High Court clarifies the availability of pre-mediation class closure: Lendlease v Pallas

Class actions in Australia are "opt out". The representative party does not need to seek the consent of class members to commence a class action. This means that when a class action is commenced all individuals who meet the definition of the class are automatically part of the class action, unless they choose to opt out by a date set by the Court. However, there are usually group members who do not opt out but are not aware of or engaged with the class action. This means that the number of people engaged with the class, their identities, and/ or the nature of their claims is unknown even after the opt out date.

While the parties may exchange information about the number of group members, the information asymmetry between the parties about the number of group members (and their potential claims) can present a barrier to settlement. If the class action is settled without the number of group members being known, the Court may still require this information when considering whether the settlement is fair and reasonable.

One way to navigate the uncertainty is for the parties to seek and the Court to make "soft class closure" orders. Soft class closure orders require group members to register by a particular date, typically in advance of a mediation, if they wish to receive the benefit of any settlement. If, however, the parties do not reach a settlement, the class closure orders expire and the class is again at large. In practice this provides the parties with a greater degree of certainty about the size and composition of the group for during settlement negotiations.

Outside of Victoria where the Court has a specific power to make such orders, soft closure orders are typically made under the Court's general power to make orders.

The Pallas appeals

We previously wrote about soft class closure orders in an earlier appeal in this case where the NSW Court of Appeal determined that the Court did not have the power to make soft closure orders. This resulted in a difference between the NSW Court of Appeal and the Full Court of the Federal Court as to the interpretation of their almost identical powers. We said that, in the absence of legislative reform, an appeal to the High Court of Australia was required to resolve this divergence.

In Lendlease v Pallas [2025] HCA 19 the High Court has now confirmed that the NSW Supreme Court does have the power to make orders directed at group members:

• inviting them to register with the law firm acting for the representative plaintiff (to the extent they have not already done so or opted out of the class action); and

• notifying them that, if they do not register by a specified date and the class action settles at the mediation, a party intends to seek orders at the settlement approval hearing that only group members registered with the representative plaintiff's firm prior to the mediation are entitled to enjoy the fruits of any settlement.

The High Court's decision in Pallas

The High Court focused on whether the Supreme Court of NSW had the power to issue notices to group members pursuant to a pre-mediation registration scheme like that described above.

The High Court delivered four separate judgments, each deciding the Supreme Court of NSW did have the power to issue the group member notice contemplated, and the judges adopted broadly consistent or similar reasoning which taken together means that:

• The Supreme Court of NSW has broad powers under section 175(5) of the Civil Procedure Act 2005 (NSW) to make orders facilitating notice to group members of relevant matters about the class actions, including pre-mediation registration notices such as the one sought in Pallas. There is an equivalent provision in the other Australian class action regimes.

• The question of whether the Court has power to make such orders is distinct from whether it should do so, and if so, whether any settlement reached at mediation should subsequently be approved. The decision suggests that, at the settlement approval stage, the Court will consider whether unregistered group members should be excluded from participating in the fruits of the settlement (including whether the representative plaintiff's interests adequately align with the interests of unregistered group members).

• Contrary to earlier legal authority, it is not inconsistent with the opt-out nature of Australian class action regimes to require group members to take positive steps in the class action from time to time, where appropriate. Therefore, an order requiring group members to register their interest in participating in any settlement reached at mediation is not contrary to class actions being "opt-out" rather than "opt-in".