Class closure orders in Australian class actions

Jason explained that certain features of the class action regime can raise significant challenges for parties when approaching a mediation or settlement negotiations. This has been recognised by the courts and the parties, resulting in a process that has developed, referred to as ‘class closure’. Generally, a class closure order precludes group members who neither opt out nor register to participate in the proceeding from sharing in the benefits of any settlement. The claims of the unregistered group members are then extinguished if the proceedings settle.

A class closure order facilitates settlement by:

  • Giving both sides a better understanding of the total quantum of registered group members’ claims and permitting a settlement amount to be capped by reference to the claims of registered group members only.
  • Achieving finality in settlement (by extinguishing unregistered group members’ claims).

The Australian Law Reform Commission accepted the utility of class closure orders and recommended that the court’s practice and procedure include express guidance as to when class closure orders (and other ancillary orders) may be made.

However, recent decisions of the Federal Court and the New South Wales Supreme Court have challenged the appropriateness of class closure orders. There is now some uncertainty over the court’s powers to make these orders.

Jason and Clive agreed it was an important tool for courts to have the discretion to make class closure orders at an interlocutory stage when appropriate to do so, consistent with facilitating resolution of proceedings. Group members invariably will be required to identify themselves at some point during the class action – the question is when, and that question is best left within the power of the court and subject to the court’s case management discretion.

Clive pointed out the misnomer about ‘open’ classes - that group members were not required to do anything and could still be entitled to receive compensation if a settlement was reached. The reality is that, if a case is successful, group members must take positive steps to participate, otherwise they will not get compensated. He therefore saw it as appropriate for people to be required to take a step - to either participate or step out of the action, so it facilitates a settlement for the benefit of the interested group members.

Looking at it from a defendant’s perspective, Jason saw it as sub-optimal to try to settle a case where part of that settlement is for an unknown number of group members, with the potential for the settlement being insufficient for them. This could lead to the settlement failing at the settlement approval stage and having to begin the whole process again, with the risk that the defendant could end up paying more. He said he thought there was an easy solution. The Victorian Supreme Court has a provision (section 33ZG of the Supreme Court Act 1986 (Vic)) which expressly permits the court to require a group member to take a positive step at an interlocutory stage (such as responding to a class closure notice) and he considered a similar amendment in the other class action regimes would be of utility.

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