It's a question of power: High Court registers approval of notices of potential class closure

In a decision published yesterday, the High Court of Australia unanimously held that the Supreme Court of New South Wales has power to order that a notice be issued to class action group members regarding a party’s intention to seek a form of ‘class closure’ order upon any settlement approval hearing.[1]

In allowing an appeal against a judgment of the New South Wales Court of Appeal, the High Court’s decision aligns the position in New South Wales with that of the Federal Court, which has previously held that it has power to make such orders.

What does this mean for class actions in Australia?

The latest decision from the High Court in this space is a welcome step toward facilitating the resolution of class actions in Australia.

It confirms that notices may be sent to group members of the intention of a party (if the proceeding is settled) to seek an order that a group member who has neither opted out of the proceeding nor registered to participate remains a group member but, importantly, cannot without the leave of the Court seek any benefit pursuant to any settlement.

In effect, if such an order is made at settlement, only those who have registered in the class action (and have not ‘opted out’) will be able to share in the fruits of any such settlement. The decision confirms that while making such an order at settlement is ultimately a question of fact and circumstances, the Court does have the power to order that a notice be given to group members of the intention to seek such an order.

The key takeaways are as follows:

• parties now have certainty that they can seek registration orders facilitating settlements;
• there is a separate question as to whether any Court on any given facts should exercise the power to order the giving of such notices. This will clearly depend on the circumstances of any given case;
• the giving of the notice to group members is, however, no guarantee that the Court will exclude non-registering group members from participating in settlements; and
• where an order excluding non-registering group members is sought at the settlement approval stage, representative applicants will need to give careful consideration in how to discharge their duties to act in the interests of all members (including unregistered group members) which may involve the appointment of separate legal representatives.[2]

A reminder: Australian class actions are an “opt-out” regime

Class actions in Australia are ‘opt-out’ in nature. This means that a person can be a group member without consenting or indicating an interest in participating in the proceeding, provided that they satisfy the group member definition and do not file a notice to ‘opt out’. Thus, although class actions have a group member definition, the composition, identities and size of the class, and the extent to which the class will be interested in participating in the proceeding, may be unclear to the parties, presenting practical difficulties in reaching any settlement (as the quantum of claims will be uncertain).

A procedural mechanism which has been developed to deal with this issue is a “registration process” by which a notice is issued to group members inviting them to register their interest in the class action, while also disclosing an intention of one or more of the parties to seek an order providing that group members who have not registered and have not opted out will not be entitled to participate in the distribution of the settlement sum unless leave of the court is granted. These “exclusionary orders” are sought at a settlement approval hearing and have the effect that certain group members’ claims are extinguished without remedy. The prospect of this is thought to incentivise group members to register their claims, thereby assisting the parties in a mediation. However, the NSW Court of Appeal and Full Federal Court diverged as to whether the court had power to make orders for the distribution of such notices.

As set out above, yesterday the High Court unanimously held that s 175(5) of the Civil Procedure Act 2005 (NSW) (CPA) (which is analogous to s 33X(5) of the Federal Court of Australia Act 1976 (Cth) (FCA Act)) empowers the Supreme Court of NSW to make orders for the distribution of notices foreshadowing a party or parties seeking these exclusionary orders. This aligned the position in the Supreme Court of NSW with that of the Federal Court.

NSW Court of Appeal versus Full Federal Court: Division of appellate court decisions

Prior to the High Court’s decision, the Full Federal Court and the NSW Court of Appeal diverged on whether relevantly identical provisions in those jurisdictions permitted the making of orders for the distribution of notices that foreshadow an intention to seek exclusionary orders.

In 2020, the NSW Court of Appeal held that the Court’s power to make any order it thinks appropriate or necessary to ensure justice is done under s 183 of the CPA did not extend to an ability to extinguish the rights of group members before settlement or judgment and so could not be invoked to make soft class closure orders in anticipation of settlement negotiations.[3]

Later that year, the NSW Court of Appeal went further in Wigmans[4] in holding an order providing for the distribution of a notice foreshadowing that the parties would seek an exclusionary order was also beyond the powers conferred by ss 175 and 176 of the CPA (which concern the provision of notices to group members).[5] This is on the basis that such an order was inconsistent with a basic premise of the class action regime provided for by Part 10 of the CPA that group members may do nothing prior to a settlement yet still participate in any benefits (i.e. the opt-out regime).[6]

By contrast, in Parkin[7] the Full Federal Court considered the decision in Wigmans to be “plainly wrong”.[8] The Full Federal Court disagreed that orders approving the publication of a notice that foreshadows later seeking exclusionary orders were inconsistent with the “fundamental precept” of the class action regime, being that group members may do nothing prior to settlement and nonetheless reap its benefits.[9] The Full Federal Court held that the relevant source of power to make such orders was found in s 33X(5) of the FCA Act (the equivalent to s 175(5) of the CPA) rather than s 33ZF (the equivalent of s 183 of the CPA).[10] The Court also held that in the circumstances of that case, s 33ZF did not provide power to make anticipatory exclusionary orders.[11][12]

