Australia: Treasury Wine Decision Confirms Shift In Class Action Closure Process

Recently, in Melbourne City Investments Pty Ltd v. Treasury Wine Estates Limited ("Treasury Wine"), the Full Court of the Federal Court of Australia considered a primary judge's class closure order which broke new ground in group action practice in Australia. The Treasury Wine case is part of a growing trend in Australian securities litigation toward class proceedings similar to the U.S. model, where investors do not have to be a named plaintiff to participate in a recovery. Rather, in this case, prior to the issuer and the representative plaintiff mediating the case, investors needed to "register" by submitting their transaction data. When the case settled after mediation, those who registered could recover from the settlement fund, but those who did not register were shut out of the settlement. Registering was not without risks, however, as the mediation could have failed. Some investors may have feared that by submitting their transaction data they were exposing themselves to the defendants and potential discovery in the event the case did not settle. However, the case did settle after mediation, and those who registered were rewarded.

In an effort to foster settlement, Australian courts often order class closures before settlement discussions. Typically, group members were required to register their interest before any mediation took place, with any members who did not register being barred from sharing in any settlement or bringing their claims after settlement was finalized. Before Treasury Wine, however, unregistered group members were also barred from sharing in any judgment if settlement was not finalized. Thus, failing to register as a class member before a closure order issued had the effect of barring a group member's claims, whether or not settlement was achieved.

In Treasury Wine, the primary judge issued a class closure order that broke with this practice. There, the judge ordered that any unregistered class members would lose their right to share in a settlement or bring their claims after settlement was finalized. However, the judge ordered that if a settlement was not reached, unregistered group members could still participate in any subsequent judgment.

The judgment was appealed to the Full Court, which first considered whether the primary judge was correct in doubting whether the court could make this type of class closure order. First, the Court noted that when Australia's Parliament enacted its representative proceeding statutory scheme (known as the "Part IVA regime" after Part IVA of the Federal Court of Australia Act), it "expressed a legislative intent to adopt an opt out rather than an opt in procedure." Treasury Wine at ¶ 72. The Court further noted that "[c]lass proceedings are intended to require little or no active involvement by class members and class members participate principally for the limited purpose of taking the benefit or suffering the burden of the findings made on common questions." Id. at ¶ 73.

The Court noted that requiring a group member to proactively register in order to share in a settlement arguably clashed with the "opt out" nature of Australian class action claims, stating that "[i]t must be accepted that the requirement for class members to take active steps to 'register' in order to share in a settlement of a class action undercuts to some extent the opt out rationale underpiunning the Part IVA regime." Treasury Wine at ¶ 72. However, it found that the court's power to make a class closure derived from section 33ZF of the Federal Court of Australia Act, which states that "the Court may, of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding."

The broad language of section 33ZF essentially allows the court to make any order that is necessary to facilitate justice. The Full Court held that a class closure order falls under this provision, but "[t]here must be good reason to exercise the discretion to make a class closure order which may operate to deny the benefits of a settlement to class members who do not opt out and who do not take the active steps of registering." Treasury Wine at ¶ 73. The Court further held that"if a class closure order operated to facilitate the desirable end of settlement, it may be reasonably adapted to the purpose of seeking or obtaining justice in the proceeding." Id. at ¶ 74. The Court recognized that the idea behind a class closure order is to allow the parties to know how many group members will share in a settlement, enabling the parties to base their negotiations on a known number of beneficiaries. A class closure order also provides for finality, in that it assures the parties that if settlement is reached, they will not be subject to additional claims on the subject. The Full Court held that these interests were sufficient to satisfy section 33ZF.

While the Full Court allowed that a class closure order can be proper in order to aid in the settlement process, it took care to note that not all class closure orders are appropriate. Most importantly, it cautioned against issuing class closure orders that would bar group members from sharing in a judgment if settlement fell through. It stated that "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." Treasury Wine at ¶ 76. The Court noted various factors that judge's should weigh in determining the appropriateness of class closure:

Whether it is appropriate to order class closure is a question of balance and judicial intuition. The Court must take into account the interests of the class as a whole in requiring class members to take steps to facilitate settlement, and consider the surrounding circumstances including the point the case has reached, the attitude of the parties, and the complexity and likely duration of the case.

Treasury Wine at ¶ 79. The Court found the closure order in this case appropriate because, among other things:

the order was made in circumstances where the trial of the case was imminent and the parties had agreed to mediate within three months, the proceeding was at a stage where the parties were in a position to realistically assess the prospects of victory or defeat, the lawyers for the applicant were experienced in class action litigation and able to assess whether class closure was in the interests of class members, and both parties considered that a class closure order should be made in order to facilitate settlement.

Treasury Wine at ¶ 80.

Hindsight has proven the Court's prediction that class closure orders of this type will facilitate settlement. Once the class was closed in this case, TWE settled the matter, and those who registered have started to receive distributions.

The development of the framework articulated by the Court bears watching, particularly for institutional investors with large holdings in Australian issuers. As this blog has mentioned previously (here and here), the Australian "continuous disclosure" regime may be beneficial to protect investors from fraud. However, it appears that Australia's representative proceeding practice is evolving toward requiring institutions to carefully monitor "open class action" in Australia and register their claims in order to take part in any settlement. Additionally, as in this case, investors may only have a few weeks to register their claims after the Court approves the class closure procedure.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Joel D. Rothman
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.