Class actions allow a group (or class) of people to bring a single claim against a defendant, and the fastest growing type of class actions are those initiated by investors. Trustees that don’t register for investor class actions are leaving member’s money on the table, says David Galloway, lawyer and fund executive.
It might seem odd to sue a company in which you have an ongoing interest, but experience shows that’s often the best way to address corporate misconduct.
For all the publicity given to large regulator interventions few result in meaningful compensation being paid out, nor is that surprising. Regulators are rarely mandated to facilitate restitution in civil matters, which helps explain why class actions exist. What is surprising is why some superannuation trustees seem reluctant to register to receive their share of class action settlements.
Television dramas, a source of legal “knowledge” for many people, might occasionally suggest there’s something not quite right about class actions, but that’s hardly reason for failing to collect what belongs to members. Perhaps then the problem is that some trustees don’t understand class actions or how to put their hand up for a payment.
How they work
In Australia, class actions arise when a small number of representatives acting on behalf of a larger group make substantially the same claims against the same defendant. The “opt-out” system used in Australia makes all potential claimants members of the class and binds them to the eventual judgment or settlement, unless they opt-out of the proceedings.
Because opting out rarely makes sense unless a claimant has an unusually large stake in proceedings and deep pockets, few potential claimants opt-out. Despite this, courts may define a class so that only those claimants who have retained a particular law firm or litigation funder can share in compensation. That means ignoring class action notices will often cost fund members their compensation.
Some trustees might not register for a class action because they fear being landed with costs following an unsuccessful class action. This fear is generally unfounded because respondents are barred from obtaining a costs order against anyone other than the small group or single person who brought the class action (called class representatives). Those who register as part of the class are effectively immune from adverse costs orders.
Even class representatives take little risk since litigation funders often agree to pay cost orders, and that’s part of what makes class actions unique. If a litigation funder is prepared to take the downside risk, class members can be assured the claim is based on firm grounds, register then wait for their share of any settlement.
But litigation funders aren’t super heroes. They’re businesses that offer to pay legal costs in exchange for a share of any settlement, usually between 20 per cent and 40 per cent depending on risk. While that can substantially reduce compensation available to class members, there are alternatives. Amongst these are using a “man of straw” to lead the action and enlisting specific class members to contribute to costs orders in exchange for a higher portion of any settlement. For superannuation trustees the key point to remember is that there’s very little risk in registering for a class action providing they clarify the funding mechanism.
Another barrier to registering for class actions might be the fear that any settlement could be negotiated for the benefit of lawyers and the litigation funder rather than class members. While this possibility can’t be ignored, no settlement can occur without court approval; which will only be granted if the court considers the settlement to be a fair and reasonable compromise of class member claims. What’s more, third parties such as ASIC often have legal standing to oppose a settlement on the basis it’s not in the best interest of class members.
Around 14 class actions are filed in the Federal Court every year with settlements totalling in the hundreds of millions of dollars. If your members aren’t getting their share of the proceeds perhaps it’s time to ask why?
