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Full Federal Court Confirms Availability of ‘Soft’ Class Closure Orders

  • Legal Development 2022年3月31日 2022年3月31日
  • 亚太地区

Full Federal Court Confirms Availability of ‘Soft’ Class Closure Orders

The Full Court of the Federal Court of Australia has unanimously decided in Parkin v Boral Limited (Class Closure) [2022] FCAFC 47 that it has the power to make ‘soft’ class closure orders.

Background

By reason of Part IVA of the Federal Court of Australia Act 1976 (Cth) (the Act), Australia has an open class action regime, where consent is not required to be given by a person in order to be a group member.  This results in claims being commenced by a representative of a large group of members, sometimes numbering many hundreds or thousands.  Those members may not be identifiable or contactable and may not even know of the existence of the class action.  It should be noted that an individual, however, has the right to opt out of a representative proceeding should they wish to do so.     

It is not controversial that, following the conclusion of a representative proceeding either by settlement or judgment, the Federal Court has power to identify the group members for the purpose of distributing the settlement or judgment proceeds.  This is particularly important so that the Court can exercise its powers to approve the settlement and ensure that the proceeding is brought fairly and effectively to a just outcome. 

What has recently become controversial is the question of whether the Federal Court has power to make a ‘class closure order’ before mediation or settlement discussions in order to facilitate that process.  Such a class closure order may preclude group members from maintaining a claim for damages or participating in a settlement unless they take steps to register and identify themselves by a particular date.  This type of class closure order, described as a ‘soft’ class closure order, is made for the purpose of settlement discussions only and, in the event such discussions do not result in settlement, does not extinguish the rights of those group members who do not register.  Soft class closure orders are attractive to both plaintiff law firms and litigation funders on the one hand and to defendants and their insurers on the other, insofar as it assists them to establish the size and composition of the group members and therefore to calculate the quantum of the claim.  Absent that information, it is a significant challenge for the parties to calculate what a claim is actually worth.  A soft class closure may be contrasted with a ‘hard’ class closure order which is permanent, in the sense that those group members who do not register are permanently prevented from sharing in the proceeds of any subsequent settlement or judgment.

The Federal Court has been making ‘soft’ class closure orders for many years on the basis that such orders served to facilitate mediations and settlement discussions.  The Full Court has previously expressed the obiter view that it was plainly appropriate for the primary judge to make a class closure order under the discretionary power in s.33ZF of the Act for the purpose of facilitating settlement discussions: Melbourne City Investments Pty Ltd v Treasury Wines Estates Ltd [2017] FCAFC 98.  Section 33ZF permits the Federal Court to make “any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding”

NSW Court of Appeal takes contrary view

However, in two decisions handed down in 2020 the Court of Appeal of New South Wales came to a contrary view to the Federal Court.  In Haselhurst v. Toyota Motor Corporation Australia Ltd [2020] NSWCA 66 and Wigmans v AMP [2020] NSWCA 104, the Court of Appeal found that it did not have power under the equivalent discretionary power provision in s.183 of the Civil Procedure Act 2005 (NSW) to issue notices to group members foreshadowing class closure at settlement.  The Court of Appeal determined that it did not have power to make class closure orders at any time prior to the conclusion of a class action, because they extinguished the rights of unregistered group members without compensation and this was contrary to the essence of the open class action/opt out regime.   

Full Court decision

Because of the contradictory positions taken by the Federal Court on the one hand and the Court of Appeal on the other, in February 2022 Justice Lee of the Federal Court sent two reserved questions to the Full Court for determination in the Boral class action.  The questions were, in summary, as follows:

  • First, does the Federal Court have power pursuant to s 33ZF or otherwise to make an order which has the effect of providing that any group member who by the deadline (i) has not registered or (ii) has not opted out of this proceeding will remain a group member for all purposes of this proceeding but shall not, without leave of the Court, be permitted to seek any benefit pursuant to any settlement (subject to Court approval) of this proceeding that occurs before final judgment?
  • Secondly, does the Federal Court have power to approve a notice being given to the group members that upon any settlement of this proceeding the group representative will seek an order, which, if made, has the effect of providing that any group member who by a registration date: (i) has not registered; or (ii) has not opted out, will remain a group member for all purposes of this proceeding but shall not, without leave of the Court, be permitted to seek any benefit pursuant to any settlement (subject to Court approval) of this proceeding that occurs before final judgment?

