E CLASS CLOSURE ORDERS GENERALLY AND THE CASES
32 Much has been said about the responsibilities of those acting for applicants to ensure that any settlement proposed to the Court must not be put forward unless the practitioner considers, on reasonable grounds, that it can be advanced as a settlement that is fair and reasonable and in the interests of group members. As those experienced in acting for applicants in class actions are aware, the proper ethical discharge of this responsibility may sometimes necessitate awkward conversations and unwelcome advice. Senior practitioners particularly must be sensitive to the possibility that the economic interests of funders or solicitors may favour compromise in cases where running the proceeding to a judgment is likely to produce a more favourable outcome from the perspective of group members.
33 It is well and good to pay regard to the need for those acting for applicants to be apprised of sufficient information, including class and claim size and potential recovery, so as to allow them to discharge their duties in participating in settlement discussions. But depending upon the nature of the case, it can be equally important for those acting for respondents at a mediation to be aware of sufficient information as to the nature and quantum of the claims advanced against their client. And as the saying goes: it takes two to tango.
34 It must also be remembered that in the context of settlement discussions, the solicitors acting for respondents have duties to their clients. Sometimes those duties will extend to doing their best to ensure that if a class action settles, their client is freed from the vexation that copycat litigation could spring up, like the Lernaean Hydra. Cutting off each source of future conflict (to the extent possible) is often an important part of the role of a respondent's lawyer participating in the negotiation and finalisation of a proposed settlement. Depending upon the circumstances, there can be cases where settlement is only possible (or its prospects are materially increased) if a respondent is able to be assured that the claims of all group members will be resolved if a settlement is approved.
35 It was in recognition of this reality that courts were persuaded to not only require the exchange of relevant details about the size of any claim, but also to make class closure orders.
36 Such orders were usually made by consent on the applicant's application. The application was supported by evidence that the parties considered that a registration regime would facilitate settlement. They took different forms and were made without any detailed analysis. But in whatever form they were made, they had two basic components: first, they required group members to take a positive step to "register" their interest in participating in any settlement by a particular date; and secondly, they prescribed a consequence of non-registration, namely that the unregistered group member would not be able to participate in any settlement that is subsequently approved by the Court as fair and reasonable, but would otherwise remain a group member for all purposes (unless the Court ordered otherwise). Eventually, speaking in broad terms, the orders could be seen to take two forms.
37 The less common was termed, in the lingua franca of Pt IVA practitioners, a "hard closure" order, being a closure of the class which forever extinguishes a group member's rights to share in the fruits of a subsequent judgment unless the group member takes steps to register in the proceeding. By way of contrast, as explained above, the more common was a "soft closure" order, being a more subtle instrument, operating only upon a settlement taking place by a specified date in the future - usually a date chosen to allow enough time for a scheduled mediation to occur and for any prospective s 33V application to be determined or, less frequently (and as proposed here by Mr Parkin's interlocutory application), the date of judgment. It follows that if there is no settlement, there is no fetter upon group members who fail to register by the Class Deadline continuing to participate in the class action.
38 When one appreciates the rationale of any type of class closure order, it is easy to understand why orders effecting a hard closure became the subject of significant criticism.
39 In Melbourne City Investments (at [74]), Jagot, Yates and Murphy JJ explained that the power to make any form of class closure order was gained from s 33ZF of the Act. Notably, Pt IVA does not contain an express statutory power directed to making such orders, and in this respect differs from the Victorian class action regime in Pt 4A of the Supreme Court Act 1986 (Vic), where s 33ZG expressly provides that an order made under s 33ZF may set out a step that group members must take to be entitled to obtain a benefit from the proceeding, and specify a date after which the group member who has not taken that step will not be so entitled.
40 The Full Court observed (at [75]) that an order requiring group members to register their claims to participate in a settlement facilitates settlement, because it allows both sides to have a better understanding of the total quantum of group member claims, permits the settlement amount to be capped by reference to the claims of participating group members, and assists in achieving finality. Their Honours stated (at [74]) that "if a class closure order operates to facilitate the desirable end of settlement, it may be reasonably adapted to the purpose of seeking or obtaining justice in the proceeding and therefore appropriate under s 33ZF".
