20 Jul 2017
Class closure: facilitating the "desirable end of settlement"
Ross McInnes, Yasmin Monfared
The latest decision in the Melbourne City Investments Pty Ltd / Treasury Wine Estates saga explores when it is appropriate for a Court to make "class closure" orders in class actions where it can facilitate the desirable end of settlement.
When Parliament introduced an opt-out class action regime, it did so for the dual purpose of providing access to justice and to provide an efficient and effective procedure to deal with multiple claims. The Courts quickly recognised that a common if not inevitable feature of opt-out class actions was that the defendant will be faced with uncertainty regarding the quantum of class members' claims.
Uncertainty about the quantum of the class action claims in turn generates uncertainty about settlement ‒ a defendant faces the challenge of weighing up the strength (or otherwise) of their position, and the likely cost of resolving the class action.
A practice of "closing the class" therefore developed. Class closure orders are a vehicle through which some certainty and scope can be provided in an uncertain world. They occur when the Court establishes a process for class members to identify themselves (usually through registration), generally for the purposes of participation in settlement discussions. Class members who do not register their interests are not able to participate in the fruits of any settlement.
Over the years there had been some divergence in judicial practice. In Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited  FCAFC 98 (MCI v TWE) the Full Court took the opportunity to provide some guidance on class closure issues (even though it was no longer necessary to deal with the arguments because the applicant had abandoned its contentions on the issue).
MCI v TWE
In mid-2014, Mr Brian Jones commenced a shareholder class action against TWE. During an opt-out hearing, TWE sought class closure orders which would close the class for all purposes. The practical effect of such an order would be that the class members who neither opted out nor registered were precluded from any settlement and, if settlement was not achieved, any subsequent favourable judgment.
The primary judge did not make the order. Rather, a class closure order was made which precluded group members who neither opted out nor registered from sharing in any settlement, but expressly preserved their rights to share in any subsequent judgment.
MCI lodged an appeal against the primary judge's findings in respect of the opt-out application, including that the primary judge's requirement for class members to register their claim in order to continue to participate in the proceedings, prior to settlement or judgment and before the terms and consequences of settlement were known, was an error of law and had the effect of improperly excluding them.
The Full Court explains how class closure works
The Full Court upheld the primary judge's class closure order. In doing so, the Full Court made a number of observations about class closure more generally.
First, it must be accepted that the requirement for class members to take active steps to register in order to share in a settlement of a class action undercuts to some extent the opt-out rationale underpinning the Part IVA regime.
Second, if a class closure order operates to facilitate the desirable end of settlement, it may be reasonably adapted to the purpose of seeking or obtaining justice in the proceedings and therefore appropriate under section 33ZF of the Act. In that regard, an important aspect of the utility of a class proceedings is that they may achieve finality not only for class members but also for the respondent.
Third, the Court should be cautious before making a class closure order that, if settlement is not achieved, operates to lock class members out of their entitlement to make claim and share in a judgment. While the facilitation of settlement is a good reason for a class closure order, an order to shut out class members who do not respond to an arbitrary deadline is not.
Fourth, the Court should usually not exercise the discretion to make a class closure order based merely on a respondent's assertion that it is unwilling to discuss settlement unless such an order is made.
Finally, whether a class closure order is appropriate in a particular proceeding is a question of balance and judicial intuition. The interests of the class as a whole, the surrounding circumstances, the stage of the proceedings, the attitude of the party, the complexity of the case and likely duration of the proceedings were all identified as potentially relevant factors.
For example, in MCI v TWE, the class closure order was appropriate in circumstances where the proceedings were at a stage where prospects could be reasonably assessed and the solicitors for the applicants were experienced and able to assess whether the closure was in the interests of the class members. However, in Winterford v Pfizer Pty Ltd  FCA 1199, class closure orders were not appropriate in circumstances were pleadings remained open, common questions were not yet settled and no settlement discussions had begun.
Moving forward with more certainty
Parties to class actions now have points of guidance when determining when a class closure order is appropriate, as well as a greater understanding of the Court's attitude towards the protection of class member rights to the fruits of judgment. It will not be good enough for parties to class actions to ask the Court to make class closure orders merely because the respondents state that they are unwilling to contemplate settlement unless a class closure order is made. It will be necessary to convince the Court that it is in the interests of the class as a whole, especially if the orders will facilitate the desirable end of settlement.