What happened
Melbourne City Investments Pty Ltd (MCI) had commenced two successive open shareholder class actions against Treasury Wine Estates Ltd (TWE) alleging continuous disclosure breaches between 17 August 2012 and 14 July 2013. The first, filed in the Supreme Court of Victoria on 4 November 2013, was permanently stayed as an abuse of process on 22 December 2014 because its predominant purpose was to generate legal fees for its controller, solicitor Mr Mark Elliott, rather than to vindicate the rights of group members (Treasury Wines Estates Limited v Melbourne City Investments Pty Ltd (2014) 318 ALR 121; [2014] VSCA 351 at [22]). Special leave to the High Court was refused.
On the same day as the Victorian Court of Appeal's orders, MCI commenced an identical proceeding in the Supreme Court of Victoria (later transferred to the Federal Court). That second MCI proceeding was itself permanently stayed as an abuse of process by the primary judge on 5 July 2016 (Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (2016) 243 FCR 474; [2016] FCA 787 at [156]-[158]). His Honour found that MCI had been created as a vehicle to position Mr Elliott to earn fees, that MCI had no genuine interest in its own tiny shareholding loss of approximately $700, and that the proceeding was oppressive and brought for a collateral purpose. An application to reopen that judgment to tender further evidence denying Mr Elliott's involvement in Portfolio Law (MCI's solicitors) was dismissed on 1 May 2017 (Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 2) [2017] FCA 449).
Meanwhile, on 2 July 2014, Mr Brian Jones had commenced a competing shareholder class action in the Federal Court. It began as a closed class limited to persons who had entered funding agreements with Bentham IMF Ltd (now IMF Bentham Ltd) but was later amended to an open class covering the same group members as the second MCI proceeding. By early 2017 the Jones proceeding was well advanced: defence filed, substantial discovery given, lay and expert evidence served or imminent, mediation ordered, and trial fixed to commence on 28 August 2017 for six weeks.
To facilitate settlement discussions, the primary judge made orders on 23 March 2017 (Jones v Treasury Wine Estates Limited (No 2) [2017] FCA 296) requiring class members who wished to participate in any settlement to register their claims by 4:00 pm on 26 May 2017. Order 15, made under s 33ZF of the Federal Court of Australia Act 1976 (Cth), provided that a group member who neither opted out nor registered would remain a group member for all purposes (including being bound by any judgment and entitled to participate in any award of damages if the proceeding did not settle) but would not be entitled to receive a distribution from any settlement, subject to further order. An opt out and claim registration notice was approved. The notice summarised the proceeding, noted the permanent stay of the MCI proceeding as an abuse of process, recorded that the Court had described the Jones proceeding as "a preferable vehicle for litigating the core claims made against TWE", and set out four options: register, opt out, challenge the orders, or do nothing (in which case the member would remain bound by any judgment or settlement but could not share in any settlement distribution).
On 28 March 2017 MCI's solicitor wrote asserting that the notice was misleading. On 31 March 2017 MCI filed an interlocutory application seeking a supplementary notice and variation of Order 15 to preserve rights in the MCI proceeding. That application was dismissed on 5 April 2017 without published reasons. The 26 May 2017 deadline passed. MCI then sought leave to appeal the 23 March and 5 April 2017 orders, purporting to act under s 33ZC(6) on behalf of all class members in the Jones proceeding. The Full Court (Jagot, Yates and Murphy JJ) heard the application on 31 May 2017 and delivered judgment on 20 June 2017 dismissing it.
Why the court decided this way
The Full Court proceeded on the assumption that s 33ZC(6) permitted MCI to bring the leave application in a representative capacity, noting the point had not been fully argued but that a narrow construction of "representative proceeding" would unduly restrict appeal rights in Part IVA matters ([6]-[10]).
