The New South Wales representative proceeding: a class action half-way house.
Contents I. Introduction II. Background--The Challenger Decision III. Amendments to the Uniform Civil Procedure Rules IV. A Half-Way House for Class Actions
Following the decision in O'Sullivan v Challenger Managed Investments Limited ('Challenger') (2), the Uniform Civil Procedure Rules 2005 (NSW) ('UCPR') were amended in what appears to be an attempt to make the requirements for the commencement of representative proceedings reflect the requirements in Part IVA of the Federal Court of Australia Act 1976 (Cth) which created the Federal Court class action. Unfortunately, the amendments did not address a number of important aspects of class action procedure so that the procedural guidance provided for such complex proceedings is inadequate.
This article critically reviews the UCPR amendments with the aim of suggesting further amendments that would provide better guidance to the court and legal practitioners. The analysis is also of interest to other jurisdictions that have not yet adopted a modern class action regime but wish to accommodate the growing demand for securities, cartel, consumer protection and product liability proceedings with numerous claimants.
II. Background--The Challenger Decision
The UCPR commenced on 15 August 2005 and provided for representative proceedings in r 7.4 which effectively mirrored Part 8 r 13 of the Supreme Court Rules 1970 (NSW).
In April 2007, White J delivered his decision in Challenger on an application to strike out the representative proceeding. In that case, the plaintiff, O'Sullivan had commenced proceedings pursuant to r 7.4 of the UCPR on behalf of herself and group members who had invested in a property trust. The case involved allegations of misleading or deceptive conduct.
At the time of White J's decision and until November 2007, r 7.4 of the UCPR provided that:
(1) This rule applies to any matter in which numerous persons have the same interest or same liability in any proceedings.
(2) Unless the court orders otherwise, the proceedings may be commenced and carried on by or against any one or more persons as representing any one or more of them.
White J's decision appeared to have significant ramifications for the future conduct of representative proceedings in the NSW Supreme Court as he held that, inter alia:
1. the relief claimed in a representative proceeding must be 'beneficial to all' (3); and
2. representative proceedings will not be appropriate for damages claims where loss must be demonstrated by each individual. (4)
The decision had the potential to significantly restrict the scope of representative proceedings as it would have prevented representative proceedings being brought in New South Wales for damages claims where quantum, reliance and/or causation had to be individually proved. The attraction of the representative proceeding was further diminished by White J's observation that limitation periods on individual damages claims may continue to run even though a representative proceeding for declaratory relief was on foot. (5) It should be noted that, although the impact of this decision in New South Wales has been ameliorated by the changes to the UCPR, the decision will remain persuasive in the Federal Court for proceedings brought under Order 6 r13 of the Federal Court Rules. (6) Given the consequences of White J's decision, the Rules Committee resolved to review r 7.4 of the UCPR.
III. AMENDMENTS TO THE UNIFORM CIVIL PROCEDURE RULES
A. Representative proceedings rule amended
On 9 November 2007, r 7.4 of the UCPR was amended to provide that: (7)
(1) Subject to sub-rule (5), this rule applies to any proceedings concerning:
(a) any matter in which:
(i) numerous persons have claims against the same person, and
(ii) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances, and
(iii) the claims of all those persons give rise to a substantial common issue of law or fact, or
(b) any matter in which numerous persons have the same liability.
(2) Proceedings to which this rule applies may be commenced and, unless the court orders otherwise, carried on by or against any one or more persons as representing any one or more of them.
(2A) Any such proceedings may be commenced:
(a) whether or not the relief sought:
(i) is, or includes, equitable relief, or
(ii) consists of, or includes, damages, or
(iii) includes claims for damages that would require individual assessment, or
(iv) is the same for each represented person, and
(b) whether or not the proceedings:
(i) are concerned with separate contracts or transactions between the defendant in the proceedings and individual represented persons, or
(ii) involve separate acts or omissions of the defendant done or omitted to be done in relation to individual represented persons.
(3) At any stage of the proceedings, the plaintiff may apply to the court for an order appointing one or more of the defendants or one or more of the other persons to represent any one or more of them.