41 In the decision the subject of appeal in Melbourne City Investments, the primary judge, Foster J, in Jones v Treasury Wine Estates Ltd (No 2) [2017] FCA 296 (at [58]-[62]), expressed doubt that the Court had power to make a hard closure order that would "extinguish" a group member's rights, but despite expressing those doubts as to power, his Honour refused the application on discretionary grounds: see also Melbourne City Investments (at [71]). The Full Court agreed (at [71]) with the exercise of his Honour's discretion and, when it came to hard closure orders, said the following (at [76]):
[W]e share the views expressed by the primary judge in relation to a class closure order that also precludes class members from sharing in a subsequent judgment. 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.
42 Following upon Melbourne City Investments, in Gill v Ethicon Sàrl (No 2) [2019] FCA 177; 134 ACSR 649 (at [8]-[9]), Lee J noted:
8. … in order for me to be able to make the order sought by the respondents, at the very least, I would need to "think", in the present context of the Part IVA opt-out regime, that it is appropriate that the relevant group members' claims be extinguished for all time in the event that they do not respond timeously to a court notice requiring them to take active steps to, in effect, "opt-in" to the proceeding. The whole point of class closure orders is to provide some certainty (or at least some guidance) to a respondent as to the nature and quantum of the case advanced against the respondent by non-parties in appropriate cases. As noted above, in circumstances where this information can be provided without extinguishing group member claims for all purposes, it is not self-evident to me how such a "hard" closure order could ever be either necessary or appropriate in the relevant sense (absent, perhaps, an outlier case of a very small sophisticated group conducting litigation as a common enterprise).
9. Before leaving these general observations I should make a final point: I have already referred to the undesirability of "fixed" rules when dealing with issues of practice and procedure. It should not be assumed that "soft" closure orders will always be appropriate as a pre-condition to settlement discussions or prior to a Court approved mediation. It is case dependent. It is possible to imagine, for example, that such an order may not be utile when the claim made by an applicant is for an award of damages in an aggregate amount without specifying amounts awarded in respect of individual group members (see s 33Z(1)(f) of the Act).
(Italics in original).
43 The next development that should be mentioned is the decision of the High Court in Brewster, dealing with the proper construction of s 33ZF, in the different context of "common fund" orders.
44 The plurality (Kiefel CJ and Bell and Keane JJ) said (at [50]) that the Act authorised an order "to advance the effective determination by the Court of the issues between the parties to the proceeding". Their Honours found (at [3]) that s 33ZF did not extend to making an early common fund order, as s 33ZF empowered the Court to make orders as to how an action should proceed in order to do justice but not whether the action can proceed by making an order to assure a potential funder of the litigation of a sufficient level of return upon its investments to secure its support for the proceeding. More generally, their Honours observed that the question of funding is not an issue between the parties to the proceeding, but rather relates to a third party and, in this sense, is not connected with advancing the proceeding. The plurality explained (at [47]):
While it has rightly been acknowledged that the power conferred by [s 33ZF] is broad, it is one thing for a court to make an order to ensure that the proceeding is brought fairly and effectively to a just outcome; it is another thing for a court to make an order in favour of a third party with a view to encouraging it to support the pursuit of the proceeding, especially where the merits of the claims in the proceeding are to be decided by that court. Whether an action can proceed at all is a radically different question from how it should proceed in order to achieve a just result.
(Italics in original).
45 The observations of the plurality in Brewster in relation to the power to make a common fund order under s 33ZF were not seen by a number of judges of this Court as any impediment to making a soft closure order, and such orders continued to be made by consent of the parties. But in 2020, the Court of Appeal of New South Wales delivered two decisions which departed from this widely accepted understanding: Haselhurst v Toyota Motor Corporation Australia Ltd t/as Toyota Australia [2020] NSWCA 66; 101 NSWLR 890 and Wigmans v AMP Ltd [2020] NSWCA 104; 102 NSWLR 199.
