Full Federal Court allows notice foreshadowing class closure application in Boral Class Action

What you need to know

• The Full Federal Court has unanimously found that the Court has power pursuant to s 33X(5) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) to order that notices be given to group members foreshadowing an application for a class closure order at settlement.
• In making this decision, the Court found that a recent NSW Court of Appeal authority, Wigmans v AMP Ltd (2020) 102 NSWLR 199 (Wigmans), was plainly wrong. In Wigmans, the Court found that it did not have power to order such notices be given to group members.
• While a High Court challenge in the Boral Class Action is unlikely, this decision sets the scene for the High Court to clarify the powers of the Court in respect of class closure orders in a future case.
• The Full Federal Court did not rule out class closure orders being made in future cases prior to settlement negotiations, depending on the circumstances of the case.
• The NSW Court of Appeal's decision in Haselhurst v Toyota Motor Corporation Australia Ltd (2020) 101 NSWLR 890 (Haselhurst) was distinguished because the order sought in the Boral Class Action did not seek to immediately bar the claims of unregistered group members by operation of the order itself – rather it was expressed as subject to the Court's role at settlement approval to take into consideration the interests of unregistered group members.

Class Closure Orders

Class closure orders extinguish the claims of group members in an open class action who neither register to participate in any settlement or judgment, nor opt out.

These orders offer greater finality for Defendants, and give both parties clarity about the size and composition of the class when engaging in settlement discussions.

This case concerned a notice to be given to group members, which foreshadowed that a class closure order would be sought at a future date (settlement), which would, only at that stage, extinguish the claims of any group members who had neither registered nor opted out of the proceedings. A court will ordinarily order that registration and opt out notices be sent to all group members. These notices can be used to notify group members of the effect of the class closure order, and give them the opportunity to register to take part in the benefits of any settlement.

The mixed history of class closure orders

There are mixed appellate court decisions on whether the Court has power to make class closure orders and, by extension, notices to group members in respect of such proposed orders.

In Melbourne City Investments v Treasury Wine Estates (2017) 252 FCR 1, the Full Federal Court dismissed an appeal against the making of a "soft" class closure order. The Court stated that a class closure order can be appropriate under s 33ZF of the Federal Court Act if it facilitates the desirable end of settlement. The Court emphasised that there must be a good reason to exercise the discretion to make a class closure order, and set out a number of principles to guide the exercise of that discretion.

In Haselhurst, five justices of the NSW Court of Appeal unanimously held that the making of a "soft" class closure order was beyond the power conferred by s 183 of the Civil Procedure Act 2005 (NSW) (the NSW equivalent of s 33ZF). The Court focused on the purpose of the class action regime to allow passive participation of group members until settlement or judgment. The decision left open whether a class closure order would be available after settlement or judgment.

Importantly, Haselhurst was handed down after the High Court's judgment in BMW Australia v Brewster (2019) 269 CLR 574, where the High Court determined that an early common fund order before settlement was not authorised under s 183/s 33ZF, limiting the scope of those sections. For further details, please see our previous update on the High Court's decision.

In Wigmans, the NSW Court of Appeal held that the Court did not have power to approve the distribution of a notice to group members under s 175 of the Civil Procedure Act (the NSW equivalent of s 33X of the Federal Court of Australia Act) that foreshadowed the intention to apply for a class closure order. The Court held that this order was contrary to the basic premise of the class action regime, and would not allow use of s 175 to foreshadow a proposed order that had already been found in Haselhurst to be beyond power.

The Notice in the Boral Class Action

In light of the mixed authorities on class closure orders, the parties asked for questions to be referred for determination by the Full Federal Court regarding whether a notice could be sent to group members, which informed them that:

(a) group members who do not register or opt-out by a deadline will remain a group member but shall not be permitted to seek any benefit pursuant to any settlement without leave, subject to any further order of the Court, and subject to approval of that settlement by the Court (First Question); or

(b) on settlement the Plaintiffs will seek an order that any group member who has not registered or opted out by a deadline will remain a group member but shall not be permitted to seek any benefit pursuant to any settlement without leave of the Court (Second Question).

