Key Issues
- The issue to be resolved was whether a defendant in debt recovery proceedings, who was previously a group member in an unsuccessful class action, could raise individual defences that were not raised in the earlier class action to claims brought by a plaintiff that had previously been a defendant in the class action.
- The Supreme Court of Victoria, applying the law on Anshun estoppel and abuse of process, found that the defendant/group members could raise their individual defences.
- The outcome creates a potential conflict with earlier decisions, leaving Australian law uncertain.
Background
The Timbercorp Group was in the business of operating
horticultural and forestry managed investment schemes
("MISs"). It invested in excess of $2 billion on behalf
of about 18,500 investors. In addition, Timbercorp Finance Pty Ltd
("Timbercorp Finance") made loans to investors so they
could invest in the MISs. In 2009, the Timbercorp Group was placed
into liquidation, leading to the majority of MISs being of limited
or no value. At the time the Timbercorp Group collapsed, Timbercorp
Finance's loan book had more than 14,500 outstanding loans to
more than 7,500 borrowers totalling $477.8 million.
The liquidators of Timbercorp Finance commenced proceedings against
some borrowers but before these proceedings were able to advance
very far, a group proceeding pursuant to Part 4A of the Supreme
Court Act 1986 (Vic), also called a class action, was
commenced on behalf of those who invested in the MISs. The
representative party was Mr Woodcroft-Brown. The defendants to the
proceeding were Timbercorp Securities Ltd (responsible entity for
the MISs), Timbercorp Finance and the three persons who, at the
relevant times, were directors of Timbercorp Securities, Timbercorp
Finance and Timbercorp Ltd (the holding company of the Timbercorp
Group) (the "Directors").
The claims made in the group proceedings were:
- Timbercorp Securities failed to disclose in its Product Disclosure Statements ("PDSs") information about significant risks, or risks that might have had a material influence on the decision to invest, in breach of its disclosure obligations under ss 1013D or 1013E of the Corporations Act 2001 (Cth).
- The PDSs given to investors contained false or misleading statements.
- Declarations made by the Directors in two scheme financial reports were false or misleading.
The group proceedings were unsuccessful at first instance and on
appeal.1
On 13 June 2014, Timbercorp Finance commenced proceedings against
Mr and Mrs Collins to recover an alleged loan of $90,501.68 plus
interest. On 12 September 2014, Timbercorp commenced proceedings
against Mr Tomes to recover alleged loans of $1,760,378.34 and
$448,260.00 plus interest. Mr and Mrs Collins and Mr Tomes sought
to raise claims and defences challenging the validity and
enforceability of the loan agreements not raised in the group
proceeding.
On 1 April 2015, Judd J ordered in each of the two proceedings that
the following question be determined as a separate question under
rule 47.04 of the Supreme Court (General Civil Procedure) Rules
2005:
Are the defendants precluded from raising any and if so what
defences pleaded by them in this proceeding by reason of their
participation as group members within the meaning of [Part 4A] of
the Supreme Court Act 1986 (Vic) in proceeding S CI 9807
of 2009 [the group proceeding]?
The separate question was heard by Robson J.
Anshun Estoppel and Abuse of Process
Timbercorp Finance argued that the defendants were precluded as
a matter of law from raising their pleaded defences, by Anshun
estoppel, and/or because raising the defences constituted an abuse
of process.
Timbercorp Finance did not seek to rely on res judicata or issue
estoppel. It was also accepted that if Mr and Mrs Collins and Mr
Tomes had opted out of the group proceedings, then they would not
be denied the ability to plead their defences.
