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How Does a Class Action Suit Work?

How Does a Class Action Suit Work?

Thinking of bringing a class action suit against a company? Read below to find more about what they are and how they work.

1st February 2019

A class action lawsuit is a type of legal action where a group or class of people (7 or more) bring an action against the same person or entity. These actions are often brought on behalf a larger group of people who have also been affected by the defendant’s wrongdoing. 

Class action suits generally arise when an entity or person’s actions affect too many people to bring separate claims to the court. Similarly, bringing a single action is more beneficial for the applicants (strength in numbers) and will make better use of the Court’s resources. 

Regulation authorities such as ACCC have also successfully launched class action suits against companies in the past.

Different types of class actions

Unfunded or Funded

An unfunded class action happens when the members and the lawyers agree to a contingency agreement based on a ‘no win, no fee’ model. This means that the members will not pay for the legal expenses unless the lawyers win the case.

However, in Australia, most class actions are ‘funded’, wherein members can arrange for third parties to ‘fund’ the costs of legal proceedings. Currently, restrictions apply to legal entities in their ability to fund the costs of a trial. However, the restrictions do not extend to non-legal entities. This has led to an increase in the number of class action suits funded by third parties such as IMF Bentham Limited, in return for a part of the settlement amount. This allows members to bring suits against powerful companies without the risk of litigation costs.

Opt-in or Opt-out

Class action suits in Australia are predominantly ‘opt-out’. This means that all the people within specific cases do not have to be parties to the litigation. They are, however, still a part of the class unless they proactively attempt to ‘opt-out’. Opting out of the action signals to the court that they no longer wish to be involved or affected by the outcome of the case. The outcome can range from a settlement to a judgment. During the legal proceedings the Court will make an order to notify all members of their right to opt out of the action, before a certain date and time.

Contrastingly, an opt-in suit requires all the members to consent to the proceedings before litigation begins.

Benefits of Class-action litigation

A class-action suit can have various advantages such as:

  • By pooling the resources and creating a large group, you can significantly reduce the costs of litigation proceedings;
  • Not every case can be a successful ‘David v Goliath’ story. Class actions allow people an access to justice that is sometimes not possible in individual cases;
  • A class action can allow for a resolution that considers the interests of a large group of people. An excellent litigation lawyer would ensure the parties’ interests are properly represented;
  • The overall responsibility and mental stress associated with a litigation procedure reduce drastically.

Finally

Class actions provide an easier route to justice for individuals adversely affected by the actions of larger entities. It can be costly and difficult for an individual to bring a legal action against a large company, and this is where class actions can make the legal process fairer and easier for individuals to navigate.

Need more information? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace. 

Author
Avi Bhargava

Avi is a legal intern at Lawpath. He is currently studying a Bachelor of Commerce (Finance) with a Bachelor of Laws at Macquarie University.