Class closure orders in class actions: Analysing the decision in Parkin v Boral

Parkin v Boral Limited (Class Closure) [2022] FCAFC 47

Background

The recent Full Federal Court decision in Parkin v Boral Limited [2022] FCAFC 47 is the latest in a long line of cases that have considered the Court's power to make "class closure" orders in advance of, and for the purposes of facilitating, mediation.

Class closure orders must be understood in the context of the class action regime under Part IVA of the Federal Court of Australia Act 1976 (Cth) (Act) (and corresponding state regimes), which has been labelled an "opt-out" regime. As a result, claims may be commenced by a representative applicant on behalf of group members who have not consented to, nor expressed any interest in being group members; who may or may not be identifiable and/or willing to engage in the class action process; and who may not even know about the class action.

The orders must also be considered in relation to the fact that a large proportion of class actions (particularly securities class actions) are resolved by settlement, subject to court approval.

There is obvious practical benefit to early class closure orders both for respondents and group members. The orders provide an incentive and mechanism by which group members can register their interest in participating in a settlement, thereby allowing the parties involved to be apprised of the class and claim size and participate in well-informed and productive settlement discussions.

Class closure orders can ensure that respondents and their insurers are not dealing with uncapped liability for unregistered group member claims upon settlement, which may be a significant issue in cases where it is difficult to estimate the class size or value of claims. Equally, for applicants and group members, having an idea about likely participation rates in any settlement can ensure group member payments are not excessively diluted to the point where a settlement no longer represents a fair and reasonable outcome.

It is in this context that courts have recognised the benefit of class closure orders. Nevertheless, the power to make such orders has been controversial.

Developments in class closure orders

There have been various forms or types of class closure orders over the years, the basic components of which are:

• first, they require a group member to take a positive step to register their interest in participating in a settlement; and
• secondly, that they set out the consequences of non-registration.

In relation to the consequences of non-registration, class closure orders have generally either purported to forever extinguish a group member's rights to share in the settlement or subsequent judgment unless a group member takes positive steps to register their interest (a so called "hard class closure"). Such orders have been the subject of significant criticism and have fallen out of favour on the basis that there would be very few circumstances where such permanent extinguishment of group member claims could be either necessary or appropriate.

Alternatively, class closure orders can operate only to bar the claims of unregistered group members upon a settlement taking place. If settlement does not eventuate, there are no restrictions on unregistered group members continuing to participate in the proceedings. These types of orders have been referred to as "soft class closure orders". The rationale for such an order was explained in Melbourne City Investments¹ at [74] as: "...if a class closure order operates to facilitate the desirable end of settlement, it may be reasonably adapted to the purpose of seeking or obtaining justice in the proceeding and therefore appropriate under s33ZF of the Act."

Two decisions of the New South Wales Court of Appeal handed down in 2020, Haselhurst² and Wigmans³, cast doubt as to whether class closure orders of any form could ever be within the power of the court (the provisions considered in those cases being analogues of the Part IVA regime in the Federal Court).

In Haselhurst, the primary judge made an order to the effect that, if an in principle settlement was reached prior to hearing, and subject to court approval of that settlement, the causes of action held by group members who had neither registered their interest nor opted out of the proceedings would be extinguished (i.e. a "soft class closure order" was made). This order was appealed.

In between the decision of the primary judge and the appeal, the High Court handed down its decision in Brewster⁴. In Brewster, the High Court read down section 33ZF of the Act, and the equivalent provision in the Civil Procedure Act 2005 (NSW) (CPA)⁵, to the effect that, while the provisions were broad and permitted a court to "make an order to ensure that the proceeding is brought fairly and effectively to a just outcome" [47], they could not be given a "more expansive construction and a wider scope of operation" than Part IVA of the Act or Part 10 of the CPA [70]. Accordingly, the High Court determined sections 33ZF of the Act and 183 of the CPA could not be used as a basis upon which to seek common fund orders at an early stage of class action proceedings.

In this light, the NSW Court of Appeal determined in Haselhurst that class closure orders were "beyond the power conferred by s 183" of the CPA [114] (the equivalent of s33ZF of the Act). Notably, in this judgment, Bell P (as he then was) stated:

"...it is difficult to conceive of how an order which destroys a person’s cause of action within the limitation period, without a hearing and with no guarantee that the person will necessarily know of the outcome or consequences of their failure to register, is an order that could be thought to be 'necessary to ensure that justice is done in the proceedings'..."

Following Haselhurst, the NSW Court of Appeal considered the application of section 183 of the CPA to the issue of a notice to group members in Wigmans.

The class closure order proposed in that case did not purport to bar or extinguish group member claims, but was merely for the provision of a notice, referring to an intention to seek an order at the time of settlement approval that would exclude unregistered group members from sharing in the settlement. In Wigmans, even though the orders and notice only foreshadowed "a present intention" to seek an order if and when a settlement was reached, it was held to be beyond power under the NSW equivalent to s33ZF on the basis that the practical effect of the order was contrary to "a fundamental precept of Pt 10, as confirmed by the joint judgments in Mobil Oil and BMW Australia v Brewster" [79], that group members are entitled to "do nothing" until following either a settlement or judgment.

