SOUTH AUSTRALIA – THE ROGUE CLASS ACTION STATE

Class Actions in Australia.

In 1976 the Federal Government introduced Part IVA of the Federal Court Act providing a structure for Representative Proceedings or Class Actions.?The Act introduced an opt out model that meant everyone who fell within the class definition was part of the class unless they chose to opt out.?A fundamental purpose of the legislation was to enable large numbers of claimants who had meritorious claims but could not afford the costs of bringing a case to have access to the law.?In order to take advantage of this legislation the class had to allege and prove a breach of Commonwealth Law to give the Court jurisdiction.?An obvious lacuna was that claimants alleging a breach of common law of state law could not take advantage the federal legislation.

The States introduced similar legislation that enabled claims for breaches of state legislation and the common law.?Most state’s legislation mirror the Commonwealth legislation with the advantage of uniformity of jurisprudence.?South Australia did not follow the rest of the States and produced its own brand of legislation by an amendment to the Supreme Court Rules 2006.?The amended Rules provided for a class action to be commenced in the ordinary way but had to be endorsed by the Court to able it to continue.?The requirements for endorsement are not dissimilar to the Federal Legislation and would be considered reasonable.

However, rule 194(1)(a) provided in relation to security for costs, inter alia:

“(1) The Court may order a plaintiff to provide security for costs if—

(a) the action is brought in a representative capacity and the plaintiff is insolvent or would have insufficient resources to meet an order for costs if the action were to prove to be unsuccessful;”

Proude V Visic (No 3) [2012] SASC 234 was a case involved a claim for damages caused by a bush fire.?The Court concluded rule 194(1)(a) applied to the case and at [162] said:

“Given my conclusion that rule 194(1)(a) authorises security for costs in relation to representative actions under rule 81 (provided the plaintiff would have insufficient resources to meet an order for costs), the question whether an order for security for costs could be made in one form or another under rule 81 itself does not arise.?On the construction of rule 194 which I have adopted, it is rule 194 rather than rule 81 which addresses the topic of security for costs.”

Rule 194(1) gives the Court a discretion in relation to an order for security for costs.?In Proude the Court considered the exercise of its discretion and how the discretion was exercised by the Federal Court under Part IVA.?At [171] and [172] the Court said:

In all of the circumstances, it is appropriate to order security for costs in favour of each defendant.?If I had been satisfied that Mr Proude would prosecute his action to trial if he were only claiming his own losses, that Mr Proude is himself funding the action and that the costs which would incurred by the defendants in a purely personal action by Mr Proude would not be substantially less than the costs they will incur on the representative action proceeding to trial, it is likely that I would have declined to order security for costs.?However, I have found that the reality is that this action will only proceed to trial because it is a representative action and because its prosecution is not being funded by Mr Proude alone.?In the particular circumstances, and weighing all factors for and against making an order, it is appropriate to adopt the approach broadly outlined by the Full Court of the Federal Court in Bray and order security for costs.

Mr Proude contends that the defendants are sufficiently protected in relation to their recovery of costs by the prospect of their being able to seek an order against the represented persons at the conclusion of the action under the principle in Knight.?The prospect that the defendants might obtain such an order is not a sufficient reason to exercise my discretion against ordering security for costs given that I have concluded that it is otherwise appropriate to so order.?That is because it is impossible at this interlocutory stage to exercise in advance the discretion under the Knight principle and determine that an order would be made at the end of the action against the represented persons that they pay the defendants’ costs of action.?That discretion can only be exercised once all the relevant circumstances are known at the end of the action and after hearing submissions from all interested persons (including the represented persons themselves).?The 255 landholders who have provided instructions to Duncan Basheer Hannon are of course at liberty at this point to assume co-liability with Mr Proude for the defendants’ costs but none of them have elected to do so.?In addition, the absence of an order for security for costs is sometimes taken into account as a factor against awarding non-party costs.?This makes it doubly important not to attempt to second guess on an application for security for costs the exercise of the discretion at the end of the case to make a non-party costs order.?In the circumstances, I should exercise my discretion on the question of security for costs without presuming that a non-party costs order will be made at the end of the action.