In the primary proceeding, the following separate question was removed into the NSW Court of Appeal for determination:

“Notwithstanding the decision in Wigmans v AMP Ltd (2020) 102 NSWLR 199 and having regard to the decision in Parkin v Boral Ltd (2022) 291 FCR 116, does the Supreme Court of NSW have power pursuant to sections 175(1), 175(5) and 176(1) of the Civil Procedure Act 2005 (NSW) (CPA) or otherwise to approve a notice to Group Members of the right to register to participate in any settlement of the proceedings or opt out of the proceedings for the purposes of CPA section 162 containing the following notation:

Upon any settlement of this proceeding the parties, alternatively, the defendant, will seek an order, which, if made, has the effect of providing that any Group Member who by a registration date: (i) has not registered; or (ii) has not opted out in accordance with the orders made by the Court, will remain a Group Member for all purposes of this proceeding but shall not, without leave of the Court, be permitted to seek any benefit pursuant to any settlement (subject to Court approval) of this proceeding that occurs before final judgment.”

In the NSW Court of Appeal decision, Lendlease submitted that Wigmans should be overturned and Parkin applied.[13] However, the NSW Court of Appeal was not convinced that Wigmans was plainly wrong nor that there were compelling reasons to depart from it, answering the separate question in the negative.[14] Bell CJ (with whom a majority agreed) was not convinced by the “attack” in Parkin on the use of the language of “fundamental precept” in Wigmans,[15] and held that a notice containing a notification of an intention to seek class closure orders places non-registered group members in a position contrary to the opt-out legislative scheme provided for by Part 10 of the CPA.[16]

Lendlease appealed to the High Court. The key issue for the High Court’s consideration was whether the Supreme Court of NSW had power pursuant to s 175(5) of CPA (the equivalent of s 33X(5) FCA Act) to make orders for the distribution of notices containing a soft class closure notification.

What did the High Court find?

Section 175(5) confers the power

In four separate judgments, the High Court unanimously held that s 175(5) of the CPA confers a power on the Supreme Court of NSW to make orders that a notice be sent to group members regarding a party’s intention to seek an exclusionary order upon any settlement hearing.[17]

It was not disputed in the High Court that the settlement approval provision under s 173 of the CPA (the equivalent of s 33V of the FCA Act) allows the Supreme Court to make an exclusionary order on approval of any settlement.[18] In a joint judgment Gageler CJ, Gleeson and Jagot JJ held it necessarily follows that, without express words to the contrary, there is no justification in the text, context or apparent purpose of s 175(5) (the equivalent of s 33X(5) FCA Act) to construe that provision as not empowering the Supreme Court to order the giving of the proposed notice (which notified group members of the intention to seek exclusionary orders).[19] Rather, as the apparent purpose of the provision is to ensure that group members remain informed of matters, it should be construed as liberally as its language permits. Consistent with that purpose, the only control on the scope of the power is the relevance of a matter to group members in the proceeding that is proposed to be notified.[20]

This rationale was succinctly echoed in the judgment of Gordon and Steward JJ (with whom  Edelman J agreed):

“It would be contrary to [the purpose of s 175(5)] if the Court had power to approve a settlement that excluded unregistered group members, but did not have power to inform group members of the intention to seek settlement on this basis.”[21]

Question of power, not discretion

The High Court also emphasised the distinction between the existence of a power of the Supreme Court of NSW to make an order notifying group members of potential future exclusionary orders and the discretion as to whether to exercise that power.[22] Certain of the factors underpinning the Court of Appeal’s reasoning were not relevant to the scope of the power in s 175(5) but rather to the Court’s discretion in determining whether to exercise its discretionary powers (i.e. to ultimately make those exclusionary orders).[23] For instance, although Wigmans identified a potential conflict of interest in the representative plaintiff arising from the making of orders providing for soft class closure notification, this does not inform the question of the existence of power and is in any event addressed by the representative plaintiff’s duty not to act contrary to group members’ interests and by the Court’s supervisory and protective role.[24] As highlighted by Gageler CJ, Gleeson and Jagot JJ, the Court will be sensitive to any inconsistencies of interests between the representative plaintiff and group members who have neither registered nor opted out when considering the fairness and justice of any settlement for which approval is sought.[25]

Power to make exclusionary orders prior to settlement

Consistent with previous NSW Court of Appeal authority, Gageler CJ, Gleeson and Jagot JJ also expressly noted that the making of an exclusionary order before a settlement approval hearing is impermissible as it denies the Court the subsequent capacity at the settlement approval hearing to make orders it considers just with respect to the distribution of money under s 173(2) (the equivalent of s 33V(2) of the FCA Act).[26]

What is next in this space?

Whilst this case answers the question as to whether the Court has the power to order such notices be given to group members, it is not the end of the story. A key question will be whether such orders will be made and in what circumstances.

The next case to watch in this developing space is Kain v R&B Investments Pty Ltd as Trustee for the R&B Pension Fund which the High Court heard in March 2025. This case will further consider the availability of ‘common fund orders’ in particular those in favour of solicitors.

Stay tuned for the next chapter.