NSW class actions: High Court confirms soft closure power

In Lendlease Corporation Limited v Pallas [2025] HCA 19, the High Court determined that 'soft class closure' orders may be made in representative proceedings in the Supreme Court of NSW.

Background

A shareholder representative proceeding was commenced against Lendlease Corporation Ltd, as well as the responsible entity of the Lendlease Trust (together, Lendlease), in the Supreme Court of New South Wales.

In general terms, in the proceedings the plaintiffs allege Lendlease breached its continuous disclosure obligations under the Corporations Act 2001 (Cth) and the ASX Listing Rules, and engaged in misleading and deceptive conduct, regarding the performance of its Engineering and Services Business in the period 17 October 2017 to 8 November 2018. In this period, approximately 445 million shares were traded and, as such, it has been observed that "[t]he size of the class is potentially very large".

The proposed notice

Lendlease sought an order in the proceedings for a notice be issued. The notice was to provide:

"This Notice is sent to you because it is possible you are a member of the class in the Lendlease Class Action. If you are a member of the class in the class action you have three options:

1. Register to participate in the class action by no later than [TBC] (see 'Option A' on page 9). Registering to participate will ensure that you receive any money to which you may be entitled in the event that there is a successful outcome in the class action by way of settlement or judgment.

2. Opt out of the class action by no later than [TBC] (see 'Option B' on page 10). Opting out will exclude you from the class action, meaning you will not be eligible to receive compensation in the event of a successful outcome, but you will keep your right to make your own claim.

3. Do nothing by [TBC] (see 'Option C' on page 10). If you do nothing the parties, alternatively, Lendlease, will seek an order, which, if made, has the effect that you will remain a group member in the class action, but you may, subject to any orders of the Court, not be entitled to receive any payment or other benefit from a future settlement of the class action. If a settlement occurs, then a further notice will be distributed, or advertised, advising of the settlement, and there may or may not be another opportunity to register (this will be a matter for the Court and there is no guarantee any further opportunity will arise)."

After considering the application, his Honour, Ball J, referred the following separate question to the NSW Court of Appeal:

“Notwithstanding the decision in Wigmans v AMP Ltd (2020) 102 NSWLR 199 and having regard to the decision in Parkin v Boral Ltd (2022) 291 FCR 116, does the Supreme Court of NSW have power pursuant to sections 175(1), 175(5) and 176(1) of the Civil Procedure Act 2005 (NSW) (CPA) or otherwise to approve a notice to Group Members of the right to register to participate in any settlement of the proceedings or opt out of the proceedings for the purposes of CPA section 162 containing the following notation:

Upon any settlement of this proceeding the parties, alternatively, the defendant, will seek an order, which, if made, has the effect of providing that any Group Member who by a registration date: (i) has not registered; or (ii) has not opted out in accordance with the orders made by the Court, will remain a Group Member for all purposes of this proceeding but shall not, without leave of the Court, be permitted to seek any benefit pursuant to any settlement (subject to Court approval) of this proceeding that occurs before final judgment.”

(the Separate Question.)

Court of Appeal decision

In April 2024, the NSW Court of Appeal determined that the Court did not have the power to order a notice be given of the type referred to in the Separate Question.

In reaching this conclusion, the Court had regard to its judgment in Wigmans v AMP Ltd (Wigmans). Notably, in 2022, the Full Court of the Federal Court in Parkin v Boral Ltd (Parkin) determined Wigmans was “plainly wrong” and should not be followed . It was Lendlease' position before the Court of Appeal that Wigmans should be overruled and, Parkin should be applied, such that the Separate Question should be answered in the affirmative.

The Court of Appeal held that Wigmans was not 'plainly wrong' and, therefore, musty be applied. On this basis, the Court of Appeal held the Supreme Court did not have the power to order that the Notice be given. The Court of Appeal also observed that the proposed Notice would turn "the statutory scheme on its head", converting an 'opt out' regime into, "in practical terms at least", an opt in scheme.

The High Court decision

Across four separate judgments, the High Court unanimously held that the Separate Question should be answered in the affirmative, thereby allowing 'soft class closure' orders to be made in representative proceedings in the Supreme Court of NSW.

Section 175(5) of the Civil Procedure Act 2005

Section 175(5) of the Civil Procedure Act 2005 (NSW) provides:

The Court may, at any stage, order that notice of any matter be given to a group member or group members.