The Federal Court appointed a contradictor, as both the Applicant and Boral were in favour of a soft class closure order.  The contradictor essentially ran arguments consistent with the decision of the Court of Appeal in Wigmans.

On 28 March 2022, the Full Court (Murphy, Beach and Lee JJ) handed down a unanimous judgment on these two questions.

The Full Court declined to answer the first question, saying this was not necessary to answer in the present case and inappropriate to answer in the abstract.  The Court noted that in the Boral class action, which has yet to go to mediation, no power under s.33ZF was enlivened because of the existence of s.33X(5), which permits group members to be given written notice of a soft class closure for the purpose of facilitating settlement discussions.  The discretionary power in s.33ZF was a “gap-filling” power, and because power exists to issue a notice under s.33X(5), there was no work for s.33ZF to do.  As to the second question, the Full Court stated that the Federal Court does have power to approve a notice in those terms under s.33X(5).

In reaching this decision, the Full Court said that it did not accept that the availability of power under s.33X(5) means there will never be any power to exercise under s.33ZF to make an order at the opt out stage, although it declined to speculate as to what the circumstances might be when that might happen.

In its reasons, the Full Court considered that the Court of Appeal decision in Wigmans was “plainly wrong”.  The Full Court said that, as an intermediate appellate Court within an integrated national legal system, it should be slow to conclude that a judgment of another intermediate Court is wrong, but that it was compelled to that view with regard to the decision in Wigmans.  The Full Court said that it found the earlier observations made by the Full Court in Melbourne City Investments to be preferable. 

The Full Court found that there was no basis on which to read down the notice provisions in s.33X(5), stating that the provision “expressly empowers the Court to make an order ‘at any stage’ that notice be given to group members ‘of any matter’. The power is broad and unqualified, and those words must be approached on the basis that Parliament said what it meant and meant what it said.  Provisions granting powers to a Court should not be read down ‘by making implications or imposing limitations which are not found in the express words.”

Furthermore, the Full Court said there was no reason to consider that s.33X(5) meant that the Court did not have power to notify group members at the opt out stage that they may not be able to participate in a later settlement: “Nor is there any other reason to construe s 33X(5) so as to prevent group members from being informed of such a thing. In our view, it is the very sort of matter about which group members should be informed when they are considering whether to opt out.”

As to the view of the Court of Appeal that a “fundamental precept” of the Part IVA regime was that group members may do nothing prior to a settlement and still reap its benefits, the Full Court said: “In our view, while group members are generally permitted by Pt IVA to adopt a passive role prior to settlement or judgment, it is distracting to speak in terms of a ‘fundamental precept’ or absolute rule (if that is what is meant by that expression).” 

The Full Court said that while an open class action could be commenced without the consent of group members (subject to the exercise of opt out rights), that did not mean group members could never be compelled to take an active step in the litigation before settlement or judgment: “The question as to whether a group member can be required to take a positive step prior to settlement or judgment must be answered by reference to the text, context and purpose of Pt IVA, and there is nothing in the Part which provides or otherwise requires that group members can never be required to take any positive step prior to settlement or judgment.”

Finally, the Full Court was critical of the Court of Appeal’s concern that having registered and unregistered group members led to a conflict of interests and that was another reason not to permit class closure.  Rather, the Full Court found that conflicts of interest were an inevitable by-product of class actions and indeed the very nature of class actions gave rise to conflicts, insofar as an applicant can advance a settlement for approval which, by its very representative nature, has the legal consequence of precluding other group members from running their individual claims after settlement. Any such conflicts were managed in accordance with the fiduciary duties owed to group members by the representative applicant and the Court exercising its supervisory and protective role in relation to group members’ interests.

Conclusion

The Full Court has by this decision made its position clear on the question of the availability of ‘soft’ class closure orders prior to mediation or settlement discussions.  Unless and until any further decision on the issue is handed down by the High Court of Australia, the Federal Court will be an attractive jurisdiction for class actions.  Given the current ‘competition’ for class actions as between the Victorian Supreme Court and the Federal Court, it is interesting to note that class closure as part of the registration process is permitted in Victoria under s.33ZG of the Supreme Court Act 1986 (Vic).  This decision will mean that the Federal Court remains a ‘competitive’ forum.  The decision will be welcomed by both sides to class actions as such an order will enhance the parties’ preparedness to settle a class action and assist in achieving certainty and finality.

结束

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