Class Actions in Parallel with Regulatory Proceedings
Australian courts are seeing an increasing number of proceedings commenced by both regulators and class action plaintiff law firms relating to the same or similar alleged misconduct by corporations. Given the considerable overlap, several questions of both principle and practice arise.
Do class actions serve a quasi-regulatory function?
At the level of principle, views may differ on whether representative proceedings can be aptly categorised as a form of private regulation. This leads to frequent practical problems as demarcation disputes arise where parallel representative and regulatory proceedings are on foot.
On one hand, there are obvious and fundamental differences between regulatory and representative proceedings. Obviously enough, regulatory proceedings are commenced by statutory authorities which can only regulate conduct that falls within the applicable statutory scheme (see Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507 at - per French CJ, Bell, Gageler, and Keane JJ). The underlying policy rationales of regulatory action are the prevention and punishment of misconduct captured by the regulatory scheme, with the express purpose of deterring the contravener and others in the same or similar markets from contravening conduct in the future (see Trade Practices Commission v CSR Ltd  ATPR 41-076 at  and  per French J as his Honour then was) The effect of such deterrence is, at least arguably, the maintenance of a fairer market undistorted by the misconduct of regulated persons operating within it.
On the other hand, representative proceedings are not commenced to fulfil any regulatory function. They are brought by private litigants and their private legal representatives, often with litigation funding, to obtain compensation for loss suffered by private persons resulting from alleged misconduct.
The different objectives and purposes of representative and regulatory proceedings suggests that representative proceedings do not serve a regulatory function. The logical next step, which has consequences for practical management of parallel regulatory and representative proceedings, is that it may be undesirable to allow the streams to intermingle at all.
However, this view, though defensible, tends to obscure the broader landscape in which representative and regulatory proceedings interact and ignores the potential deterrent effect representative proceedings may have on regulated persons. It’s all just money. Ultimately, a corporation paying substantial compensation because of its failure to disclose material information to the ASX, or because it provided goods to consumers which contravened the ACL, or financial services or products that contravened the ASIC Act, will not want to be known as a contravenor, even where such conduct has not attracted regulatory prosecution. This is particularly so where the compensation paid over extinguishes any profit that may have resulted from the contravening conduct. That is, compensation fulfils the function of penalty, resulting in a risk for the relevant corporation that deters misconduct.
If we accept that there may be some quasi-regulatory function or consequence of representative proceedings, albeit an ancillary effect of the principal purpose of prosecution of a class action, there is some licence to consider in what ways regulators and class actions practitioners, for both claimants and defendants, can work together to achieve different objectives which may ultimately serve similar purposes.
Case management issues in parallel proceedings
Below, we identify some of the case management issues that often arise in overlapping proceedings and sketch how the courts have dealt with them.
- Can a class action be case-managed or heard together with a regulator’s case?
There have been several instances of parallel proceedings in the Federal Court being case-managed by the same docket judge, with a view to being determined at trial by the same judge. But in Getswift Ltd v Webb (2021) 283 FCR 328 (Getswift), the Full Court of the Federal Court held that the judge who had heard ASIC’s case against GetSwift Ltd should have disqualified himself from hearing a subsequent case against GetSwift Ltd brought by its shareholders. There was a high degree of overlap between the issues in each case, but there were some differences in the evidence to be called in the shareholders’ case: –. The result was that the trial judge would have considered evidence and submissions in ASIC’s case that were “extraneous” to the class action, but which a fair-minded lay observer might think could not be disregarded: –. That required the judge to be disqualified for apprehended bias.
Getswift makes it hard to see how a trial judge can hear both a regulatory proceeding and an overlapping class action unless the evidence is to be fully cross-admissible in both proceedings. This implies that the practice of allocating overlapping cases to the same judge for case management may decline.
- Can a class-action claimant obtain and use evidence obtained from a defendant by a regulator?
Regulators are often able to obtain information and evidence from a regulated entity that a class-action claimant would not be able to obtain in discovery from the entity—for example, transcripts of examinations of individuals carried out by ASIC (see s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act)) or written information provided to AUSTRAC (see s 167 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)). Though a regulator may not necessarily be restricted from sharing that information with a class-action claimant (see s 37 of the ASIC Act) (and may be open to informal discussions about information it has obtained), in our experience regulators will require a subpoena before disclosing any documents to a class-action claimant’s lawyers.
Claimant lawyers should be aware of limitations on the admissibility of material obtained from regulators. Specific limitations on admissibility may apply (see s 77 of the ASIC Act). Statements made in examination transcripts will be inadmissible hearsay unless an exception applies (eg, a statement may be an admission made with the party’s authority – see s 87 of the ASIC Act). Information disclosed in response to a statutory notice may not meet the business records exception to hearsay (see s 69(1), (3) of the Evidence Act 1995 (Cth)).
