost responsibility if the action fails, while group members have minimal involvement
- Litigation funders typically pay costs in exchange for 20-40% of any settlement, making class actions more accessible
- The court actively supervises class actions, particularly approving settlements to protect group members
- Major types include shareholder, product liability, employment and natural disaster class actions
- Class actions improve access to justice by making small individual claims viable when grouped together, but can involve high legal and funder fees that reduce amounts paid to group members
Key Terms:
- Class action – a proceeding where multiple people with similar claims join together
- Lead plaintiff – the named person who represents all group members
- Group member – a person forming part of the class who does not actively participate
- Litigation funder – a third party that pays legal costs in exchange for a percentage of any settlement
- Adverse costs order – a requirement that one party pay the other party's legal costs
- Opt-out – the process of removing yourself from a class action