46 Despite the approach endorsed by the Full Court in Melbourne City Investments, the consequence of the two Court of Appeal decisions is that in at least two subsequent first instance decisions of this Court, it has been held that Haselhurst should be followed and that s 33ZF does not authorise the making of a soft closure order: see The Owners - Strata Plan No 87231 v 3A Composites GmbH (No 3) [2020] FCA 748 (at [206]-[214] per Wigney J) and Furnell v Shahin Enterprises Pty Ltd [2021] FCA 73; 386 ALR 245 (at [20]-[74] per White J). It follows that it is necessary to examine these two Court of Appeal decisions in some detail.
47 In Haselhurst, the principal judgment was delivered by Payne JA, with whom Bell P, Macfarlan and Leeming JJA and Emmett AJA agreed. His Honour emphasised the importance of construing the order the subject of appeal noting (at [44]) that "[u]ntil the legal and practical effect of that order is understood, it is not possible to address the questions of power and miscarriage of discretion". The order the subject of the appeal provided:
Pursuant to [s 33ZF] of the Act, any Group Member who neither opts out in accordance with Order 12 nor registers in accordance with Order 15 on or before the Class Deadline shall remain a Group Member for the purposes of any judgment or settlement but, in the event that an in-principle settlement is reached before the commencement of the trial on the common issues and that settlement is ultimately approved by the Court, shall be bound by the terms of the settlement agreement and barred from making any claim against the Defendant in respect of or relating to the subject matter of this proceeding, including participating in any form of compensation or otherwise benefiting from any relief that might be ordered or agreed.
48 This order was construed by Payne JA (at [108]) as one which "contingently extinguishes unregistered group members' rights against the respondents". It was also characterised by Bell P (at [12]) as "an order which destroys a person's cause of action within the limitation period, without a hearing and with no guarantee that the person will necessarily know the outcome or the consequences of their failure to register".
49 The Court of Appeal concluded (at [99] per Payne JA and at [11] per Bell P) that the construction of Pt 10 of the Civil Procedure Act 2005 (NSW) (CPA) preferred by the majority of the High Court in Brewster, was inconsistent with the dicta in Melbourne City Investments concerning the power to make class closure orders. The Court held (at [122] per Payne JA; see also at [12] per Bell P) that s 183 of the CPA, the NSW cognate to s 33ZF, did not authorise an order which provided that unregistered group members who did not opt out would remain a group member for the purposes of any judgment or settlement, but in the event of settlement "shall be bound by the terms of the settlement agreement and barred from making any claim against the Defendant in respect of or relating to the subject matter of [the] proceeding, including participating in any form of compensation or otherwise in benefitting from any relief that might be ordered or agreed".
50 It can be seen (at [105]) that central to Payne JA's conclusion that the impugned order was beyond the scope of the power in s 33ZF was the fact that:
[T]he effect of Order 16 is to address a matter, the barring of a claim held by a group member, which is addressed in [s 33V] in the case of a settlement and [s 33Z] in the case of a judgment, in each case supplemented by the specific power in [s 33ZB] to make judgment binding on all group members. It is, so the plurality in Brewster explains, incongruous to read a power into [s 33ZF] when other provisions of Pt [IVA] make specific provisions apt to accommodate that task but which operate at the conclusion of the proceeding. The power to bar a claim held by a group member is one that arises at the conclusion of a representative proceeding…
51 Then came Wigmans. Unlike Haselhurst, the order being considered in Wigmans did not purport to "bar" or extinguish the claims of unregistered group members. Nor did it affect those claims in any way. Rather, it was merely for the provision of notice, where the form of the notice contained statements of an intention to seek a subsequent order at the time of settlement approval that would exclude from participation in the distribution of the settlement sum those who had not registered in accordance with the procedure specified in the notice. Even though the orders and notice merely foreshadowed a present intention to seek the order if and when a settlement was reached, it was held by Macfarlan, Leeming and White JJA to be beyond power.
