24 May 2018

And then there was one. GetSwift and competing class actions in the Federal Court

This article was written by Moira Saville, Alexander Morris and Peta Stevenson

In a decision handed down yesterday, the Federal Court of Australia ordered that two of the three class actions which had been filed against GetSwift Ltd be permanently stayed, with only one to proceed. 

In Perera v GetSwift Limited [2018] FCA 732, Lee J dealt with the issue of multiple, competing class actions.  The judgment addresses the factors to be considered in determining which of competing class actions should be allowed to proceed.

Background

GetSwift was listed on the ASX in 2016.  On 19 January 2018, the Australian Financial Review reported that GetSwift had allegedly failed to disclose to the market that some customer agreements had been terminated and that certain revenue forecasts tied to an agreement the Commonwealth Bank of Australia had been announced prematurely.  GetSwift shares were subsequently placed in a trading halt on 22 January 2018, and then suspended from official quotation.  Following reinstatement on 19 February 2018, its share price had declined by approximately 82.5%. 

Three class actions were commenced:

  • The “Perera Proceeding”, commenced on 20 February 2018 (with Squire Patton Boggs for the plaintiffs, funded by International Litigation Partners No 18 Pte Ltd);
  • The “McTaggart Proceeding”, commenced on 26 March 2018 (with Corrs Chambers Westgarth for the plaintiffs, funded by Vannin Capital Operations Limited); and
  • The “Webb Proceeding” (with Phi Finney McDonald for the plaintiffs, funded by Therium Capital Management Limited), which Lee J granted leave to file on 13 April 2018.

The proceedings were all open class proceedings arising out of the same factual circumstances.  All parties proceeded on the basis that the group membership in all proceedings was the same.

The possible options

Justice Lee surveyed the history of securities class actions and considered how the “phenomenon of competing securities class actions” had arisen.  His Honour identified the following avenues which could be available to deal with the competing class actions:

  • consolidation of the proceedings;
  • a permanent stay of proceedings;
  • an order declassing two of the proceedings under either s 33N(1) or s 33ZF of the Federal Court of Australia Act 1976 (Cth);
  • an order closing the class in two proceedings; and
  • Orders allowing a joint trial of the proceedings with each left constituted as open class representative proceedings.

The parties did not advocate for the consolidation of the proceedings or for orders permitting each open class proceeding to continue to a joint trial.  As Lee J explained, consolidation would be an impractical option without agreement between the parties.  As for the possibility of a joint trial, his Honour said that this was “rightly seen as an unacceptable option”.

Factors to be considered in resolving issue of overlapping class actions

Justice Lee was ultimately of the view that only one open class proceeding should continue so as to:

  • protect the processes of the Court;
  • further the overarching purpose (to facilitate the just resolution of disputes as quickly, inexpensively and efficiently as possible); and
  • protect the interest of group members.

In coming to this decision, his Honour considered a number of factors which had been relied upon by each of the applicant parties in their submissions and described in the decision of Beach J in McKay Super Solutions Pty Ltd (Trustee) v Bellamy’s Australia Ltd [2017] FCA 947 including:

  • the experience of the legal practitioners involved;
  • the resources made available by each firm of solicitors and their accessibility to clients;
  • the state of preparation of each proceeding;
  • the position offered by each funder on security for costs and resources available to fund costs of the applicant and adverse costs;
  • the respective merits of the common issue cases as pleaded or as foreshadowed;
  • the respective strength of the individual cases of the representative applicants;
  • the decision or choice of some group members to enter into funding agreements and retainer agreements;
  • the relative number of the funded group members;
  • the estimated costs;
  • proposals made or adopted by the applicants to reduce and control legal and expert costs; and
  • the comparative consequences of a permanent stay, closure, or declassing order in each proceeding.

