High Court gives soft landing to "soft" class closure orders

• The High Court has settled the question of the availability of "soft" class closure orders in representative proceedings, holding that there is power to issue notices foreshadowing that orders will be sought to "close" the class as part of settlement (i.e. extinguish the claims of those group members who neither registered nor opted out prior to mediation).
• Previously, the NSW Supreme Court had diverged from the Federal Court (and Victorian Supreme Court) by refusing to allow "soft" closure notices to group members, foreshadowing orders to "close" the class.
• The High Court held there was no "fundamental precept" that a group member need not take any step to benefit from settlement or judgement. It held that any conflict of interest could be managed through the representative plaintiff's duties and the Court's supervisory role, particularly at settlement approval.
• While the High Court affirmed that there was power to issue such notices, whether the power should be exercised remains a matter of discretion in the circumstances of the case. However, in light of the High Court's unanimous reasoning on the nature of the class actions regime and conflicts of interest, there may be less room for the discretion to be exercised to refuse to allow "soft closure" notices in typical class action scenarios.

Class closure orders

A "soft" class closure order requires group members to register by a particular date, typically before mediation, to enable them to share in any settlement sum. The current practice is typically to send a notice before mediation foreshadowing an intention to seek closure orders at settlement approval (a "soft closure notice"), and then seek those orders following a successful mediation.

If there is settlement then (depending on its terms) a "soft" class closure order can effectively extinguish the claims of group members who neither registered to participate in any settlement, nor opted out, before the mediation. Whether and when such an order can be made is of critical importance to the functioning of the class action regime and strategy for resolving class actions.

If there is no settlement, then the class "re-opens" and the case proceeds as normal.

The divide between the Courts

The High Court has now settled a divide between the Federal Court and NSW Court of Appeal, holding that there is power to order soft closure notices

The NSW Court of Appeal had held that there was no power to order soft closure notices in Wigmans v AMP (2020) 102 NSWLR 199. The Full Federal Court considered that decision to be plainly wrong in Parkin v Boral Limited (Class Closure) [2022] FCAFC 47, only for the NSW Court of Appeal to reiterate its position in Pallas & Pallas as trustees for the Pallas Family Superannuation Fund v Lendlease Corporation Ltd [2024] NSWCA 83 and again conclude that the Court lacked the power to issue a soft closure notice.

The Victorian Supreme Court has specific statutory power to make soft closure orders under s 33ZG of the Supreme Court Act 1986, and so has avoided the debate.

Lendlease was appealed to the High Court so that the question could be settled.

The High Court's view

In Lendlease Corporation Limited v Pallas [2025] HCA 19, the High Court has unanimously held that s 175(5) of the Civil Procedure Act 2005 (the equivalent of s 33X of the Federal Court of Australia Act 1976) empowers the NSW Supreme Court to approve a soft closure notice.

Four separate judgments were delivered: a joint judgment by Gageler CJ, Gleeson and Jagot JJ; a second joint judgment by Gordon and Steward JJ and concurring reasons from Edelman and Beech-Jones JJ. While the reasoning differed in emphasis, all justices agreed that the power existed.

The Court accepted, as had the NSW Court of Appeal, that there was power to make an order limiting participation in a settlement to registrants as part of settlement approval. The question was therefore whether a notice of the intention to seek such an order could be given.

Is a soft closure notice fundamentally inconsistent with the class actions regime?

The Court rejected the argument that a soft closure notice was fundamentally inconsistent with the class action regime. The NSW Court of Appeal had attached weight to what it regarded as a "fundamental precept" of the regime that group members need take no positive steps to obtain the benefit of a settlement or judgment. The Court explained cases referring to that fundamental precept as describing the "general architecture" of the regime but not as constraining the power to give notice or preventing orders requiring other positive steps to be taken by group members, such as the giving of discovery.

The notice did not have the effect of transforming the class actions regime into an "opt-in" regime: group members who did not register remained group members whose interests required consideration. Further, according to Gordon and Steward JJ:

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. Whilst ordinarily that takes place after settlement of an action, or the obtaining of a favourable judgment, there will be cases where it will be in the interests of a just, quick and cheap resolution of the real issues for such information to be supplied at an earlier stage.

Does the soft closure notice serve a proper purpose?

Indeed, the Court reasoned that if there were power to make orders limiting participation in the settlement, it was appropriate that group members were informed of the intention to exercise that power when deciding whether to register. A purpose of s 175(5) was to enable group members to be kept informed of matters of that kind.

The order also facilitated the fair, effective and final resolution of class actions by enabling the parties to understand prior to mediation, matters that were necessary to assess the quantum and risks in the claim.

Management of divergent interests

The NSW Court of Appeal had found that the issue of such a notice would create an "insoluble" conflict of interest between the representative plaintiff and unregistered group members. The High Court acknowledged that the notice created a new inconsistency of interest but considered that such inconsistencies were inherent in the regime and did not rise to a level where the representative plaintiff could not represent the group, noting that the representative plaintiff would still have an imperative to encourage registration and, in order to obtain approval, to ensure that the settlement was fair and reasonable in the interests of group members. Further, the Court had the ability to supervise the conduct of the representative applicant and consider the management of divergent interests, as part of considering whether to approve the settlement

Implications

The ability to get soft closure orders (or at least soft closure notices) will be viewed as a positive for those seeking certainty as to the size of the claim being mediated – and a positive when it comes to settling class actions.

While the decision confirms that courts in NSW, like those in the Federal and Victorian jurisdictions, may approve soft class closure notices in appropriate circumstances, the lower courts will still have to grapple with the discretion to order soft closure notices. In light of the High Court's views on the nature of the regime and the management of conflicts, it may be that soft closure notices will generally be ordered in typical class action scenarios, but there may be scenarios where a different course is preferred.

Further, the High Court judgments may encourage the courts to closely scrutinise settlements reached on the basis that only group members who register prior to mediation will participate. Gageler CJ, Gleeson and Jagot JJ, for example, noted that where the process does not maximise the number of registrants it may be a material threat to the approval of the settlement. Beech-Jones J noted that a separate legal representative may sometimes be needed to represent the interests of unregistered group members. The question of power is settled, but the practice and expectation around the approval of registration-based settlements may continue to evolve.

Authors: Mark Bradley, Partner; Angela Pearsall, Partner; Ian Bolster, Partner; John Pavlakis, Partner; Marianne Hong, Senior Associate and Raman Kaur, Associate.