Thinking locally, suing globally: the international frontiers of mass tort litigation in Australia.

• Author: Clark, S. Stuart

PRIOR to 1992, mass tort litigation in Australia was virtually unknown. The country had no class action system and little or no product liability litigation, save for a series of claims involving IUDs that were essentially driven by the Dalkon Shield settlement in the United States. All of that changed in one fell swoop when the governments of the day, both state and federal, introduced a package of reforms that were actually intended to increase the level of product liability litigation in Australia. These "reforms" included the following:

* Introduction of a class action system that is more plaintiff friendly than that in the United States;

* Adoption of a new product liability regime, based on the European Product Liability Directive;

* Introduction of a limited form of contingency fees; and

* Repeal of regulations prohibiting advertising by lawyers.

Needless to say, much has changed since 1992. Australia is now the place outside North America where a corporation is most likely to find itself defending a class action, and much of that litigation has been driven by a series of drug and medical device claims. These claims have included both those that had their origin in the United States or, to a lesser extent, the United Kingdom and some home grown proceedings. (1)

In most cases, these actions form or formed part of a broader, multi-jurisdictional or multinational problem for the defendant. In most cases, the Australian proceedings are or were but one part of a problem that, while usually having its focus or epicenter in the United States, also involved proceedings in a range of other countries. This creates both challenges and opportunities for those American-based lawyers acting for the defendants. The challenges take a number of different forms, some of which are addressed in this paper. The opportunities revolve around the prospect of working in another jurisdiction with lawyers from a diverse range of backgrounds and traditions. They also include the possibility of spending hours, if not days, on aircraft traveling to the far corners of the globe.

1. Why Australia But Not Other Parts of the World?

   A question often asked by both corporations that find themselves embroiled in litigation in Australia and their U.S. lawyers is: Why Australia but not other parts of the world? How can it be that Australia, with a population of only twenty million people, can cause so much grief for general counsel, the corporation's management team and its external lawyers who would rather be focused on "the main game" in the United States?

   A number of factors may be identified as contributing to the growth in mass tort litigation in Australia. Most of these factors emerged from the frenzy of law reform activity that Australia experienced in the early 1990s.

   1. Favorable Legal Regime

      One such development was the introduction of a strict liability regime for product liability claims. Australian governments consciously took steps in the early 90's aimed at increasing the level of product liability litigation. The federal government introduced a strict liability regime for product liability claims based on the European Union Product Liability Directive. In time, this directive also had the effect of breathing life into a series of older provisions that, on one view, also imposed a strict liability regime in product claims.

      The operation of these provisions can have what appears to be confusing results to an American lawyer. Take for example the decision of the Federal Court of Australia in Medtel Pry. Ltd. v Courtney. (3) In interpreting Sections 74B and 74D of the Trade Practices Act 1974 (Cth.), the court (at both first instance and on appeal), held that a cardiac pacemaker was not of merchantable quality in circumstances where the device in question had never failed or otherwise malfunctioned. Rather, the pacemaker had, at all times up to and including the trial, functioned normally. Evidence that the pacemaker was one of a specific group of devices which had a "possibility" or "risk" of failure over and above what was referred to as a "background or random risk of failure" was enough to deem it 'unmerchantable' and the manufacturer liable to compensate the consumer.

   2. A Plaintiff-Friendly Class Action Procedure

      While Australian class actions often echo claims commenced in the United States, there are a number of significant differences between the countries' procedural requirements, all of which tend to make the Australian class action procedure more "plaintiff-friendly."

      First, unlike the U.S. class action procedure, the Australian procedure has no certification procedure or requirement. That is, there is no threshold requirement that the proceedings be judicially certified as appropriate to be brought as a class action. Second, in Australia there is no requirement that the common issues between class members predominate over the individual issues. Third, the Australian rules, unlike those in the United States, expressly allow for the determination of "sub-group" or even individual issues as part of a class action. These differences are explored more fully later in this paper. The impact of these procedural differences is felt most sharply in the area of drug and device litigation. As the Courtney class action demonstrated, complex multi-party litigation can be run to verdict in Australia, whereas such a claim would be unlikely to receive certification in America. (4)

   3. Litigation Funding Arrangements

      A third factor leading to more Australian class actions is the emergence of the 'litigation funding' industry, an arrangement that is potentially more lucrative than the much-discussed American contingency fee system. Non-lawyer "promoters" have found ways to circumvent the rules that prevent Australian lawyers entering into true, U.S. style, contingency agreements. In Australia, an agreement between a lawyer and client that provides for the lawyer to receive an agreed proportion or share of any judgment is illegal. Rather, the lawyer can only take his or her 'normal' fee plus an agreed uplift which is usually expressed as a percentage of the so-called normal fee. These restrictions have effectively limited the amount plaintiffs' lawyers can earn and have been particularly effective in preventing them from receiving the enormous fees some of their class action colleagues are accustomed to in the United States.

      While the restrictions on lawyers remain, non-lawyers are not so constrained. Thus, a new breed of entrepreneur has emerged to promote and fund class action litigation. Indeed, Australia is said to be home to the world's only publicly listed litigation funder, IMF (Australia) Ltd. (5) The mechanism is relatively straight forward. A non-lawyer or corporation, the promoter, identifies a potential claim and then enters into agreements with potential claimants. These agreements provide for the promoter to receive an agreed percentage of any monies that come to the claimant, either through settlement or judgment. In addition, the claimants will often assign the benefit of any costs order they may receive to the promoter who is also given a broad discretion to conduct the litigation as they see fit. The promoter then retains a lawyer who agrees to conduct the litigation on behalf of the class members on the basis of the 'normal' rules governing the legal profession.

      In recent times agreements providing that the promoter will receive up to seventy-five percent of the proceeds of the action plus the benefit of any costs order that might be made in favor of the class members have been used in a number of class actions. As, under the 'English rule,' the loser pays the winners costs, the litigation funder has the prospect of not only receiving up to seventy-five percent of the proceeds of the action, but also the prospect of recovering a substantial proportion of the costs (both attorney's fees and out of pocket expenses) incurred in running the proceedings. While there has been much written on the subject of contingency fees in the American context, this new Australian arrangement is potentially even more lucrative for the legal entrepreneur.

      Australian litigation funders experienced some early setbacks; although as time passed decisions at both the state appellate and federal level tended to approve these arrangements. (6) Such funding is no longer seen as a threat to the litigation process, perhaps because courts have greater confidence in their ability to control the conduct of litigation. Increasingly, judges are suggesting that commercial litigation funding has an important role to play in ensuring that plaintiffs are able to obtain access to the courts. (7) It has not all been smooth sailing however, as demonstrated by the decision of the Federal Court in IMF (Australia) Ltd v. Sons of Gwalia Ltd. (administrator appointed). In this case, the ourt prevented the litigation funder (IMF) from using information it obtained from the corporation's register to contact shareholders in order to invite them to participate in litigation. (8)

      In a landmark decision9 the High Court of Australia, the country's ultimate Court of Appeal, held that litigation funding agreements entered into as between the litigation funder and individual plaintiffs are lawful. The decision has led to a significant increase in the level of litigation funding in Australia and the commencement of a number of new proceedings. While some degree of regulation of these schemes and their promoters will inevitably follow, litigation funding is here to stay.

      While the involvement of a litigation funder may mean that a defendant in a class action faces a well organized and resourced opponent, it can also have its advantages. Litigation funders are commercial operations which exist to make a profit. While litigation funders owe important obligations to the claimants in a class action (which should be, and usually are, enshrined in the litigation funding...