Class closure in NSW: gone but not forgotten?

A recent appeal decision of the New South Wales Court of Appeal has again indicated that soft class closure orders are not available in class actions in the Supreme Court of New South Wales (David William Pallas & Julie Ann Pallas as trustees for the Pallas Family Superannuation Fund v Lendlease Corporation Ltd [2024] NSWCA 83).

What is class closure and why is it important?

Australian class actions are "opt out". Group members do not need to register to be part of the class action. Rather, everyone who meets the group member definition is part of the class action unless they opt out by a date specified by the Court. However, there are usually group members who are not engaged in or are not aware of the class action and so do not take the step of opting out of the proceeding. This means that the number of people in the group, their identities, or the nature of their claims is unknown even after the opt out date.

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 in some cases have made class closure orders from time to time to identify group members and facilitate settlement discussions. One form of class closure order is soft class closure which 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.

A recent history of class closure

With the exception of the Supreme Court of Victoria, which has express power to make soft class closure orders, the question of whether courts have power to make class closure orders has been the subject of judicial consideration several times in recent years.

Previously, the NSW Supreme Court made soft closure orders pursuant to section 183 of the Civil Procedure Act 2005 (NSW) (CPA), being the court's general power to make orders to ensure that justice is done in a class action. However, in 2020 the NSW Court of Appeal held that section 183 did not empower the Supreme Court to make a soft class closure order prior to mediation or judgment.

That same year, in Wigmans v AMP Ltd [2020] NSWCA 104, the NSW Court of Appeal held that the NSW Supreme Court did not have the power to make class closure orders under sections 175-176 of the CPA which suggested the NSW Supreme Court did not have the power under any section of the CPA to make class closure orders.

However, in 2022 the Full Court of the Federal Court in Parkin v Boral Ltd [2022] FCAFC 47 considered the same question as in Wigmans in relation to sections 33X-33Y of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) (being the equivalent provisions to sections 175-176 of the CPA). The Full Court found that Wigmans was “plainly wrong” and should not be followed. The effect of this decision is that the Federal Court currently has the power to make soft closure orders which, putting its interpretation of the relevant sections at odds with that of the NSW Supreme Court.

David William Pallas & Julie Ann Pallas as trustees for the Pallas Family Superannuation Fund v Lendlease Corporation Ltd [2024] NSWCA 83

In a recent decision in the Lendlease shareholder class action, the NSW Court of Appeal rejected the Federal Court's position and preferred the reasoning in the Wigmans decision.  

The NSW Court of Appeal observed that intermediate appellate courts should only depart from their own previous decisions and those of courts of co-ordinate jurisdiction where the decision is “plainly wrong” and where there are “compelling reasons” to do so.

If the Wigmans decision was plainly wrong, and there were compelling reasons to depart from the Wigmans decision, it would mean that the NSW Supreme Court was not bound by that decision and could reconsider whether it has the power to make class closure orders.

However, the NSW Court of Appeal preferred the reasoning in the Wigmans decision and was not persuaded that the Wigmans decision was plainly wrong.

Separately, the Court observed that a soft class closure order would result in a conflict of interest between the lead plaintiff when representing registered group members at mediation (who would share in the settlement sum if the mediation were successful and so for whom such outcome is in their interests) on the one hand, and the unregistered group members on the other (whose claims would be extinguished if the mediation were successful, and so for whom a failure to reach a settlement is in their interests).