In the recent decision of Wetdal Pty Ltd as Trustee for the BlueCo Two Superannuation Fund v Estia Health Limited [2021] FCA 475 (Wetdal v Estia), Justice Beach approved a settlement reached between Estia Health Limited (Estia) and its shareholders concerning allegations that Estia breached its continuous disclosure obligations. The settlement involved no admission of liability by Estia.
The decision in Wetdal v Estia is noteworthy because Justice Beach found that the making of interlocutory 'class closure' orders by the docket judge in Wetdal v Estia, Justice Middleton, was within power. In so finding, Beach J distinguished the New South Wales Court of Appeal's decisions of Haselhurst v Toyota Motor Corporation Australia [2020] NSWCA 66; (2020) 101 NSWLR 890 (Haselhurst) and Wigmans v AMP Ltd [2020] NSWCA 104; (2020) 102 NSWLR 199 (Wigmans). The New South Wales Court of Appeal had held in these judgments that the NSW equivalent of section 33ZF of the Federal Court of Australia Act 1976 (Cth) (Act) did not empower Courts to make class closure orders at an early stage of the proceedings, on the basis that such orders were not necessary to ensure that justice was done in the proceeding.
Justice Beach questioned some of the reasoning in the decisions in Haselhurst and Wigmans. He indicated that in his view:
- class closure orders do not amount to a contingent extinguishment of group members' choses in action, as the concept of contingent extinguishment is itself problematic;
- common fund orders and class closure orders are distinct from one another, and therefore the making of the latter at an interlocutory stage is not necessarily beyond power;
- a requirement that group members take positive steps in a proceeding is not a sound basis to reject class closure orders, given positive steps are often required of group members in other contexts; and
- the existence of a conflict between group members is not a proper basis to reject class closure orders, given the Court is capable of managing conflicts as they arise.
Significantly, Justice Beach appears to have identified a possible way forward whereby class closure orders can be safely made at an interlocutory stage, so long as they are worded in such a way as to readily distinguish them from the orders sought (which were ultimately rejected) in Haselhurst and Wigmans.
Further background and analysis in respect of Beach J's reasons in Wetdal v Estia is set out below.
Background to Wetdal v Estia
Section 33ZF of the Act (and its equivalent provisions in state jurisdictions) allows the Court to make any order it thinks is ''appropriate or necessary to ensure that justice is done in the proceeding''. Following the implementation of various state and federal class action regimes, section 33ZF was applied broadly in a variety of circumstances, including to facilitate the making of common fund orders, class closure and registration orders to provide some certainty to respondents and litigation funders as to the number of group members that would be bound by a settlement or judgment (and returns to group members and the litigation funders).
In 2019, the High Court of Australia significantly read down the application of section 33ZF in BMW Australia Ltd v Brewster; Westpac Banking Corporation v Lenthall [2019] HCA 45; (2019) 374 ALR 627 (BMW). The Court held that section 33ZF was not a facilitative power and was instead a supplementary or ''gap filling'' power, which has the effect of ''support[ing] any interlocutory procedural order necessary to ensure that the pleaded issues are resolved justly between the parties''.
Following the High Court's decision in BMW, it was unclear whether section 33ZF could continue to support the making of class closure and registration orders at an interlocutory stage. This ambiguity was first answered by Haselhurst in the negative. In response to a submission that class closure orders amounted to a ''contingent extinguishment'' of group members' choses in action, the Court concluded that an order barring claims by potential group members at an early stage of proceedings was not ''necessary to ensure that justice is done in the proceedings.''
Shortly after Haselhurst, the NSW Court of Appeal was asked in Wigmans to again decide on the scope of the Court's power under the NSW equivalent of section 33ZF, and particularly whether an order that foreshadowed a class closure order in a notice to group members was valid. The NSW Court of Appeal in Wigmans unanimously affirmed the earlier decision in Haselhurst, and further considered that it was erroneous to foreshadow the making of class closure orders in notices to group members. Furthermore, the Court in Wigmans reasoned that class closure orders gave rise to a real conflict between those group members who were registered and those who were not.
So in Wigmans, the NSW Court of Appeal confirmed its earlier ruling in Haselhurst that class closure orders made at an interlocutory stage pursuant to section 33ZF of the Act were beyond power, having regard to BMW.
Wetdal v Estia
However, the uniformity of approach concerning section 33ZF has ebbed following Justice Beach's decision in Wetdal v Estia, where his Honour found that: (i) Justice Middleton's interlocutory 'class closure' orders were within power; and (ii) Justice Beach was empowered to make class closure orders as part of the settlement approval application. While it was already largely accepted that the Court had power to make a class closure order as part of a settlement approval application, Justice Beach's conclusions in relation to the first point appeared to be, at first blush, a departure from the decisions in Haselhurst and Wigmans.
