By: Amanda Beattie, Dylan O’Keefe and Samantha Younane

The power to make soft class closure orders came under scrutiny in 2020 (following the NSW Supreme Court decisions in Haselhurst1 and Wigmans2) but recent decisions suggest that soft class closure orders are back.  Late last month, the respondents in the FX class action3 were successful in obtaining soft class closure orders ahead of mediation in the Federal Court and similar orders have recently been made in the Victorian Supreme Court. In this next instalment of our Class Actions: Ones to watch series, we take a closer look at the issue and the recent decisions in relation to it.

What is soft class closure? A recap

Soft class closure orders are generally obtained for the purpose of mediation and require group members to register to participate in the proceedings prior to a mediation. If no settlement occurs then the class reopens, which is why it is referred to as a “soft” class closure. Soft class closure is the cleanest and most efficient way to achieve a settlement in a representative proceeding. It confines assessment to registered group members but removes the tail risk, giving insurers the best of both worlds by confining quantum to registered group members while achieving releases from all group members.

The orders are generally opposed by plaintiff firms, but in many cases they are key to being able to reach a settlement agreement. Without some form of registration, it becomes difficult for defendants to accurately assess the potential quantum of a claim, particularly where the identity, and therefore number, of group members is not known to the defendant.

What have the courts said?

Despite being a long standing and “standard” pre-mediation court order, the question as to whether the court had power to make soft class closure orders came under scrutiny following the 2020 NSW decisions in Haselhurst and Wigmans. The position in the Federal Court was also in question following the High Court’s decision in Brewster4. Following further litigation, the position now has some clarity across the jurisdictions:

Jurisdiction Power question Current position
Victoria Express power contained in section 33ZG of the Supreme Court Act 1986 (Vic) No change.
New South Wales Haselhurst found that courts cannot make soft class closure orders before settlement or judgment that operated to extinguish the rights of group members if they failed to register.

 

Wigmans found courts cannot issue notices on group members warning that if they do not register then claims may be extinguished by any subsequent settlement.

 No change since 2020 decisions, which means that these orders of this kind are unlikely to be made in class actions in the NSW Supreme Court unless the issue is tested at the Court of Appeal level.
Commonwealth Whether, following the reasoning in Brewster (which found that CFOs cannot be made at an interlocutory stage), applied to soft class closure as well. The decision in Parkin5, confirmed that the Court had the power to make the orders under s.33X(5) which grants power to the Court to order that notices of any kind may be given to a group member.

What does the current soft class closure landscape look like?

While it is clear that the Federal Court and Victorian Supreme Court have the power to order soft class closure, the question is whether the court, in its discretion, ought to make the order having regard to the circumstances of the case. Recent rulings point to a greater willingness on the part of courts to order a process of pre-mediation soft class closure.

Soft class closure decisions are often informed by the court’s views as to the whether the order will encourage settlement. There are examples where the court has expressly observed that mediation would be far more likely to succeed with a reasonable estimate of group members and the potential quantum of their claim (FX class action6) and other decisions where the Court has observed that soft class closure is not essential but is preferable (AAI7 and Uber8). In the Flex Commissions actions9, when granting the orders, the Court took the extra step of preserving the right for a group member to apply to be admitted back into the proceeding if they are unfairly prejudiced.10

Soft class closure decisions are also in part informed by the composition of the group members, including consideration of how easily assumptions could be made about group member participation and also how likely group members are to be aware of the proceedings in order to register. In this way, there are some differences between group members in types of class actions. For example, in a shareholder class action, the size of the class can be relatively easily identified, and participation rates can be assumed based on previous cases. Whereas in consumer actions, the size of the class may be unknown or more difficult to assess, as a result of things like unrecorded consumer transactions or the imperfection of historical records, and there are likely to be less cases that would assist in making assumptions about participation rates. Accordingly, the argument for soft class closure in the latter is likely to be stronger. Further, there are scenarios where despite a company having access to its own database of customers, registration rates remain exceptionally low – this was the case in the Flex Commission proceeding in which of 400,000 group members who have individual claims, less than 1% had registered as group members.

We’ve seen courts approach these issues in different way, including:

  • In the FX proceeding (where group members are individuals that purchased an FX instrument in the relevant period), Beach J disagreed that publicly available data of registered members was sufficient to assist the parties to resolve the case, which is an argument that has been used with some success in shareholder class actions to oppose orders of this kind. Beach J noted that the group members in the FX proceedings are in a different position than shareholders, in that they may not have had a trading relationship with the respondents in the case.
  • In the Flex Commissions ruling the Court dealt with the practical issue, noting that the plaintiff firms are best equipped to assist prospective registrants with their queries which would inevitably arise after receiving a registration notice. In light of that, the Court ordered that the relevant banks produce a unique database which would equip the plaintiff firms to deal with enquiries from prospective registrants about matters such as the loan amounts and policy types they had in place.

These recent rulings could point to a greater willingness on the part of courts to order a process of pre-mediation soft closure largely in recognition that these kinds of orders will increase the potential for settlement to occur. They are also likely to encourage defendants to make more applications for these orders. As a result, we could start to see more soft class closure, which will be welcome news to both defendants and insurers as it will allow for greater certainty in the settlement negotiation process. Depending on the circumstances and merits of the case, it is also not without benefit to group members.

Despite the “pro” soft class closure trajectory, plaintiffs are still urging the court to resist those orders. In a hearing in the AMP superannuation fees class action last month, it was flagged as a possibility by AMP and flatly rejected by the plaintiff in that case as being inappropriate. The mediation in that case is scheduled for October and there is a hearing in April at which the issue may be raised again.

What does this mean for defendants and insurers?

  • Courts appear more willing to make orders ahead of mediation, but it is not necessarily a “given” and will still depend on the particular circumstances of the case. In particular, the recent orders do not necessarily mean that soft class closure orders will be routine in shareholder class actions, but there may be cases that it’s worth testing.
  • Insurers should raise the issue of soft class closure if it is not already being considered because it will provide greater certainty for settlement and quantum calculations.
  • Where soft class closure is not ordered, lawyers and insurers need to explicitly address the question of non-registered group members in establishing a settlement strategy and framework as it remains one of the biggest uncertainties in any settlement negotiation.

[1] Haselhurst v Toyota Motor Corporation Australia Ltd [2020] NSWCA 66.

[2] Wigmans v AMP [2020] NSWCA 104.

[3] J Wisbey & Associates Pty Ltd v UBS AG (No 2) [2024] FCA 147

[4] BMW Australia Ltd v Brewster (2019) 269 CLR 574 Although the decision dealt with CFOs the question was raised as to whether the same findings could be extended to soft class closure orders.

[5] Parkin v Boral Limited (Class Closure) [2022] FCAFC 47.

[6] J Wisbey & Associates Pty Ltd v UBS AG (No 2) [2024] FCA 147.

[7] Anderson-Vaughan v AAI Ltd (No 2) [2024 VSC 65.

[8] Andrianakis v Uber Technologies Inc & Ors; Salem v Uber Technologies & Ors [2023] VSC 415

[9] Fox v Westpac; O’Brien v ANZ; Nathan v Macquarie [2023] VSC 414

[10] The Court noted the plaintiffs concern that group members might be disadvantaged were they not permitted every opportunity of deciding to participate, but Nichols J did not consider that group members will be unfairly disadvantaged by being required to register their interests in the proceedings at this time, as opposed to some later time when “money is on the table”. Her Honour addressed that concern by including the additional order which would operate as a “safety valve” if contrary to her expectations, a group member’s rights were unfairly prejudiced.