High Court Wrap
2024 saw the High Court primed to resolve two issues that class actions lawyers have been debating for years: soft class closure and common fund orders.
Lendlease – soft class closure (judgment reserved)
In November, the High Court heard an appeal in the Lendlease shareholder class action with respect to an application by Lendlease for a “soft closure” of the class before mediation. In short, the soft closure order sought by Lendlease would, if the matter settled at mediation, have the effect of excluding unregistered group members from the settlement and extinguishing their right to bring a claim of their own. If the claim does not settle, the class would re-open and unregistered group members would again have an opportunity to sign up.
The appeal balances the fundamental principle that class actions are designed to facilitate access to justice and are therefore "opt out" by default with the practical consideration that there is no absolute right to remain passive.
At the hearing, Lendlease argued that the procedure introduced in part 10 of the Civil Procedure Act 2005 (NSW) was drafted broadly to give the Court discretion given the novel procedure and to empower the Court to make orders necessary to resolve unforeseen difficulties. Lendlease also noted that group members do not have an absolute right to remain passive and are inevitably required to take some positive steps in order to receive the benefit of a settlement or judgment.
This issue is one of the rare occasions where the Class and the Defendant were in agreement. However, given the Court's obligation to consider the interests of unregistered group members, contradictors were appointed to argue against the orders sought. The crux of the Contradictors’ submissions was that soft closure would introduce a real conflict of interest between registered and unregistered group members, and that Part 10 of the Act does not allow lead plaintiffs to propose an outcome where the claims of certain members are extinguished or for their claims to be used as a bargaining chip in negotiations.
If you are looking for a deeper dive into soft class closure, please see our “Class Actions: Ones to watch” publication from March, available here.
Blue Sky – common fund orders
In November, the High Court granted special leave to an applicant in the Blue Sky shareholder class action which is set to clarify one of the key issues in class action funding. The two issues that the High Court will determine are (1) whether common fund orders (CFOs) can be made by the Federal Court at the time of settlement or judgment, and (2) whether CFOs can allow solicitors for the class to claim a percentage of settlement or judgment (known as a solicitors’ CFO). Currently, solicitors’ CFOs are only available in Victoria, pursuant to s33ZDA of the Supreme Court Act 1986 (Vic), which expressly permits such funding arrangements (called Group Costs Orders).
As to whether CFOs are permitted at settlement or judgment, in 2019 the High Court held, in BMW Australia Ltd v Brewster, that there is no power to make CFOs at the time of commencement of a class action because it would never be "just" to favour litigation funders over group members. However, in its 2023 decision in Elliott-Carde v McDonald’s Australia Limited, the Full Federal Court held that the Court does have the power to issue CFOs at settlement stage.
As to the permissibility of solicitor’s CFOs, the arguments against making such an order centre around whether they would create an unacceptable conflict of interest between solicitors and group members. Relatedly, contingency fees are expressly prohibited by the Legal Profession Uniform Law, so there is a conflict of laws question to be considered as well. In permitting the solicitors' CFO, the Full Federal Court formed the view that such orders are likely to reduce legal costs and therefore outweigh the concerns of professional conflicts, which the Full Federal Court noted already exist and are effectively managed by the Courts and the profession.
We anticipate the matter will be heard sometime in the first half of 2025, with judgment to be delivered in late 2025 or early 2026.
Consumer
The High Court also gave some guidance regarding calculation of loss in product liability actions. In a win for consumers, the High Court held in the Toyota and Ford class actions[1], that the relevant time for assessing loss resulting from breaches of Australian Consumer Law guarantees is the time of supplying the defective product, rather than a later date once a "fix" had been applied to the defect. In reaching the decision the Court held that later acquired knowledge of a defect in the goods, including the effectiveness, cost, inconvenience and timing of any repair of the defect, is to be attributed to a hypothetical reasonable consumer with full knowledge of the "state and condition of the goods" at the time of supply. Both proceedings have been remitted to the trial judge to undertake the assessment of damages in accordance with the High Court’s decision.
[1] Toyota v Williams (2023) 296 FCR 514 and Ford v Capic (2023) 300 FCR 1
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