The High Court of Australia recently handed down a significant decision in the case of Lendlease Corporation Limited v Pallas (Lendlease Class Action), determining that the New South Wales (NSW) Supreme Court has the power to make a form of procedural order known as a ‘soft class closure’ order.
The ruling has positive implications for both plaintiffs and defendants in class action proceedings in NSW and brings the NSW regime into line with other courts around Australia. Many class action commentators say the decision will improve the efficiency of NSW Supreme Court class actions by facilitating early settlements where possible.
Background
The Lendlease Class Action commenced in the NSW Supreme Court in April 2019. The plaintiffs, shareholders (i.e. group members) who held shares in Lendlease between October 2017 and November 2018, alleged that Lendlease engaged in misleading or deceptive conduct and breached its continuous disclosure obligations, resulting in financial losses.
As part of its approach to mediation, Lendlease sought a soft class closure order under specific sections of the NSW Civil Procedure Act 2005 (CPA). Soft class closure orders seek to encourage group members to register their participation in a class action for settlement negotiations. If a group member doesn’t register, then that group member may miss out on the opportunity to benefit from any agreed settlement. If no settlement is reached, the registration process reopens, and the case continues.
Soft class closure controversy
The Lendlease decision comes off the back of contrasting decisions between state courts and the Federal Court, dating back several years. In 2020, the issue gained considerable prominence when the NSW Court of Appeal ruled that the NSW Supreme Court lacked the authority to make such orders under the CPA1. These decisions were then contradicted by the Full Federal Court in 2022 wherein the Federal Court said that the NSW Court of Appeal was ‘plainly wrong’, and in doing so, affirmed the Federal Court’s power to issue soft class closure orders under the Federal Court of Australia Act 1976 (Cth), which mirrors the relevant sections of the CPA2.
Not to be outdone, in 2024, as part of their judgment in the Lendlease Class Action, the NSW Court of Appeal reaffirmed its earlier line of precedence in holding that the NSW Supreme Court did not have the power to issue soft class closure orders under the CPA3.
This decision by the NSW Court of Appeal set the stage for the appeal to the High Court.
The High Court decision
On appeal the High Court overturned the NSW Court of Appeal’s decision in the Lendlease Class Action, confirming that NSW Courts do have the power to issue soft class closure orders under the CPA, and held:
- The NSW Court of Appeal had interpreted the statutory powers in the CPA ‘too narrowly’ and that the relevant sections of the CPA give broad powers to the NSW Courts.
- Encouraging group members to register for settlement negotiations does not detract from the open nature of class actions in NSW. It provides a choice for group members to register and sets out clear consequences should a group member fail to make that choice i.e. any group member that does not register cannot benefit from any settlement achieved.
- A soft class closure order does not interfere with the NSW Courts’ ultimate responsibility to approve a settlement.
- Potential future conflicts of interest between group members does not preclude NSW Courts from having the power to issue soft class closure orders. The High Court noted that conflicts are common in class actions and such conflicts should not be prematurely considered for the purposes of reducing the NSW Courts’ powers to make soft class closure orders.
Implications for class actions in NSW
The High Court’s decision is seen as a win for class action participants in NSW, both plaintiffs and defendants alike. The soft class closure process will likely facilitate early settlement discussions, with the benefit of potentially reducing the substantial time and costs often associated with class action litigation.
Moreover, Bellrock believes the High Court case should provide additional certainty to D&O insurers that meritorious class action claims can and should be positioned for earlier resolution noting soft class closure orders allow for more accurate quantum/loss calculations to be prepared in advance of any settlement discussions, improving the prospect of successful mediations and court-approval at settlement. Ultimately, soft class closure orders should help reduce the overall cost of meritorious class action claims for insurers at least in relation to time and legal spend.
Some commentators believe that the High Court’s decision will encourage more class actions to be filed in NSW. Bellrock consider that it is unlikely that the availability of soft class closure orders will translate into dramatically higher filings in NSW as most state courts and the Federal Court have historically been significant champions of the soft class closure process. The reality remains that the viability of any class action is predominantly driven by the merits of the underlying claim.
1 Haselhurst v Toyota Motor Corporation Australia Ltd and Wigmans v AMP Ltd
2 Parkin v Boral Limited
3 Pallas v Lendlease Corporation Ltd