Where a claimant subpoenas documents from a regulator, defendants’ lawyers should be prepared to take prompt steps to make claims of legal professional privilege before those documents are accessed by the claimant.
- How can parties minimise duplication in discovery efforts?
Where there is substantial overlap in the factual allegations in parallel proceedings, defendants will be in a strong position to argue that the scope of custodians and searches for discovery in the class action should be the same as that for the regulatory proceeding, to avoid duplication of document collection and review exercises. Claimants’ lawyers may not, however, want the scope of a defendant’s discovery to be limited by prior discovery in regulatory proceedings. Lawyers on all sides should therefore take a proactive approach to negotiating the scope and mechanisms for discovery (including practical measures like electronic document management protocols) as early as possible in proceeding. Claimants’ lawyers should seek to coordinate with a parallel regulator wherever possible. Parties may need to make pragmatic concessions regarding the scope of defendant discovery searching and review in the interests of efficiency, bearing in mind the requirement of proportionality in discovery.
- What happens if an individual defendant to a class action claims privilege against self-exposure to civil penalty?
Individuals are entitled to claim a privilege against self-exposure to civil penalties. Where a class action is brought against both a company and an individual (usually the company’s director), the individual may seek a stay of the class action against them to preserve their privilege for the regulatory proceeding. To our knowledge, stay applications on this basis are ordinarily refused. However, the individual defendant’s privilege will usually be protected by orders excusing them from filing a defence, serving written evidence, or giving discovery until the close of the regulator’s case in the penalty proceeding. Further, one Federal Court judge has suggested that regulatory proceedings should be tried before parallel class actions to ensure protection of individual defendants’ privilege.
The general phenomenon of regulatory proceedings being determined or resolved before parallel class actions can give claimants significant tactical advantages. Statements of agreed facts resolving regulatory disputes, while not admissible, can guide a claimant’s discovery strategy. Evidence adduced in a regulatory trial can aid a claimant’s preparation for trial.
Case management practice will doubtless continue to evolve as more parallel proceedings are brought. Practitioners should be familiar with the developing debates so they can seek to realise the benefits their clients can expect to achieve, and get ahead of the pitfalls they may face.
 For example, four class actions have been commenced against Star Entertainment Group alleging misleading or deceptive conduct and continuous disclosure contraventions of the Corporations Act 2001 (Cth). Related proceedings have been commenced in the Federal Court of Australia by AUSTRAC against two group companies of Star for alleged contraventions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and by ASIC against Directors and Officers of Star for alleged contraventions of s 180 of the Corporations Act; see: Ramon Huang ats Star Entertainment Group (Star) (S ECI 2023 00428), Jowene Pty Ltd ats Star (S ECI 2023 00413), Travis Donald Drake ats Star (S ECI 2022 04492), DA Lynch Pty Limited ats Star (S ECI 2022 01039), and CEO of AUSTRAC v The Star Pty Ltd & Anor (NSD1025/2022) and ASIC v Bekier & Ors (NSD1082/2022).
Two class actions have been commenced against Medibank on behalf of policy holders: Lee McLure ats Medibank Private Limited (Medibank) (VID64 of 2023); Cihan Solbudak & Anor ats Medibank (VID302/2023). These two class actions exist alongside one quasi-regulatory action brought against Medibank for the same or similar factual matters, as a representative complaint under the Privacy Act 1988 (Cth) (Gomes ats Medibank and the OAIC’s own motion investigation).
 Eg, ASIC v Helou (2019) 139 ACSR 489, 491  (Beach J) (referring to two regulatory proceedings and two class actions, each with a degree of overlap, being case managed by his Honour); Excel Texel Pty Ltd v Wilson  FCA 1577  (Lee J).
 See, eg, Australian Property Custodians Holdings Ltd (APCH) (in liq) (recs and mgrs. apptd) (controllers apptd) v Woolridge (No 2)  VSC 576; (2012) 93 ACSR 130; Its Eco Pty Ltd v BPS Financial Limited (No 2)  FCA 110. See also Williams v TT-Line Company Pty Ltd  VSC 869 (stay refused where there were parallel criminal proceedings).
 See, eg, Webb v GetSwift Limited (No 5)  FCA 1533 at ;
 ASIC v Helou (2019) 139 ACSR 489, 534–35  (Beach J).
 ACCC v Pratt (No 3)  FCA 407 – (Ryan J).