The High Court in Tomlinson v Ramsey Food Processing Pty
Limited [2015] HCA 28 ("Tomlinson")
explained that Anshun estoppel "operates to preclude the
assertion of a claim, or the raising of an issue of fact or law, if
that claim or issue was so connected with the subject matter of the
first proceeding as to have made it unreasonable in the context of
that first proceeding for the claim not to have been made or the
issue not to have been raised in that
proceeding".2
The High Court added that "[c]onsiderations similar to those
which underpin [Anshun] estoppel may support a preclusive abuse of
process argument".3 Abuse of process is broader and
more flexible than estoppel. The High Court explained that although
the situations in which it may be invoked cannot be clearly
delimited, abuse of process is "capable of application in any
circumstances in which the use of a court's procedures would be
unjustifiably oppressive to a party or would bring the
administration of justice into disrepute".4
Timbercorp Finance's Argument
The requirements for commencing a class action under Part 4A of the Supreme Court Act are set out in s 33C and are:
- Seven or more persons have claims against the same person; and
- The claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and
- he claims of all those persons give rise to a substantial common question of law or fact.
Timbercorp Finance contended that Anshun estoppel or an abuse of process arose because once there is a substantial common question of law or fact, the group proceeding becomes the vehicle for the determination of all issues that arise from the same, similar or related circumstances. Group members were also said to be subject to the same preclusionary principles as the representative party because s 33ZB provides:
A judgment given in a group proceeding—
(a) must describe or otherwise identify the group members who will
be affected by it; and
(b) subject to section 33KA, binds all persons who are such group
members at the time the judgment is given.
Further, Part 4A of the Supreme Court Act provides "statutory mechanisms" that enable a group member to avoid the preclusionary effect of the judgment in the group proceeding by seeking case management of their question or claim. Timbercorp Finance referred to three statutory mechanisms: the right to opt out under s 33J, the ability of a group member to seek to replace an inadequate representative pursuant to s 33T, and the provisions allowing for directions as to the conduct of the proceedings in ss 33Q, 33R, 33S and 33ZF.5 Timbercorp Finance did not contend that a group member had a right to have their individual claim determined in the group proceeding, but rather that the group member had a right to seek direction from the court as to how its claim would be dealt with, either in the group proceeding or in another proceeding.
Reasoning of Supreme Court of Victoria
Statutory Mechanisms for Group Members' Defences to
be Case Managed. Robson J stated that the essence of the
plaintiff's case was "whether a group member in the
defendants' circumstances was able or, indeed, required to
avail themselves of the statutory mechanisms put forward by
Timbercorp Finance as the means by which all issues arising in
connection with the 'same, similar or related
circumstances' should have been brought forward to the court
for case management".6
Robson J found that based on a close reading of the Supreme
Court Act, the statutory mechanisms were not available to the
group members.
Section 33ZF allows for the court to "make an order the Court
thinks appropriate or necessary to ensure that justice is done in
the proceeding" but only on the court's own motion or by
application of a party. Robson J observed that the text does not
provide for group members to be able to make an application.
Section 33Q states: "If it appears to the Court that
determination of the question or questions common to all group
members will not finally determine the claims of all group members,
the Court may give directions in relation to the determination of
the remaining questions." Timbercorp Finance interpreted
"the claims of all group members" referred to in s 33Q as
extending to all issues arising from the same, similar or related
circumstances, including claims that the plaintiff has not put
forward in the group proceeding, but otherwise arise from the same,
similar or related circumstances as the claims that the plaintiff
has put forward in the group proceeding. Robson J reasoned that the
text refers to making directions in relation to "remaining
questions". The power in s 33Q applies to those issues that
have been raised by the plaintiff but not fully determined in the
common issues trial. It does not apply to issues that have not been
raised. Sections 33R and 33S follow on from the power in s 33Q and
also apply only to remaining questions.
Section 33T allows for an application by a group member but it is
limited to replacing a plaintiff that is not able to adequately
represent the interests of the group members. Robson J stated that
the focus is group interests, not the individual defences or claims
of a group member.
Robson J also considered submissions dealing with Chancery practice
that allowed for representative actions in equity, the 1988
Australian Law Reform Commission report on group proceedings, the
supposed purpose behind the introduction of Part 4A and the
overarching purpose in the Civil Procedure Act 2010 (Vic).
None were found to advance Timbercorp Finance's argument.
Representative Party and Group
Members—Privies? Robson J also considered more
generally the question of the application of relevant preclusionary
principles to group members in the context of group proceedings
under Part 4A.
