D THE AUTHORITY OF THE APPLICANT TO DEAL WITH GROUP MEMBER CLAIMS
24 An additional point should be made.
25 Despite efforts to dispel misapprehensions as to how Pt IVA operates, there is a persistent vice of those acting in class actions entering into settlement deeds containing releases and covenants not to sue which (either actually or arguably) go beyond the authority of the applicant to deal with the claims of group members (as that concept is properly understood and referred to in s 33C of the FCA Act).
26 But this case is somewhat different. There should be no automatic criticism of a similar course being adopted in this case, because the solicitors have obligations arising from their retainer in relation to each group member. Absent any evidence to the contrary, the Court should assume that sufficient instructions were obtained in order to deal with claims in the way contemplated by the settlement deed to the extent that any obligations in that deed imposed upon group members go beyond the limited statutory authority given to the applicant.
27 Despite it being a considered approach apparently supported by group members, the course currently adopted by the applicant seems to me to raise potential problems. I set out the applicable law as a member of the Full Court in Dyczynski v Gibson (at 665-666 [338]-[342]), where I described how the claim of a group member is determined in whole or in part:
[338] Focussing more specifically on when Pt IVA contemplates that a group member claim is determined, the scheme contemplates that this usually occurs after an initial trial of common issues. Following the determination of common issues, orders are made pursuant to s 33ZB. In Gill v Ethicon Sàrl (No 3) (2019) 369 ALR 175; [2019] FCA 587, I described s 33ZB as being the most important provision within Pt IVA, noting (at [4]) that:
... (t)his provision provides that a judgment given in a representative proceeding must describe or otherwise identify the group members affected by it and binds all such persons other than any person who has opted-out of the proceeding under s 33J. This provision was described by the Full Court in Femcare Ltd v Bright (2000) 100 FCR 331; 172 ALR 713; [2000] FCA 512 at [25] (Black CJ, Sackville and Emmett JJ) as, in one sense, the "pivotal provision" in Pt IVA.
[339] The "statutory estoppel" arising upon the making of a s 33ZB order is the mechanism by which non-party group members are bound by the determination of common questions. The answer to the common questions might (but might not) determine the individual claims of group members. This will depend upon the nature of the claim, and the nature of the answer. In the common circumstance when the answer to a common question or questions is not determinative, it will be necessary for the group members' claims to be determined, usually following a "declassing" order.
[340] But there can be departures from this norm: apart from the position of "sample" group members already referred to, it might be that the Court considers it utile and consistent with the overarching purpose to separate out and determine before all other issues a common issue, which might be determinative of a claim of a group member. In this case, Pt IVA contains a protection: absent leave being granted to the contrary, such a separate determination of a final issue could not occur without giving the group members a right to opt out: s 33J(4).
[341] But what if the Court decides to not just identify whether a group member has a claim (as that concept has been explained above) but to go further to determine whether that claim, following hearing evidence and submissions, amounts to a right or entitlement?
[342] By stating the question in this way, it becomes obvious that this amounts to a determination of a justiciable controversy between one actor (the group member) and another (the respondent). Such a controversy is only allowed to be determined without hearing from a non-party group member to the extent the controversy involves only common issues. This is because the statutory estoppel binds the group member and the applicant is heard in relation to the common issues. As was explained by French CJ, Kiefel, Keane and Nettle JJ in Timbercorp Finance Pty Ltd (in liq) v Collins (2016) 259 CLR 212; 339 ALR 11; [2016] HCA 44 (Timbercorp) (at [39], [53]-[54]), the applicant in a class action is not a privy in interest of the group members with respect to the group members' individual claims, meaning the applicant's representative capacity is limited. If, unusually, the claim of the group member is to be determined in advance of a trial and otherwise than by determination of purely common issues, it is necessary for orders to be made identifying that this step is occurring, that the group member has notice it is occurring, and has the opportunity of adducing evidence and making submissions as to the merits of the claim.
28 I then turned to the question of settlements and finality (at 675-677 [389]-[400]):
[389] … section [33ZB] is in the following terms:
33ZB Effect of judgment
A judgment given in a representative proceeding:
(a) must describe or otherwise identify the group members who will be affected by it; and
(b) binds all such persons other than any person who has opted out of the proceeding under section 33J.
[390] The term judgment is defined in s 4 of the Act as follows:
judgment means:
(a) a judgment, decree or order, whether final or interlocutory; or
(b) a sentence;
and includes a conviction.