52 Their Honours reasoned (at [104]) that the question was whether the "practical effect of the orders conforms with the statute", noting (at [79]) that the orders and notice were contrary to a "fundamental precept" of the class action regime, confirmed by the High Court in Mobil Oil Australia Pty Ltd v State of Victoria [2002] HCA 27; 211 CLR 1 and Brewster, that group members are entitled to do nothing until following either a settlement or judgment. Indeed, it was said (at [123]) that the orders and notice had the effect of prevailing upon group members to make a binding decision before a settlement or judgment had occurred as to whether they should register.
53 The orders and notice were also said to give rise to an "insoluble" conflict between the applicant and those group members who had registered on the one hand, with those group members who had chosen not to register their claims on the other hand: see [118]-[121]. Their Honours held that notices to be sent to group members, pursuant to the cognate to s 33X of the Act, which informed recipients of the applicant's intention, in the event a settlement was reached, to apply to the Court for an order that unregistered group members will not receive any benefit pursuant to the settlement, were contrary to the legislative regime, and not within power: see [3], [132].
54 The additional authority to which reference should be made in any detail is the decision of Beach J in Wetdal Pty Ltd as Trustee for the BlueCo Two Superannuation Fund v Estia Health Ltd [2021] FCA 475. His Honour (in obiter) approved of orders which are in substantially the same terms as prayer 9 of Mr Parkin's interlocutory application and held that they were within power: see [75], [96]. His Honour (at [76]-[80], [95]) distinguished those orders from the orders the subject of consideration in both Haselhurst and Wigmans. However, his Honour ventured five broader observations that warrant setting out in full (at [82]-[94]):
82. First, an order of the kind under consideration, as was made by the docket judge, does not effect a contingent extinguishment of group member choses in action at all. Indeed, the notion of a contingent extinguishment is to my mind problematic in any event. If there is a contingency, nothing has been extinguished. But there is more. If that contingency is expressed in an interlocutory order, which is susceptible to variation, it is unclear how anything could be said to be extinguished if the contingency itself may be redefined or removed by a later and final order.
83. Second, BMW was directed to a different problem, where the purpose of the early common fund order was said to be to ensure the economic viability of a proceeding and to put it on a stable foundation so that it could go ahead. It was said that such a purpose was extraneous to dealing with the substantive rights of group members in the proceeding. Now I might say that in many cases where early common fund orders have been made, that was not the purpose. But in any event, a class closure order is not in the same category. Its purpose is not extraneous to dealing with the substantive rights of group members in the proceeding. Indeed, the opposite. Its very focus is on how those substantive rights are to be adjusted inter se in the event that the proceeding settles.
84. Third, I should note for completeness that The Owners - Strata Plan No 87231 v 3A Composites GmbH (No 3) [2020] FCA 748 occurred in a different context and not for the purpose identified in Melbourne City Investments of facilitating the desirable end of settlement. It can be put to one side.
85. Let me now say something about Wigmans. In Wigmans, the Court considered the form of a proposed notice to group members which referred to an intention on the part of the applicant and respondent that in the event a settlement were reached, they would apply for an order excluding any group member who had neither registered nor opted out by the relevant deadline from receiving any benefit pursuant to the settlement. In other words, they did not propose a barring order of the kind which failed in Haselhurst. The notice was to flag an intention that group members who did not register in a timely way may receive nothing from the settlement. The Court held that the orders made issuing the notice were beyond power.
86. It was said that what was proposed was contrary to a fundamental precept [of the cognate of Pt IVA], confirmed by the High Court in Mobil Oil v State of Victoria (2002) 211 CLR 1, because (at [79]):
… If what is contemplated by Komlotex and AMP comes to pass, group members who take no positive step will gain no benefit from any settlement and will have their rights extinguished. Indeed, it is reasonable to expect that the extinction of passive or unregistered group members' rights would be one of the drivers of any settlement between registered group members and AMP. This prima facie gives rise to a conflict between group members who are registered and those who are not.
