This morning’s ruling by the High Court allowing foreign resident group members in a shareholder class action raises strategic and practical challenges for potential respondents sued under Part IVA of the Federal Court of Australia Act 1976 (Cth) (BHP Group Limited v Impiombato [2022] HCA 33).
The class action against BHP
BHP Group Limited (BHP) is the respondent in a class action relating to the failure of the Fundão Dam in Brazil in 2015. The group members include persons who owned shares in BHP entities listed in Australia, the UK and South Africa; share prices declined significantly following the Dam’s collapse. Group members allege they suffered losses resulting from BHP's failure to disclose information about problems with the Dam, which they say amounts to misleading or deceptive conduct and contraventions of the listed entities' continuous disclosure obligations.
Evidence considered by the primary judge indicated that the class action may include a substantial number of foreign residents as group members in the Australian class action proceedings.
The High Court's decision: foreign resident group members are in
BHP argued that foreign residents should be excluded from the Australian class action proceedings relying on a presumption, which exists under the common law and statute, that Australian laws do not have extraterritorial effect. This argument was rejected both by the primary judge and the Full Federal Court. BHP was granted special leave to appeal to the High Court of Australia, which also rejected it.
Chief Justice Kiefel and Justice Gageler rejected BHP's argument because:
- BHP accepted that a foreign resident could be a representative party in a class action and failed to overcome the "immediate logical hurdle" this created for its argument about group members;
- BHP's argument impermissibly involved the making of implications or imposing limitations not found in the words used in Part IVA; and
- the Federal Court otherwise had jurisdiction to hear the claims raised in the class action. Their Honours stated that "Part IVA as a whole is concerned with the exercise of jurisdiction by the Federal Court. That is the bottom line".
Justices Gordon, Edelman and Steward rejected BHP's argument for similar reasons to Chief Justice Kiefel and Justice Gageler, and in addition said:
- "Part IVA is a procedural mechanism that allows for the grouping of existing claims" and there was no dispute that the Federal Court had jurisdiction to hear the claims raised in the class action;
- Part IVA was enacted on the understanding that the Federal Court's jurisdiction was "dependent on the amenability of the respondent [ie. BHP] to the jurisdiction, not the presence in the territory of persons on whose behalf the proceeding is being advanced";
- Parliament did not exclude foreign residents from the Federal Court's jurisdiction when enacting Part IVA and instead included opt out provisions "as the statutory mechanism to ensure that persons are not made subject to the Court's jurisdiction (or bound by a judgment given in a representative proceeding) if they are unwilling to participate"; and
- BHP's argument was contrary to the text, history and purpose of Part IVA.