[391] Properly analysed, the way that the statutory scheme works to bind non-parties to an order made by the Court, is by operation of s 33ZB. Orders made settling a class action under s 33V should, in order to bind group members in relation to the individual claims, be accompanied by s 33ZB orders: see Courtney (in a representative capacity on behalf of the persons referred to in paragraph 1 of the eighth amended statement of claim) v Medtel Pty Ltd (No 5) (2004) 212 ALR 311; [2004] FCA 1406 (Courtney v Medtel) (at [54] per Sackville J); Dillon v RBS Group (Australia) Pty Ltd (No 2) [2018] FCA 395 (Dillon (No 2)) (at [48]-[49] per Lee J). As I observed in Clark v National Australia Bank Ltd (No 2) [2020] FCA 652 (at [24]) in relation to group member claims the subject of a s 33V settlement, the:
… non-party claims are "settled" not through the operation of common law principles upon dismissal of a proceeding, but through the operation of statute. The reason why the group members although non-parties are bound to the s 33V settlement order is by the making of a s 33ZB order, which means the settlement order binds group members who did not opt-out.
[392] I am aware that there has been some differences in approach to the binding of group members to a settlement. In the early days of Pt IVA, it was common for respondents to seek contractual releases from group members or procure deed polls. The releases and indemnities procured sometimes purported to seek releases for claims that went beyond the scope of the claim the subject of the class action. This practice has been deprecated (see Dillon (No 2) (at [58]-[59])) and seems to have thankfully fallen into desuetude.
[393] But despite the operation of s 33ZB in its application to settlements binding group members being explained by Sackville J 16 years ago in Courtney v Medtel, there appears to remain some residual confusion. It is not unusual to see applicants executing deeds which require them to seek orders pursuant to s 33ZF of Act purporting to authorise applicants "nunc pro tunc to enter and give effect to" a settlement deed for and on behalf of group members, which deed includes releases and indemnities. Such orders can be seen in cases such as Laszczuk v Bendigo & Adelaide Bank Ltd [2020] VSCA 17 (at [49]-[62] per Whelan, Hargrave and Emerton JJA); Newstart 123 Pty Ltd v Billabong International Ltd (2016) 343 ALR 662; [2016] FCA 1194 (Newstart 123 Pty Ltd) (at [55]-[62] per Beach J); Camilleri v Trust Company (Nominees) Ltd [2015] FCA 1468 (per Moshinsky J) and in City of Swan v McGraw-Hill Companies, Inc (2016) 112 ACSR 65 at 75; [2016] FCA 343 (per Wigney J). An order of this type was also sought and made in Clarke (as trustee of the Clarke Family Trust) v Great Southern Finance Pty Ltd (recs and mgrs apptd) (in liq) [2014] VSC 516 (per Croft J) and was later considered by the Victorian Court of Appeal in Byrne v Javelin Asset Management Pty Ltd [2016] VSCA 214 (Byrne) (at [55]-[58] per Hansen, Ferguson and McLeish JJA) and Bendigo and Adelaide Bank Ltd v Pekell Delaire Holdings Pty Ltd (2017) 118 ACSR 592; [2017] VSCA 51 (Pekell) (at [58] per Santamaria, Ferguson and McLeish JJA).
[394] In Byrne (at [55]-[56]), the Victorian Court of Appeal observed:
Section 3(1) of the Supreme Court Act defines 'judgment' to include an 'order'. The parties contended that an order approving a settlement under s 33V is therefore a 'judgment given in a group proceeding' within the meaning of s 33ZB, with the result that when an order approving a settlement is made group members are bound, not only by the order, but by the settlement itself. There is obviously much to commend this result, as it is not to be supposed that the legislature contemplated that a settlement approved by the Court would not bind group members, in the same way as a judgment would have if the proceeding had not been compromised. That was also the view taken by Sackville J in Courtney v Medtel Pty Ltd (No 5). At the same time, it is common for orders to be made declaring that a plaintiff, group members and other parties are bound by the settlement pursuant to s 33ZF, which provides for the Court to make any order it thinks 'appropriate or necessary to ensure that justice is done in the proceeding'. Alternatively, there are many instances, of which the present case is one, where the Court has made an order authorising a plaintiff to enter into and give effect to the settlement on behalf of group members. Again, s 33ZF is an available source of power for such an order. In approving the present deed of settlement, Croft J ordered, among other things, that the plaintiffs in the group proceedings 'have the authority' of the group members 'nunc pro tunc, to enter into and give effect to the deed of settlement and the transactions contemplated thereby for and on behalf of' the group members.
In the circumstances, it is not necessary to decide whether, in the absence of an order such as those that might be made under s 33ZF, a settlement of a group proceeding is binding upon group members once approved by the Court, by operation of s 33ZB. It suffices that the present settlement was binding on group members by virtue of the orders made by the Court in this particular case.
