Legal development

Federal Court to take a cautious approach to "soft" class closure where opposed

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    What you need to know

    • The Federal Court has dismissed an application seeking "soft" class closure orders prior to mediation where the orders were strenuously opposed by the applicants on cogent grounds.
    • Respondents may face challenges in obtaining orders for class closure where opposed by the applicant. While not determinative, Justice Murphy emphasised that the court should exercise "real caution" in such circumstances.
    • In the Judge's view, this will particularly be the case where the respondent should have sufficient records to compile a representative sample to obtain a sufficient understanding of group members' claims. A key factor in this case was that the class was seeking remedial orders, in the context of a trustee-beneficiary-relationship, that they argued would not require group members to register to get the benefit of any judgment or settlement.
    • This more cautious approach in the Federal Court comes shortly after the NSW Court of Appeal maintaining its stance that "soft" class closure orders are not allowed at all. By contrast, the Victorian Supreme Court has recently been prepared, in a different context, to make soft closure orders over opposition by the plaintiff.

    "Soft" class closure

    "Soft" class closure orders require group members to register by a particular date (usually before mediation) in order to get any share of a settlement sum. If they don't register and the matter settles at the mediation, their claims may effectively be extinguished.

    While the NSW Court of Appeal has recently maintained its position that soft closure orders are not available at all, the Federal Court (and the Victorian Supreme Court) has allowed them. This is discussed further in our recent article.

    However, in Alford v AMP Superannuation Limited (No 2) [2024] FCA 423, the Federal Court dismissed an application made by AMP seeking "soft" class closure orders.

    The class action alleges that AMP and its trustees failed to comply with their obligations under the Superannuation Industry (Supervision) Act 1993 (Cth), causing higher fees and lower returns on investment.

    Why "soft" closure orders were not made

    The key reasons the Court did not make the orders were:

    1. The orders were strenuously opposed by the applicants.
      The legislative intent of Part IVA is that it is an opt out (not an opt in) regime. Accordingly, the court must be satisfied that any class closure orders (that require registration to participate in a settlement) are in the interests of group members as a whole. Justice Murphy considered that "real caution" must be exercised where a class closure application is opposed by the applicant, because applicants are best placed to know what is in group members' interests. While not determinative, it is therefore appropriate to give their views substantially greater weight than the views of the respondent.
    2. The fiduciary nature of the relationship between the respondent and group members.
      Given that the relief sought in the broader proceeding included orders for the respondents to make good the trust funds reduced by their alleged breaches, his Honour considered that class closure orders would be at odds with their fiduciary obligations as it would result in some beneficiaries not receiving the benefit of any settlement unless they registered.

      In addition, from a practical perspective most group members would be able to be identified and have moneys paid to them without the need for a registration process. The applicants argued that registration was not needed for that purpose.
    3. The evidence did not establish that AMP lacked sufficient information to efficiently and effectively engage in settlement discussions.
      AMP submitted that without class closure it could not effectively engage in settlement discussions. The applicants' position was that registration numbers was not key information going to settlement.

      While his Honour accepted AMP's evidence that it would face significant data issues in seeking to identify group member information and claim value, it did not prevent AMP from compiling a representative sample based on its own records. His Honour considered that AMP's records would be a better source of information than the proposed registration regime sought (given the likely low level of registration in a context that claims arguably could still be assessed without it).
    4. The orders were likely to result in very low registration levels.
      Related to the above, his Honour accepted evidence that group members are disengaged from their superannuation arrangements. Accordingly the proposed registration scheme was unlikely to generate a representative sample of group members' claims.

      While in many cases registration would be key to the parties being able to engage in meaningful settlement discussions, as set out above, in this case the applicants said it was not.
    5. The registration scheme would cost the applicants approximately $2 million.
      His Honour accepted the applicants' submission that in addition to the significant cost of conducting a registration process, it would also divert attention and resources away from preparing for mediation and trial.

    This case was different to many applications for pre-mediation class closure, given the applicants' contention that, in the trustee-beneficiary context, group members could get payment following judgment without ever having to take a positive step. As we've said previously, this is a growing and key issue in class actions in Australia and this judgment is unlikely to be last word.

    Even so, this case highlights the growing tension between "soft" class closure orders and the opt out regime – which was in part behind the NSW Court of Appeal not allowing pre-mediation class closure.

    Indeed, while his Honour observed that class closure orders reduce access to justice from the level which Parliament intended by electing for an opt out regime, he also noted that this does not mean that it is a “fundamental precept” of the opt out regime that group members are entitled to do nothing prior to a settlement and still reap its benefits.

    The decision on whether to make orders will ultimately depend on the facts and evidence – but we may be seeing a more cautious approach from the Federal Court

    Authors: Ian Bolster, Partner; Angela Pearsall, Partner; Lucinda Hill, Partner; Marianne Hong, Senior Associate and Jessica White, Associate.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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