Not all of these factors were given equal weight by Lee J.  A number of points which emerged from the judgment are worth noting.  First, Lee J omitted from this list the order in which the proceedings were commenced.  His Honour observed that “if ‘first in time’ was a consideration in and of itself, the deleterious consequences could easily be imagined”.  His Honour rejected “doomster argument[s]” put by Perera and McTaggart that Webb had come along “at the heel of the hunt” in circumstances where Webb had applied to intervene in the Perera and McTaggart Proceedings after each had already submitted their proposals for why their respective proceedings should continue instead of the other.

Secondly, his Honour noted that the “mere existence of funding agreements” was not a factor to which any real weight should be given, particularly where, as here, each party agreed that the appropriate way forward was for the Court to make a common fund order.  In such circumstances, “the existence of funding agreements is a complication rather than being of assistance”.

Thirdly, as for estimated costs, his Honour was particularly persuaded by the “novel suggestion” that the Court should appoint a referee to conduct periodic reviews of the reasonableness of the applicant’s legal costs.

One open class

Similarity among the competing proceedings was a significant factor - given the insignificant differences in the scope, causes of action and case theories between the proceedings, his Honour concluded that there was no reason why the claims of group members could not be advanced in one open class proceeding.  Additionally, cost inefficiencies, unnecessary duplicity (which would serve only to advance the financial interests of those other than group members), vexation to GetSwift occasioned by facing more than one class actions, and his Honour’s finding that no applicant faced a more significant risk of suffering an adverse costs order than the others, led his Honour to conclude that only one of the competing proceedings should be allowed to continue. 

The result – Webb proposal superior

Ultimately, Lee J was of the view that many factors were equal but the Webb Proceeding had proposed:

  • innovative ways of seeking to reduce legal costs by being willing to subject ongoing legal costs to an independently appointed referee, and by being open to the prospect of a court appointed expert being utilised to assist the Court; and
  • a novel funding model, being the lesser of a multiple of expenses (2.2 or 2.8 depending on the time to settlement) or 20% of net litigation proceeds, which his Honour considered superior to the Perera and the McTaggart proposals.

His Honour noted that while there were limitations on modelling, on a comparative basis, the Webb Proceeding was very likely, in most scenarios at all stages of the proceeding, to produce a better return for group members.  Additionally, his Honour noted the proposal by Webb:

  • departed from the terms of other common fund orders made in other proceeding which were typically based on percentage sums of net or gross proceeds;
  • avoided the potential for a windfall return in the event that there is a late settlement at a very significant amount; and
  • potentially removed the funder’s incentive to control the expenditure of legal costs, but allowed for costs to be scrutinised during the course of the litigation by an investigating referee.

Accordingly, his Honour ordered that the Perera Proceeding and the McTaggart Proceeding be permanently stayed.  His Honour explained that “to allow duplicative open class proceedings to proceed when they perpetuate unnecessary multiplicity … would bring the administration of justice into disrepute”.  It was in the interests of justice to grant a stay to:

  • protect group members from unnecessary costs;
  • prevent unfairness to GetSwift; and
  • otherwise safeguard the effective operation of Part IVA of the Federal Court of Australia Act.

His Honour also added that were he wrong to grant a stay he would have enjoined the Perera and McTaggart applicants from further conduct of their proceedings in equity, or alternatively, made a declassing order under s 33N.

Takeaways

The judgment in Perera v GetSwift is significant.  This is the first time that a Court has stayed competing class actions rather than allowing them to co-exist in some form.  His Honour was careful to say “one size does not necessarily fit all”, and that the appropriate remedial response to the issue of overlapping class actions is a case management decision which must be informed by considerations peculiar to the circumstances of those cases.  His Honour noted that “[t]here will, however, be cases (for example, where multiple promoters commence essentially similar, funded open class securities actions), where it might be thought delay will only increase cost and uncertainty and would simply defer addressing a problem which affects the processes of the Court and, as a consequence, should be resolved”.

The decision, if followed, may quell the apparent “race to file”, as Lee J made it clear that this would provide no particular advantage.  It remains to be seen whether it will have a greater impact on the current appetite of lawyers and funders to bring multiple actions regarding the same factual circumstances.

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