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High Court confirms use of public examination powers to investigate potential class actions

May 9, 2022

High Court confirms use of public examination powers to investigate potential class actions

The High Court has ruled in favour of shareholders in Walton & Anor v ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) & Ors. In a 3:2 decision, the majority permitted former shareholders of Arrium Ltd to examine the insolvent company’s officers under s 596A of the Corporations Act 2001 (‘CA’) for the purpose of potentially bringing a class action against the company’s managers. The Road Ahead The High Court (3:2) decision is positive news for shareholder class actions as it confirms that “eligible applicants” can publicly examine corporate officers about a corporation’s affairs, to test the merits of a potential class action against the company. This is even if a liquidator does not intend to investigate or pursue claims against the officers of the company. The approach adopted by the majority is a welcome step forward for corporate accountability in the midst of many attempts by the legislature to constrict the Australian class action landscape. Procedural history The applicants were shareholders in a former mining company, Arrium Ltd (‘Arrium’). The applicants bought shares in Arrium during a capital raising in 2014. Shortly thereafter, Arrium announced an impairment to the value of its business of over $1billion. Arrium was then placed into administration, and then finally liquidation. Under s 596A CA, the Court is to summon a person for examination about a corporation’s ‘examinable affairs’ if an eligible applicant seeks the order, and the court is satisfied that the person subject to the order was an officer or liquidator of the corporation during the prescribed period. With authorisation from ASIC, the applicants sought an order from the Supreme Court of New South Wales summoning a former director of Arrium for public examination. The applicants sought the order,  as they believed that they may have claims against the former directors and auditors of Arrium arising out of the capital raising and the company’s published financial results for the same period. The goal of the examination was to investigate whether pursuing these claims as a class action with other shareholders was viable. The Supreme Court of New South Wales initially granted the order.  However, the Court of Appeal overturned the decision to allow the examination on the basis that it was an abuse of process, as the examination did not benefit Arrium, its creditors, or its contributories. The issue to be determined by the High Court was whether the applicant’s purpose for seeking the order was an abuse of process. This involved considering whether the purpose of the application was consistent with the purpose of s 596A CA. Was the Proposed Examination an abuse of process? The majority (Justices Edelman, Steward and Gageler) allowed the appeal, finding that the application was not an abuse of process. The purpose for the application was held to be within the scope of s 596A CA. In coming to this conclusion, the court considered section 596A CA to ascertain its purpose, which involved lengthy consideration of the preceding iterations of the statutory scheme for public examinations. The High Court acknowledged that earlier laws insisted on public examinations being for the benefit of the company or its creditors, or for bringing criminal or regulatory proceedings in connection with the company. However, the High Court concluded that these requirements did not apply to bringing an application under s 596A CA because s 596A CA has no direct analogy with any former provision in the earlier companies’ legislation. Instead, the court held that s 596A has much broader requirements than the former laws on this issue. This is because: 1.     section 596A CA is drafted differently, and applications under it require less supporting evidence than earlier companies’ legislation and other sections within the same part of the Corporations Act 2001; 2.      section 596A CA was intentionally drafted to have a broad application; 3.     section 596A was enacted in the public interest to facilitate the administration or enforcement of the law concerning a corporation and its officers in public dealings. Therefore, an application under this section will not be an abuse of process if it promotes compliance with the law. On this basis, the High Court concluded that using a compulsory examination to test the merits of a potential class action for corporate misconduct coincides with the purpose of s 596A CA. The fact that the proposed class action would not benefit all of Arrium’s shareholders did not jeopardise the validity of the application, because s 596A CA is directed to enforcing the law, rather than benefitting the company in administration. The judgment is available here: Walton v ACN 004 410 833 (formerly Arrium Ltd) (in liq) [2022] HCA 3, 16 February 2022. About the Authors Lillian Rizio specialises in managing large scale complex litigation, particularly with claims involving multiple parties. Lillian’s emphasis is on corporate disputes, class actions, professional negligence and insurance, across most Australian jurisdictions. Lillian also has extensive experience advising clients in relation to right to information matters, in both federal and state jurisdictions Julia Hegarty is a law clerk in the Dispute Resolution and Litigation team at Piper Alderman in Brisbane. She is currently studying a Bachelor of Commerce/Laws (Hons) at the University of Queensland. Julia has an interest in externally funded litigation and shareholder class actions. For queries or comments in relation to this article please contact Kat Gieras, Litigation Group Project Coordinator | T: +61 7 3220 7765 | E:  kgieras@piperalderman.com.au

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UK Government Signals Funding Crackdown in Claims Sector Reform

By John Freund |

The UK government has signalled a renewed regulatory focus on the claims management and litigation funding sectors, as part of a broader effort to curb what it characterises as excessive or speculative claims activity. The move forms part of a wider review of the consumer redress and claims ecosystem, with third-party funding increasingly drawn into policy discussions around cost, transparency, and accountability.

