Federal court approves pre-mediation notice foreshadowing class closure

What you need to know

• The Federal Court (Lee J) has approved a pre-mediation registration and opt out notice to group members that foreshadows a "soft" class closure order being sought if the matter settles.
• This sets the matter up for an application preventing group members who do not register before mediation from participating in any settlement (if the matter settles).
• This process facilitates settlements and may be seen by litigants as a reason to favour the Federal Court over the NSW Supreme Court. That is because the NSW Court of Appeal has prohibited such orders.
• This is the first time since the "soft" closure debate between the NSW Court of Appeal and the Full Federal Court that such a notice has been issued – but we are yet to see a settlement approved on that basis.
• In this case, the foreshadowed 'soft' class closure was not opposed (in fact it was enthusiastically supported by both parties). It may be more difficult to get approval if a party opposes it.

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 no settlement, the class "re-opens".

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.

These orders facilitate settlements by giving greater clarity about the size and composition of the claim when engaging in settlement discussions. Otherwise, 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.

The appeal court controversy and the journey to a qualified kind of soft class closure order

For a period of time up until relatively recently, pre-mediation class closure orders were relatively common.

However, they now cannot be sought in NSW:

• The NSW Court of Appeal held that class closure orders that actually extinguish claims of group members who neither register nor opt out cannot be made before mediation (Haselhurst v Toyota Motor Corporation Australia Ltd (2020) 101 NSWLR 890).
• The NSW Court of Appeal has also refused to allow pre-mediation notices that foreshadow seeking such an order if the matter settles (Wigmans v AMP Ltd (2020) 102 NSWLR 199).

The Full Federal Court has considered the NSW Court of Appeal to be "plainly wrong":

• It has held there is power to approve notices that foreshadow the intention to apply for an extinguishment order.
• It has also not ruled out pre-mediation orders with more immediate effect, i.e. that group members who do not register will not be permitted to seek any benefit from settlement without leave (albeit subject to further order and settlement approval). See our article on the Full Federal Court's decision here.

Soft closure orders can also be sought in the Victorian Supreme Court under an express statutory power and have been made in recent cases.

The notice approved in this case

While the Full Federal Court decision mentioned above held there was power to issue such a notice, this is the first case in which the Federal Court (Lee J) has actually exercised its discretion to approve a notice.

Justice Lee approved the notice to group members, which foreshadowed a soft class closure order, on the basis that:

• both parties were "represented by experienced practitioners";
• both parties jointly sought 'soft' class closure orders to "facilitate productive settlement discussions"; and
• the "method and mode of communication" in respect of the proposed notice to group members is "clear".

Justice Lee also noted that "experience demonstrates it is far easier for a class action to resolve at a mediation if there is some certainty as to the likely loss alleged to have been suffered by group members", but that "there may be cases where it is appropriate to progress the proceeding without registration, particularly in the light of opposition by one or other party".

In terms of timing, Justice Lee preferred a short period of "soft-closure", noting that there was no reason why the class ought not be "re-opened" if settlement is not achieved in a reasonable period following the mediation (rather than being re-opened following the trial).

In relation to the criticism that class closure has been said to undermine the character of the Australian class action system as an "opt out" model, Justice Lee said that a group member is "always required to take a positive step to their have claim resolved".

But we still await an actual settlement on that basis

While these orders set up an application for settlement approval without a further registration process, it is still subject to the court actually considering the issue at a settlement application, and making orders extinguishing claims of unregistered group members based on the pre-mediation registration process.

That has not yet happened since the NSW Court of Appeal decisions mentioned above.

Conflicting courts

In the absence of any High Court decision or statutory amendment in NSW, the ability to issue registration notices with some teeth to facilitate the settlement process may make the Federal Court a more favourable jurisdiction for class actions.

The Victorian Supreme Court also has the ability to make soft closure orders, and remains attractive to solicitors seeking to act on a contingency fee basis – although the Federal Court may soon be appealing to solicitors seeking contingency fees given its recent invitation to facilitate them in class actions. See further our article.

Parkin v Boral Limited (Opt Out and Registration Notices) [2023] FCA 1300

Authors: John Pavlakis, Partner; Ian Bolster, Partner; Andrew Westcott, Expertise Counsel; Tess Grieve, Senior Associate; and Sophia Kwiet, Lawyer.