Royal commissions provide a clue on how to fix class actions

I have an idea about resolving the class actions debate that nobody’s going to like.

We won’t get very far if all we’re doing is arguing whether class action lawyers and litigation funders are rapacious mercenaries exploiting the little guy for easy money, or the big corporates defending class actions are just trying to deny justice to the victims of their mendacious greed.

Assume, instead, that both those assertions are right. Or wrong. It doesn’t really matter. The point is that neither proposition has any relevance to the thing on which our attention should be focused.

That thing is the law, or more precisely the social purpose which the law is supposed to fulfil. It has no other reason for existence, although that’s rarely remembered.

In that frame, while it is intellectually interesting for the High Court to have to grapple with the question of whether courts should make common fund orders before a class action has even commenced, and all the superior courts are spending huge amounts of time vetting and approving class action settlements to ensure that the “commercial” bargain that’s been struck between the lawyers is fair to the punters, I have a query about the social utility of all that expenditure of publicly-funded judicial energy.

Publicly funded? Well, yes. The lawyers may be getting paid, but class actions consume much of the bandwidth of the civil court system. They’re cumbersome, long-running affairs, often involving many pre-trial procedural battles and judicial time.

The courts are expensive to run. Hardly surprising, and it’s unexceptional that the public should bear the cost of providing the whole community with access to justice. Nevertheless, it’s legitimate to consider whether all the uses to which that system is being put are serving a social good.

The social utility of class actions is simple in concept: they deliver justice to the many in the most efficient imaginable way, because duplication of effort and therefore cost are minimised.

There are two comments that might be made about that, without challenging the basic proposition. First, not all class actions are the same.  At one end is the Erin Brockovich case, where the alleged harm is direct, devastating and the result of negligent or intentional wrongdoing.  Examples of this type include the PFAS claims, and medical devices claims.

In the middle are class actions also about corporate wrongdoing affecting many, but inflicting marginal harm (and that harm financial rather than physical) on each of them. These include the Takata air bag claims and the multiple class actions against banks for overcharging account fees.

At the far end are the shareholder and investor class actions, claiming that misleading public statements made by companies to the market have caused investors to lose money because of the decline in share value when the truth came out.

It is not difficult to see clear distinctions, in terms of the social value of each type of class action. Nobody thinks, when a company poisons its customers or drowns a downstream village in toxic sludge, that the truth should not come out and the wrongdoers be held to account.

It’s much harder to identify social utility in clogging up the court system to leverage thousands of claims, worth a few hundred dollars each, into a bulk order that has commercial value to its promoters but can only produce a marginal benefit at best to any of the “victims”.

The second point is that, with most class actions, the underlying law is relatively simple. If it wasn’t, they couldn’t be run as class actions at all. They’re almost always a claim in negligence or for misleading conduct.  This is exhaustively travelled legal territory. Much of the legal complexity in class actions actually relates to the law of class actions itself — a completely abstract pursuit.

Putting those things together, to me it raises the question of whether continuing to treat class actions as having the same social utility both as each other and as any other type of litigation could be a failure of imagination.

What if we contemplated taking class actions out of the mainstream court system and dealing with their resolution in a completely different way?  Rather than employing armies of lawyers on each side charging a huge proportion of the damages pool as they manoeuvre towards what is almost always a negotiated settlement, we could query whether the adversarial approach really suits this type of case at all.

At least for class actions of clear public merit, the subject matter tends to be the same kind of thing we often see investigated by a royal commission or other inquisitorial body, whose purpose is to get to the truth and apportion blame. There is no reason in theory why an analogous process could not be devised for dealing with and resolving the disasters that trigger class actions, including determining how much money should be paid out, by whom and to who.

Don’t worry, lawyers would still make a motza out of it, but it could potentially be streamlined into a quite cost- and time-efficient mechanism that would deliver a brand of justice rather less arbitrary than the commercially negotiated settlements are currently achieving.

Yep, definitely going to get hate mail for this one. Which suggests to me that I might be onto something.