87. It was said that a fundamental precept was that the representative applicant acts for all group members, and that group members may do nothing prior to a settlement and still reap its benefit. It was said that a settlement whereby registered group members receive payment but unregistered group members receive nothing but have their rights extinguished "is contrary to the essence of the opt-out regime. This prima facie falls squarely within what was held in Haselhurst" (at [95]). It was said that the fact that the proposed notice only communicated a present intention to seek a future order extinguishing rights was not the end of the analysis, as the question was "whether the practical effect of the orders conforms with the statute" (at [104]) which it did not do; it was said that the present intention was proposed to be deployed to prevail upon group members to make binding decisions as to whether to opt out. Further, it was said that what was proposed gave rise to a conflict between group members who were registered and those who were not, and that a conflict was real, immediate and direct because the representative would be propounding a settlement where registered group members receive nothing and have their rights extinguished, notwithstanding that the representative applicant is meant to be representing them.
88. More generally, in Wigmans the parties also accepted that Haselhurst was correct and Wigmans was premised upon its correctness. But if Haselhurst is problematic, then the Wigmans foundation is problematic. But Wigmans has problematic aspects even if Haselhurst was not problematic.
89. First, Part IVA is not inconsistent with group members being required to take a positive step before settlement or judgment at an initial trial. Now Part IVA generally permits group members to adopt a passive stance, but they can be required to give, for example, discovery in some circumstances; see Regent Holdings Ltd v State of Victoria (2012) 36 VR 424. As was said in Regent Holdings (at [12]), concerning the statement of the High Court in Mobil Oil (being the same passage cited in Wigmans):
…that statement does not mean that it is of the essence of a Pt 4A proceeding that group members not be required to take any positive step before common questions of liability have been resolved. Read in context, and understood against the background of the case with which the High Court was concerned, it means no more than that there are some Pt 4A actions in which that is likely to be so. This case illustrates that there will be circumstances in which group members may be asked to take some step before common questions of liability are resolved.
90. So, it is not a fundamental precept of representative proceedings that group members can never be required to take any positive step at an early stage in the proceeding. I said in Earglow Pty Ltd v Newcrest Mining Ltd (2015) 230 FCR 469 at [47] to [52]:
I accept that group members other than the lead applicant can be and have been compelled by court order to actively participate in representative proceedings at a time prior to the first stage trial and without any s 33Q or s 33R consideration coming into play. Examples of such compulsion include the following contexts:
(a) Provision of discovery has been compelled in at least four cases (P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 2) [2010] FCA 176; Thomas v Powercor Australia Ltd (No 1) [2010] VSC 489…; Regent Holdings…and Jarra Creek Central Packing Shed Pty Ltd v Amcor Ltd [2011] ATPR 42-361).
(b) Provision of particulars of group members' claims has been compelled in at least seven cases (Kirby v Centro Properties Ltd (2011) 84 ACSR 87 (No VID 326 of 2008), pursuant to an order made on 14 February 2011; Thomas; Meaden v Bell Potter Securities Ltd [2011] FCA 136; Regent Holdings; Weimann v Allphones Retail Pty Ltd (No 3) [2009] FCA 1292; Murphy v Overton Investments Pty Ltd [1999] FCA 1123 and Williams v FAI Home Security Pty Ltd [1999] FCA 1771).
(c) Provision of a contribution towards security for costs has been contemplated in at least one case, namely Madgwick v Kelly (2013) 212 FCR 1 where it was held that an order for security for costs was appropriate, and that it was fair that the group members who stood to benefit from the proceeding make a real but not oppressive contribution to a pool of funds for security.
(d) Provision of particulars of group members' identities has been compelled in order to facilitate the service of subpoenas (Kirby v Centro Properties Ltd, unreported, Federal Court of Australia, 8 February 2011, transcript of hearing at T22 and T45).
But the context of these examples is all important.