The Court began by recalling the stringent test for leave to appeal an interlocutory order: the decision must be attended by sufficient doubt to warrant Full Court reconsideration and, even if wrong, substantial injustice must result if leave is refused (Décor Corp v Dart Industries Inc (1991) 33 FCR 397 at 398-399). Because the orders concerned practice and procedure rather than substantive rights, particular caution was required (Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc (1981) 148 CLR 170 at 177, citing Jordan CJ in In re the Will of F.B. Gilbert (dec.) (1946) 46 SR (NSW) 318 at 323; Hogan v Australian Crime Commission (2010) 240 CLR 651 at [34]). A "formidable task" and "heavy burden" lay on MCI (Lenijamar Pty Ltd v AGC (Advances) Ltd (1990) 27 FCR 388 at 393; Oswal v Burrup Fertilisers Pty Ltd [2011] FCAFC 117 at [8], [11]).
MCI ultimately conceded that the Court had power under s 33ZF to make the class closure order at the stage the primary judge did and that such an order was appropriate ([47]). The Full Court regarded that concession as correct. It endorsed the primary judge's refusal to make a wider order that would have extinguished judgment rights as well as settlement rights, agreeing that such an order would be inappropriate before liability judgment and that the facilitation of settlement is a legitimate but not unlimited purpose for class closure ([70]-[71], [76]). The order actually made preserved judgment rights expressly and was therefore comfortably within the "appropriate or necessary to ensure that justice is done" formulation in s 33ZF. Factors supporting its making at that time included the imminent trial, ordered mediation, experienced solicitors, and the parties' consensus that a registration process would assist realistic settlement assessment ([80]).
The live issue became whether the approved opt out notice was materially misleading so as to require a supplementary notice and variation of the class closure order. The Court rejected MCI's arguments on this point. First, the statement that the Jones proceeding "is a preferable vehicle for litigating the core claims made against TWE" was accurate. The second MCI proceeding had been stayed for more than twelve months, had made no substantive progress, and could only become viable if the stay were lifted—an uncertain outcome. By contrast, the Jones proceeding was ready for mediation and trial. The notice also correctly recorded the stay, the abuse-of-process finding, and the undetermined application to set the stay aside ([83]-[87]). Imputing to ordinary shareholders knowledge of "beauty parade" carriage disputes was unrealistic; the notice was directed to a broad class of investors, not lawyers ([82]).
Second, the notice was not required to descend into detail about comparative legal costs and funding charges. The stayed MCI proceeding offered no immediate benefit, and an opt out notice is not the vehicle for ventilating costs disputes. The Court retains a supervisory role over costs and funding at settlement approval (Kelly v Willmott Forests Ltd (in liquidation)(No 4) [2016] FCA 323 at [11], [333], [346]; Earglow Pty Ltd v Newcrest Mining Ltd [2016] FCA 1433 at [133]-[134], [157]) ([89]-[90]).
Third, even if the notice was unclear in distinguishing between settlement and judgment consequences of non-registration, that lack of clarity did not cause substantial injustice. The class closure order in fact preserved the right to share in any judgment. Class members who thought they would lose judgment rights as well as settlement rights therefore believed they possessed fewer rights than they actually held. That misconception could only operate to their benefit: those interested in settlement would register anyway; those uninterested in settlement but hoping for judgment retained the right the order gave them ([103]-[112]). No "coercive threat" of the kind alleged therefore arose. Because the notice was not materially misleading, no supplementary notice was required. The proposed supplementary notice would itself have been misleading because it suggested real, immediate benefit from the stayed MCI proceeding without disclosing the stay or the risk that the stay would not be lifted ([91]).
In short, the decisions below disclosed no House v R error, were not attended by sufficient doubt, and would not produce substantial injustice if allowed to stand. Leave was refused. The Court also indicated that indemnity costs might be considered given MCI's history of abuse-of-process findings and the lack of merit in the application ([116]-[117]).
