The Federal Court of Australia has power to "close the
class", or require group members to identify themselves and
their claims, so as to facilitate the settlement of a class action.
However, the court must be convinced that it is appropriate to
exercise the power in the particular circumstances. In
Winterford v Pfizer Australia Pty Limited [2012] FCA 1199,
the court was not convinced as a settlement had not been reached,
only steps towards a settlement had been undertaken. For the court
to close the class, it will usually need to be the case that a
settlement has been agreed so that the closing of the class is
clearly needed to allow for the proceedings to be finalized.
Uncertainty about the size of the class and quantum of claims can
be addressed through the settlement agreement.
Introduction
The opt-out class action employed in Australia contains a conflict
between the lofty aspirations of extending access to justice to as
many injured people as possible with the practical reality of
bringing the class action to a conclusion. The conflict is usually
resolved through the closing of the class1 which
involves group members registering their participation. However, at
what point in the litigation should class closure be
permitted?
The Conundrum
When the Federal Court class action was enacted, the then Federal
Attorney General noted that the government had chosen an opt-out
procedure on the basis of grounds of both efficiency and
equity:2
It ensures that people, particularly those who are poor or less
educated, can obtain redress when they may be unable to take the
positive step of having themselves included in a proceedings.
This can be contrasted with the observations of Justice Stone in
the Aristocrat Leisure shareholder class action, where her
Honour observed that when an opt-out group definition is used, it
will eventually be necessary to close the class
because:3
Until the class of participating group members is closed and the
members of the closed class identified, there can be no final
settlement and no distribution of settlement monies to members of
the class.
The opt-out class action seeks to make the justice system
accessible to all and is therefore structured so that any entity
that falls within the group definition would be included in the
proceedings. However, for the proceedings to be able to be
resolved, those group members must come forward at some point and
identify themselves.
When to Close the Class
In Winterford v Pfizer Australia Pty Limited [2012] FCA
1199, Justice Bromberg was asked to make orders that would have the
effect of requiring group members who had not opted out of the
proceedings to register with the solicitors of the applicant. In
addition, an order was sought that those persons who neither opted
out nor completed a registration notice would be bound by any
judgment in the proceedings but would not be entitled to share in
the benefit of any order or judgment in favour of the applicant and
group members.
Justice Bromberg accepted that the court had power to close the
class and make the orders requested as had occurred in earlier
proceedings.4 But before such orders would be made,
there needed to be "a compelling reason" before group
members would be required to take a positive step and come forward
and register their interest so that the class action could be
closed. His Honour observed that such a compelling reason would be
to give finality to the proceeding.5 However, it did not
include where a respondent stated that it was not willing to enter
into settlement negotiations because of uncertainty as to the
quantum of potential group members' claims.
His Honour went on to explain the current status of the two sets
of class actions. In the first matter, pleadings were not yet
closed, common questions were yet to be settled, let alone
determined, opt-out notices were about to be advertised, and no
settlement discussions had been undertaken. In the second matter,
settlement discussions had commenced and a sampling process had
begun in which the respondent would assess the claims of some group
members. Although the Pfizer matter was more advanced in
terms of a resolution, it was still found that a sufficiently
compelling reason had not been put forward to justify group members
being required to opt in to the proceedings or otherwise lose their
right to compensation.6
When Winterford v Pfizer Pty Limited is looked at from a
group member's perspective, it is easy to see why a court would
be reluctant to make orders closing the class at an early stage.
The access to justice objective of the class action would be
undermined as group members facing socioeconomic or educational
disadvantages may be excluded. Not only would they be unable to
participate in the settlement but they would also have their claim
extinguished in return for no compensation. While the practical
reality is that they must take the positive step of participation
at some point, that may be facilitated if the terms of the
settlement are known.
It should also be added that notice plays an important role in
communicating the terms of the settlement, the steps the group
member must undertake, and the ramifications of not taking those
steps.
Steps to Reduce Uncertainty in Settlements
From a respondent's perspective, while it is always desirable
to be able to reduce the uncertainty associated with the liability
in a class action, it is the nature of class action proceedings
that the number of group members and the size of their claims are
difficult to assess7 As a result, respondents who wish
to settle a matter but are faced with that uncertainty should seek
to build safeguards into the settlement agreement.
Where a respondent is prepared to settle only where it can
minimise its liability to a certain sum, but otherwise would be
prepared to litigate the matter to finality because of the quantum
that is at stake, the settlement agreement can be drafted
accordingly. The settlement agreement could specify that the
settlement is conditional upon the final amount being a certain
dollar amount. If the settlement is greater than that, then the
settlement agreement can terminate. This approach was used in the
Aristocrat Leisure shareholder class action. 8]
Equally, a respondent may not wish to settle a proceeding if too
few group members take part in the settlement because it leaves a
substantial number of claims still to be resolved. As a result, the
settlement agreement can be drafted so that a certain percentage or
number of group members must participate or the settlement
agreement terminates.
Closing the class so that the number of claims becomes certain is
obviously desirable, but there are ways to use the settlement
agreement to assist in obtaining certainty.
Footnotes
1.The closing of the class is a step that occurs in an open class. The process is to be compared with a closed class, where the group is defined from the outset in a manner that limits the group to ascertainable persons. SeeMatthews v SPI Electricity (Ruling No. 13) [2013] VSC 17 at [18]–[24].
2.Second Reading Speech by the Attorney-General, Australia, House of Representatives, Parliamentary Debates (Hansard), 14 November 1991 at p 3177.
3.Dorajay Pty Ltd v Aristocrat Leisure Limited (2008) 67 ACSR 569 at [13].
4.Winterford v Pfizer Australia Pty Limited [2012] FCA 1199 at [3].
5.Winterford v Pfizer Australia Pty Limited [2012] FCA 1199 at [5]–[6].
6.Winterford v Pfizer Australia Pty Limited [2012] FCA 1199 at [9]–[10].
7.SeeP Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 2) [2010] FCA 176 at [31] and Thomas v Powercor Australia Ltd (No 1) [2010] VSC 489 at [38].
8.Dorajay Pty Ltd v Aristocrat Leisure Limited (2008) 67 ACSR 569 at [3].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