An impecunious person with a meritorious property damages claim could not satisfy a court that:

1.?????He would prosecute the case if he was claiming his own losses;

2.?????He is funding the action;

3.?????The costs which would be incurred by the defendants in a purely personal action by him would not be substantially less than the costs they will incur on the representative action proceeding to trial; and

4.?????The action would only proceed as a class action.

Proude and the cases referred in it by the Court are property damage cases.?There is an argument that the decision should not apply to personal injury claims but there is no indication that claims could be distinguished in this way or would be in the South Australian Court.

Eades v Endeavour Energy [2018] NSWSC 801is a bushfire property damage and personal injury case.?New South Wales class action legislation follows Part IVA.?Garling J refused a security for costs order. He distinguished Bray and Madgwick, referred to in Proude at [88] on the basis:

“…No claims for permanent or ongoing?personal injury?by way of physical or mental harm were being made.”

At [91]:

“These cases, by the nature, are all readily distinguishable from the facts here. The group here consists primarily of individuals whose houses have been totally destroyed or else damaged by a bushfire. In addition to losing their homes and all of their belongings (in some cases), some of the group have received insurance payments. Some members of the group have claims for?personal injury.”

In Schofield v TFS Manufacturing [2020] FCA 1526, Lee J reiterated the relevant principles in relation to Security for Costs under Part IVA at [7]:

“Recently in both?Abbott v Zoetis Australia Pty Limited (No 2)?[2019] FCA 462; (2019) 369 ALR 512?and?Turner v Tesa Mining (NSW) Pty Limited?[2019] FCA 1644; (2019) 290 IR 388?I had cause to discuss, in some detail, the principles relating to the award of security for costs in the context of Pt IVA proceedings. In?Abbott?(at 522–4 [33]–[40]) a series of considerations which assume importance in applications for security for costs in class actions were described. They are equally relevant here. Although lengthy, it is appropriate that passage be set out in full:

First, like in?Madgwick, the nature of the claim advanced in this class action is highly relevant.?This proceeding is precisely the sort of case contemplated by the Australia Law Reform Commission when it produced its landmark report,?Grouped Proceedings in the Federal Court, Report 46 (Australian Government Publishing Service, 1998) at 165.?This report, published prior to the development of the modern market of litigation funding, contemplated that the proposed legislative scheme would provide an effective mechanism for persons with small or relatively modest claims to obtain access to justice.?The class action procedure was seen as a mechanism to allow small or modest claims to be “bundled together” (at 45 [94], 49 [106]). An obvious example of the type of case which could employ such a procedure was mass torts or product liability cases where there were likely to be a small number of complex common issues, the determination of which, was critical for a large number of small or modest claims.?The current proceeding, if properly advanced, is an exemplar of such a case.?

Secondly, the applicant and almost all the group members are likely to be individuals normally resident in Australia, are suing for their own benefit and, given the nature of the claims made by the individuals, the respondent could not realistically expect to obtain an order for security in an individual case brought by such claimants. Although power to award security exists, it strikes me as intuitively odd that the applicant should somehow be in a worse position with regard to security because the applicant has taken the step of adopting a procedure which, at least in theory, makes the prosecution of claims feasible and?should?cause them to be advanced in a way that best promotes the overarching purpose, being the just resolution of the disputes (being all claims against the respondent) according to law and as quickly, inexpensively and efficiently as possible.

Thirdly, a further relevant contextual matter is the role of group members in Part IVA proceedings generally and in a case such as this in particular.?Subject to presently irrelevant exceptions, group proceedings can be commenced without the group members’ consent (or without them even knowing a proceeding has been commenced): see s 33E of the Act.?Moreover, a particular feature of the statutory scheme is that group members (even where group members have taken a conscious step to be involved in the proceeding by registration or retaining a solicitor), are generally entitled to play a passive role while the claims of the applicant and common issues are determined.?This is why, as a general proposition, group member discovery or procuring information from group members prior to an initial trial (except in the context of a Court ordered mediation of all claims) is not allowed.?As the Victorian Court of Appeal (Bongiorno and Harper JJA and Bell AJA) noted in?National Australia Bank Ltd v Pathway Investments Pty Ltd?[2012] VSCA 168; (2012) 265 FLR 247 at?257-258?[49]-[50],?275?[125]:

…group members are entitled to expect that, in the usual course, the plaintiffs will be responsible for the carriage of the proceeding and group members will not be required to participate as a party or be subject to orders for discovery.

