An Economic Perspective on Costs in Australian Class Actions

46 Pages Posted: 25 Feb 2022 Last revised: 8 Dec 2022

See all articles by Ben Chen

Ben Chen

The University of Sydney - Faculty of Law

Michael Legg

University of New South Wales (UNSW) - UNSW Law & Justice

Date Written: July 1, 2021

Abstract

The Australian class action procedure has generated much controversy about how best to ensure that its costs do not outweigh its benefits. The increasing prevalence of litigation funding has further complicated the cost–benefit analysis. This article develops an economic framework for understanding the principal sources of costs in Australian class actions. In particular, information asymmetry among the key players in a class action generates agency costs, and the self-interested behaviours of these players may give rise to negative externalities on non-parties and the civil justice system. Yet measures to reduce agency costs and negative externalities may themselves give rise to costs, which we call preventive costs. These costs form part of our analysis. Our framework explains the core characteristics of Australian class action law and practice, and offers suggestions for ensuring that the costs of the class action procedure are fair and reasonable.

Keywords: Class actions, law and economics, agency costs, moral hazard, externalities, litigation funder

JEL Classification: K41, K42

Suggested Citation

Chen, Ben and Legg, Michael, An Economic Perspective on Costs in Australian Class Actions (July 1, 2021). Melbourne University Law Review, Vol. 45, No. 3, pp. 950-995, 2022, Available at SSRN: https://ssrn.com/abstract=4040806 or http://dx.doi.org/10.2139/ssrn.4040806

Ben Chen (Contact Author)

The University of Sydney - Faculty of Law ( email )

New Law Building, F10
The University of Sydney
Sydney, NSW 2006
Australia

Michael Legg

University of New South Wales (UNSW) - UNSW Law & Justice ( email )

Kensington, New South Wales 2052
Australia

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