To sue or not to sue, that is the question

CLASS actions tend to grab headlines. The bigger the number of potential claimants and the heftier the claim, then the splashier will be the media coverage and the higher the public's expectations that big bucks will come their way.

But Professor Vince Morabito of Monash University cautions that many of the touted class actions come to nothing. Many are never filed, and instead become watching briefs as lawyers dig away trying to locate sufficient evidence and respondents to sustain a case.

Others are resolved without settlement, and plenty of cases are wrongly described by the media as class actions when in fact they are regular legal cases that simply involve numerous individual plaintiffs.

Professor Morabito argues that the media's misreporting tends to foster myths about class actions, not the least being the business community's complaint that too many cases are being filed. In the second part of a long-running study of the class action regime in Australia, Professor Morabito found that the number of cases filed reflected an "extremely minimal" use of the class action regime.

He also found that the emergence of litigation funders in recent years had not led to higher rates of filings of class actions, as might be expected. And he found that while litigation funders on average got 30 per cent of settlement payouts, the cases in which they participated did tend to settle.

Professor Morabito said one of the more "depressing" findings was that many people who could have continued in a class action at no expense to themselves opted out because they were bewildered by receiving a document asking if they wanted to remove themselves from a legal case they knew nothing about.

His research team examined comments scrawled on opt-out forms that had been returned by potential claimants, and they included "extremely colourful" descriptions of the defendants, class action lawyers and the legal system.

But they also reflected a misunderstanding of the opt-out system, indignation that lawyers had contacted them and mistrust of the legal system.

Professor Morabito said the most confronting aspect was that the plaintiffs who exhibited such confusion were the kind of plaintiffs that the class action regime all over the world was designed to assist.

He said the comments of some of the claimants who opted out "exhibited a failure to understand that the filing of the opt-out form deprived them of the opportunity to receive a share of any monetary benefits that the class action might produce".

The report's findings have been released one month after the NSW government revealed it would introduce new legislation for class actions in that state, modelled on the Federal Court and Victorian regimes, which would provide clearer rules for the initiation and conduct of class actions in NSW.

It also comes just weeks after a limited group of Multiplex shareholders obtained a $110 million settlement in a class action.

In February, AWB agreed to pay $39.5 million to settle a class action in which shareholders sued the wheat exporter for the damage to their share investments arising from the Iraq kickbacks scandal.

And in the Victorian Supreme Court on Friday, Justice Clyde Croft presided over the first directions hearing in a case in which investors who sank their funds into tree plantation schemes promoted by the failed Great Southern group are suing the company, its directors and Bendigo and Adelaide Bank over losses incurred when the group collapsed in May 2009.

Professor Morabito told BusinessDay he believed there needed to be some changes to the class action regime. He suggested there should be some regulation of litigation funders, especially disclosure of the contractual arrangements between funders and lawyers and plaintiffs, but he argued against introducing an expensive licensing system that might limit competition among funders and ultimately work to the detriment of plaintiffs.

As well, he suggested judges should more closely scrutinise the communications initiated by defendants (or their lawyers) to potential claimants communications that the report suggests may be leading to extremely high and in some cases unwarranted opt-out rates.

He suggested the courts needed to centralise in their registries data about class action cases, and he supported a comprehensive review of the Part IVA regime by the Australian Law Reform Commission. Next month, the research team will start examining the class action files retained by one of the leading plaintiff law firms, Maurice Blackburn. A similar study will be made of Slater & Gordon's files in the future. One of the key issues the team is keen to resolve is how much actually ends up in the pockets of claimants and how much goes to lawyers.