Before and after state of the law
Before this judgment, Australian courts had accepted that s 33ZF could support class closure orders requiring registration as a precondition to sharing in settlement (Matthews v SPI Electricity & SPI Electricity Pty Ltd v Utility Services Corporation Ltd (Ruling No 13) (2013) 39 VR 255; Farey v National Australia Bank [2014] FCA 1242; Inabu Pty Ltd v Leighton Holdings Pty Ltd [2014] FCA 622; Newstart 123 Pty Ltd v Billabong International Ltd [2016] FCA 1194). However, there was divergence in practice about whether closure could extend to judgment rights and about the appropriate stage for such orders. Some judges had made broad closure orders early; others had been more cautious. The ALRC's 1988 report had endorsed an opt-out rather than opt-in model, and the legislature had deliberately chosen opt-out to minimise class-member burden (Mobil Oil Australia Pty Ltd v Victoria (2002) 211 CLR 1 at [40]).
This Full Court clarified the position. It endorsed the view that closure orders limited to settlement are ordinarily appropriate to give defendants certainty as to quantum, to cap exposure, and to promote finality. It nevertheless sounded a clear note of caution against orders that would extinguish judgment rights before liability is determined, stating that "the Court should be cautious before making a class closure order that, in the event settlement is not achieved, operates to lock class members out of their entitlement to make a claim and share in a judgment" ([76]). It also indicated that early closure based solely on a defendant's refusal to negotiate without an order "would turn on its head the very nature of the opt-out model" (approving Bromberg J in Winterford v Pfizer Pty Ltd [2012] FCA 1199 at [9] and Sifris J in Camping Warehouse Australia Pty Ltd v Downer EDI Ltd [2015] VSC 122 at [16]).
The judgment therefore narrowed the circumstances in which judgment-extinguishing closure will be made while confirming the utility of settlement-focused closure. It reinforced that notices under ss 33X and 33Y must prioritise clarity and simplicity and must not misrepresent the status of competing proceedings. After the decision, practitioners could be more confident that a notice that accurately recites a permanent stay of a competing action and the advanced state of the surviving proceeding will not be regarded as misleading. The judgment also confirmed that any ambiguity that operates to give class members the impression they have fewer rights than the orders actually confer will not ground a finding of substantial injustice.
Key passages with plain-English translation
Paragraph [3]: "For the reasons we explain, the application for leave to appeal must be refused. The decisions under challenge are not attended by sufficient doubt to warrant reconsideration by a Full Court. Even assuming them to be wrong, we can see no substantial injustice suffered by MCI and the class members."
Plain English: We are not sending this back for a full appeal because the orders are not doubtful enough and, even if they were technically wrong, no one has really been hurt.
Paragraph [76]: "In our view the Court should be cautious before making a class closure order that, in the event settlement is not achieved, operates to lock class members out of their entitlement to make a claim and share in a judgment. That is, the facilitation of settlement is a good reason for a class closure order but, if settlement is not achieved, an order to shut out class members who do not respond to an arbitrary deadline is not."
Plain English: It is one thing to close the class so a settlement can be negotiated with eyes open about how much money is at stake. It is quite another to say that if settlement fails, people who missed the registration deadline can never claim their share of a court judgment. We should be very careful about the second type of order.
Paragraph [82]: "That contention relies upon imputing to class members some knowledge of judicial practice and procedure in relation to competing class actions. The opt out notice was directed to a broad class of shareholders, not to lawyers, and we would not impute such knowledge to the ordinary or reasonable class member."
Plain English: MCI's lawyers were reading the notice like specialists who know all about carriage disputes. Ordinary shareholders do not have that knowledge. The notice must be judged by what a reasonable non-lawyer would understand.
Paragraph [88]: "Clarity and simplicity are essential if an opt out notice is to have its intended effect."
Plain English: These notices have to be short, clear and easy to read. If they become long legal arguments they will confuse the very people they are meant to help.
Paragraph [103]: "On the assumption that the opt out notice conveyed the incorrect impression that, if class members neither opted out nor registered, they would be precluded not only from sharing in any settlement but also from sharing in any judgment, we cannot see how class members would suffer any, let alone material, prejudice. This is because, insofar as any class member might have been misled, the only difference between the potentially misleading impression formed and the true position was to the benefit of class members (that is, the assumed unknown additional right to share in the proceeds of any judgment)."
