22 Nov 2012
Known unknowns: Discovery and particulars of group members in class actions
by Michael Legg, Nicholas Mavrakis, Ross McInnes
Particulars and discovery are more likely to be ordered when needed to assist in a mediation as the provision of more accurate and complete information will facilitate rational bargaining which was more likely to lead to rational settlements.
The provision of discovery from, and particulars of, group members in class actions (also known as representative or group proceedings) has been rare. In a class action, group members are not parties and may not even be identified.
However, a number of recent applications for particulars or discovery have been made by defendants where plaintiffs have adopted a closed class group definition where group members are known.
The Victorian Court of Appeal in National Australia Bank Ltd v Pathway Investments Pty Ltd  VSCA 168 and again in Regent Holdings Pty Ltd v State of Victoria  VSCA 221 (Abalone class action) considered the issue.
The two cases, having been decided by differently constituted Court of Appeal, are not in harmony but the following requirements for these orders in a class action proceeding can be discerned:
The use of a closed class definition reduces the impracticality or burden of providing particulars and discovery because group members are known. However, the use of a closed class is not determinative.
The test for an order for particulars and/or discovery was expressed in the NAB class action to be whether it is "demonstrably necessary for the fair and just determination of a defendant’s case", but this was disavowed in the Abalone class action which stated that no such principle existed and attention must be placed on the specific facts and circumstances of each individual class action.
The purpose for which particulars and/or discovery is sought will be of central importance to determining whether the requested orders will be made.
Particulars and possibly discovery are less likely to be ordered when the common issues raised by the pleadings do not put in issue the individual actions (eg. reliance on representations) or circumstances of group members, but rather focus on the conduct of the defendant eg. what information was required to be disclosed pursuant to the continuous disclosure requirements.
Particulars and discovery are more likely to be ordered when needed to assist in a mediation as the provision of more accurate and complete information will facilitate rational bargaining which was more likely to lead to rational settlements. One party is not free to mislead another to conclude that a claim is worth more than it is.
The extent of the particulars or discovery ordered will depend on how onerous or difficult it is to provide. Reference will be made to considerations of cost and delay, as well as justice, in the exercise of discretions such as the making of orders for particulars and discovery, consistent with the overarching purpose in section 7 of the Civil Procedure Act 2010 (Vic).
NAB class action
The Victorian Court of Appeal considered the issue of discovery and particulars in relation to a group proceeding under Pt 4A of the Supreme Court Act 1986 (Vic). Pathway Investments Pty Ltd and Doystoy Pty Ltd, on their own behalf and representing a closed class of other shareholders, seek damages against National Australia Bank Ltd (NAB) in respect of alleged non-disclosure and misleading and deceptive conduct relating to the extent of losses from collateralised debt obligations, aka CDOs.
NAB sought from the plaintiffs the identification of the 20 largest shareholders who were group members by way of a request for particulars and then discovery from those group members to assist in the provision of expert evidence. The material sought was to be used to inform the conduct of an event study which would identify the cause and degree of share price movements.
Central to whether the particulars and discovery were needed turned on the common issues to be resolved as set out in the pleadings, and the need for the material sought, weighing what was required for the just determination of the proceedings, cost and delay.
The trial judge refused the application. On appeal, Justice Bell found that it could not be said that the material sought had no relevance to the common issues but it was not an error for the trial judge to refuse to make such orders.
The common issues did not raise the conduct of NAB in relation to the group members but rather focussed on what NAB was required to tell the market – what information was available and whether the information was material. This was an objective test. Further, it had not been established that the documents sought were needed to enable an expert to provide a report which would be likely to produce probative and admissible evidence. At most the evidence showed the documents would be useful and beneficial in NAB's case. The need for the information was also to be balanced against the width of the request and the burden that it would impose.
In the NAB case, although there was a closed class, that was not determinative. Justice Bell reasoned that the trial judge was entitled to take account of the usual position and expectations of group members in a class action, ie group members will not be required to participate as a party or be subject to orders for discovery. While the weight given to this factor may be less in a closed class, it could not stand in the way of an order for discovery which is "demonstrably necessary for the fair and just determination of a defendant’s case".
Abalone class action
The Abalone class action is brought by Regent Holdings Pty Ltd against the State of Victoria and Southern Ocean Mariculture Pty Ltd (SOM), on its own behalf and on behalf of a closed class of 194 group members. The class action alleged that that the State and SOM negligently allowed the release of a herpes-like virus, abalone viral ganglioneuritis, from an abalone aquaculture farm operated by SOM and thereby caused each of the class members to suffer loss and damage.
The judge at first instance had ordered that 14 class members provide particulars and discovery of documents relating to quantum. The judge made the orders to facilitate a court-ordered mediation. The orders were made to enable the State to make sensible decisions in settlement discussions. The plaintiff sought leave to appeal the decision. Leave to appeal was refused.
The Court of Appeal rejected a submission that it is generally accepted that a group member ought not be required to take any step in a class action until after determination of the representative party’s claim. The different types of group definition available in class actions (eg. open and closed classes) precludes the articulation of a generally accepted position.
The Court of Appeal also took issue with the appellant's reading of the judgment in National Australia Bank Ltd v Pathway Investments Pty Ltd, discussed above, and said there was no principle to the effect that "group members ought only ever be required to give discovery if it be demonstrably necessary for the determination of a representative party’s claim". The Court of Appeal also stated that observations in the NAB class action judgment to the effect that "discovery orders are not ordinarily made against group members unless there are compelling reasons" would be stated too broadly if directed to all class actions.
The Court of Appeal was adamant that it is not improper for a judge to make orders for particulars and discovery calculated to facilitate mediation. Indeed, settlement of proceedings was desirable and in Victoria Chapter 2 of the Civil Procedure Act 2010 (Vic) obliged courts and litigants to seek to achieve that end. The Court of Appeal saw the provision of more accurate and complete information as facilitating rational bargaining which was more likely to lead to rational settlements.
Finally, the Court of Appeal considered the burden and costs of compliance but did not find these sufficient to support a finding that the judge was in error.
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