Class Actions and Consumer Law: Managing the Risk

Ian Bolster:
Hello and welcome to Legal Outlook from Ashurst Perkins Coie and a dedicated episode on the on the intersection between class actions and consumer law. My name's Ian Bolster, and I'm the head of our APAC dispute resolution and class actions practices. Today, I'm joined by Tihana Zuk, a consumer and competition law specialist and our global technology co-lead. Tihana, thanks for joining me.

Tihana Zuk:
Thanks, Ian. It's great to be here. For our audience's benefit, can you tell us about how class actions in Australia are different to class actions in other countries?

Ian Bolster:
Yeah. Well, it's similar and different depending on which country you're looking at, but there's probably three key features that I would talk about. The first is that it's an opt-out regime. So that means that anybody who meets the definition of a group member is automatically part of the claim unless they take an active step to opt out. Later on in claims, there is generally the need for people to take a positive step if they want to pursue their personal claim or if they want to take the proceeds of settlement, although not always.

The second key feature is really around the bar for bringing a class action. So in some countries or jurisdictions, there needs to be an issue, a common issue that predominates over all of the individual issues. Whereas in Australia, it just needs to be a substantial common issue of law or fact. So that lowers the bar for bringing a claim.

And the third issue is that there is no class certification like there is in the US. So whereas in the US where the class needs to prove why it can continue as a class action, in Australia, it's up to a defendant to decide whether it wants to argue that a class should not be allowed to continue as a class action. And that happens from time to time, but it's really rare.

And so that leads to three real features of the regime or three practical effects. The first is that it's easy to get a class action up and running in Australia. The second is that the class can be very large from the start. And the third is that, often, defendants don't actually know the size of the exposure they're facing in a class action. They may or may not even know the theoretical size of the claim, but they often won't know how many people within that would actually come forward to bring a claim.

And so what that really means in terms of what we see in terms of class actions being brought and what funders are looking for, it's generally two key features. The first is a large damages claim. So there's a large investment in costs to being a class action, so there needs to be enough of a return to justify that. The second is that it needs to be the right kind of damages. So there can be lots of little claims if the cost of proving each one is very small, or there can be claims that need to be individually proved so long as they're big enough to warrant the cost of proving them.

So against that background, we're seeing quite a bit of activity in the consumer space. So for instance, claims relating to product defects, claims relating to extended warranties, credits to customers, as well as pricing. So what is it about these claims in the consumer space that you think are attractive to class action funders?

Tihana Zuk:
So Ian, the Australian Consumer Law or ACL, as I'll refer to it going forward, is rife for class actions for several reasons. So I think for starters, it applies economy-wide to commercial dealings between all businesses and their consumers. But by consumers, we mean also not just individuals, but other businesses who are customers or prospective customers. It also provides broad protections, so misleading or deceptive conduct, unconscionable conduct, misleading representations, unfair contract terms, consumer guarantees, among many others. And in recent years, it has been strengthened. So we have had changes made to the unfair contract terms regime to make unfair contract terms illegal and to make them apply to a broader range of contracts. And we have a new unfair trading practices prohibition that's due to come into effect from July of 2027. So the ACL is basically relevant to every business in Australia to all of their activities in trade or commerce, and particularly businesses who supply their products at scale or who market at scale, this creates a large common issue that affects a large pool of customers and that is rife for class action risk.

Second, we have a very active and effective regulator in the ACCC, the Australian Competition and Consumer Commission. They have a phenomenal track record in consumer protection cases, including bringing actions that are quite novel, novel applications of the ACL. So coupled with that, they have also led a number of landmark, public market inquiries in recent years, including the digital platform services inquiry and the supermarkets inquiry, and those inquiries have surfaced some issues. And as you know, plaintiff firms and litigation funders are constantly monitoring these kinds of developments and considering whether claims can be made. And so this combination of the ACCC's vigor in consumer protection cases and market inquiries really has created a situation of significant class action risk, springboard litigation and parallel class action proceedings.

And the third reason is that causes of action under the ACL are relatively accessible. For many consumer law breaches, you don't need to prove intent or actual impact. So if you think about misleading or deceptive conduct, that is assessed objectively. You don't need to prove fraud or dishonesty. You don't need to prove that someone actually suffered loss or damage. It is assessed by reference to an ordinary consumer in that reasonable class of the target audience.

