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Focus: A blow to class action judgments achieving finality

12 December 2016

In brief: Ordinarily, a party cannot raise in later proceedings issues which it could and should have raised in earlier proceedings. This principle recognises the public interest in resolving disputes with finality. In a recent decision, the High Court considered how that principle applies in the context of group proceedings. The judgment sounds a cautionary note that a successful class action defendant cannot rely on mere failure by members of a class action to opt out of group proceedings to establish that these members are subsequently prevented from raising other claims in relation to the same factual circumstances in new proceedings. Partner Belinda Thompson (view CV) and Lawyer Alex Lee examine the decision and its implications.

How does it affect you?

  • In considering whether a judgment in group proceedings is likely to finally resolve all potential claims against a class action defendant, a defendant should consider whether individual members are likely to have particular claims that may not be dealt with by the judgment in the class action.
  • As was shown in Timbercorp Finance Pty Ltd v Collins & Anor and Timbercorp Finance Pty Ltd v Tomes1 (together, Timbercorp), whether group members who fail to opt out of the group proceeding will be able to make new claims in later proceedings depends on the particular facts of the case, including whether individual members are likely to have individual claims which differ from the common questions determined by the judgment in the class action. If there is not a risk of inconsistent judicial findings by allowing individual members to raise their new claims in later proceedings, these group members may be allowed to litigate their particular claims, despite having failed to opt out of an unsuccessful class action.
  • Whether is it practicable for group members to have their individual claims determined in the group proceedings is also relevant. Where it is not practicable for a group member to have their individual claims determined, a judgment in a group proceeding that has proceeded to judgment in favour of a defendant may not preclude that group member from raising different claims in new proceedings.

Background

Timbercorp Finance was a member of the Timbercorp Group of companies. Some 18,500 investors invested in Timbercorp Group managed investment schemes. Many investors, including the respondents in Timbercorp borrowed money from Timbercorp Finance to finance their investments in the schemes. After administrators were appointed to the Timbercorp Group, borrowers failed to meet their repayment obligations and Timbercorp Finance issued final demand notices.

The borrowers commenced a class action in the Victorian Supreme Court, alleging that Timbercorp Securities failed to disclose information about risks it was required to disclose in compliance with its statutory obligations. Timbercorp Finance was a defendant to the proceeding (the Group Proceeding). Timbercorp Finance brought a counterclaim raising claims similar to those subsequently sought to be raised in the recovery proceedings. However, the judge in the Group Proceeding ordered that the determination of the counterclaim be tried separately.

Subsequently, Timbercorp Finance commenced proceedings (the Recovery Proceedings) against a Mr and Mrs Collins and a Mr Tomes (the Respondents), in which it sought recovery of outstanding principal and interest on the moneys it had lent them. The Respondents sought to raise the following defences at the Recovery Proceedings:

  • that no loan had been advanced to them by Timbercorp Finance and that they did not acquire an interest in the project in which they sought to invest (in the case of Mr and Mrs Collins); and
  • that it had been represented that, in the event of default under a loan agreement, Timbercorp Finance’s only recourse would be against the investment in the scheme and not Mr Tomes personally (in the case of Mr Tomes).

Timbercorp Finance contended that each respondent was precluded from raising the pleaded defences, relying on the principle that a party is precluded from raising a claim in subsequent proceedings if the claim was so connected to the subject matter of the first proceeding as to make it 'unreasonable' for it not to have been raised in the first proceedings.

The decision

The High Court unanimously dismissed the appeals, holding it was not unreasonable for the Respondents not to have raised their individual issues concerning the loan agreements in the Group Proceeding. The High Court held:

  • It could not be expected of the Respondents to raise their individual issues about their particular loan agreements in the Group Proceedings, in circumstances where the common issues in the Group Proceeding were undisclosed risks and misrepresentations about the schemes (in other words, there was not a sufficient connection between the common issues in the Group Proceeding and the individual claims raised by the Respondents).2
  • The Respondents' subsequent claims were not contrary to assumptions of fact upon which the Group Proceeding judgment was litigated (so that determination of the new claims would not give rise to inconsistent findings in the Group Proceeding and the subsequent Recovery Proceedings).3
  • The representations sought to be relied on by Mr Tomes were 'entirely personal to him' (and therefore differed from the representations relied on by the lead plaintiff in the Group Proceeding).4
  • There was no need for group members to opt out of the Group Proceeding in order to preserve their position with respect to their individual claims with respect to the defences.5
  • Finally, and on the facts, it was unlikely that the judge in the Group Proceeding would have managed the case differently had the Respondents raised in the Group Proceeding the claims subsequently raised at the later proceedings. Therefore, the parties would likely have been in the same position even if the Respondents had sought to raise their individual claims in the Group Proceeding.6

Conclusion

A judgment in a class action will not necessarily dispose of all claims relating to the facts and circumstances underlying the proceedings. In determining whether a judgment in class action proceedings is likely to resolve all likely claims against the class action defendant, close attention is required to the similarities between the common questions in the class action and potential claims that may be raised by individual class action members at a later time.

Footnotes
  1. [2016] HCA 44.
  2. Ibid at [58].
  3. Ibid at [60].
  4. Ibid at [64].
  5. Ibid at [67].
  6. [133]–[134] (Justice Gordon).

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