(4) If a person who is not a party to the proceedings is appointed as referred to in subrule (3), that person must be joined as a party under rule 6.24.
(4A) If it appears to the court that determination of the issue or issues common to all the represented persons will not finally determine the claims of all the represented persons, the court may give directions in relation to the determination of the remaining issues.
(4B) Without limiting subrule (4A), the court may direct that notice be given to some or all of the represented persons in the proceedings in respect of any matter.
(4C) A represented person, whether or not joined as a party, is taken to have brought proceedings on the day on which the person became a represented person on all of the person's causes of action that may be determined by judgment in the proceedings.
(5) This rule does not apply to proceedings concerning:
(a) the administration of a deceased person's estate, or
(b) property the subject of a trust.
The adoption of rr 7.4(1) and (2A) of the UCPR allows representative proceedings to be used in a much broader range of circumstances than would have been possible following the decision in Challenger. The amendments also addressed other deficiencies in the old rule. For example, r 7.4(4B) now provides for the giving of notice to represented persons of any matter, and r 7.4(4C) stops time running in relation to the limitation period once a representative proceeding that will determine the represented person's causes of action is commenced. (8)
B. Res Judicata clarified
In Challenger, it was submitted by the defendant that any judgment in the proceedings would not bind the group members other than the representative plaintiff due to r 7.5(1) of the UCPR which provided that a judgment or order made in representative proceedings 'is not enforceable against any of those persons who is not a party except by leave of the court'. (9)
White J held that a mistake had been made in the drafting of r 7.5(1), and his Honour construed the provision to mean that the legal principle of res judicata applied to bind the group members of the action to any order or judgment made in the proceedings. (10)
On 7 September 2007, r 7.5(1) was amended to reflect White J's interpretation, so that it now provides that:
A judgment or order made in proceedings in which a party has, pursuant to rule 7.4, represented a number of persons binds all of those persons, but is not enforceable against any of those persons who is not a party except by leave of the court. (11)
IV. A HALF-WAY HOUSE FOR CLASS ACTIONS
As early as 1992, in Esanda v Carnie, the NSW Supreme Court acknowledged that the provisions for representative proceedings were inadequate to accommodate class action proceedings as provided for in the Federal Court. (12) Gleeson CJ referred to the origins of the representative proceeding in English law, which was intended for use in cases in which the same interest was clearly held, for example where there was a common asset, fund, or common property. (13) Gleeson CJ adopted the words of Estey J in Naken v General Motors of Canada Ltd, (14) that 'the rule, consisting as it does of one sentence of some thirty words, is totally inadequate for employment as the base from which to launch an action of the complexity and uncertainty of this one.' (15) Although the rule in NSW has been expanded by the recent amendments, it remains inadequate in certain key respects.
The present situation in NSW bears many similarities to that of Victoria in the late 1980s. In 1986, ss 34 and 35 of the Supreme Court Act 1958 (Vic) were introduced. Those provisions bore a strong resemblance to r 7.4 and, in particular, attempted to expand the application of representative proceedings without providing the necessary procedural requirements and guidance. (16) Ultimately, ss 34 and 35 were considered to be so deficient due to the array of procedural issues that were left open, that they were repealed in their entirety and replaced with the current class action regime which mirrors the provisions of the Federal Court of Australia Act 1976 (Cth). (17)
Class action proceedings, as provided for in the Federal Court of Australia Act 1976 (Cth) and the Victorian Supreme Court Act 1986 (Vic), are governed by detailed procedural rules. In 1993, Michael Tilbury commented that the class action procedure provided under the Federal Court of Australia Act 1976 (Cth) is a 'great advance' on the state models for representative proceedings. (18) Tilbury noted that, in addition to specifying the conditions for group litigation, the relief claimable and the effect of judgment on the group, the Part IVA provisions provided substantial guidance in relation to the constitution of the group, initiation, conduct and management of the litigation. (19) By contrast, the provisions for representative proceedings now found in the UCPR are silent in relation to many of these issues.