And finally, in some cases, plaintiffs can argue that the damages model might be quite uniform across a class, so for companies, made a representation to thousands of customers through the same ad or included an unfair term in contracts that are rolled out to thousands or hundreds of thousands of customers, or there's a product defect that is uniform across many consumers, you found yourself a class that might have reasonably consistent damages. So while for some cases, the individual's experience will be relevant, for others, loss might be relatively uniform or formulaic to roll out, and it's precisely those kinds of cases that are really attractive to class action funders, and some consumer law cases are good candidates for that.

Ian Bolster:
Yeah. Well, and those themes that you touch on really make me think about the recent cases in the car industry, where the high court found that reduction in value damages where there's a defect in the car is to be assessed at the time of purchase based on what a hypothetical purchaser would've paid if they'd known about the issue. And then that's been applied in a recent federal court case in a way that shows that the claim travels with the car. So a secondhand purchaser will have essentially the same claim value as an initial purchaser because it's based on the reduction in value at the time of initial purchase and it's not reduced by, to take into account, the repairs that were made to the car. So those sorts of things are really great illustrations of what you're talking about and show how broad the size of the class can be and how valuable the claims can be in this sort of space.

Tihana Zuk:
Yes. That Ford case that you are talking about is a really great example of some of the complexity that lies behind the consumer guarantees regime. And as someone who advises on this regularly, I can confirm that regime is notoriously difficult to apply and sometimes leads to some quite counterintuitive outcomes, one might say. The scope of potential liability as well can be really difficult to assess and actually might be a lot broader than initially expected as was the case in the Ford proceedings that you just mentioned. And I think the really interesting thing about that case is this recognition of the reduction in value damages. So you don't need to prove actual loss or damage. And I think that's going to be a really significant feature of class actions going forward.

Ian Bolster:
I completely agree. So obviously, once these things become class actions, we've got all sorts of things that we do to try and help manage them and deal with the exposure for the company. But have you got any practical tips? Obviously, prevention's better than cure.

Tihana Zuk:
Yes, absolutely. I'll mention three things. First and foremost, good corporate governance and a strong compliance culture are really important. The companies that tend to find themselves in the crosshairs here are ones where there's a disconnect between legal teams and commercial teams. So for example, marketing makes claims without having those claims vetted by legal, or product teams make assumptions about quality that have not been properly tested. A strong ACL compliance program is definitely a core aspect of what I'm talking about here. Building a genuine compliance framework where consumer law obligations are embedded in business processes rather than just in a policy document that's sitting on a shelf is really what's needed.

Next, effective complaints handling. If consumers are raising issues and those issues aren't being addressed, well, that's building a cohort of potential class members. With the proliferation of AI chatbots in particular, it's never been easier to make complaints, and I think many of our clients might be finding an uptick in complaints. An effective complaints handling system can make sure that you are triaging complaints that the genuine credible complaints are being escalated and appropriately addressed. This can actually prevent claims from aggregating and it can also prevent complaints to regulators.

Finally, timely investigation and remediation is really important as well. If a problem is discovered, you should mobilize quickly to investigate it and consider proactive remediation. Thinking about the Ford case, which we've spoken about, if a business discovers a defect, it should try and find a solution and roll out that solution, if appropriate, as soon as possible. That will be a relevant factor in assessing any damages down the track, and that sort of proactive mediation can also be very effective in reducing any penalties in the event the regulator decides to take proceedings. And that is a very relevant consideration when you recognize that the current penalties, maximum penalties for breach of the Australian Consumer Law are $100 million per contravention.

Ian Bolster:
Well, one of the things I was really keen to pick up with you on was unfair contract terms. So that's something that we deal with a lot in class actions, both substantively but also procedurally. It's quite interesting. As you know, there was a case in the last couple of years, the Ruby Princess case where a class action waiver was found to be an unfair contract term. And there's also a case that I'm involved in at the moment that is testing whether an arbitration clause is an unfair contract term. So it's a really interesting topic in class actions, but I'm really interested as your role in the tech space, what you're seeing clients doing in terms of redesigning their contracts or the way they go about that in order to look at that risk.