Fourthly, the stage at which the provision of security is proposed is relevant, being close to the commencement of the proceeding and prior to the group members being given an informed choice to opt-out which I would order, in the ordinary course, after a close of pleadings and evidence being served.?The final group membership will not be known until after opt-out, a statutory right enjoyed by all persons who have been described by the group definition. The persons from whom the respondent would seek to procure contribution to security may not even be group members following opt-out pursuant to s 33J of the Act.?The flippant answer to this concern might be to say that the group member can always opt-out rather than provide security, but they should not be required to make a choice to opt-out by a date earlier than one I would have otherwise fixed if I was guided only by usual case management imperatives.

Fifthly, in this case, an award of security will cause complications (and not only to group members).?Given that I think it highly likely that a very large proportion of group members being individuals with modest claims are likely to decline to provide any security to advance a case, the conduct of which they will not control, and on the further assumption (favourable to the respondent) adequate security is provided by others, it will be necessary to deal with “free riders”.?On this premise, the most obvious solution seems to be the exclusion of those non-contributing group members from participation. Not only would this have deleterious consequences for access to justice for these persons with claims (a barrier Part IVA was designed to overcome), but it would also undermine the respondent having the benefit of s 33ZB orders which would allow it, if it was successful on the common issues, to have a statutory estoppel running against those excluded group members.?The only apparent alternative would be a complicated assessment requiring some form of contribution by those group members who declined to provide security to the costs of those that did.?That would be an uncertain exercise and indeed it could create real complications in negotiating a non-curial resolution of the matter.

Sixthly, although I do not consider that the applicant has discharged its burden of proving, in accordance with?s?140(1)?of the?Evidence Act 1995?(Cth)?stultification will?necessarily?occur (as that concept has been understood in the authorities), it would be a mistake, in the context of a class action such as the present, to consider that this is determinative. I accept the Full Court explained in?Bell Wholesale Co Ltd v Gates Export Corporation?(1984) 2 FCR 1 at?4?that:

… a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholder or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.

But if one was to apply this principle indiscriminately to Part IVA proceedings, then strictly speaking, the only true way of proving stultification with certitude in an open class proceeding would be to prove that no group member had assets sufficient to proffer security or that no group member, with such assets, would pledge them.?Whatever be the case in the different context of unfunded closed classes or unfunded commercial class actions, to place that burden on an applicant in an unfunded mass tort or product liability open class action such as the present, would necessarily require a costly and time consuming interrogation of the financial position of a very large number of group members – most of whom, no doubt, have no other connexion with the applicant other than the happenstance of being named as group members (and hence being someone who may benefit from a positive determination in relation to the common questions).?To contend that current authority developed in the context of ordinary,?inter partes?litigation requires such an approach, ignores, or at least diminishes: the breadth of the discretion exercised in security applications; the unusual nature of open class Part IVA proceedings; and the concern of the Court expressed in?Madgwick?(at?19?[77]) that the Court’s approach in that case should not be taken as advocating that litigation funding should be put in place to avoid an order for security.