Parkin v Boral: Reserved questions

Against the backdrop of Haselhurst and Wigmans, the Federal Court seized an opportunity to further consider the power to make early class closure orders.

As both Boral and the applicant agreed that some form of class closure order should be made, a contradictor was appointed by the Court.

Relevantly, the questions before the Full Court were whether the Court had power to:

1. make an order pursuant to s 33ZF of the Act⁶ (or otherwise) which provided that any group member who failed to register or opt out would remain a group member for all purposes of the proceeding but would not, without leave of the Court, be permitted to seek any benefit pursuant to any settlement that occurs before final judgment (Question 1); and/or
2. approve a notice to group members that, upon any settlement, the applicant would seek an order with the effect of providing that any group member who failed to register or opt out would remain a group member for all purposes of the proceeding but shall not, without leave of the Court, be permitted to seek any benefit pursuant to any settlement (subject to Court approval) that occurs before final judgment (Question 2).

(our emphasis)

Decision in Parkin v Boral

In summary, Murphy and Lee JJ (with whom Beach J agreed) held that:

• there was power under s33X(5) of the Act to approve a notice in the terms set out in Question 2, foreshadowing an intent to seek a class closure order in those terms; and
• the existence of the power to make an order under s33X(5) to give a notice as contemplated by Question 2, meant that there was no power under s33ZF to make an order in the terms of Question 1 in the circumstances, although their Honours did not foreclose the possibility that an order in terms similar to Question 1 could be made in the appropriate circumstances.

Are the decisions in Haselhurst and Wigmans distinguishable?

Their Honours initially considered whether the orders considered in Haselhurst and Wigmans were distinguishable and, if not, whether those decisions were plainly wrong.

Their Honours considered the order in Question 1 was distinguishable from the order considered by the NSW Court of Appeal in Haselhurst as:

• the order did not, unlike the order in Haselhurst, use the language of "barring" a group member's claim, but was instead expressed in terms of non-participation, being that unregistered group members would not "subject to further order" and "without leave" be "permitted to seek any benefit pursuant to any settlement". These qualifications were critical in their Honours' reasoning as the result, being the barring of group member claims, is premised on the subsequent exercise of the court's power to approve a settlement under s33V of the Act, rather than from the terms of the order itself;
• for the same reasons, the proposed order in this case did not purport to extinguish group members' claims, contingently or otherwise, as that could only occur by a subsequent exercise of judicial power at the s33V settlement approval stage, where the court must consider what is fair and reasonable in the interests of group members under s33V(1) and whether the distribution of settlement proceeds to only those group members who have registered is "just" under s33V(2).

On the other hand, while the order sought in Wigmans was capable of being distinguished from the order in Question 1, it could not be distinguished from the order contemplated in Question 2, because they both referred to an intention to seek class closure orders upon settlement, with attendant consequences.

In those circumstances, their Honours were compelled to conclude the decision in Wigmans was "plainly wrong". In so doing, their Honours (upholding the decision of Beach J in Wetdal⁷) provided the following guidance.

Power under s33X(5) is broad and unqualified

The terms of s33X(5)⁸ are broad and unqualified and expressly empower the court to make an order "at any stage" that notice be given to group members of "any matter".

This was deemed to include any matter relevant to a group member's decision of whether or not to opt out.

There is no "fundamental precept" of a class action regime that group members are entitled to remain entirely passive prior to settlement or judgment

Their Honours rejected the notion that it was a "fundamental precept" or "absolute rule" of the "opt-out" class action regime that "group members may do nothing prior to settlement and still reap the benefits". While group members are generally entitled to adopt a passive role, there is nothing in Part IVA (upon consideration of the text, purpose and context of the Part as a whole) that requires or otherwise provides that group members may never be required to take a step prior to settlement or judgment. Their Honours cited with approval numerous decisions referred to in Wetdal where group members had been compelled to take a positive step in the proceeding prior to settlement or trial, including to provide discovery, make a contribution towards security for costs and provide particulars of group members' claims or particulars or group members' identities to facilitate service of subpoenas [124].

The case of Mobil Oil⁹, endorsed in Brewster and relied on as the basis for the "fundamental precept" asserted in Wigmans, "did not involve any question as to the power in s 33X(5) to order that notice be given to group members of 'any matter' at 'any stage' and, understood in context, their Honours were not proposing the suggested 'fundamental precept'." [119]

Further, the High Court decision in Brewster, which dealt with the very different question of whether there was power under s33ZF to make a common fund order at the early stage of proceedings for the purposes of ensuring the economic viability of the proceeding, similarly had no bearing on the court's exercise of power under s33X(5) to approve a notice in the terms of Question 2.

No insoluble conflict of interest arises by virtue of the court making orders providing for notice to be given in the terms of Question 2

Their Honours rejected the contradictor's contention, in reliance on Wigmans, that the practical effect of the proposed order would be to create "an insoluble conflict of interest".