More recently, Mason P of the NSW Court of Appeal suggested that the Supreme Court Rules Committee should address further the procedural issues that may arise in the course of representative proceedings in the UCPR. (20) The recent amendments to the UCPR effectively adopt the requirements set out in s 33C of the Federal Court of Australia Act 1976 (Cth) for commencing class action proceedings, but fail to address many of the other procedural issues. The UCPR provides no guidance in relation to the following important issues:
* mechanisms to terminate representative proceedings after commencement;
* standing requirements;
* whether representative proceedings in NSW should require or allow an opt in, opt out or limited group procedure for forming the group;
* substituting the representative party;
* adequacy of representation for group members;
* settlement of the proceedings;
* costs; and
Since the UCPR's amendment, the Victorian Law Reform Commission ('VLRC') on 4 March 2008 issued its Civil Justice Review report which contains a number of recommendations that impact upon class action procedure. (21) Most notably: (1) class actions may be brought on behalf of a smaller group of individuals or entities than the total number of persons who may have a claim (ie, a limited group class action), (2) there should be no legal 'requirement' that all class members have legal claims against all defendants in class action proceedings, but all class members must have a legal claim against at least one defendant, so as to facilitate claims against multiple defendants (3) the introduction of cy pres type remedies, (4) costs protection should be available for proceedings brought in the 'public interest' which may include class actions and (5) calling for further analysis on whether percentage contingent fees should be legalised. (22)
This article addresses recommendations 1 and 2 below. Recommendations 3, 4 and 5 require greater analysis than can be achieved within the scope of this article. (23)
A. No section 33N equivalent or certification requirement
The objective of group or class action litigation is to provide access to justice, to resolve disputes more efficiently and to reduce costs for the parties and the Courts. (24) These objectives are achieved through the aggregation of claims that are sufficiently cohesive to allow for their resolution in a single proceeding.
These objectives are achieved in class actions commenced pursuant to Part IVA of the Federal Court of Australia Act 1976 (Cth) through ss 33C and 33N. Section 33C specifies the requirements a plaintiff and the group must meet to be eligible to commence a class action. S 33N identifies the circumstances in which it would be inappropriate for a class action to continue, for example due to excessive cost, inefficiency or inappropriateness of the class action format. S 33N provides a mechanism to ensure that the class action procedure is not abused or used inappropriately or inefficiently. (25)
S 33N was adopted as a substitute for the United States system of certification. Rule 23(c)(1) of the US Federal Rules of Civil Procedure ('FRCP') requires a class action to be certified by the court before it can proceed. In order to achieve certification the class plaintiff must satisfy the court that the action meets the requirements of r 23. (26) Failure to achieve certification ends the class action. (27) The US Supreme Court requires district courts to conduct a rigorous analysis of the r 23 prerequisites and to take a 'close look' at the parties' claims and evidence in making a certification decision. (28) Indeed, limited discovery may be necessary to establish the wisdom of certification. (29) The Australian federal class actions procedure deliberately omitted this requirement on the basis of a perception that the US system had proven costly and time-consuming, and that the Australian system could achieve the same safeguard by ensuring that the defendant has a right to challenge the validity of the class action proceeding at any time. (30)
A significant criticism of the amended UCPR provisions is that, although the UCPR has effectively adopted s 33C of the Federal Court of Australia Act 1976 (Cth), there is no equivalent to s 33N in the UCPR, nor a certification process.
The only grounds upon which a Court is presently able to terminate representative proceedings once they have commenced is under UCPR r 7.4(2) which provides that '[p]roceedings to which this rule applies may be commenced and, unless the court orders otherwise, carried on by or against any one or more persons'. (31) The power for the Court to order the discontinuation of representative proceedings is at large and is silent as to the circumstances in which proceedings should be terminated. A more structured approach as provided for by s 33N or certification would guide both the Court and legal practitioners as to the matters that warrant a proceeding being discontinued.