Seventhly, and connected to the last point, there is the broader desirable policy outcome of not putting in place obstacles to the ability of applicants to run Part IVA proceedings in a cost effective way by “self-funding”. This is not to downplay the relevance of possible injustice to respondent, but reflects the reality that providing protection against adverse costs and the provision of security has driven the funding market for litigation.?Safeguarding against adverse costs and the provision of security can be addressed by litigation funding in a form that has now become common; it could also be addressed by solicitors for class action applicants as part of the basis upon which they would be allowed to charge contingency fees (as recently recommended, as Recommendations 17 and 18, by the Australian Law Reform Commission in its report,?Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders?(ALRC Report 134) at 205).?Experience points to the fact that both forms of “funding” may be accompanied by “After-the-Event” (ATE) insurance, but irrespective of such insurance, the derivation of the benefit from funding litigation in this way, will be accompanied by the concomitant burden of providing protection against adverse costs and provision of security.?What is evident is that each of these models involves substantial costs visited, in whole or part, on group members, directly or indirectly, and involves third parties making a profit by the use of public processes of the Court.?There is no?a priori?difficulty with these models properly employed, but the unthinking application of principles developed in a different type of litigation which have the effect of requiring group members to, in effect, put up security, could inadvertently serve to undermine the ability of self-funding of open class actions to develop as an option.?The Full Court (Jacobson, Middleton and Gordon JJ) in?Australian Securities and Investments Commission v Richards?[2013] FCAFC 89 at?[53]?has explicitly recognised that self-funding of class actions should be perceived as “an important alternative to commercial litigation funders and should, to the extent possible, be encouraged”.

An intended purpose of Representative Proceedings is to give access to justice to people who cannot afford it.?The effect of Clause 194(1)(a) and the decision in Proude is that access to justice will be denied to vulnerable people in South Australia unless they can get funding or other access to funds to provide security for costs.?Typically, security is in the vicinity of one million dollars in a representative proceeding whereas the claim may be less than one hundred thousand dollars.?

Practically this is a not-so-subtle protection of large transgressors from meritorious claims by vulnerable and impecunious claimants.

SA Supreme Court power to make rules extending access to security for costs?

The power of the Court to make rules is contained in the Supreme Court Act 1935 (the “Act”).?Section 72(1)(b) relevantly provides, inter alia:

????????????“Rules of court may be made under this Act by any three or more judges of the Supreme Court for any of the following purposes:

????????????(b)????regulating the practice and procedure of the court (including in its appellate jurisdiction);”?

Section 4 of the Act provides:

????????????“Nothing in this Act shall—

(a)????????take away or impair any substantive right or privilege of any person:”

Section 27 of the Act provides:

"27—Court to do complete justice in cause so as to avoid multiplicity of suits

The court in every cause or matter pending before it shall have power to grant, and shall grant, either absolutely or on such reasonable terms and conditions as it deems just, all such remedies whatsoever as any of the parties thereto may appear to be entitled to in respect of every legal or equitable claim properly brought forward by them respectively, in such cause or matter, so that, as far as possible, all matters so in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of such matters avoided."

Denying impecunious plaintiffs access to class actions by imposing security for costs is arguably a breach of this section.

Section 72 of the Act provides the power for the Court to make rules.?Inter alia it provides:

“72—Rules of court

???(1)????Rules of court may be made under this Act by any three or more judges of the Supreme Court for any of the following purposes:??

???(b)????regulating the practice and procedure of the court (including in its appellate jurisdiction);

????(2)?The power to make rules conferred by this section shall be deemed to include power to make rules in respect of any jurisdiction conferred upon the court or a judge thereof by any Act whenever passed.

???(3)????Where any provisions in respect of the practice or procedure of the court are contained in this or any other Act of Parliament, or in general orders or rules made under the authority of any Act, rules of court may be made for modifying such provision to any extent that may be deemed necessary."

Clearly the rule making power extends to making rules for the practice and procedure of the Court but does not allow rules that conflict with parliamentary legislation or that remove or interfere with rights and privileges.

The plaintiff in representative proceedings under Rule 81 is suing for his own benefit and in the normal circumstances the defendant could not expect to succeed in an application for security for costs.?What logical difference could it make that the plaintiff seeks to have common questions decided for the benefit of a large number of other claimants to his liability to pay security??What about the class members who cannot afford to bring a case??What about the advantage to the defendant to have the common questions resolved cheaply and expeditiously?

Clearly South Australia’s class action rules are out of step with the rest of Australia in that rule 194(1)(a) destroys a purpose of class actions to give impecunious and disadvantaged people access to the law

The basic rule that a natural person was not ordinarily required to provide security for costs by reason only of impecuniosity; Collins v Emacord Autos Pty Ltd [1997] SASC 6418 per Lander J (Doyle CJ and Bleby J agreeing).?The Judges of the Supreme Court are not elected and are not answerable to the electorate.?The introduction of such an important law as representative proceedings should be the responsibility of the State Parliament as has occurred in every other Australian state.

