Parkin v Boral Limited (Class Closure) [2022] FCAFC 47
In Australia, class actions (particularly securities class actions) are now the norm, with 53 class actions commenced in 2021 alone.1 Since 2020 there has been an ongoing tension between the Supreme Court of New South Wales (NSWSC) and the Federal Court of Australia (FCA) regarding the power of the court to control and determine the size of the class of applicants or group members, with the NSWSC taking a more narrow approach.
The Australian class action process is one in which there is an "open" class of group members who fall within a particular definition of a class and who may "opt out" of proceedings. Those who opt out will not be bound by the settlement or the judgment. "Closing the class" generally refers to orders which, in effect, deem group members to have opted out by a certain time. For defendants and insurers responding to class actions, while the class remains "open", the management of the proceedings can be made complicated due to uncertainties such as the potential quantum, exposure and the appropriate settlement strategy to deploy as well as the risk of satellite litigation.
In that context, in 2021, Justice Lee invited the parties in Boral to make an application to the Full Court of the FCA (FCAFC), to determine the power to order class closure at earlier stages of proceedings within the Federal jurisdiction. Courts in both the Federal and State jurisdictions have traditionally been cautious about making such orders at too early a time, due to concerns about:
- it undermining the Australian class action system; and
- the potential impact of extinguishing a group member's cause of action within a limitation period without that member necessarily knowing that their failure to register to participate in a settlement or a judgment has resulted in this outcome.
The Boral decision has given some clarity confirming the power of the FCA to allow notices of class closure upon approval of a settlement by the court. The position of the FCA's power to order class closure at any earlier stage of the course of class actions is, however, still unresolved. The position in NSW also remains unchanged.
Background
The tension between the NSWSC and the FCA began in 2020, with the decisions of Haselhurst v Toyota Motor Corp Australia Ltd t/as Toyota Australia [2020] NSWCA 66 (22 April 2020) (Haselhurst) and Wigmans v AMP Ltd [2020] NSWCA 104 (Wigmans).
In Haselhurst, the NSWCA determined the court did not have power to make orders limiting group members to any potential in-principle settlement before mediation. The court was concerned that class closure orders at that time would extinguish some of the group members' cause of action which was beyond the limits of its power to ensure justice is achieved in the proceeding. Haselhurst left open the question of whether, in principle, such orders could be made in order to facilitate settlement.
In Wigmans, the NSWCA went even further and found that it was beyond the court's power to approve a notice to group members that stated the parties intention to seek an order following settlement to exclude those who had not registered in advance.
The FCA favoured a different approach compelling group members to take positive steps in the early stages of the class action to preserve their interest in any judgment or settlement.
The powers of the FCA in relation to class actions are governed by the Federal Court of Australia Act 1976 (the Act). While the powers of the NSWSC and the FCA are governed by different legislation and rules, each courts' powers are framed in a similar fashion and therefore the jurisprudence from NSW can inform the scope of powers of the FCA.
Parkin v Boral Limited (Class Closure) [2022] FCAFC 47
FCA judges began raising concerns as to whether the NSWSC position in Wigmans was correct.2Given the importance of the question, Justice Lee referred the issue to the FCAFC.
The parties in Boral asked the FCAFC whether the FCA has power to:
- Make an order excluding group members from seeking benefit from a settlement, who have either not registered or not opted out of the proceedings by the proposed registration date;
- Approve a notice to the group members that upon settlement of the proceeding, the applicant will seek an order that excludes any group member from seeking benefit from a settlement (subject to court approval) who had not registered or not opted out of the proceeding before the proposed registration date.
The FCAFC considered question 2 first and found the court does have the power to approve such notices. The FCAFC's analysis found that the decision in Wigmans was "plainly wrong" and concluded that:
- The power of the FCA to make an order to give notice to group members of any matter, is broad and unqualified. It includes any matter relevant to a group member's decision to opt out or not of the class action.
- The class action scheme managed by the FCA is an opt out scheme, as it allows a class action to be commenced on behalf of a person without their consent (or knowledge) and provides group members the right to opt out. Nothing in the Act prevents group members from being required to take a positive step prior to settlement or judgment.
- The applicant in a class action necessarily has authority to settle the proceedings on behalf of group members, which may result in some group members receiving nothing. While potential or actual conflict between the interests of group members may exist, this is a consideration the court will take into account when the proposed settlement is assessed by the court. The fact that a conflict may exist, does not impact whether the court has the power to make an order.
The key concern for the FCA is to balance the risk of extinguishing the rights of a group member to its claim, but also facilitating the just, quick and cheap resolution of a dispute. The FCAFC recognised that in some circumstances, settlement will only be possible or materially increased when the respondent is assured all group members' claims will be resolved by the settlement.
The FCAFC was satisfied that an order providing notice of intention to close the class when settlement is approved, will facilitate settlement and allow greater finality to the litigation. Therefore, FCAFC did not intend to answer question 1 in the abstract.
The FCAFC did not therefore exclude the possibility that the FCA had power to order class closure, it will however depend on the circumstances of the case. In particular, this suggests that the Act might allow class closure before settlement.
What next?
The FCA is alive to the difficulties facing defendants in class actions with an open class. Although it might be said that it is now taking a more active role in controlling the class of applicants, its involvement is subject to its rules and Australia's "opt out" process. In that context, its ability to make class closure orders is limited to facilitating certainty with regard to the number of participating group members if a settlement is reached and approved.
Although defendants and insurers would have hoped that the Court would go further reinstating class closure orders earlier in the proceedings, the decision in Boral is welcome; particularly as it could lead to more group members confirming their status providing more certainty in the lead up to mediation. Further, for insurers, the development in Boral means that, in cases where such orders are made, defence and coverage counsel will be better positioned to provide accurate quantum and reserving advice in advance of mediation.
As a result of Boral, parties can expect more "soft" class closure applications in the FCA, at least to issue notices to prospective group members leading up to a mediation. However, the position remains unchanged in NSW. As such, until the issue is addressed by the High Court we anticipate the tension between jurisdictions to continue.
Footnotes
1A peak of 62 was reached in 2020. 407 class actions have been filed between 2011 and 2021.
2 See Wedtal Pty ltd as trustee for the BlueCo Two Superannuation Fund v Estia Health Ltd [2021] FCA 475.
