Some legislative history
33 I have set out the main elements of the scheme established by Part IVA of the Federal Court Act, insofar as it bears on the questions before the Court. Further background to the legislation is, however, of assistance in understanding those questions.
34 First, subject to considering the effect of s 33V(1), Part IVA of the Federal Court Act does not expressly require a settlement effected directly between a respondent and a group member to receive approval of the Court. This is consistent with the approach proposed by the Australian Law Reform Commission ("ALRC") in its report, Grouped Proceedings in the Federal Court (Report No 46, 1988) ("Grouped Proceedings") which considered (at par 218) that
"the Court's approval should be required for the settlement by the principal applicant of a group member's proceeding, but a group member should be able, at any stage before judgment is given, without leave, to settle the group member's proceeding". (Emphasis added.)
See also Grouped Proceedings, App A, cl 28(2), (5)(b). The ALRC argued that the Court's approval should be required when an applicant settles group members' claims on their behalf, in order to ensure that the settlement is fair to the group members and that it addresses all relevant issues: Grouped Proceedings, at par 218. The ALRC appears to have taken the view, however, that the same safeguards are not necessarily required when a group member (as distinct from the representative party: see s 33W(1)) settles his or her individual claim directly with the respondent.
35 Not all the ALRC's recommendations have been implemented in Part IVA of the Federal Court Act. Indeed, there are some important differences. As Moore J has pointed out in King v AG Australia Holdings Ltd (formerly GIO Australia Holdings Ltd) ("King v GIO") [2002] FCA 872,at [37], the ALRC made its recommendations relating to the settlement of claims in the context of a proposed scheme which required each represented person to be a party to his or her "own separate proceedings". A representative applicant was to be entitled to commence proceedings between other applicants and the same respondent, but the other applicants were to be parties to those proceedings: Grouped Proceedings, at pars 94-95. The ALRC adopted this approach because it doubted whether, under Chapter III of the Constitution, a group member can be validly bound by a determination in proceedings unless he or she is actually a party to the proceedings: Grouped Proceedings, at par 93.
36 Part IVA of the Federal Court Act clearly departs from the ALRC's recommendation that all persons "with relevant and related claims be made parties to their own separate proceedings". In some respects, a representative proceeding instituted pursuant to Part IVA affects group members in much the same way as if they were parties to the litigation. In particular, s 33ZB provides that a judgment given in a representative proceeding binds all group members affected by it, other than those who have opted out of the proceeding pursuant to s 33J. It appears to be generally accepted, however, that group members are not parties to a representative proceeding. In Mobil Oil Australia Pty Ltd v Victoria [2002] HCA 27, at [50], a case involving Victorian legislation in substantially the same terms as Part IVA of the Federal Court Act, Gaudron, Gummow and Hayne JJ noted that a "group member is not a plaintiff". In Johnson Tiles Pty Ltd v Esso Australia (1999) 166 ALR 731, at 738, Merkel J regarded ss 43(1A), 33A, 33C, and 33ZJ of the Federal Court Act as demonstrating that group members are not parties to a representative proceeding for the purposes of costs or otherwise. But the departure from the ALRC's proposals concerning the party status of group members does not detract from the fact that Part IVA in substance adopts the ALRC's approach to settlement of group members' claims.
37 Secondly, the ALRC seems not to have directed its attention to the circumstances, if any, in which a respondent's legal representatives should be permitted to contact a group member directly, for example with a view to settling the individual group member's claims. The ALRC contemplated that the "principal applicant" would have the conduct of all group members' proceedings, although this was not intended to make the principal applicant a party to the group members' proceedings: Grouped Proceedings, par 163. The ALRC also contemplated, as I have noted, that settlement of a group members' proceeding by the principal applicant should be subject to Court approval. But although recognising that grouped proceedings will often involve "unidentified parties whose interests need to be protected" (par 157), the ALRC did not recommend any restrictions on dealings between respondents and individual group members.
38 Thirdly, the ALRC addressed the problem of group members who obtain a "free ride" from representative proceedings: see V Morabito, "Federal Class Actions, Contingency Fees and the Rules Governing Litigation Costs" (1995) 21 Monash Uni LR 231, at 235-239; C Silver, "A Restitutionary Theory of Attorneys' Fees in Class Actions" (1991) 76 Cornell LR 656. The ALRC recommended that Australia should follow the general approach taken in the United States to extracting contributions towards solicitor-client costs from group members with whom the solicitor has no contractual arrangement: Grouped Proceedings, at par 289. In the United States, the so-called "common fund doctrine" allows an attorney to recover an award of reasonable fees out of a fund created by a monetary judgment in the representative proceedings: Boeing Co v Van Gemert 444 US 472 (1980). The doctrine rests (at 478):
"on the perception that persons who obtain the benefit of a lawsuit without contributing to its cost are unjustly enriched at the successful litigant's expense".
39 The ALRC considered (at par 289) it
"fair that, although a group member has not contracted with the solicitor representing the principal applicant, he or she should have to contribute to the solicitor-client costs where monetary relief is awarded, whether by way of aggregate or individual assessment. But any commitment or part of the monetary relief recovered by group members to costs must be subject to appropriate regulation by the court to protect the group member."
Section 33ZJ of the Federal Court Act implements, in substance, the ALRC's recommendation, although the draft legislation incorporated in the ALRC's report did not contain a provision expressed in the same terms.
40 The ALRC recognised that the "free rider" problem can arise in other circumstances, for example where the applicant in representative proceedings does not seek monetary relief on behalf of group members. However, the ALRC chose to make no recommendation as to how group members might be required to contribute to the costs incurred by the representative applicant in such proceedings: Grouped Proceedings, at par 288.
41 Fourthly, Part IVA of the Federal Court Act, as originally enacted, did not expressly give effect to the Australian Law Reform Commission's recommendation that group members should not be liable to an order to pay the respondent's costs: Grouped Proceedings, App A, cl 31(1). Section 43(1A) of the Federal Court Act, which prevents such an award of costs against a group member (subject to limited exceptions), was introduced by the Law and Justice Legislation Amendment Act (No 4) 1992 (Cth), s 3. The amendment was said to be necessary to overcome a decision of the Appeal Division of the Supreme Court of Victoria, which held that an order for costs could be made against group members in a proceeding brought by a representative party under s 35 of the Supreme Court Act 1986 (Vic): Burns Philip & Co Ltd v Bhagat [1993] 1 VR 203; Cth Parl Deb, HR, 14 October 1992, at 2157; King v GIO, at [49]-[51], per Moore J; cf V Morabito, above, at 239 (describing the enactment of s 43(1A) as an "overreaction to the Supreme Court's ruling).
42 Fifthly, s 33ZF of the Federal Court Act, which allows the Court to make any order it "thinks appropriate or necessary to ensure that justice is done in the proceedings", was not enacted in consequence of the ALRC's recommendations. It was included for the first time in the Federal Court of Australia Amendment Bill 1991 which, when enacted, introduced Part IVA into the Federal Court Act.