After the High Court threw out the ANZ bank fee case are class actions cactus?

The highest court in Australia had just thrown out a class action appeal by ANZ Bank customers over late credit card payment fees.

Customers had, at the first instance, won their claim against the bank in a consumer protection class action in a Federal Court ruling that could have cost ANZ more than $50 million.

But two appeals later, their argument that the $30 fee the bank charged on some credit card payments was excessive came to naught when the High Court found the fees were in line with the actual cost of late payments to the bank.

While the decision came as a disappointment to those bank customers who had signed up for the class action, it was a major blow to Maurice Blackburn, the plaintiff law firm that had run the case and which dominates the class action scene in Australia.

But it would have been welcomed by many in the boardrooms of corporate Australia, amid warnings by bodies such as the Australian Institute of Company Directors that companies were being held to ransom by class actions.

"The decision will give little comfort to plaintiff lawyers, particularly because the claims based on various consumer protection provisions were given pretty short shrift by the court," crowed Herbert Smith Freehills lawyer Cameron Hanson at the decision.

Some went further. The Australian Financial Review editorial described the ruling as having "derailed an orgy of ambulance-chasing class action lawyers", referring to a slew of fees-based proceedings issued against banks operating in Australia. So far only NAB has settled.

No class?

So are class actions really cactus? Not at all. Especially if you ask the big end of town.

Right now there are several class actions on the go in Australia and plenty of others in the works being mounted by Maurice Blackburn and its rivals such as Slater and Gordon.

They include those against listed dairy outfit Murray Goulburn for allegedly misleading investors ahead of its float last year, against car makers Volkswagen, Skoda and Audi over the diesel emissions scandal and two potential actions against Slater and Gordon itself for alleged failures of disclosure.

According to fresh research provided to BusinessDay, there has been a resurgence in class actions since 2007 and shareholder and investor suits are leading the charge.

Professor Vince Morabito from the Department of Business Law and Taxation at Monash University has reviewed the class action landscape in Australia over the past 24 years, ever since the Australian legal system opened the door for class actions in March 1992.

Morabito has found that, during the first 12 years, only 21 claims were brought by investors other than shareholders (such as unit-holders in trusts and note-holders). This figure jumped to 95 claims in the next 12 years between March 2004 and 2016.

When the numbers of all types of class actions were tracked, after a roaring period in the late 1990s there was a lull in total filings between March 2003 and March 2007.

Just four actions were launched between March 2005 and March 2006 compared with the 31 lodged in 1998.

"The federal class action regime around 2005 and 2006 was pretty much like a dying patient," Morabito says.

"There were just a handful of class actions started because it was becoming too expensive."

Things changed with the arrival of litigation funders.

"In 2006, the High Court gave the green light to litigation funding in Australia and then, in December 2007, the Full Federal Court in the Multiplex class action said closed classes are not illegal," Morabito says.

Litigation funders are companies, both here and abroad, that will fund a litigation for a handsome cut of between 20 per cent and 40 per cent of the settlement.

They also wear the costs if the decision goes against the class action, such as in the most recent ANZ bank fee case, meaning investors, or consumers, or bushfire victims face no out-of-pocket costs for participating in the claim.

Also boosting the number of shareholder actions was the decision by the NSW Supreme Court in 2006 to accept class action claims. The move came four years after the Victorian Supreme Court put in place a class action regime and more than a decade after the Federal Court regime.

The staggered introduction of the schemes has led to Victoria stealing a march on NSW class action crown with both states almost equal in filings on March 3 this year.

Floodgates

The increase in investor class actions over the past 12 years has not gone down well at the big end of town amid complaints that the "floodgates had been opened" with the increase in litigation funding. Indeed, class action settlements are often described as "walk-away money", often because a company will hand over millions while making no admission of wrongdoing.

And there is some evidence of a potential flood. A study by King Wood Mallesons last year found $1 billion in claims had been settled in the year to June 2015 alone, a figure that led to concerns Australia was becoming a litigation haven.

However, the figure was buoyed by the landmark $800 million settlement by power companies in the 2009 Victorian bushfire claims.

Maurice Blackburn class action principal Andrew Watson, who ran the ANZ bank fee class action, argues that most players demonstrate a "steady and sensible use of the system".

"There's never been an orgy, a flood, whatever term you use, in the history of the 24 years," he says.

"There have been fluctuations over the course of the 24 years. What we're probably seeing is a slight increase in line with population growth."

He says the key point of class actions in Australia is about access to justice. In the case of shareholders, their only redress is through a mass claim.

"We have to accept that some of the people who complain most bitterly about class actions are the people who will be the targets of them," Watson says.

