Shareholder class action update: Full Federal Court rules foreign residents can be group members in Australian class actions

By Ross McInnes, James Walker and Aaron Moss
10 Jun 2021
In an Australian first, the Full Court of the Federal Court has confirmed that foreign residents can be group members in Australian class actions and are to be treated no differently to group members who are Australian residents.

The Full Court of the Federal Court's decision in BHP Group Limited v Impiombato [2021] FCAFC 93 is the first time an Australian appellate court has considered the question of whether foreign residents can be group members in class actions commenced under Part IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The short answer given by the Court is: yes, they can.

This question was before the Full Court (Justices Middleton, McKerracher and Lee) following an appeal by BHP against a decision of Justice Moshinsky refusing BHP's application to exclude foreign resident group members from the class action. We reported on Justice Moshinsky's decision, and the background to the class action, in detail last December.

On 3 June 2021, it was reported that BHP was considering a further appeal to the High Court.

In summary, BHP faces an open class action relating to the collapse of the Fundão Dam in Brazil in November 2015 and the substantial fall in BHP share prices after this was announced to the ASX.  Group members include any person or entity who owned shares in BHP listed on stock exchanges in Australia, the UK or South Africa, a majority of whom reside or are based outside of Australia. In the decision under appeal, Justice Moshinsky dismissed an application made by BHP to exclude foreign resident group members from bringing their claims within the Australian class action.

Including foreign residents was a "legislative choice"

BHP argued that Part IVA of the FCA Act should be presumed and interpreted not to apply to the claims brought on behalf of foreign residents and that applicable legislation, such as the Corporations Act 2001 (Cth), did not provide the Court with jurisdiction over non-residents. BHP sought to rely upon a general presumption that Parliament does not intend to legislate with respect to persons or matters over which another country has jurisdiction. BHP also argued that, even if the non-resident group members were ordinarily to be included in the class, the Court should exercise its discretion to exclude those members from the class action "in the interests of justice", given there was “some risk" of similar issues being re-agitated in fresh proceedings against BHP in other jurisdictions.

BHP's argument failed before the Full Court for five reasons:

  • first, the Court considered that BHP failed to distinguish between the class action proceeding (which the Court has jurisdiction to hear because BHP is present in Australia) and the claims of group members that would be determined within the proceeding (which exist antecedent to, and separately from, the class action proceeding). Part IVA provides the Court with powers and procedures to deal with a class action proceeding commenced within its jurisdiction. Any presumption about whether Part IVA applied extra-territorially "has no work to do" because Part IVA only regulated the way in which class action proceedings were commenced and carried on in Australia. This is not something another country would ordinarily have jurisdiction over;
  • secondly, the text and context of Part IVA do not exclude foreign resident group members or, put another way, do not prohibit representative applicants from defining group membership in a way that includes them. The Court considered that the absence of any provision in Part IVA addressed directly to foreign resident group members was a "legislative choice", and is common to opt-out regimes in Australia (like Part IVA) and overseas. BHP accepted that a foreign resident could commence an ordinary proceeding in their own name against BHP, but – on its argument – could not be a group member. "To say that this would be a surprising outcome is somewhat of an understatement", the Full Court observed;
  • thirdly, as a matter of Australian law, section 33ZB of the FCA Act, which provides that judgments in class actions bind all participating group members, will bar foreign resident group members from bringing proceedings raising the same issues against BHP within Australia. The consequences of such a decision for proceedings raising the same issues in other jurisdictions are matters of foreign law and not relevant to interpreting Part IVA;
  • fourthly, Part IVA was enacted to "supplement, liberalise, and improve access to" procedures for class actions. The Full Court noted that since at least 1883, old equity rules permitting representative proceedings in the United Kingdom allowed foreign residents to be group members. The Court could discern no intention for Part IVA to disturb that position; and
  • fifthly, Part IVA provides a common set of procedures for class actions of all different shapes and sizes, including closed class actions. The Full Court considered it would be a "surprising result" if a foreign resident could not expressly consent to being a group member in a closed class action when they could commence an ordinary proceeding in their own name.