Gageler CJ, Gleeson and Jagot JJ held that there was no:

"… justification in the text, context or apparent purpose of s 175(5) to construe that provision as not empowering the Supreme Court to order the giving of the proposed notice. This is because the doing of justice between the parties includes ensuring group members are kept informed of matters relevant to them in the representative proceeding. The present intention of at least Lendlease to seek the making of an order at any settlement approval hearing which Lendlease can seek, and the Supreme Court can make, is a matter relevant to group members in the representative proceeding."

The High Court noted there was no dispute that, under 173(2) of the CPA, the Supreme Court of NSW was able to make the order foreshadowed by the proposed notice, specifically, that a group member who has neither opted out nor registered to participate in the proceeding before a specified date shall not be permitted, without leave of the Court, to seek any benefit pursuant to the settlement.

Accordingly, it was necessary to consider whether, pursuant to s175(5), the Supreme Court had the power to ensure that group members are made aware of Lendlease's intention to seek an order at any settlement approval hearing, which the High Court described as being "… an order at any settlement approval hearing which Lendlease can seek, and the Supreme Court can make, in the representative proceeding."

On this issue, Gageler CJ, Gleeson and Jagot JJ held:

If, as is the case, the Supreme Court can make an order as part of the approval of a settlement under s 173(2) of the CPA to the effect that a group member who has neither opted out nor registered to participate in the proceeding before a specified date shall not be permitted without leave of the Court to seek any benefit pursuant to the settlement, it necessarily follows that, without express words to the contrary, there is no justification in the text, context or apparent purpose of s 175(5) to construe that provision as not empowering the Supreme Court to order the giving of the proposed notice.

The High Court noted that, in BMW Australia Ltd v Brewster, s183 of the CPA was described as a 'gap-filling' power, allowing Courts to make "any order that the Court thinks appropriate or necessary to ensure that justice is done in the proceedings." The High Court noted that section 175(5) was not being implemented as a 'gap-filling' power but, rather, a 'notice-giving provision', "the purpose of which should be understood as providing a mechanism to ensure that group members are kept informed of all matters relevant to them in the representative proceeding."

Opt-in verses an out-out scheme

In its judgment, the Court of Appeal had noted:

Looked at in substance, the proposed notification places non-registered group members in a position that would be contrary to the opt out legislative scheme enshrined in Pt 10 of the CPA and its analogue in the FCA Act. One would not readily construe a provision such as s 175(5) of the CPA as authorising the issuing of a notice which turned the statutory scheme on its head by, in practical terms at least, requiring group members to opt in to the group prior to any settlement or judgment based on any such settlement.

The Court of Appeal considered the Notice would allow Lendlease and, possibly the representative plaintiffs, to seek to bind unregistered group members to a settlement in which they receive no compensation, effectively on the basis they were “forewarned” of the risk of an outcome that is wholly unfavourable to them, and may, therefore be excluded from "…participat[ing] in any settlement because they had previously been given the chance to opt in and had not taken it."

In that respect, Gordon and Steward JJ disagreed with the Court of Appeal, finding that permitting the Notice would not turn Pt 10 "on its head", or convert the scheme of Pt 10 into an opt in, rather than opt out, legislative regime. Their Honours, with whom Edelman J agreed, noted members would remain group members and "…even an opt in model, especially in the case of an open class, will require group members at some point to provide information in order to share in the benefit of any settlement or judgment."

Potential conflicts

The Court of Appeal had also observed:

"… a representative plaintiff who has chosen to act on behalf of all members cannot adequately represent all when it is in that party's own interest, and those of registered members, to achieve a settlement, which result is diametrically opposed to the interests of unregistered members."

Gordon and Steward JJ consider such a concern was "premature", and that, even if the order ultimately sought by Lendlease was made, the representative plaintiff remained "obliged to act in the interests of all members, both registered and unregistered, in negotiating with Lendlease.

Further, Gordon and Steward JJ, with whom Edelman J agreed, held the potential conflict identified by the Court of Appeal would not prevent the Supreme Court of New South Wales from having the power to order the proposed Notice be issued. Gordon and Steward JJ stated:

"As the Full Federal Court in Parkin correctly observed, conflicts of this kind will often feature in a class action, and they are anticipated by the statute and are addressed by the representative plaintiff's duty not to act contrary to the interests of group members and by the Court's supervisory and protective role."

Implications

The High Court's decision aligns the interpretation of CPA with the corresponding provision of the Federal Court Act.

It will be a welcome decision for plaintiffs, defendants, funders and insurers, many of whom consider soft class closure orders provide the necessary clarity and certainty around quantum so as to facilitate settlement negotiations.

Whether that is so is a matter on which minds differ - there are, of course, alternative means by which that clarity and certainty can be achieved. Either way, it would seem soft class closure orders will feature more often in proceedings going forward.