Is it worth joining a class action lawsuit?

Easy windfall or years-long wait for 'bugger all'? With many ending in multi-million-dollar payouts, consumer class actions sound appealing, but leave some feeling shortchanged. Here's what to expect if you're getting involved.

The figures make headlines easy: $105 million, $249 million, $750 million.

These are the payouts Aussies received after taking big airlines, financial companies and car manufacturers to court after allegedly being poorly treated or ripped off.

With cases recently launched against AGL and Jetstar and Toyota agreeing to settle a separate matter, consumer class action lawsuits are back in the news.

But the big settlement payouts many cases end in aren't always as simple as they appear.

Class actions can drag on for years and much of the compensation can be eaten up by legal costs before trickling back to consumers.

"Some people just don't like the idea of a class action," says Professor Michael Legg from the University of New South Wales' school of private and commercial law.

"They think it's there to make the lawyers rich and they get bugger-all cents in the dollar, and it has to be said there's a lot of truth in that.

"You can find a bunch of class actions where the lawyer and litigation funder made millions and the group members got very little."

But the lawyers working these cases say they give ordinary consumers, who might be nervous to take on big companies and governments, the opportunity to do so.

How do consumer class action lawsuits start?

Vavaa Mawuli is one of those lawyers, a principal in the class actions team at Maurice Blackburn.

The law firm is a prolific prosecutor of class actions, currently running cases against JB Hi-Fi and Harvey Norman.

Mawuli says Maurice Blackburn comes across these cases in two different ways.

"Sometimes consumers do approach us and bring an issue to our attention," she explains.

"But very often agencies like the ACCC are investigating companies or taking regulatory action.

"So we keep an eye on things and investigate where we think there's a company that might not be doing the right thing."

Should you get involved in a class action?

Thanks to a quirk of Australia's legal system, if you've been mistreated by a company, you're automatically considered part of any class action lawsuit launched against it.

"The system, in all of the states and in the federal court, is opt-out," Professor Legg explains.

"All a law firm needs to do is find one representative party, know there are more people out there in the same situation [group members], and commence proceedings.

"You're in that class action if you fall into the definition of a group member."

As the case progresses, you'll likely be asked to officially register so you can be given your share of any settlement payout.

"At a certain point, if there's money to be distributed, the opt-out class action requires some form of registration," Professor Legg explains.

Officially signing up means you'll get the money, but also ties you to the outcome of the case.

This means you might lose the right to launch your own legal action against the company.

"If you don't register, you lose your claim and get nothing... [but] if you don't opt-out, you're bound by the outcome," he says.

How do class action lawsuits usually end?

Most consumer class actions don't make it to a trial and end in a settlement within a few years of being launched.

This is where the company accused of misconduct agrees to pay compensation, leading to the big payouts that make the headlines.

Mawuli says Australia's opt-out system means a settlement might be the first time people find out they've been a group member in a lawsuit.

"Sometimes they don't even know they are part of [it] until they get a notification saying you're part of a class action that settled," she explains.

How much money will you get?

Commentators and consumers have criticised law firms and the companies that fund their class actions for taking large portions of settlement payouts for themselves.

In 2019, Money highlighted the story of hundreds of victims of fraudulent financial planner Bradley Sherwin, after they won a case against a bank Sherwin had worked with.

Many had lost their life savings, but were left to share just $4 million from the settlement amount, while $8 million went to lawyers.

Professor Legg says stories like these have tarnished the reputation of class action lawsuits.

But, he explains, how much of the settlement makes its way back to ordinary consumers depends on how long the case has run.

"In cases that go on for very long periods of time, probably half of the recovery is likely to go to some form of fee," he says.

"But if there's a large recovery and the case progresses relatively expeditiously, I would say 20-30% will go in costs and the remaining 70-80% will go to the group members."

The amount each group member receives is dictated by how much the company's conduct is estimated to have affected them.

"Sometimes we can be talking $50, but it could be thousands of dollars," says Professor Legg.

"With the motor vehicle class actions, the sums tend to be larger because the product was more expensive to start with."

Mawuli has a message for any group members worried about being left shortchanged by a settlement.

"The court has a very protective role over [your] rights," she says.

"As part of that, it must approve a settlement as fair and reasonable and as providing returns to group members that are fair and reasonable."

Indeed, in the 2019 Sherwin case, the court knocked back an initial request from lawyers and other administrators to take more of the settlement amount.

What happens if you lose a class action lawsuit?

The good news is that if you're a regular consumer in a lawsuit and your side loses, you won't have to pay anything.

"Group members are not liable and should never be in a situation where [they're] liable if the action was unsuccessful," says Professor Legg.

"The lawyer or the litigation funder will have to pay the defendant costs."

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