As we foreshadowed in December, the Full Court reiterated the correct approach to understanding the Court's jurisdiction to hear and determine class action proceedings by reference to the principles set out in Mobil Oil Australia Pty Ltd v Victoria (2002) 211 CLR 1. In that case, the High Court considered that the "anchor" upon which the Court's ability to hear and determine a class action proceeding rests is the defendant's connection with the particular jurisdiction in which the proceedings were commenced, not the connection of the group members or their claim(s). In Mobil Oil, service on the defendant within Victoria was a sufficient connection to that State to permit the Victorian Supreme Court to hear and determine a class action that included claims by residents of NSW. As the Full Court observed in Impiombato, the "unsuccessful argument" in Mobil Oil "has obvious similarities to the present argument advanced by BHP in relation to non-resident group members".

The Full Court summarised its reasoning this way:

"It cannot be disputed that the provisions of the laws of the Parliament upon which jurisdiction is conferred on this Court mean that this Court has authority to adjudicate the justiciable controversy between BHP and all other relevant actors, including non-residents. The powers in Pt IVA as to the exercise of jurisdiction with which it has been invested by another law are capable of application to claims for loss and damage by non-residents. As the primary judge correctly found, there is nothing about Pt IVA evincing an intention to the contrary. On the state of the law in this country, where jurisdiction is attracted by service on the respondent within the territorial jurisdiction of the court, it is not necessary to show any other connexion with the jurisdiction."

What options are available to deal with foreign resident group members?

An obvious consequence of the Full Court's decision is that defendants based in Australia may now be exposed to potentially significant class action liability, with group members distributed across the globe. Noting that similar civil proceedings against BHP are on foot in the UK, were settled in the US, and suspended in Brazil, it is a complex matrix to navigate.

In this regard, the Full Court observed that Part IVA includes "discretions" to ensure that "any prejudice" caused by foreign resident group members can be ameliorated, "but to do so in such a way as to not totally exclude a sub-class of group members who have claims that can be grouped".

"Without expressing any concluded view, in the particular circumstances of the present case", the Full Court suggested section 33ZF of the FCA Act was the relevant discretion. In the Full Court's view, this section may allow for:

  • "an order requiring a non-resident class member to take a positive step to opt-in to the class action" (ie registration orders); and/or
  • "class closure orders".

The Full Court emphasised there may be "some merit" in considering these options later in the proceeding: "immediately prior to the hearing or in the context of a settlement proposal or mediation".

We have reported extensively on the debate over class closure orders. Notably, saying they were not weighing into that debate, the Full Court observed:

"in our view, on any view of the law, an order could be fashioned if and when it did become necessary or appropriate to ensure that justice was done to ensure that BHP was not vexed with the prospect of non-resident group members, who do not take a step to prosecute their claim in this class action, having the ability to commence another proceeding in another jurisdiction."

Consequences of the Full Court's decision for future class actions

The Full Court recognised that the inclusion of foreign resident group members creates uncertainty and may give rise to prejudice to defendants. That is particularly so for BHP because this class action includes "a substantial cohort of non-resident group members" and "the significant presence of nominee and custodian holders" of shares which obscures the "true identity and extent of group members."

The key consequences of the Full Court's decision for other class actions are twofold:

  • first, that the Court is likely to consider registration orders and class closure orders to address the uncertainty and prejudice related to foreign resident group members; and
  • secondly, that – unfortunately – it appears these orders will not be available until later (perhaps much later) in the proceedings.

Class action defendants are left in a position where they risk considerable time and costs to get a class action proceeding to the point in time where orders can be made addressing group membership. This also places a heavy burden on Court time and resources. As we have written elsewhere, it is to be hoped that law reform will address these issues.

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