Facilitating settlement of class actions

The issues

In Parkin, the Full Court was asked to consider two issues, only one of which is relevant for the purpose of this article.

The first was whether the Federal Court of Australia has power to approve a notice to group members giving notice that upon any settlement the lead applicant will seek an order, which, if made, has the effect of excluding unregistered group members or group members who have opted out from obtaining any benefit from any settlement.²

This issue was decided in the affirmative. Consequently, the Full Court did not consider it necessary to decide the second issue.

Giving notice to group members foreshadowing an intention to seek a class closure order is not beyond power

The Full Court observed that s 33X(5) of the Federal Court Act 1976 (Cth) expressly empowers the Federal Court of Australia to make an order “at any stage” that notice be given to group members “of any matter.”³ The “broad and unqualified” terms of s 33X were to be approached “on the basis that Parliament said what it meant and meant what it said.”⁴

The Court said that there is no indication in the words of s 33X that “the power in s 33X(5) should be read down such that the Court does not have power to make an order at the opt out stage to notify group members that, if a settlement is later reached, the applicant intends to apply to the Court for an order that, if made, will mean that group members who have neither opted out nor registered will not be entitled to seek a benefit under the settlement.”⁵

The passive role of group members is not an absolute principle

The NSW Court of Appeal in Wigmans held that an order giving notice to group members foreshadowing an intention to seek a class closure order is beyond power. The NSW Court of Appeal said that such an order was inconsistent with the “fundamental precept” of the class action regime that group members are entitled to remain passive during class action proceedings.⁶

The Full Court rejected the approach of the NSW Court of Appeal and emphasised that general principles should not constrain the interpretation of legislative provisions without proper consideration of the context of the provision in the class action regime and its intended purpose.⁷

The Full Court drew analogies with a number of provisions within the class action regime that require group members to take an active role in proceedings.⁸ For example, group members may be ordered to provide discovery, provide particulars of their identity or claims, and contribute towards security for costs.⁹ The Full Court were of the view that these examples demonstrated that group members may be required to take active steps in the proceedings.

Section 33V ameliorates the risk of conflicts of interest between group members

In Wigmans, the NSW Court of Appeal determined that orders giving notice of class closure would create a conflict between the interests of group members who had registered and those who had not.¹⁰ It is in the interests of all group members who have registered to achieve a favourable settlement, and in the interests of group members who have not registered for the proceedings not to settle regardless of the terms offered.¹¹

The Full Court considered that the dangers of any conflict arising could be ameliorated by the court exercising its discretion to approve a settlement under s 33V of the Act. Accordingly, the Full Court considered that conflicts of interest between group members should not be an impediment to the court exercising its power to permit the giving of notice to group members foreshadowing an intention to seek a class closure order.¹²

Can class closure orders be made prior to settlement?

The Full Court granted the order permitting the giving of notice to group members foreshadowing an intention to seek a class closure order. Consequently, the Full Court said that it was not necessary to decide whether a class closure order could be made prior to a settlement.

The NSW Court of Appeal in Haselhurst v Toyota¹³ decided that an order which excludes unregistered group members from receiving a portion of the settlement sum and extinguishes their claims cannot be made under the New South Wales equivalent of s 33ZF of the Act. Our article on the Haselhurst decision is available here.

The Full Court considered that the orders sought in Parkin and Haselhurst were sufficiently different that the decision of Haselhurst was distinguishable.¹⁴ Parkin has thus left the door open for class closure orders to be made in the Federal Court if they are drafted in a manner that is sufficiently different from the orders considered in Haselhurst.

Implications for class actions in Australia

Parkin is authority for courts administering class action regimes to make orders permitting the giving of notice to group members foreshadowing an intention to seek a class closure order to exclude unregistered group members from benefiting from a settlement.

These types of orders will appeal to both applicants and respondents. Class closure orders which incentivise registration of group members are likely to facilitate settlement by:

• providing certainty for the respondent as to the size of the group to be compensated and the benefit of any releases sought;
• assisting in more accurate quantification of potential settlement and exposure; and
• providing a mechanism for funders to identify registrants and have them sign funding agreements to remove uncertainty from courts reluctant to make common fund orders.

The divergence in the class action case law is likely to lead to forum shopping by applicants and litigation funders.

Following the High Court of Australia’s decision in Brewster,¹⁵ which held that the class action regime did not permit the making of common fund orders prior to settlement, and the legislative amendments in Victoria that permit contingency fees in class actions,¹⁶ litigation funders and plaintiff law firms have been incentivised to commence class actions in the Supreme Court of Victoria.

Wigmans, Haselhurst and the limits on contingency fee arrangements have seen a move away from class actions in the Supreme Court of New South Wales. The availability of class closure orders in the Federal Court may be a catalyst for a move back towards the Federal Court as the forum of choice for class actions.

The divergence in authority between the Federal Court and the NSW Court of Appeal is likely to lead to the High Court resolving the conflicting approaches. An appeal to the High Court in Parkin is unlikely given the parties were agreed that the orders sought should be made.

The table below provides an overview of the kinds of “class closure” orders that have been made by the courts.