Legal development

The divide continues – NSW Court of Appeal and Full Federal Court remain apart on pre-mediation class closure

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    • The NSWCA has maintained its position ruling out the availability of notices signalling a future intention to seek "soft" class closure orders in representative actions.
    • In responding to a separate question put to the Court, it disagreed with the FFC's view that the decision in Wigmans v AMP (2020) 102 NSWLR 199 (Wigmans) was "plainly wrong" and therefore could not depart from it.
    • As a result, the Court found that it did not have the power to approve a notice to group members requiring registration or opt out prior to settlement in order for the group member to receive any benefit from settlement (if approved).
    • This decision reinforces the split in approach between the NSW Supreme Court and Federal Court (and Victorian Supreme Court) on "soft" class closures.

    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.

    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.

    The split in approach between the Courts

    The NSW Court of Appeal has previously refused to allow class closure orders that extinguish claims of group members who elected not to register or opt out before mediation (Haselhurst v Toyota Motor Corporation Australia Ltd (2020) 101 NSWLR 890).

    In Wigmans, the NSW Court of Appeal also refused to allow pre-mediation notices that foreshadow seeking an extinguishment order if the matter settles finding that such notices were contrary to a “fundamental precept” of the opt out regime for group members "to sit back and do nothing up until the point of settlement of judgment". It also created a "real, immediate and direct" conflict between the interests of the representative party and those of group members who have not registered.

    In a 2022 decision Parkin v Boral Limited (Class Closure) [2022] FCAFC 47, the Full Federal Court considered the decision in Wigmans to be "plainly wrong" rejecting the suggestion of an entitlement to absolute passivity of group members and emphasizing that the power conferred under s33X of the Federal Court Act 1976 (Cth) as "broad and unqualified". The Full Federal Court considered that it could approve notices that foreshadowed an intention to apply for an such orders. Please see our previous update on the Full Federal Court's decision.

    Soft closure orders can also be sought in the Victorian Supreme Court under an express statutory power (s 33ZG Supreme Court Act 1986 (Vic)) and have been made in recent cases.

    The NSWCA's decision

    In David William Pallas & Julie Ann Pallas as trustees for the Pallas Family Superannuation Fund v Lendlease Corporation Ltd [2024] NSWCA 83, the NSW Court of Appeal was asked to determine, having regard to the decisions in Wigmans and Boral, whether the Supreme Court of NSW had the power to approve a notice to group members requiring registration or opt out prior to settlement in order to receive any benefit from settlement.

    The NSW Court of Appeal did not agree with the Full Federal Court's finding that the decision in Wigmans was "plainly wrong". It, therefore, could not depart from it's previous decision and affirmed that it did not have the power to approve such a notice with Ward J noting that had she been persuaded that Wigmans' had been "plainly wrong" she would have followed the FFC's decision for uniformity.

    The Court found that the issue of such a notice would create an "insoluble" conflict of interest between the representative plaintiff and unregistered group members. Chief Justice Bell asked how the representative plaintiff could be representing the interests of all group members while opposing orders that would extinguish the rights of all unregistered group members.

    What does this mean for representative proceedings?

    Soft closure orders facilitate settlements by giving greater clarity about the size and composition of the claim when engaging in settlement discussions. This provides an advantage to litigants in representative proceedings and promotes informed and productive settlement discussions.

    Without this mechanism, a further registration process is needed after mediation for the purposes of settlement approval – which can lead to an influx of further registrations and change the settlement landscape.

    Although the NSWCA has opined on other approaches parties could adopt to engage in settlement despite the open class question, this, to a certain extent, ignores the commercial reality that businesses often need to understand the extent of their liability as a known and certain value in order to make offers of settlement.

    The decision also provides clarity on the established positions adopted by the different jurisdictions, which was, until now, unclear as to whether the NSWCA would follow the Full Federal Court's approach.

    Until there is any resolution by the High Court, there remains a clear distinction between the different forums on the question of soft class closure.

    Authors: Angela Pearsall, Partner; John Pavlakis, 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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