Class Action Series: Closing the class: where to from here?

“Class closure orders” (CCO) typically have the effect of excluding unregistered group members from being able to participate in any settlement but keeping them bound by the outcome of the proceeding.

The timing and circumstances in which CCOs are considered appropriate remain controversial. Aside from the issue of whether CCOs should be made, over the last few years it has also become controversial whether CCOs even can be made.

In this article, we discuss why this area of class actions jurisprudence is ripe for reform or consideration by the High Court.

What is the point of a CCO?

CCOs promote settlements in “open” class actions.

Because such class actions operate on an “opt-out” basis, it is usually difficult to define the size of the class of group members and the aggregate value of their claims before trial.

CCOs go some way to alleviating this difficulty. While they can take a variety of forms, they all have two basic features:

  1. first, the requirement that group members take the positive step to register their interest in participating in the proceeding by a particular date; and
  2. second, the consequence of non-registration; being the inability to participate in any settlement, while still remaining a group member for all other purposes (such an order often coined a “soft closure” order; a “hard closure” order being the term for an order which extinguishes the group member’s claims altogether in the proceeding).

As Murphy and Lee JJ stated in Parkin v Boral Ltd (Boral):

It is well and good to pay regard to the need for [the] applicants to be apprised of sufficient information, including class and claim size and potential recovery… But depending upon the nature of the case, it can be equally important for [the] respondents at a mediation to be aware of sufficient information as to the nature and quantum of the claims advanced against their client. And as the saying goes: it takes two to tango.

It must also be remembered that in the context of settlement discussions, the solicitors acting for respondents have duties to their clients. Sometimes those duties will extend to doing their best to ensure that if a class action settles, their client is freed from the vexation that copycat litigation could spring up, like the Lernaean Hydra. …[1]

Why the controversy?

Until the last few years, it was generally understood that the various Australian class action regimes included a power to make CCOs.

However, there is now a clear divergence in appellate authority across jurisdictions.

On the one hand, the New South Wales Court of Appeal decided in two cases in 2020 that CCOs were impermissible. In particular:

  1. in Haselhurst v Toyota Motor Corporation Australia Ltd (Haselhurst),[2] the Court held that the parties’ participation in a mediation, while desirable and to be encouraged, was not required to ensure that justice is done in the proceeding. Because a CCO contingently extinguishes the causes of action of unregistered group members’ for the purposes of mediation, it was beyond the power conferred by the New South Wales legislative regime;
  2. in Wigmans v AMP Ltd (Wigmans),[3] the Court considered orders providing for the distribution of notices to group members. The notices contained statements of an intention to seek a subsequent order that would exclude unregistered group members from participating in the distribution of a settlement. The Court held that these orders were beyond power. The proposed notices were contrary to a “fundamental precept” of the class action regime, that group members are entitled to do nothing until either a settlement or judgment.

These decisions are said to provide support for the view that CCOs prevent access to justice for those who do not have the resources, understanding or willingness to engage in the class action process.

On the other hand, the Full Federal Court in Boral distinguished the facts in Haselhurst and declared that Wigmans was “plainly wrong”, holding that the federal legislative regime empowered the making of orders for the giving of notices to group members signalling an intention to seek a CCO for settlement purposes. The section 33X(5) power was “broad and unqualified” and should not be read down, and the proposed notice was “the very sort of matter” a group member should be informed of.

As a result, there are competing interpretations of the Court’s statutory powers across jurisdictions, which may promote forum-shopping. This leaves CCOs ripe for consideration by the High Court or potential law reform.

A path for legal reform?

The Australian Law Reform Commission’s 2019 report on the class action regime (ALRC Report) may hint at a path forward for legislative change.

Acknowledging that CCOs may prevent access to justice, the ALRC Report recommended that the federal legislative regime be amended to require that all class actions be initiated on an open basis, to enable all group members to participate in action and not just those who take positive steps to do so.

However, the utility of CCOs did not escape notice.

The ALRC Report also recommended that Part 15 of the Federal Court of Australia’s Class Actions Practice Note should be amended to:

  • set out the circumstances in which it may be necessary to close the class to facilitate early settlement; and
  • set out criteria for limited circumstances in which a class action that has been closed may be reopened. It is appropriate that the Court retain that discretion to re-open in the interests of justice.

The process of re-opening, re-closing, registration and opt out leads to increased costs and delay, using finite judicial resources on iterative interlocutory processes. In this regard, the ALRC Report noted that if the class is closed during proceedings, it ordinarily should be final, and that finality should be a consideration when making orders to close the class. However, the discretion to re-open should be retained in the interests of justice.

What’s next?

This article is the last in GRT Lawyers’ Class Actions series for 2022. As the class actions landscape continues to evolve in 2023, stay tuned for our commentary.

[1] [2022] FCAFC 47 at [33].

[2] [2020] NSWCA 66.

[3] [2020] NSWCA 104.

This article was written by GRT Lawyers, Alexander Sloan (Senior Associate) & Elizabeth Dowrie (Associate), and is part of GRT Lawyers\’ Class Action Series. 

Glenn Vassallo (Managing Director), Scott Standen (Director) and Ashley Hill (Director) can assist you with any queries in relation to your corporate legal requirements.


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