Tihana Zuk:
Well, that Ruby Princess case was quite a rollercoaster, and it was really fun advising clients while that was underway. So global tech companies, you wouldn't be surprised to hear, tend to offer their products on a global basis and ideally using a single set of terms that they roll out globally where they'll make the minimum adjustments necessary to ensure compliance with local laws. And the Australian Consumer Law here, the ACL is among the most robust of consumer law frameworks anywhere in the world, and companies that are starting their business here or launching products in Australia are often surprised by some of the requirements in the ACL and the extent of changes they need to make to their terms and their business operations here to comply. And unfair contract terms is a classic example of that.

In the digital space in particular, a lot of the online terms that companies tend to use are based on US standard terms. And if you've ever looked at a US standard form contract, there are very long clauses with capital letters and broad exclusions of liability and indemnity terms that permit the supply of services on an as-is and as-available basis, exclusions of class actions, exclusive jurisdiction provisions, lots of other terms that are very common in the US, but that, when looked at here through the unfair contract terms lens, give rise to risk. And particularly since the amendments to the unfair contract terms a few years ago that made unfair contract terms illegal, a lot of changes have been made to those contracts to ensure compliance. In some cases, clients can be comfortable that the particular term is reasonably necessary to protect their legitimate interest, which means they're comfortable keeping the term in, but in other cases, those terms have had to be watered down or removed from contracts.
So going back to class actions, if a term in a particular standard form contract that's been rolled out to thousands of customers is declared unfair, you've instantly got yourself a class of affected consumers. And so really, the most effective risk mitigant here is to review your contract and make modifications as necessary.

Ian Bolster:
And what about the new unfair trading practices laws?

Tihana Zuk:
Oh, yes. Well, that's really going to shake things up. So there are three prohibitions. One is a general unfair trading practices prohibition, and that's super broad. It applies to conduct that manipulates consumers or distorts their decision-making in an unreasonable way and where those things have a detrimental impact or are likely to detrimentally impact consumer. So really broad, can apply to lots of different things. In particular, digital interfaces will need to be reviewed pretty closely. And then the other two aspects are: one is some further requirements around drip pricing, and two is requirements around subscriptions. And I think particularly for subscription contracts, they will need to be reviewed closely to make sure that they're compliant with the information and notice and exit requirements in those new prohibitions.

Ian Bolster:
Terrific. This is such an interesting and important area, Tihana. Thank you so much. Conscious we could go on and on, but is there anything, any final thoughts to wrap it up for people?

Tihana Zuk:
Yeah. So I'd say the positive message here is that a lot of the issues that we've discussed today can be managed through taking a proactive approach. There's a few things that come to mind, some of which we've talked about already. So the first one is obviously making sure that your business understands its ACL obligations through a robust compliance program that you've got effective complaints handling and effective points of escalation.

Two, if you haven't thought about the ACL recently, it might be worth your while to do a compliance audit. And some easy wins here are things like reviewing any standard form contracts that you have with consumers and small businesses to see whether there's any unfair contract terms lurking in there. Two is looking at your refunds and returns policies from a consumer guarantees perspective. As we gear up for unfair trading practices, it's a good idea to review your subscription terms, any online pricing representations, checkout flows, and just digital interfaces, so your websites and apps, more generally for any dark patterns.

Finally, when potential issues are identified, don't ignore them. You should investigate the issue and consider potential remediation options. And we know from the Ford case and some recent ACCC proceedings that we've been involved in, that sort of proactive remediation can not only reduce the risk of class actions arising in the first place, but also reduce the quantum of damages or any penalties that are ultimately imposed.

Ian Bolster:
Well, I agree. Thanks, Tihana. They're terrific tips. Obviously, these risks can't be eliminated, but they can be managed both to reduce the chance of it happening and how bad it is if it does happen. So thank you very much for those terrific practical tips.

And thank you everybody for joining. If you've got any questions about this or anything else, please reach out to your usual contact or Tihana or me. And in the meantime, thanks very much, and we'll see you next time.

Thanks for listening to this episode. You can find other episode on class actions and consumer law by searching for Legal Outlook on Apple Podcasts, Spotify or wherever you get your podcasts. And while you are there please feel free to rate and/or review this episode as it really makes a difference and helps others discover our podcast. Also if you haven’t already, please subscribe to this podcast to make sure you don’t miss any of our future episodes.

Thanks again for listening and goodbye for now.