Discovery and particulars of group members' claims may be accelerated in order to facilitate a mediation so that there can be an adequate appraisal of potential quantum ranges for the total class and the avoidance of a disproportionate level of information asymmetry.
Discovery and particulars from group members may be accelerated because they are relevant to the trial on common issues. For example, in a cartel proceeding where a common issue at the liability stage is whether an arrangement to price collude was put into effect involving a large number of customers over a long time frame over an entire industry, inputs into a multiple regression linear analysis (to establish a positive value for the relevant dummy variable) may require data from all group members, so that a statistical analysis can be performed for the first stage trial in order to determine whether the arrangement was put into effect.
More generally, discovery from particular group members may be accelerated because they might have documents relevant to one of the common issues.
But to admit of these possibilities and justifications does not support the proposition that whenever the Court perceives it to be convenient, such an acceleration can be or should be ordered. Section 33ZF still needs to be satisfied. Moreover, in the present case the application that I am addressing is not covered by the foregoing scenarios.
91. Second, it is interesting, but not determinative, that when the Victorian Parliament enacted Part 4A of the Supreme Court Act 1986 (Vic), they included s 33ZG, which gave specific power to require group members to take a step to be entitled to benefit, but prefaced s 33ZG with the words "[w]ithout limiting the operation of section 33ZF, an order under that section may -". So, s 33ZG was declarative or elaborative of the general grant of power conferred by s 33ZF, which is common to both Pt IVA and the Victorian legislative analogue (see Muswellbrook Shire Council v Royal Bank of Scotland NV [2016] FCA 819 at [21] per Rares J).
92. Third, there is nothing in BMW that requires the conclusion that s 33ZF cannot be called in aid to require group members to take a positive step in the proceeding. BMW did not so hold. Further, there is nothing in BMW evincing any intention that any just resolution (at [21]) be limited only to a judgment, so as to render beyond power an order which is directed to facilitating a mediation or the ultimate exercise of power under s 33V. Section 33ZF enables an order which is directed to ensuring that a mediation can proceed effectively, particularly if the ultimate goal is to facilitate an exercise of power under s 33V.
93. Fourth, nothing in BMW requires the conclusion that a notice cannot be issued stating that it is the intention of a party to move the Court for a particular order in the future, even if there is doubt as to whether the Court can or will make that order. Section 33X(5) permits a notice to be issued informing group members of "any matter". That includes any matter relevant to their decision to opt out. I see no reason to read down s 33X(5) so as to prevent group members of being informed of such a thing. Section 33X(5) is facultative, not restrictive. Nothing in Pt IVA precludes the Court from directing that a notice be given to group members under s 33X(5) informing them, prior to determining whether they should exercise their right to opt out, of any relevant matter affecting such a choice that they need to consider including that:
(a) application may be made for a common fund order under s 33V(2) on settlement; or
(b) if they do not take a positive step of registering their interest before a mediation, this may have consequences for them when the Court comes to exercise any power under s 33V in considering what is fair and reasonable between group members inter-se.
94. Fifth, I have difficulty with Wigmans' analysis of conflict of interest and its view as to the consequences of such a conflict existing. Even if the sending out of a notice did manifest that a conflict of interest may arise because of the intention held by the representative, that is not a reason to deprive group members of that information. In the event that a settlement was procured by a representative in a position of conflict, the question that would then arise is whether it should be approved under s 33V. The Court is there. Settlements require approval to guard against such conflicts causing unfair prejudice to group members in the settlement context. Indeed, the presence of an actual or potential conflict is a reason to send out a relevant notice to group members. It would enable group members to consider whether they wished to make an application under s 33T. More generally, the scheme of Part IVA confers authority on the representative who like any fiduciary must manage conflicts in accordance with established principle, subject to oversight of the Court and the right of other group members to seek to replace the representative.
55 Most recently, in BHP Group Limited v Impiombato [2021] FCAFC 93; 151 ACSR 634, the Full Court (at [95] per Middleton, McKerracher and Lee JJ) observed that "there is, with respect, much to be said for Beach J's observations in Wetdal (at [81]-[95])".