The final decision was handed down in the case by the Honourable Justice Murphy on 20 June 2017. The decision reiterates that parties to a class action seeking to settle the action and release various rights of group members should give consideration to whether group members have been given sufficient notice during the class closure process that their rights (including individual rights not the subject of the action) may be compromised if they remain in the class.
From 2011 - 2013, investors in certain managed investment schemes operated by Willmott Forests Ltd and BioForest Ltd (both receivers and managers appointed and in liquidation) (the Willmott Companies) commenced four class actions in the Federal Court of Australia. The respondents to the class actions included the Willmott Companies, certain former directors of the Willmott Companies and finance companies that had offered loans to investors to enter into the schemes (the Financiers).
By the class actions, the group members claimed that:
- the product disclosure statements issued by the Willmott Companies in respect of the schemes were misleading and deceptive and, as a result of relying on the allegedly misleading and deceptive statements, the group members suffered loss, and
- the Financiers were knowingly involved in the misleading conduct and, as such, the loan agreements that the group members entered into with the Financiers (the loan agreements) were void.
After filing the class actions, the parties went through a class closure process, in which notices were sent to all group members who were invited to register as a member of the group or to ‘opt out’ of the group.
Throughout the course of the class action, substantial amounts remained owing under a number of the loan agreements, and a number of class members did not keep up with their re-payment obligations whilst the class actions progressed.
Before the class actions went to trial, in April 2015 the parties to the class actions entered into a deed of settlement to settle the class actions. The lead plaintiffs entered into the deed for themselves and on behalf of all of the group members. The deed purported to bind the registered group members, as well as those who had neither registered or opted out. The deed of settlement included terms that the lead plaintiffs on behalf of all group members (aside from those who had opted out) admitted that the loan agreements were enforceable.
Approval from the Federal Court
After the parties signed the deed of settlement, the lead plaintiffs applied to the Federal Court for approval pursuant to s33V of the Federal Court Act to enter into the deed of settlement on behalf of all group members and seeking an order that the deed of settlement bind all group members.
In April 2016 the Honourable Justice Murphy delivered judgment, denying the lead applicants’ application for approval of the deed of settlement.
Amongst the reasons why approval was not granted included the fact that the deed of settlement contained binding admissions of the enforceability of the loan agreements by the lead plaintiffs on behalf of all group members, which the Honourable Justice Murphy described as a “detriment” that was proposed to be “imposed in circumstances where it is unknown whether class members possess claims based in their individual or unique circumstances, and where they were not clearly informed [during the class closure process prior to the settlement] that, if they did not opt out, they would be so precluded.”
Following that decision, the parties negotiated a revised deed of settlement, whereby:
- the acknowledgment of the enforceability of the loan agreements was removed
- the releases provided in the deed did not extend to claims and/or defences personal to group members that were not claims commonly pleaded in the class actions, and
- before the deed became enforceable, group members would be provided with a further opportunity to opt out of the class action.
The Honourable Justice Murphy agreed to approve entry by the lead plaintiffs into the revised deed of settlement.
In his reasons, the Honourable Justice Murphy, in response to some objections filed against the revised deed of settlement by group members, observed that, “if they were dissatisfied with the proposed revised settlement they could have opted out (or sought leave to do so) to preserve their rights to bring their own proceeding (or indeed another class action). Although they are entitled to the benefit of sitting back and taking no active step in the proceedings, that right is not without limit.”
Settlement ought be in parties’ minds from day one of a class action - or, at the very least, during the class closure process. When preparing notices to class members (particularly class closure notices), the parties should consider notifying group members of the effect that opting in or out of the class may have on their rights if the class action is settled.
Of course, giving adequate notice to class members of rights they have that may be affected by a settlement before any such settlement is negotiated or agreed is difficult.
If the parties ultimately settle the dispute, the terms of the releases and admissions that the lead plaintiffs purport to give on behalf of all group members must be considered in light of any notices at the class closure stage or otherwise throughout the course of the litigation of the effect on group members’ rights that any settlement may have. Whilst the lead plaintiff has authority to bind group members beyond the scope of the pleaded case (as the Victorian Court of Appeal has recently confirmed in Bendigo and Adelaide Bank Lt v Pekell Delaire Holdings Pty Ltd [2017 VSCA 51), proper notice of the scope of any such settlement, with an opportunity to opt out, must be given.
If parties are concerned that group members have not previously been given sufficient notice and that the terms of the settlement may significantly affect a group members’ decision to stay in the class, then the parties may consider agreeing to a further round of opt outs before finalising a settlement.
The level of a further round of opts out may result in undesirable uncertainty to respondents. To address this uncertainty in the Willmott class action, the parties agreed that the settlement would only proceed, inter alia, if the total quantum of the claims of opt out group members did not exceed a stipulated amount.
The full decisions
The full decisions of the Honourable Justice Murphy of the Federal Court may be viewed at:
If you would like further details about the information contained in this bulletin or assistance with any class action related issues, please contact the authors.