The number of class action lawsuits filed in Australia has been rising sharply—driven both by a major government inquiry into the financial sector and by increased activity by litigation funders.

“Class actions are very active in this market in comparison to three or five years ago,” said Michael Mills, a founding partner of the U.S.-firm Quinn Emanuel Urquhart & Sullivan's Australian office. “There are many more actions around.”

A total of 29 class actions were filed in Australia in the first half of 2018, with the number increasing to 35 in the second half of the year, bringing the total for the year to 64. And in the first half of this year, another 18 class actions were filed, according to figures collected by Vince Morabito, professor of law at Melbourne's Monash University. These numbers stand in stark contrast to what came before: the average number of class action suits filed each year since 1992, when Australia started allowing class actions, is 22.

To be sure, a key court decision due later this year could raise the cost of mounting such suits and slow that growth, lawyers say. But in the meantime, class action filings continue.

The number of such cases filed against banks and investment fund is up. So are the number of employment class actions alleging underpayment of workers and shareholder class actions related to adequate disclosure of market-sensitive information.

Litigation funders, meanwhile, have become increasingly active in the market, eager for a share of the large awards that can result from class actions. They are especially eager to own a piece of the many suits expected to result from the Australian government's findings of impropriety in the country's financial sector.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry issued a report earlier this year after conducting a lengthy inquiry that detailed a litany of unethical and improper practices, including financial institutions charging clients for financial advice they did not receive, even charging dead customers; lending to customers without verifying their ability to repay; and charging commissions without informing customers.

“The Royal Commission has certainly exposed information which can be used as a road map to bring some of these claims,” said John Emmerig, partner-in-charge at Jones Day's Sydney office and the co-chair of the class actions committee of the Law Council of Australia.

For example, the law firm William Roberts Lawyers is drawing on evidence uncovered by the Royal Commission to allege that superannuation holders were “wrongfully stripped of hard-earned monies used for the payment of commissions and other fees to financial advisers” in a class action backed by the litigation funder Litigation Capital Management Ltd.

Banks, including the National Australia Bank and Westpac, are also facing class actions.

Just last week, fund management and superannuation company AMP was hit with a class action by local plaintiff firm Slater and Gordon and funded by Therium Litigation Finance alleging that more than 2 million Australians had been charged excessive feeds on their superannuation accounts. Another local firm, Maurice Blackburn, filed a similar class action in May.

This comes in addition to class actions filed against the company last year alleging shareholders had suffered losses caused by AMP's failure to disclose the misconduct that was revealed by the Financial Services Royal Commission in April last year.

AMP is fighting both actions.

The shareholder class action against AMP was one of five competing shareholder class actions on the same issue filed against the company in May and June 2018, and there is growing judicial disquiet about competing class actions and how courts resolve the issue.

But Emmerig expects class action activity to increase even further.

“That seems to be the pattern that we have been seeing unfold in recent years. There is a lot more activity by litigation funders in the marketplace and they drive the market because the cases are expensive to run,” he said.

Not only has the number of class actions climbed, but the environment surrounding them has become a lot more litigious as a procedure, according to Mills. Previously, if one firm started a shareholder class action, other plaintiff firms and litigation funders wouldn't compete.

“You would rush to announce you were investigating it, and that was almost like you had “dibs” on it,” said Mill's colleague, Quinn Emanuel partner Michelle Fox, who added that now a large amount of litigation revolves around deciding who will be the lead plaintiff.

“Even before the action has made substantive progress you've actually got a lot of time and a lot of legal fees on basically a debate about who gets the spoils.”

Court Rulings Could Change Australia's Class Actions

Of key importance to the outlook for class actions will be an Australia High Court decision due later this year on the issue of common fund orders—a court order that obliges all group members in a class action to pay a share of a litigation funder's commission out of the proceeds, regardless of whether or not they have signed an agreement directly with the funder and the firm bringing the action. Common fund orders have become commonplace since the Federal Court held in 2016 that it had the power to grant common fund orders.

Without a common fund order, litigation funders and plaintiff firms previously had to go through the expensive exercise of a “book build”—signing up enough plaintiffs to ensure they have a viable case.

“As long as they have seven people they can start the class action straight away and apply to the court straight away for a common funder order,” Emmerig said. “From the very outset, they know what they are going to get by way of a percentage return on the claim. Strategically, that has been a very powerful tool for the funders and encouraged them to fund even more class action litigation.”

Common fund orders have also increased the pace with which class actions get to court, said Chris Pagent, a litigation partner at local firm Corrs Chambers Westgarth. “It means the breadth of people who can prosecute class actions increases because you don't need to have the capacity to spend very large amounts in order to get them ready. It opens up the field a lot.”

But that could soon change. The High Court has agreed to examine the legality of common fund orders in a class action against Westpac bank over allegations of overcharging for life insurance, and in another class action against BMW Australia by customers whose cars were fitted with faulty airbags.

Pagent said the decision will determine how active the class action space remains in the future.

“If the High Court says those orders are okay, I don't really think we're going to see any great change in the number of class actions being filed or the areas in which they are being filed,” Pagent said.

But if the court finds the practice illegal, the cost of mounting a class action could rise and slow the rapid growth of class action filings.

While some other observers are predicting the number of class actions in Australia will continue to rise on the back of the revelations from the Financial Services Royal Commission, regardless of the High Court's ruling, Pagent is not so sure. “There are very few plaintiff law firms in Australia who have the capacity to take on large financial institutions,” he said.

Meanwhile, lawyers await the decision regarding common fund orders and the judicial concerns about the race to court with multiple class actions. Until then, class action lawyers “face a period of uncertainty,” Mills said.