Potential and actual conflicts of interest were recognised as "an inevitable by-product of a regime where the self-appointed representative applicant’s individual claim is the vehicle through which the common questions are to be tried". However, such conflicts are capable of being addressed and managed through the representative applicant’s duty to group members as a whole, as well as the court's supervisory and protective role in relation to group members’ interests. This includes at the settlement approval stage, where the court is required to consider whether a proposed settlement is fair and reasonable having regard to the claims made on behalf of group members who will be bound by the settlement. At [127], their Honours noted:

"It is fundamental to how Pt IVA works, and cardinal to a representative applicant’s role, to be able to deal with the 'claims' of group members (to use that word in its specific, Pt IVA sense) by settling them, subject to the approval of the Court under s 33V, while the Court is exercising a supervisory and protective role (accompanied by an order being made by the Court pursuant to s 33ZB to bind the non-party group members to the Court-approved quelling of the dispute by way of settlement)."

Reserved Question 1

Having concluded that the court had power to make an order in the terms of Question 2 under s33X(5), their Honours did not consider s33ZF provided power to make an order in the terms of Question 1.

Their reasoning was that, by requiring a notice under s 33X(5) to be sent to group members in the terms of Question 2 (which, firstly, required group members to register their interest and provide information and, secondly, notified group members of the intention to seek an order in the terms of Question 2 upon settlement), it could be expected that the vast majority of group members who ultimately wished to seek a benefit under the settlement would register their claims. This would in turn facilitate an informed settlement and allow greater finality of the litigation, which is the "justice" sought by the parties. In such circumstances, their Honours considered that there would be "no lacuna" for the supplementary or "gap-filling" power in s33ZF to fill." [137]

Despite concluding that s33ZF did not permit the making of an order in terms of Question 1 in the present circumstances, their Honours noted that they did not accept that the availability of a power under s33X(5) will necessarily always mean that there is no power under s33ZF to make such an order at the opt-out stage. However, this necessarily depends on the circumstances of the case and whether it is "appropriate or necessary to ensure justice is done in the particular case" having regard to the supplementary and gap-filling nature of the power.

In addition, their Honours:

• reiterated that they did not accept that an order as contemplated in Question 1 would effect, or purport to effect, an extinguishment of group members' claims, contingently or otherwise, which occurred as a consequence of the exercise of the court's power under s33V at the settlement approval stage rather than as a result of the proposed order
• denied that the Brewster decision was determinative of whether such an order could be made, noting that the common fund order sought in that case was concerned with whether the action can proceed in the first place (outside power) as opposed to the proposed order here, which was concerned with how the action should proceed to do justice (within power)
• recognised that there might be circumstances where such an order could be made in contemplation of a later settlement approval hearing under s33V (albeit not in this case)
• reiterated that conflicts of interest between registered and unregistered group members are capable of being addressed by the court's supervisory role and duties of the lead applicant. However, that in any event, the issue was relevant to the question of discretion, not power.

Implications

The decision in Parkin v Boral implies that Wigmans-style orders, which involve a notice foreshadowing intention to apply for class closure in future, as well as "soft class closure" orders are once again available, at least in the federal jurisdiction, to applicants in appropriate circumstances.

Given the broad and unqualified power read into s33X(5) of the Act, effectively enabling the court to approve the issuing of a notice of "any matter" at "any stage", we expect Wigmans-style orders to more commonly be sought ─ although there may be discretionary considerations as to why such a notice should not be provided, as opposed to soft class closure orders pursuant to the supplementary power in s33ZF, which must be shown to be "appropriate or necessary to ensure justice is done in the particular case".

For applicants, respondents and their insurers alike, such orders, if made, are also likely to increase the prospects of a successful mediation by promoting greater certainty as to the quantum and number of likely claims and enhancing finality in outcomes.

As a matter of jurisprudence, this Federal Court decision does not displace the NSW Court of Appeal authorities in Haselhurst and Wigmans for class actions currently being litigated under the NSW regime. However, Boral sits reasonably well with ss 33ZG and 33ZF of the Supreme Court Act 1986 (Vic), which facilitates a process whereby orders are made requiring group members to opt in to a class action in order to be entitled to obtain any benefit from the proceedings.

As a result, unless and until Haselhurst and Wigmans are displaced as the leading authorities in NSW, we may also see Victoria and the Federal Court become the preferred jurisdictions for litigating class actions where class closure is likely to be sought to facilitate mediation.

¹Melbourne City Investments v Treasury Wine Estates Limited [2017] FCAFC 98.

²Haselhurst v Toyota Motor Corporation Australia Ltd (2020) 101 NSWLR 890.

³Wigmans v AMP Limited [2020] NSWCA 104.

⁴BMW Australia Ltd v Brewster; Westpac Banking Corporation v Lenthall (2019) 269 CLR 574.

⁵section 183 of the Civil Procedure Act 2005 (NSW).

⁶the equivalent of s 183 of the Civil Procedure Act 2005 (NSW).

⁷Wetdal Pty Ltd as Trustee for the BlueCo Two Superannuation Fund v Estia Health Limited [2021] FCA 475.

⁸the equivalent to s175(5) of the Civil Procedure Act 2005 (NSW).

⁹Mobil Oil v State of Victoria (2002) 211 CLR 1.