An article in Solicitor News reports that ministers are examining whether litigation funding and related financial arrangements are contributing to an imbalance in the claims market, particularly in mass claims and collective redress actions. While litigation funding has historically operated outside the scope of formal regulation in England and Wales, policymakers are now considering whether additional oversight is required to protect consumers and defendants alike. This includes potential scrutiny of funding agreements, funder returns, and the role of intermediaries operating between claimants, law firms, and capital providers.

The renewed attention comes amid political pressure to rein in what critics describe as a growing “claims culture,” with the government keen to demonstrate action ahead of future legislative reforms. Industry stakeholders have cautioned, however, that overly restrictive measures could limit access to justice, particularly in complex or high-cost litigation where claimants would otherwise be unable to pursue meritorious claims. Litigation funders have long argued that their capital plays a stabilising role by absorbing risk and enabling legal representation in cases involving significant power imbalances.

While no formal proposals have yet been published, the article suggests that funding models linked to claims management companies may face particular scrutiny, especially where aggressive marketing or fee structures are perceived to undermine consumer interests. Any regulatory changes would likely build on existing reforms affecting claims management firms and contingency-style legal services.

Case Developments Commercial

Litigation Lending Funds Woolworths Shareholder Class Action

By John Freund |

Litigation Lending Services Limited has agreed to fund a large-scale shareholder class action against Woolworths Group Ltd, adding another high-profile Australian securities claim to the growing docket of funded investor litigation. The proceeding has been filed in the Federal Court of Australia by Dutton Law and focuses on Woolworths’ alleged failure to properly disclose the financial impact of widespread employee underpayments over a lengthy period.

Litigation Lending's website notes that the claim covers shareholders who acquired Woolworths shares between 26 February 2010 and 8 September 2025. It alleges that Woolworths did not adequately record and account for employee entitlements owed to salaried staff, resulting in financial statements that understated expenses and overstated profits. According to the pleadings, these accounting issues had the effect of artificially inflating Woolworths’ share price, causing losses to investors once the extent of the underpayments began to emerge through company disclosures.

Woolworths has previously acknowledged underpayment issues across its workforce, announcing remediation programs and provisions running into the hundreds of millions of dollars. The class action contends that the company’s disclosures came too late and failed to provide the market with an accurate picture of its true financial position during the relevant period. Investors who purchased shares while the alleged misstatements were in place are now seeking compensation for losses suffered when the share price adjusted.

Participation in the class action is open to eligible shareholders on a no-cost basis, with Litigation Lending covering the legal costs of running the claim. Any funding commission or reimbursement payable to the funder would be subject to approval by the court, consistent with Australia’s regulatory framework for funded class actions.

Commercial Regulatory Issues

Federal Legislation Targeting Foreign Litigation Funders Raises Industry Alarm

By John Freund |

A new federal bill seeking to restrict foreign investment in U.S. litigation is drawing sharp criticism from international litigation funders who warn the measure could significantly disrupt the industry. The legislation, introduced by Rep. Ben Cline (R-Va.), would prohibit sovereign wealth funds from backing U.S. lawsuits and impose disclosure requirements on overseas investors participating in American litigation.

According to Bloomberg Law, the proposed bill (H.R. 2675) has major implications for prominent funders including Burford Capital, Fortress Investment Group, Omni Bridgeway, Ares Management, and BlackRock. Susan Dunn of UK-based Harbour Litigation Funding characterized the current political climate as increasingly "anti-foreign," suggesting that international funders are now reassessing their U.S. growth strategies in light of the legislative push.

The bill advanced from the House Judiciary Committee with a 15-11 vote in favor of recommending it to the full House. Supporters of the legislation argue that foreign investment in U.S. litigation raises national security concerns and could allow hostile nations to influence American legal proceedings. Critics counter that the measure unfairly targets legitimate business practices and could reduce access to justice by limiting available capital for plaintiffs pursuing meritorious claims.

The legislation represents the latest effort in a years-long campaign by insurance industry groups and business organizations to increase regulation of third-party litigation funding. If enacted, the restrictions on foreign investment could reshape the competitive landscape of the U.S. litigation finance market, where international funders currently play a significant role.