In a significant decision in class actions, the High Court of Australia has resolved a notable inconsistency between the Federal and State positions on the courts’ power to make ‘soft’ class closure orders. The ruling in Pallas confirms that Courts (specifically the Supreme Court of New South Wales) do have the power to make such orders under the Civil Procedure Act 2005 (NSW) (CPA).
Background
The class action was brought on behalf of shareholders who acquired Lendlease shares. The plaintiffs allege that Lendlease engaged in misleading or deceptive conduct and breached its continuous disclosure obligations.
In the lead up to mediation, Lendlease sought a soft class closure order—a procedural mechanism unique to class actions which requires group members to register their claims in a class action by a set deadline to benefit from any settlement arising from the mediation, with the effect that any group members who did not register by the deadline would not be entitled to benefit from such settlement unless permission was granted from the Court upon a suitable explanation as to why the group member did not register by the deadline . If no settlement occurs, the class would reopen. Importantly, in this case, there was a potential significant class size that was largely unknown and included those who held equitable interests in Lendlease securities (a group which was not known to Lendlease).
The Legal Issue: Power to Order Soft Closure
The key legal question was whether the Supreme Court of NSW had the power to make such an order under section 175(5) of the CPA.
Previously, in Wigmans v AMP (2020) 102 NSWLR 199 and in this case, the NSW Court of Appeal held that such power did not extend to soft class closure. In contrast, the Federal Court in Parkin v Boral (2022) 291 FCR 116 ruled that it did have such power.
The High Court’s Decision
In a unanimous judgment, the High Court overturned the NSW Court of Appeal, decision and held that:
- Section 175(5) does empower the Court to order that notice be given to group members requiring registration to participate in a settlement;
- Such orders are consistent with the objectives of the class action regime and do not undermine the opt-out nature of representative proceedings; and
- The Court emphasised that these orders do not extinguish rights but merely regulate participation in settlement distributions, and any conflicts of interest are managed by the representative plaintiff’s duty not to act contrary to the interests of group members and by the Court’s supervisory and protective role.
This decision aligns the NSW class action regime with the Federal regime and provides much-needed clarity for plaintiffs, defendants and litigation funders, who will now have a greater degree of certainty when seeking such orders ahead of mediation.
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