The Court appointed a contradictor as both the Plaintiffs and Boral were in favour of a soft class closure order.

The contradictor argued that the class closure order sought would compel group members to take a positive step prior to settlement or judgment in order to benefit from the outcome of the class action, which was inconsistent with the statutory regime.

Secondly, the contradictor argued class closure would create a conflict between the interests of group members who had registered and those who had not.

The Court has the power approve a notice foreshadowing an application for a class closure order

The Full Federal Court decided that the Court has the power under s 33X(5) to approve that the Notice be sent to Group Members foreshadowing that the Plaintiff intends to seek a class closure order at settlement. Importantly, the Court focussed on the notice only indicating an intention to seek a class closure order. In approving the Notice, the Court did not in any way extinguish the rights of unregistered group members.

In reaching this conclusion, the Court ruled that the decision in Wigmans was plainly wrong. Section 33X(5) permits a notice to be issued at "any stage" informing group members "of any matter". The Full Court criticised the Court in Wigmans for limiting this power by reading in a "fundamental precept" that group members should be able to do nothing prior to settlement and still reap its benefits. The Full Federal Court pointed to numerous examples of group members being required to take positive steps prior to settlement.

The Full Court further emphasised the Court's power at settlement to bind group members who did not register while excluding them from any benefit under the settlement.

The Court has the power to make a qualified soft class closure order before settlement

The Court held that, in this case, the Court did not have the power to make the "soft" class closure order sought by the Plaintiffs. The Court noted that s 33ZF is intended to fill any gap in the interests of justice in the proceedings. In the Boral Class Action, the Court found there was no gap to fill because justice in the proceedings was achieved by approving notices to group members foreshadowing the Plaintiffs' intention to apply for a class closure order at settlement pursuant to s 33X(5).

Their Honours did not preclude s 33ZF being used in the future to make a qualified soft class closure order along the lines sought by the Plaintiffs. The availability of such an order is a matter of the Court's discretion, dependent on whether it is in the interests of justice in the circumstances of the case to make such an order.

The Court considered that the form of the class closure order sought in the Boral Class Action was different from Haselhurst as the order did not immediately bar unregistered group members. Rather, the class closure was expressed as "subject to further order", "without leave", and "subject to court approval" of the settlement — clearly retaining the Court's role at settlement approval to take into consideration the interests of unregistered group members.

Conflicting Full Federal Court and NSW Court of Appeal authorities on class closure notices

The Full Federal Court decision in the Boral Class Action and the NSW Court of Appeal's decision in Wigmans reach incompatible conclusions on whether the Court has power under s 33X(5) of the Federal Court of Australia Act (or the NSW equivalent: s 175 of the Civil Procedure Act) to order notices to group members foreshadowing an intention to seek a class closure order, at a later stage, either at settlement or judgment date.

A High Court special leave application is unlikely in the Boral Class action as both the Plaintiffs and Boral are in favour of a class closure order at settlement.

Comment

Until there is any resolution by the High Court, the Boral decision indicates that the Federal Court will be a favourable jurisdiction for notices to group members relating to class closure prior to mediation or selttlement.

Allowing class closure has been said to undermine the character of the Australian class system as an "opt out" model. This, however, needs to be weighed against the effective operation of the class action regime in furthering the interests in the administration of justice. If parties to class action proceedings cannot reach a compromise at mediation because of uncertainty about group composition and finality, they may be put to considerable unnecessary legal expense and delay.

Of interest, as the Full Federal Court has noted in Boral, class closure as part of a registration process is permitted under the Victorian class action regime: s 33ZG Supreme Court Act 1986 (Vic). It may be that statutory amendment in other jurisdictions to add the equivalent of s 33ZG is a more preferable course than a journey to High Court to resolve the conflict between Wigmans and Boral.

Authors: John Pavlakis, Partner; Andrew Westcott, Expertise Counsel; Tess Grieve, Senior Associate; and Reuben Heim, Lawyer.