Anshun estoppel, like cause of action estoppel/res judicata and
issue estoppel, may preclude assertion of a right or obligation, or
the raising of an issue of fact or law, between parties to a
proceeding or their privies. The question raised by the current
proceedings was whether a representative party and a group member
were privies.
The High Court in Tomlinson explained who was a privy
through various illustrative relationships:7
Traditional forms of representation which bind those represented to
estoppels include representation by an agent, representation by a
trustee, representation by a tutor or a guardian, and
representation by another person under rules of court which permit
representation of numerous persons who have the same interest in a
proceeding. To those traditional forms of representation can be
added representation by a representative party in a modern class
action. Each of those forms of representation is typically the
subject of fiduciary duties imposed on the representing party or of
procedures overseen by the court (of which opt-in or opt-out
procedures and approval of settlements in representative or class
actions are examples), or of both, which guard against collateral
risks of representation, including the risk to a represented person
of the detriment of an estoppel operating in a subsequent
proceeding outweighing the benefit to that person of participating
in the current proceeding. (emphasis added)
Robson J found that, in the context of Part 4A, the concept of a
privy is narrowly drawn (and the compass of preclusionary
principles is similarly limited) and there is otherwise
insufficiently clear evidence of a legislative intent to abrogate
the fundamental common law right of an individual to seek a hearing
in respect of their rights and obligations.8
His Honour chose not to follow the High Court's statement as
there had been no detailed examination of Part 4A or application of
the common law principles applicable to determining when one party
is a privy of another party—it was not "seriously
considered obiter".9 Robson J interpreted the High
Court as using the label of privy because of the operation of s
33ZB of the Supreme Court Act. Robson J found that s33ZB did not
create common law privies but rather "s 33ZB privies"
which has an application similar to issue estoppel but not Anshun
estoppel.10 Another way of explaining the above
reference by the High Court was put forward in the submissions of
Mr & Mrs Collins—estoppel on the common issues.
Great Southern Class Action. Robson J also
considered the reasoning in Clarke v Great Southern [2014]
VSC 516 (Great Southern) despite not hearing any argument
on the decision. In Great Southern, there were 21,000
group members, 1,545 of whom objected to a settlement being
approved, including objections by 167 group members based on the
settlement causing prejudice to their alternative defences in
subsequent debt recovery proceedings. Nonetheless, Croft J found
that a group member who had not opted out would be precluded on the
basis of issue estoppel, Anshun estoppel and abuse of process from
pursuing individual proceedings. In relation to Anshun estoppel,
Croft J stated:11
any group members with purported claims or defences different to those pleaded in the group proceedings, and who wished to pursue those claims or defences, could have and should have opted out. By not opting out, as submitted by the Bank Parties, group members must be taken to have accepted that the claims as pleaded in the group proceedings represent all of the claims reasonably available to them. This is the reality of the way the class action regime operates. That being so, it follows that the Bank Parties are entitled to assume that the only challenges to the enforceability of the Loan Deeds group members wished to pursue were those made in the group proceedings.
In Great Southern, opting out was the only way to avoid
Anshun estoppel. Here, Timbercorp Finance accepted that group
members could avoid the preclusionary effect of the judgment in the
group proceeding by seeking "case management" of their
question or claim. Group members did not need to opt out. Robson J
did not follow Great Southern because Timbercorp Finance
did not pursue the argument before him.12 However, later
in his judgment, Robson J states categorically that "the
failure of the [group members] to opt out does not preclude the
defendants from raising their individual
defences".13
Unreasonableness. Robson J then turned to whether
it was unreasonable for Mr and Mrs Collins and Mr Tomes to not have
raised their individual defences in the group proceeding. Robson J
found that if the defences had been raised, it was likely that that
the court would have directed that the defences be dealt with if
and when Timbercorp Finance brought proceedings. Further, the opt
out notices and notice under s 33ZH(1) advising of the decision on
liability did not warn that group members could not bring
individual defences if they were not raised in the group
proceedings. Lastly, there was no risk of inconsistent judgments as
the group proceeding did not raise the group members'
defences.
