"Soft class closure" orders increase the chance of settlement at mediation

When commencing a class action, the lead plaintiff is not required to identify each member of the group or even specify the number of group members. Generally, group members do not play any active role in the proceedings unless and until the class action succeeds and their individual loss is determined. This means it can often be difficult for the parties to determine the number of group members at the early stages of the proceeding. The challenge is particularly acute in proceedings where there are no records available to the defendants which demonstrate the size and composition of the group, for example, in consumer or natural disaster class actions. This can be compared with shareholder and under payment class actions, where the shareholder registers or employment records can often be used to identify group members with some level of precision.

The challenge of identifying the group can become a barrier to settlement negotiations: without an understanding of the number and composition of group members, it can be difficult to make any reliable assessment of potential liability to the group as a whole.

To address this difficulty Australian courts have made soft class closure orders from time to time to identify group members and facilitate settlement discussions. We have previously explained soft class closure orders and their role in facilitating settlement discussions. In short, soft class closure refers to orders requiring group members to register by a particular date, typically in advance of a scheduled mediation, if they wish to receive a payment from any settlement. However, if there is no settlement by a specified date, the class closure order expires and the composition of the class is again at large. Soft class closure orders provide the parties with a greater degree of certainty about the size and composition of the group for the purposes of negotiations over a specified time period.

In practice, soft class closure orders usually result in widespread publication and, where possible, direct distribution of information about the status of the class action and how a group member can register for the purposes of the soft closure order.

In 2020, the NSW Court of Appeal held that the Supreme Court does not have the power to make soft class closure orders before mediation. However, the Victorian Supreme Court does have an express power to make soft class closure orders under a provision that does not exist in any other Australian class action jurisdiction.

Two recent decisions of the Victorian Supreme Court demonstrate how and when the Supreme Court of Victoria is prepared to use this power. In a class action against Westpac, Macquarie and ANZ (the Flex Commissions Group Proceeding), the defendants sought soft class closure orders on the basis that it would facilitate an understanding of the quantum of the potential claims ahead of the scheduled mediation: Fox v Westpac; O’Brien v ANZ; Nathan v Macquarie [2023] VSC 414 (20 July 2023). The plaintiff opposed the making of such orders and argued that voluntary registration without any consequence for failure to register would be sufficient to allow the defendants to assess quantum for the purpose of mediation. Justice Nichols was persuaded by the defendants and made orders requiring group members to formally register in order to receive any potential settlement proceeds that eventuated from the scheduled mediation.

Shortly after, the parties in class actions against Uber (the Uber Group Proceeding) jointly sought soft class closure orders: Andrianakis v Uber Technologies Inc & Ors; Salem v Uber Technologies & Ors [2023] VSC 415 (21 July 2023). They argued that in the absence of such orders, the mediation would have to occur on an open class basis. This would mean that the parties would be faced with significant uncertainty as to the size, and quantum of the losses, of unregistered group members which, in turn, would likely act as a barrier to settlement. Justice Nichols again made soft class closure orders on the basis that those orders were appropriate to ensure that justice was done in the proceeding.

These decisions make clear that, while the Victorian Supreme Court has the power to order soft class closure, whether such orders are appropriate requires a fact-specific assessment on a case-by-case basis. While the Flex Commissions Group Proceeding and Uber Group Proceeding differ significantly in subject matter and factual circumstances, an important common feature between the proceedings is that, although there had been significant registration of group members to date, it was not possible to identify the total number of potential group members on the information available to the parties at the time. A court-ordered registration process where the results are known to both parties and the court, provides more visibility to a defendant about potential exposure than updates provided voluntarily by a plaintiff about the number of group members who have registered with their law firm.

Further, the Flex Commissions Group Proceeding demonstrates that, while opposition by a party will be an important consideration, the trend towards greater use of soft closure orders is not just a result of the Victorian Supreme Court's general disposition to afford class action plaintiffs a wide discretion in determining how they choose to structure their case for trial. When deciding whether to make a soft class closure orders, courts will consider the utility of the orders to resolving the proceeding at mediation and whether group members on the whole would receive appropriate and sufficient notice of those orders which effect their rights and give them the ability to register in time.

Finally, the soft class closure order regimes ordered by Justice Nichols contained a "safety valve" to ensure that, if any group member could sufficiently demonstrate unfair prejudice in the operation of the orders, they may apply to be re-admitted to the class, by exercise of the Court’s discretion.