What you need to know
- The High Court has confirmed a decision of the Victorian Court of Appeal that a failed class action did not prevent class members from litigating certain issues in a new proceeding arising out of the same facts.
- This decision casts doubt on the finality of successfully defended class actions, arguably one of the main benefits enjoyed by corporate defendants looking to avoid multiple proceedings and the associated time and cost.
Background
An investor class action was brought against Timbercorp for alleged deficiencies in product disclosure statements issued in relation to forestry schemes. The action was dismissed and Timbercorp commenced loan recovery proceedings against investors.
Timbercorp contended that the investors should have raised individual defences in the class action and that they were therefore precluded from raising them in accordance with the principles in Port of Melbourne Authority v Anshun (1981) 147 CLR 589. Anshun estoppel is the legal doctrine that a party cannot raise an issue in a subsequent proceeding if it was so connected with the subject matter of an earlier proceeding that it was unreasonable not to have raised the issue in that earlier proceeding. The application of Anshun estoppel has been controversial in other recent class actions.
For more background information and further analysis of the implications of Timbercorp's argument being rejected by the courts see our Class Action Update: Failed investor class action not the end of the line dated 9 September 2015 and our Class Action Update: Can you achieve finality in a class action? dated 8 June 2016.
High Court decision
The High Court dismissed Timbercorp's appeal and found that the investors were not precluded from raising certain defences despite having not raised the issues in the class action. The key aspects of the reasoning by the majority (French CJ, Kiefel, Keane and Nettle JJ) were as follows:
- The lead plaintiff of the class action represented the respondents only in relation to the claims which were the subject of the class action and not in relation to the investors' individual claims.
- These individuals had limited control of the class action.
- The investors' defences were not relevant to the issues in the class action and it was questionable whether they practically could or should have been raised in that proceeding.
- The new defences, if successful, would not lead to inconsistent findings in separate proceedings.
It was therefore not unreasonable - nor was it an abuse of process - for the respondents to refrain from advancing their individual claims in the class action and to later rely on them as defences in the subsequent proceeding. Gordon J gave her own reasons in reaching the same conclusion as the majority.
