Federal court approves pre-mediation notice foreshadowing class closure
06 November 2023
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06 November 2023
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.
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 Full Federal Court has considered the NSW Court of Appeal to be "plainly wrong":
Soft closure orders can also be sought in the Victorian Supreme Court under an express statutory power and have been made in recent cases.
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:
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".
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.
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.
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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