Port Pirie – a case study

The Port Pirie lead smelter is one of the largest in the world and has been operating for over one hundred and thirty years.?During that time, it has been poisoning the local population with lead dust and its particular harmful effect on children.?A 1925 South Australian Royal Commission on Plumbism (lead poisoning) identified that the principal cause of poisoning was?fine lead dust. Government officials had argued in the 1980s and 1990s that historical lead-smelter dust-emissions held in the city’s soils and home environments were the primary cause of elevated blood lead in children (Body et al., 1991).

Childhood exposure to lead has been linked to lower IQ and academic achievement, and to a range of socio-behavioural problems such as attention deficit hyperactivity disorder (ADHD), learning difficulties, oppositional/conduct disorders, and delinquency. The disabling mental health issues from lead exposure often?persist into adolescence and adulthood.?

More than 3,000 children have been lead poisoned in Port Pirie in the last ten years and it is continuing.

The Marine environment.

Studies of the marine environment including the silt have been undertaken since 1981 and have confirmed the presence of a cocktail of toxins from the smelter.?Many of the metals reported are considered amongst the most toxic contaminants threatening human health (McCartor and Becker 2010).?The toxins kill small invertebrates and fish.?The crab and fishing industry has degraded almost to the point of extinction.

Dr. Hazel Vandeleur produced a paper 27 July 2020 “Port Pirie Phase 1 Project” in which he proposes that the silt is so full of toxins and heavy metals it should be regarded as an asset to be dredged and the toxins and metals recovered.?Nyrstar, the owner of the smelter, supports this proposition.?Whilst the proposition has much to support it, nevertheless, it is a testament to the long term neglect of the smelter owners.

The Claimant

The residents of Port Pirie are generally of a lower socio-economic cohort.?The claimant would be a child of this group and unable to fund a personal injury claim against the smelter.?Lawyers may be prepared to conduct such a case on a no win no pay basis but unlikely to fund a security for costs.?If the claim was meritorious, it is unlikely it would succeed in South Australia.

Conclusion

It is an accepted basic purpose of class actions that they are a vehicle to allow disadvantaged and financially challenged parties that have a meritorious claim that affects many people and access to justice would not otherwise be available due to the cost of bringing their individual claims.?Practically an order that such claimants give security for costs inevitably will kill their opportunity for compensation.?In all Australian jurisdictions, except South Australia, weight is given to Lee J’s reasoning:

“…..Although power to award security exists, it strikes me as intuitively odd that the applicant should somehow be in a worse position with regard to security because the applicant has taken the step of adopting a procedure which, at least in theory, makes the prosecution of claims feasible and?should?cause them to be advanced in a way that best promotes the overarching purpose, being the just resolution of the disputes (being all claims against the respondent) according to law and as quickly, inexpensively and efficiently as possible.”

In South Australia R.194(1)(a) requires the Court to specifically reject the focus of the purpose of the class action explained by Lee J and exercise its discretion in favour of ordering security for costs.

If it is accepted an order of security for costs would stultify a representative proceeding then arguably R.194(1)(a) is in breach of S. 27 of the Act which provides:

"27—Court to do complete justice in cause so as to avoid multiplicity of suits

The court in every cause or matter pending before it shall have power to grant, and shall grant, either absolutely or on such reasonable terms and conditions as it deems just, all such remedies whatsoever as any of the parties thereto may appear to be entitled to in respect of every legal or equitable claim properly brought forward by them respectively, in such cause or matter, so that, as far as possible, all matters so in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of such matters avoided."

Unless the Supreme Court amends its rules and deletes R.194(1)(a) or the South Australian Parliament introduces complementary legislation to Part IVA of Federal Court Act, South Australia will remain the Australian rogue jurisdiction when considering representative proceedings.

J.E.ROWE

28 January 2022

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