(citations omitted)
[395] Further, in Pekell (at [58]), the Court noted that a s 33ZF order supplies the privity which would otherwise be absent in respect of a judgment binding group members, with the result that the group proceedings may be settled "on whatever terms the parties have agreed and the Court has approved".
[396] For my part, and with respect to the Victorian Court of Appeal who appeared to harbour some doubts as to the issue, I do not think there is any doubt whatsoever about the operation of s 33ZB in binding group members to a settlement. Further, the notion that it is open for applicants to settle claims of group members beyond the claim the subject of a class action is not one which can be reconciled with the foundational notion that an applicant is only entitled to deal with any other person's rights to the extent that the applicant is representing those rights, and that it is wrong in principle for an applicant to presume to deal with the rights of third parties except to the extent that they are empowered by statute to deal with those rights: see Dillon (No 2) (at [60]-[61]). Those rights can be adequately dealt with upon a settlement by the quelling of the claim of a group member by the making of a s 33ZB order. It is inconsistent with the nature of the role of a representative party under Pt IVA of the Act, as part of seeking to resolve a representative proceeding, to seek to settle all individual claims of group members howsoever arising against a respondent (in contradistinction to the claim the subject of the class action).
[397] Returning more specifically to the practice of seeking s 33ZF orders, if a s 33ZB order is made, then these s 33ZF orders are at best surplusage, and should be seen as inconsistent with the statutory scheme. Indeed, they appear often to be sought as a mechanism or device whereby releases can be procured by a respondent which may go further than the claim (as the word is to be understood in its s 33C sense).
[398] Having said this, two points of qualification should be made as to where s 33ZF orders could be appropriate. First, there may, of course, be cases, perhaps in class actions involving a relatively small number of group members who are represented, where the Court can be satisfied that individualised instructions have been given by group members to give releases which travel beyond the claims the subject of the proceeding. Questions of authority of the representative do not then arise. Secondly, there may also be cases where it may be within the scope of the authority of a representative applicant to give releases authorised by the Court to a privy of the respondent, but this complication need not be explored: see for example the discussion in Newstart 123 Pty Ltd (at [57]); see also Melbourne City Investments Pty Ltd (now called ACN 161 046 304 Pty Ltd) v Treasury Wine Estates Ltd [2019] FCA 804 (per Foster J at [59]-[62]).
[399] This preferable approach of making s 33ZB orders is consistent with what the High Court was saying in Timbercorp (at [53]-[54]) where, as I noted in Dillon (No 2) (at [39]), the plurality explained that a group member has a privity of interest with an applicant in the claim the subject of the class action and so "must claim under or through the person of whom he is said to be a privy": see also Ramsay v Pigram (1968) 118 CLR 271 at 279; [1968] ALR 419 (per Barwick CJ).
[400] Before leaving this topic, I should note that although some s 33V settlement approvals do not appear to have been accompanied by a s 33ZB order (a course which, in my view, should be deprecated) or even a s 33ZF order of the type identified above, this does not mean that group members in those settled class actions would be somehow free to agitate their claims. The privy of those group members settled the case and, in most of those cases, after notice was provided to group members. Although it is not possible to generalise, it is difficult to see why a group member who has been notified of a proposed s 33V application by his privy and does nothing, would be entitled to assert that the settlement does not bind him.
29 Justices Murphy and Colvin agreed with these observations (at 58 [247] and 59 [249]).
30 It seems I have to stress again that non-party claims are settled, not through the operation of common law principles upon dismissal of a proceeding following the entry into a settlement deed containing purported promises on behalf of strangers, but through the operation of statutory power. I remarked today that it is still not unusual to see applicants executing deeds which require them to seek orders purporting to authorise applicants "nunc pro tunc to enter into and give effect" to a settlement deed for and on behalf of group members, including releases and indemnities. Why this continues to be the case is difficult to fathom given the limited nature of the applicant's authority and, as I indicated in Dyczynski v Gibson (in observations with which Murphy and Colvin JJ agreed), there is no doubt whatsoever about the role and combined operation of ss 33V and 33ZB in binding group members to a settlement and hence quelling their claims.
31 The course I propose to adopt is to give leave to the applicant to consider these observations, particularly in the light of the issue raised about the covenant not to sue, and see whether or not the applicant seeks an approved form of settlement order putting beyond doubt the evident purpose of settling the claims against those respondents against whom the applicant proposes to settle and then preserving all claims against AIG to the extent possible by law.