CLASS ACTIONS: Things to know

Posted on October 9th, 2009

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Published by Law Society of New South Wales

In the current economic climate it is not surprising that investor class actions are receiving increased attention.

There is some suspicion and confusion about class actions. Some people have an enduring belief that they must be taking on an unacceptable level of risk if they get involved. Equally, some may just have an aversion to continuing in a claim commenced without their express consent, despite the fact that it could benefit them financially to do so.

It is important to understand that, with the exception of certain public bodies and officials, a person does not need to consent to find themselves a group member in a class action. An action can begin in respect of a group without its consent.

A class action (or representative proceeding as it is known) must meet three requirements; seven or more people have claims against the same person, their claims are in respect of related circumstances, and their claims give rise to a substantial common issue of law or fact. One or more of those persons can commence proceedings, representing some or all of them.

Generally, it is more likely to be in a person’s interest to remain in an action that is taking place and not return an opt-out notice. That way, they can share in the fruits of any judgment or settlement, free of any liability for costs, unless the court orders that a portion of the judgment be paid towards the applicant’s legal expenses.

However, sometimes in a class action the group is limited to people who have consented to take part on certain terms, likely to include agreement on what part of the settlement is to be paid to any litigation funder involved.

Agreements can even entitle a funder to payment if a group member later decides to opt out and begin a separate action. Where more than one action is afoot, you may have a choice about which group to join, in which case terms of funding agreements may be important points of comparison.

Speak to your solicitor for advice on whether to become a group member in an action, where there is some choice in the matter, or if you should ‘opt out’ when given an opportunity to do so.

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