03 Dec 2010

NSW rolls back contentious cy-près rule in class actions bill

The NSW Government has removed the contentious provision in its class actions bill allowing the Supreme Court to distribute the undistributed part of a fund of damages to charities or public interest beneficiaries, a move that should be welcomed by all potential defendants to a class action.

The original proposal and exposure draft of the Civil Procedure Amendment (Supreme Court Representative Proceedings) Bill 2010 (now the Courts and Crimes Legislation Further Amendment Bill 2010) gave the Supreme Court extremely broad powers:

  • to order the establishment of a fund of money to be distributed to group members; and
  • to establish a scheme for money remaining in the fund (or any part of it), that cannot practicably be distributed to group members, to be applied cy-près, which means "as near as (possible)".

As we pointed out at the time the exposure draft of the class actions bill was released, and in our submissions to the NSW Government, this could spur the growth of class actions.

In the United States similar laws have led to so-called "coupon litigation" – claims involving very small amounts, where it is difficult to identify members of the class, and the administrative costs of any settlement are prohibitive. Individual class members would receive trivial amounts, but plaintiff lawyers and litigation funders would make significant amounts.

The Bill has been passed and is awaiting assent. It is not clear when the class actions provisions will commence.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.