Parkin v Boral exposes rift on class closure orders 6 min read
The Full Court of the Federal Court has held that group members in class actions may be informed that if they fail to register their claim they could be precluded from participating in any settlement (but remain bound by the proceeding's outcome).1 In reaching this decision, a rift has emerged between the Supreme Court of New South Wales and the Federal Court regarding a key aspect of the case management of class actions.
In an 'open' class action it is difficult for parties to engage in settlement discussions without clarity on the potential size and composition of the class of group members who intend to participate in the proceeding. Accordingly, to obtain a better understanding of the total potential quantum of the claim and improve the prospects of settlement, parties may seek what are known as 'class closure' orders. Ordinarily, a class closure order is made as part of the opt out process in a class action and involves:
- issuing a notice informing group members of their ability to either register, opt out or do nothing in the proceeding (including the implications of each option);
- fixing a date for group members to either register or opt out of the class action (the class deadline); and
- obtaining orders that bind all group members to any settlement of the class action but confine the ability to benefit from the settlement to those group members who have registered by the class deadline (ie unregistered group members remain bound by the outcome of the proceeding but are precluded from participating in any settlement).
In 2020, two judgments were handed down in the Court of Appeal of New South Wales that prevented parties to class action litigation from seeking to limit unregistered group members accessing the benefits of any settlement that might be agreed in a proceeding. While the judgments concerned statutory powers of the Supreme Court of New South Wales under the Civil Procedure Act 2005 (NSW), the decisions are relevant to litigants in the Federal Court which has similarly framed powers.
- The first decision, Haselhurst v Toyota Motor Corporation Australia Ltd t/as Toyota Australia,2 held that the Court's statutory power to make any order 'appropriate or necessary to ensure that justice is done in the proceeding' does not authorise the making of class closure orders before the entry of any settlement or judgment. The court held that class closure orders extinguish a group member's cause of action before settlement and are therefore beyond the scope of its 'gap-filling' powers to make orders to ensure justice is done in the proceeding.
- In the second decision, Wigmans v AMP Ltd3, the court considered an order that did not purport to bar the claims of unregistered group members before settlement, rather provided for notice to be given to group members of an intention to seek a subsequent order at the time of settlement approval that would exclude from participation in the distribution of the settlement those who had not registered in accordance with the procedure specified in the notice. The making of this order was similarly held to be beyond the Court's statutory power to make orders to ensure justice is done in the proceeding, as well as the Court's power to approve notices to be sent to group members.
In light of these decisions, the parties to the Boral class action filed applications seeking a determination of whether the Federal Court has power to:
- make a class closure order prior to settlement under section 33ZF of the Federal Court of Australia Act 1976 (Cth) (the Act). Section 33ZF is the source of the Federal Court's gap-filling power to make any order 'appropriate or necessary to ensure that justice is done in the proceeding'; or
- approve the terms of a notice informing group members of an intention to seek a subsequent order that would limit the ability to participate in any settlement to those group members who have registered in the proceeding.
The applications were referred to the Full Court for determination.
The Full Court (comprising Justices Murphy, Beach and Lee) determined that the Federal Court has power to approve a notice informing group members that if the parties reach an in-principle settlement, orders will be sought binding all group members to the outcome but precluding unregistered group members from participation. In doing so, the Full Court determined that the decision in Wigmans was 'plainly wrong'.
It held that:
- the court has a 'broad and unqualified' power under s33X(5) of the Act to make an order 'at any stage' that notice be given to group members 'of any matter'. The Full Court stated that the expression 'any matter' must include any matter relevant to the decision of a group member whether to opt out of the proceeding or not;
- contrary to the Court of Appeal's reasoning, it is not a 'fundamental precept' of the class action regime that group members may do nothing before settlement and still reap its benefits. While group members are generally permitted to adopt a passive role before settlement or judgment, that does not mean group members may never be required to take a step before those stages, or that the court is unable to make use of its statutory powers to make orders that have the effect of requiring group members to do so; and
- the applicant in a class action has authority to settle the proceeding in a way providing for a particular distribution methodology that may result in some group members receiving nothing. As accepted in Wigmans and a string of decisions post Haselhurst, the court's settlement approval powers contained in s33V of the Act include the power to approve a proposed settlement under which unregistered group members will not participate but will nevertheless be bound.
In relation to the question of whether the court has power to make class closure orders prior to settlement, the Full Court considered it was inappropriate to answer the question in the abstract, given the availability of the specific power under s33X(5) to issue the proposed notice to group members.
The Full Court considered that, given the notice will encourage the 'great bulk' of group members who wish to seek a benefit under any future settlement to register their claim, there was no lacuna for the supplementary gap-filling power under s33ZF to be invoked. However, while the court would not be drawn into speculating as to the circumstances in which such a lacuna may exist, it did not close the door on such orders being made in other proceedings, stating that:
'One could not foreclose the possibility, depending upon the circumstances of the case, that such an order could advance the effective resolution of the proceedings'
The decision in Boral indicates a path forward for parties seeking greater certainty about the risk of class action litigation and the expected quantum of group members' claims before engaging in settlement discussions. However, the state of affairs remains far from ideal, with competing interpretations of the courts' statutory powers to order class closure differing across jurisdictions. In light of the Full Court's view that the decision in Wigmans was 'plainly wrong' and not to be followed, the issue of class closure orders seems ripe for possible consideration by the High Court or potential law reform.
Parkin v Boral Limited (Class Closure)  FCAFC 47.
(2020) 101 NSWLR 890.
(2020) 102 NSWLR 199.