Class actions involve a named representative plaintiff suing on behalf of a defined group or class of persons. The group members may not be identified by name in the proceeding. Such claims frequently seek substantial amounts of compensation. An important practical issue arose in this case which will be of interest to insurers. This was whether the group members in the class action (as distinct from the representative who was the named applicant in the proceeding) were required to provide discovery to the respondents. This included discovery of documents relevant to assessing the quantum of the claims of group members.
In brief terms, the proceeding was a class action brought by various shareholders against Multiplex companies concerning the alleged failure to make adequate disclosure of losses suffered by the Multiplex companies on the Wembley Stadium construction project. A number of institutional investors were amongst the group members. Multiplex sought from them discovery of:
- Certain trading information
- Litigation funding agreements.
Power to order discovery from group members
Finkelstein J determined the Court had power pursuant to section 33ZF of the Federal Court Act 1976 (Cth) to order discovery from a group member in a class proceeding but only where the Court considered it was appropriate or necessary to ensure that justice is done in the proceeding.
However, it was noted by the Court that the class actions regime was designed to require little or no active involvement by group members. Further, a group member is a group member principally for the limited purposes of taking the benefit, or suffering the burden, of findings on common questions (i.e. questions that are common to the claim brought by the named applicant and the claims that may be pressed by group members). Accordingly, in an action where monetary relief might be sought by a group member, they will generally only be required to provide specifics about the quantum of their claim after the common questions have been resolved. Such a claim may in fact be made in a separate proceeding.
Given the intent of the class action regime, it was held that there must be some compelling reason demonstrated before a court would order group members to go beyond their otherwise essentially passive role.
Additionally, the Court considered whether discovery could be ordered against group members under provisions in the Federal Court Rules enabling a 'non-party' to be ordered to give discovery of documents. Finkelstein J considered such a rule did not apply on the present facts because the rule did not permit non-party discovery in relation to 'claims' made by non-parties (in other words, the documents sought were not relevant to questions in the class action proceeding) or alternatively if group members were included in the proceeding, they would not be non-parties and so the rule would have no application in any event.
On this basis, the court then considered whether on the facts there was a compelling reason to order discovery of the documents sought.
Discovery of trading information
In relation to the trading information sought from institutional investors who were group members, this comprised documents which detailed the particular investor's past trading in Multiplex securities and whether the investor had entered into any arrangement which had mitigated or reduced the loss suffered following acquisition of Multiplex securities. Multiplex contended that it was unable to assess the value of each institutional investor's claim in the absence of this information and if the information was provided, Multiplex would be in a better position to decide about the future conduct of the defence including whether or not to settle. The Court refused to order discovery of the trading information. Its reasons included :
- It was not inevitable that at some stage in the proceeding, the information would be required to be provided by group members. This was because they might opt out of the proceeding or findings at trial on the common questions may preclude group members from pursuing any claim for damages
- The evidence suggested the obligation on the institutional investors to provide discovery if ordered, would be onerous. This tended against the making of an order for discovery
- Whilst discovery would enable Multiplex to make an informed assessment of any settlement proposal, this was not sufficient. It was an inevitable feature of class actions that a defendant is faced with uncertainty regarding the quantum of potential group member claims. Further, a court should be cautious in becoming involved in the essentially consensual process of mediation and / or private negotiations.
The Court however, acknowledged that if the matter proceeded to mediation and the mediator considered information relevant to the quantum of group members' claims sought to be disclosed because its absence was standing in the way of settlement then, in that event, His Honour would be inclined to make some kind of order requiring the provision of trading information, although not as burdensome as the order sought by the respondents.
Litigation Funding agreements
In relation to the litigation funding agreements, the Court was prepared to order discovery of these from group members. This was essentially on the ground that the institutional investors counted for more than 90% of the Multiplex securities the subject of the class action, the litigation funding agreements disclosed information relevant to an issue in dispute and the issue required quick resolution due to potential expiry of limitation periods.
From an insurer's perspective, having all relevant information to enable the insurer to make an informed view of the quantum of a claim is of immense importance, both from the perspective of seeking to engage in settlement discussions and for reserving purposes. It is hard to see why critical information concerning the quantum of a group member's claim would not, in most cases, be highly relevant to the making of any settlement offer or, at least, the level of any such offer. It follows that the absence of such information may well adversely affect settlement discussions and, therefore, the prospect of any resolution.
However, clearly the Court is reluctant to impose any burden upon group members unless absolutely necessary. If the parties were otherwise in the position that they would settle but for the absence of further information on quantum then this decision suggests such information might be ordered to be discovered. The court's approach may lead to mediations having to be adjourned, for some time, to enable further application to the court and the provision of further discovery.
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.