The relevant parts of Justice Middleton's March 2020 'class closure' orders are extracted below:
8. Pursuant to section 33ZF of the Act, and subject to any further order of the Court, any Group Member who by the Class Deadline does not: (i) register in accordance with the manner provided for in Order 6 above; or (ii) opt out of this proceeding in accordance with the manner provided for in Order 4 above (Unregistered Group Member), will remain a group member for all purposes of this proceeding and shall not, without leave of the Court, be permitted to seek any benefit pursuant to any settlement (subject to Court approval) of this proceeding that occurs before final judgment.
9. Any Group Member wishing to seek a variation of Order 8 must deliver to the Applicants’ solicitors, by no later than the Class Deadline, written notice of the variation sought and a statement of the reasons for seeking the variation, and the solicitors shall forthwith notify the Respondent and the Court of the notice and the reasons.
His Honour explained that his departure from these authorities was a consequence of two key factual differences between the Justice Middleton's interlocutory 'class closure' orders and the orders sought in both Haselhurst and Wigmans, being:
- the words 'extinguishment' or 'barring' were not used, but rather, the orders were expressed in terms of a group member not being 'permitted to seek any benefit pursuant to any settlement (subject to Court approval)'; and
- the question as to whether unregistered group members ought receive a distribution from a settlement was question that the Court would need to consider in the future (by including the words ''without leave of the Court'').
As a result, Justice Beach concluded that Justice Middleton's interlocutory 'class closure' orders did not extinguish group member claims, contingently or otherwise. The 'true position' was that group members' claims would not be extinguished until such time as the settlement was approved under section 33V and those claims were either allowed as part of the settlement or otherwise dismissed. In finding that Middleton J's interlocutory 'class closure' orders were within power, Justice Beach added that in his view, those orders "provided a suitable precedent for use in other cases".
However, his Honour did not solely confine his analysis to factually distinguishing Haselhurst and Wigmans. His Honour also considered it appropriate to set out his views (and concerns) regarding the NSW Court of Appeal authorities.
In respect of Haselhurst, his Honour indicated his disagreement with the Court's acceptance of the premise that class closure orders amounted to a contingent extinguishment of group members' rights. Labelling this argument 'problematic', Justice Beach queried how an interlocutory order such as a class closure order, which is susceptible to variation, could consequently be classified as an extinguishment. His Honour also distinguished class closure orders from the common fund order that was struck down in BMW, on the basis that common fund orders were extraneous to the substantive rights of group members, whereas class closure orders were essential to the determinations or rights between the group members. For this reason, his Honour concluded that BMW ''was directed to a different problem'' than class closure orders, and reiterated that Haselhurst's reliance on BMW was problematic.
Justice Beach considered that Wigmans was equally problematic. First, his Honour expressed disagreement with the Court of Appeal's concern that group members were required to take a positive step to register in order to benefit from the settlement, given group members are often required to take steps of this kind where discovery, particulars or security is sought. Secondly, and relatedly, Justice Beach expressed the view that there is nothing in the BMW decision to suggest that an order (under section 33ZF) requiring group members to take a positive step in the proceeding is beyond power. Thirdly, his Honour rejected the Court of Appeal's concern in relation to the existence of a conflict of interest between group members, particularly in light of the Court's supervisory role and the requirement that it approve any settlement. His Honour concluded that: "with respect and with reluctance, I consider Wigmans to be problematic".
As a result of Justice Beach's comments in Wetdal v Estia, it is apparent that the making, and the validity, of class closure orders at an interlocutory stage of the proceeding remain live issues."
In this respect, it is notable that his Honour distinguished the facts of Haselhurst and Wigmans, rather than concluded that they were plainly wrong and should not be followed. His Honour's approach likely reflects the fact that the ultimate conclusion in Wetdal v Estia was not reached by reference to his criticisms of those authorities, but rather, was premised on the differing factual circumstances of Wetdal v Estia. That being said, his Honour's observations may prove persuasive where Haselhurst and Wigmans cannot be easily distinguished.
Conclusion
Justice Beach's judgment in Wetdal v Estia is a significant decision in respect of class closure orders following the High Court's narrowing of section 33ZF. His Honour's reasons provide a possible way forward whereby class closure orders can be safely made at an interlocutory stage, so long as they are worded in such a way as to readily distinguish them from the orders sought (which were ultimately rejected) in Haselhurst and Wigmans.
For further queries concerning class closure orders, and recent developments in class actions more generally, please do not hesitate to contact us.
Note: MinterEllison acted for Estia in this proceeding.