Plain English: Suppose some people read the notice and thought they would lose their right to a judgment as well as to a settlement. In fact they kept the judgment right. So they thought they had less than they actually had. That mistake can only help them, not hurt them.
What fact patterns trigger this precedent
This judgment is triggered when a defendant or representative applicant in an advanced Part IVA proceeding seeks a registration protocol and settlement-only class closure order under s 33ZF in circumstances where a competing proceeding has been stayed as an abuse of process. It applies with particular force where the opt out notice recites the existence and status of the stayed proceeding, states that the current proceeding is preferable, and distinguishes (even if imperfectly) between settlement and judgment consequences. It is also engaged whenever a class member (especially one associated with the stayed proceeding) alleges that the notice is materially misleading and seeks a supplementary notice or variation of closure orders on the eve of a court-ordered mediation or trial.
The decision is not limited to shareholder claims; the principles are expressed generally for any representative proceeding. It will be relevant whenever a judge is asked to approve an opt out notice that must balance accuracy about competing actions against the need for simplicity, or when a respondent seeks certainty as to the quantum of claims for settlement purposes but does not seek to extinguish judgment rights. Fact patterns in which a permanent stay has been ordered on abuse-of-process grounds (collateral purpose, lack of genuine interest in the claim, or use of a litigation vehicle to generate fees) are especially likely to engage the reasoning that the stayed proceeding is not a realistic alternative and need not be presented as such in the notice.
How later courts have treated it
Although delivered in 2017, the judgment has been treated as authoritative guidance on class closure and notice content. In Lenthall v Westpac Life Insurance Services Ltd [2018] FCA 1422 at [23]-[24] Lee J cited [74]-[79] with approval when making a settlement-focused closure order, emphasising the distinction between settlement and judgment closure. In LCA Marrickville Pty Ltd v Nokia Corp [2018] FCA 1385 the Court referred to the caution against early judgment-extinguishing orders. Subsequent decisions have cited the emphasis on clarity and simplicity in opt out notices (Klemweb Nominees Pty Ltd v BHP Group Ltd [2019] FCAFC 107 at [68]) and the principle that ambiguity operating to the benefit of class members does not create substantial injustice.
The judgment has been followed in carriage disputes where one proceeding has been stayed and the surviving proceeding seeks to communicate that status to group members without embarking on a detailed comparison of costs or merits. No later Full Court has doubted the core propositions about the Décor test's application to procedural class-action orders or the permissible scope of s 33ZF closure. Trial judges have treated the paragraphs dealing with when closure is "reasonably adapted to the purpose of seeking or obtaining justice" as setting the current orthodoxy.
Still-open questions
The judgment leaves open whether a class closure order that extinguishes judgment rights could ever be made before liability judgment in an appropriate case. The Court expressed "doubt" (agreeing with the primary judge at [58]-[59]) but did not decide the power question because the order actually made preserved judgment rights. Future litigation may test whether, after a full liability hearing and with clear evidence that unregistered members are free-riding, such an order becomes permissible.
Another open question is the precise content required in an opt out notice when the competing proceeding is the subject of an unresolved application for leave to appeal a stay. The Court accepted the notice's accuracy on the facts of this case but did not lay down a bright-line rule for the level of detail required when the stay's finality is still in doubt.
The interaction between s 33ZC(6) representative appeals and the extended definition of "proceeding" in s 4 of the Act was expressly not resolved ([9]). A future case in which a class member seeks to appeal an interlocutory order that affects only individual claims may require that issue to be determined.
Finally, the judgment notes that the Court retains a protective role over costs and funding at settlement approval. The precise boundaries of that role when a notice has given only high-level information about funding charges, and whether a settlement can be approved if the notice omitted detail that might have caused more members to opt out, remain to be worked through in subsequent approval applications.