Avoiding a Multiplicity of Proceedings. Timbercorp
Finance advanced an argument that Anshun estoppel was supported by
a need to avoid a multiplicity of proceedings. Robson J explained
that Anshun estoppel may not achieve this goal because once the
effect of being a group member was explained, there may be an
increase in opt outs, or group members would seek to have their
individual claims/defences included in the class action, or there
may be a need to determine the application of Anshun estoppel on a
case-by-case basis when group members sought to raise their
individual claims/defences. Robson J's reasoning also suggests
that group proceedings may cease to be effective if group members
opted out or sought to include individual issues.
No Abuse of Process. Robson J found that the group
members' subsequent defences did not constitute an abuse of
process.
Principle of Legality. The principle of legality
is that there is a presumption that Parliament does not intend to
interfere with common law rights and freedoms except by clear and
unequivocal language. Statutes are interpreted with this principle
in mind so that a statute will be construed to minimise the
encroachment on common law rights and freedoms, to the extent such
an interpretation is open.
The ability to bring or defend proceedings, including the
opportunity to present evidence and argument, is a common law right
according to Robson J. As Part 4A does not in clear and unequivocal
language convey an intention to encroach on the common law right,
the legislation should be interpreted in a manner that does not
encroach.
Ramifications
The extent to which a group member is bound by the outcome in a
class action is of great significance to group members, defendants
and the justice system generally. Group members will want to know
whether their claims are completely subsumed by a class action or
they are only bound by the resolution of the common issues, as this
will be a central consideration as to whether they opt out of the
class action, or take other steps to protect their interests.
Equally, defendants will be concerned to know if the class action
will resolve all claims against them, except for those group
members that opt out, or whether they may face further litigation.
More generally, the fairness of the class action regime hinges on
all participants knowing the extent to which their rights are to be
determined or not.
The current state of the law is that s 33ZB makes it clear that
group members are bound by the judgment in a class action. The
judgment will be the formal order as to the court's finding on
the common issues. Res judicata to the extent of the judgment
clearly applies, and issue estoppel would also be applicable. The
judgments in the Timbercorp and Great Southern class actions, as
well as the obiter comments of four justices of the High Court of
Australia in Tomlinson, are all in agreement.
However, on Anshun estoppel, the Timbercorp and Great Southern
class actions appear to be in conflict. Further, the decision of
Robson J is contrary to the very recent obiter remarks in
Tomlinson.
Footnotes
1 Woodcroft-Brown v Timbercorp Securities Ltd (in liq) [2011] VSC 427; Woodcroft-Brown v Timbercorp Securities Ltd (in liq) [2013] VSCA 284. See Jones Day Commentary, "The Timbercorp Class Action Appeal: Product Disclosure Statement Obligations and Misleading Conduct in Australia" (October 2013).
2 Tomlinson v Ramsey Food Processing Pty Limited [2015] HCA 28 at [22].
3 Tomlinson v Ramsey Food Processing Pty Limited [2015] HCA 28 at [22].
4 Tomlinson v Ramsey Food Processing Pty Limited [2015] HCA 28 at [25].
5 Timbercorp Finance Pty Ltd (In Liq) v Collins and Tomes [2015] VSC 461 at [384]-[393].
6 Timbercorp Finance Pty Ltd (In Liq) v Collins and Tomes [2015] VSC 461 at [399].
7 Tomlinson v Ramsey Food Processing Pty Limited [2015] HCA 28 at [40].
8 Timbercorp Finance Pty Ltd (In Liq) v Collins and Tomes [2015] VSC 461 at [402].
9 Timbercorp Finance Pty Ltd (In Liq) v Collins and Tomes [2015] VSC 461 at [566]-[569].
10 Timbercorp Finance Pty Ltd (In Liq) v Collins and Tomes [2015] VSC 461 at [583]-[585].
11 Clarke v Great Southern [2014] VSC 516 at [132].
12 Timbercorp Finance Pty Ltd (In Liq) v Collins and Tomes [2015] VSC 461 at [609]. See also [676].
13 Timbercorp Finance Pty Ltd (In Liq) v Collins and Tomes [2015] VSC 461 at [652]. See also [679]
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