"Major corporations who do the wrong thing will no doubt love to never to be held to account. But the fact is that they ought to be held to account when they've done the wrong thing."

And investor claims are no longer a case of retail investors in the suburbs raising their pitchforks at the big end of town.

Often class actions will include major institutional investors, such as super funds, looking for redress.

Swiss bank UBS took part in the Centro class action, while UniSuper – a $40 billion industry super behemoth – has also signed up to class actions in the past (although it won't say which ones).

Watson says the 2003 settlement of the GIO class action for $97 million led to institutional investors realising it was better to participate in an action rather than sit on the sidelines and pay out other shareholders.

"It's also often the case that the institutional shareholder will have already sold their holding at a loss or they have fiduciary duties to other funds that invest in their funds," Watson says.

Class competition

Damian Grave, who heads up Herbert Smith Freehills global class action practice and has defended some of Australia's top companies against claims – including actions against faltering property trust Centro – says class actions are likely to become an even bigger part of the corporate landscape in Australia.

"There's likely to be a continued growth in shareholder class actions," Grave says.

"That's due to a couple of reasons. There's the entry of promoters of those actions, whether they be plaintiff law firms and funders including overseas funders, and the continued sophistication in the litigation funding industry."

Grave says an issue companies and their directors are facing is the rise in competing claims by different group of investors.

"There has been an increase in recent years in the number of competing class actions," he says.

"That leads to some complexity and uncertainty for defendants because sometimes those actions are in different courts."

Grave's concerns are not unfounded. In recent years some companies have faced three, simultaneous, separate class actions while other companies face claims launched years apart by different groups of investors. In 2013, federal Attorney-General George Brandis took aim at litigation funders for the lack of transparency regarding their cut of settlements and concerns about "opportunistic claims" that were damaging to both companies and unsophisticated investors.

A Productivity Commission report in 2014 made a series of recommendations to regulate the industry, including the potential licensing of litigation funders with the Australian Securities and Investments Commission.

However, Brandis is yet to respond this report. Louise Petschler, general manager of advocacy at the Australian Institute of Company Directors, says class actions rank among the biggest concerns of Australian company directors.

"When you are sitting around a board table and you're considering the distraction from the core business of the company and the risks that are potentially exposed, the merits of the legal case aren't the only decision that goes into a settlement," Petschler says.

Petschler says regulation will lead to fewer opportunistic claims and more claims being run on merit. "Corporate Australia is concerned about the growth of entrepreneurial litigation funders who find our lack of class action regulation a really conducive environment to their profit model," she says. "The access to justice argument is legitimate, but we are at risk of having a friendly common law environment that's ripe for exploitation by litigation funders.

"And you don't want to have a regulatory environment that's creating an incentive for companies to be almost threatened by the cost burden into settling a case that doesn't have merit without some checks and balances in place."

Indeed, Watson's firm has recently been burned to the tune of $11 million after problems with the funder of its equine influenza class action being accused of running a Ponzi scheme. "We've had one instance where, not withstanding our checks, the funder did not end up having the financial resources to carry on and complete the case," Watson says.

"When you do deal with a funder, you try satisfy yourself about whether the litigation funder is going to have the wherewithal to fund the action."

He, and his firm, are advocates for the contingency fee model where no funder is required and lawyers run the case on the basis that, if they win, they take a cut of the settlement.

"The fees charged by litigation funders are often too high," Watson says.

Clive Bowman, chief executive of Australia's biggest litigation funder IMF Bentham, says he also has been concerned about some of the litigation funders entering Australia.

"Obviously we're in favour of more regulation around capital adequacy and that might be of benefit to the sector," Bowman says. "But there hasn't been any public examples of outrageous behaviour or people not being able to perform their obligation and that's why I think regulation of funding has taken a back burner."

Yet, as the debate about litigation funding rages, concerns remain about how long it takes to divvy up a settlement between victims and the lack of transparency about how much the funders and the victims receive.

Recently, Watson and his colleagues were criticised over how long it has taken to distribute the 2014 settlements to the victims of the Victorian Black Saturday bush fires. It's criticism Watson says is unfair because of the large number of claimants – 2000 personal injury claims and 13,000 property claims – and the different ways in which each person was affected by the fire.

"It's an incredibly complex matter," Watson says. But, without full transparency, such delays, even if they are understandable, cause confusion and angst among people who have participated in the action and gives an opportunity to class action nay-sayers to take their shots.

Yet, as the judgment of the High Court decision in the ANZ bank fees is pored over by lawyers, other banks and companies to see exactly how the legal precedent has been laid out, Watson is sure of one thing.

"The suggestion that somehow or other that's going to create a some broader problems for the class action system is a nonsense."