If you are part of a large group that has been wronged by a business or organisation, you might consider initiating a class action lawsuit to seek compensation. This is where a group of people with a viable legal claim against a single party combine to pursue their claim together. Class action lawsuits are increasingly common in Australia because they allow people to resolve legal issues more quickly than if they each pursued an individual action against the organisation. This article will explain how class actions work, including how: 

  • you can start one;
  • classes are defined;
  • you will make certain decisions;
  • to fund the class actions; and 
  • to decide whether to pursue a class action, based on the general advantages and disadvantages.

What is a Class Action?

A class action is a court case in which a group of people sue a single party. There will usually be one or a couple of ‘lead plaintiffs’ that represent all of the people involved in the class action. All of the other claimants in the class action are known as ‘group members’.

It is those lead plaintiffs who run the case with the lawyers and appear in court on behalf of the class. The group members are not obliged to be involved in the case until: 

  • a court decides the defendant’s liability; and 
  • needs to assess the basis of each claimant’s losses.

If the claim is successful, the court will often fairly divide the compensation amount between all of the members of the class based on: 

  • calculations in relation to quantum; and 
  • occasionally, other methods relevant to the case.

In Australia, class actions are heard in the Supreme Courts of each state or the Federal Court.

What Defines the ‘Class’?

If you are the lead plaintiff (i.e. the person or people making the original claim), you essentially get to define the class yourself. 

When you are first preparing your claim, you should think that other people who may be impacted by the exact same issue that you are suing in relation to. This will help you to expand your claim to be representative of all people affected. 

In the business world, this group will usually be: 

  • fellow shareholders; 
  • customers; or 
  • employees and contractors. 

The table below sets out some examples of lead plaintiffs, their claim and the potential class.

Example of a representative plaintiffExample of a claimExample of a class 
A disgruntled shareholder who purchased a large number of shares in a public company, but later learns that the company has been making false profit projections.Claim against the company for misleading or deceptive conduct and/or breaches of requirements to disclose information to the ASX.Fellow shareholders of this company who purchased shares within a similar defined timeframe.
Someone who purchased a faulty vehicle and piece of equipment.Claim against a manufacturer for negligence or breach of Australian Consumer Law guarantees.Individuals throughout Australia who purchased the same product within a certain timeframe.
An individual who was employed by a company as a contractor on paper, but is concerned that they were being underpaid and are legally entitled to certain employee benefits.Sham contracting claim against the employer.Other contractors hired by the same company in a role with similar characteristics and have a similar cause of action.

Before a judge allows your case to move forward as a class action, you will need to prove that:

  • your claim(s) give rise to at least one issue of law or fact;
  • there are at least seven other members of the class, who would otherwise have grounds to make their own claim against the same defendant; and
  • their claims arise out of similar circumstances.

Why Run a Class Action?

You and your potential group members might choose to merge your legal action into one to have the matter dealt with: 

  • faster; and 
  • more cost effectively.

Often, an individual claim will not be commercially viable to litigate because the legal fees will outweigh the potential individual gain. This cost-benefit equation can change if you bring a large volume of people on board who have also suffered damages.

At scale, the class action allows you and others to access justice which you might not have otherwise achieved. 

How Do People Join a Class Action?

In Australia, class actions operate on an ‘opt-out’ basis. This means that when the lead plaintiff(s) define the group, the group members might not initially know about the claim.

Once you have defined the issues in the case, the court will make an order requiring the publication of a notice to bring the case to the attention of all group members. The notice will:

  • outline the particular legal claim that you are making; and
  • provide group members with a deadline to remove themselves from the claim if they do not want to be a part of it.

Group members who do not respond to the notice will: 

  • continue to be represented in the class action; and 
  • be bound by the outcome of the case. 

This means that they stand to gain from any settlement or judgement. However, they will be unable to launch their own proceedings relating to the same issues.

How Are Decisions Made?

Despite the inclusion of a large group, the lead plaintiff(s) and their lawyers will still be in the driver’s seat. However, if you are running a class action claim, you are legally required to act in the interests of all affected parties. 

The court will regulate this by blocking any settlement offers that unfairly tilt toward your own personal gain.

In addition, group members can make submissions to the court about whether they think a settlement proposal is fair and reasonable. This means that while the broader class will not have much influence over how the action proceeds on a day-to-day basis, they can still: 

  • have an impact on the general direction of the case; and 
  • hold you to account.

How to Fund Your Class Actions?

It is important to note that the lead plaintiff assumes the risk and cost of the litigation. Broader class members do not have to pay any legal fees.

In practice, most commercial class actions in Australia are funded by private litigation funders. They will: 

  • select claims that they see as a good investment; and
  • receive a share of the compensation if the case is successful.

Advantages and Disadvantages of Class Actions

Litigation is complex and class actions are not always the best way to proceed. The table below lists some advantages and disadvantages of class action litigation.

 AdvantagesDisadvantages
Representative Plaintiff(s)By grouping many small claims together, you can put a lot of pressure on the defendant in terms of: 

 

  • dollar value of the claim; and 
  • the publicity associated with a class action.

If the case is large in scale, you will also increase the chance of attracting litigation funding.

Although you assume the entire cost and risk of litigation, you cannot pursue the case for your personal benefit alone.

Further, additional groundwork will be required prior to litigation to identify and then contact class members. This groundwork may be costly and is not guaranteed to reach an outcome.

Group MembersMinimal time and cost involved.

You will not have much control over the court proceedings.

If the matter does reach a settlement or judgment, you may only receive a small amount of the overall compensation.

You are barred from making your own claim in relation to the same issue in the future.

GenerallyYou can achieve justice for a large number of people.

The lawyers working on the matter might not be able to service each member’s individual needs.

There is a chance that conflicts between party members will arise in a class action as to how you run the matter.

Key Takeaways

Class actions are a great option for litigating at scale. They are often the most cost-effective way to proceed with a matter. In some instances, they are the only way for a legally viable claim to be commercially viable. As the lead plaintiff, you will be responsible for:

  • preparing the claim;
  • defining and joining members to the class;
  • appearing in court; and
  • assuming the cost and risk of litigation.

If you are exploring the possibility of a class action claim, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.

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