It should also be noted that, while the amended UCPR r 7.4(1) mirrors s 33C of the Federal Court of Australia Act 1976 (Cth) in relation to when a representative proceeding can be commenced, the interpretation of those provisions may differ if there is no mechanism for terminating the proceedings. The High Court justified a liberal test for the 'substantial common issue of law or fact' in s 33C (32) on the basis that s 33N provided a safeguard for situations where the individual issues warrant individual rather than representative or class action proceedings. (33) There is a danger that this liberal test will be adopted in UCPR representative proceedings without consideration of the lack of alternative safeguards that warranted the liberal test. (34) Alternatively, two different tests may evolve in the Federal and New South Wales jurisdictions. In these circumstances it would seem appropriate that the UCPR be amended to insert a similar provision to s 33N so that there are not two different tests of what constitutes a 'substantial common issue' between state and federal jurisdictions.
Standing in the class action context is usually defined so that the representative plaintiff is a member of the group on who's behalf they are commencing proceedings or to allow non-members, usually ideological plaintiffs such as advocacy groups, charities and non-profit organisations, to bring proceedings. (35) Section 33D of the Federal Court of Australia Act 1976 (Cth) specifies the standing requirement for a representative party as follows:
A person referred to in paragraph 33C(1)(a) who has a sufficient interest to commence a proceeding on his or her own behalf against another person has a sufficient interest to commence a representative proceeding against that other person on behalf of other persons referred to in that paragraph.
Thus, Part IVA of the Federal Court of Australia Act 1976 (Cth) requires the representative party to be a member of the group to initiate proceedings. In contrast, UCPR r 7.4(2) provides that 'Proceedings to which this rule applies may be commenced and, unless the court orders otherwise, carried on by or against any one or more persons as representing any one or more of them'. The UCPR does not address the issue, rather it appears to simply allow any person to represent one or more of the group in any circumstances. The UCPR should positively state who has standing.
C. Opt in, opt out or limited group representative proceedings
Perhaps the most vexed question in relation to modern class actions involves the question of whether an 'opt in' or 'opt out' procedure should be utilised. (36) More recently the Full Federal Court has recognised the use of a limited group procedure. (37) Neither the UCPR or the previous rules address the issue and, as a consequence, representative proceeding can be structured as opt out, opt in or limited group on an ad hoc basis. (38)
1. Opt out
An opt out class action will bind all persons and entities that fall within the group definition, and the consent of those group members is not required for the commencement of the proceedings. Rather, the group members are given an opportunity to exclude themselves from the proceedings at a later date and will be bound by the outcome of the action if they do not exclude themselves. The opt out approach has been adopted in nearly all common law jurisdictions. (39)
The opt out approach is advocated on the basis that it promotes access to justice and efficiency as the person commencing the proceedings does not have to identify nor obtain consent from class members at the outset so that all potential group members are included in the proceedings unless they opt out. (40)
When introducing the federal class actions regime, the Attorney-General noted that:
the Government believes that an opt out procedure is preferable on grounds both of equity and efficiency. It ensures that people, particularly, those who are poor or less educated, can obtain redress where they may be unable to take the positive step of having themselves included in the proceedings. It also achieves the goals of obtaining a common, binding decision while leaving a person who wishes to do so free to leave the group and pursue his or her claim separately. (41)
However, the opt out approach has been criticised by litigation funders who argue that it allows some group members to 'free-ride', that is, benefit from the class action without making any contribution towards its cost. (42) Free riding occurs because the funder can only recover fees from those with whom it has a funding agreement, while everyone who meets the group definition is able to participate in the class action. The free-rider issue could be addressed, while maintaining opt out class actions, by adopting the US common fund approach to fees which would require the fee payable to a litigation funder to be calculated as a proportion of all the funds recovered, regardless of any funding agreement. This would require a mechanism for calculating the funder's fee. (43)
2. Opt in
The opt in approach requires each individual or entity who wishes to benefit from the proceedings to expressly consent to participate. Usually proceedings will be commenced by a representative party and notices will be published inviting potential group members to be part of the proceedings.
The opt in approach has received support in the past based on freedom of choice and the view that a person should have the right to decide whether to commence legal proceedings. (44) The opt in approach has also been advocated as it creates certainty for the court, the parties and the funders because the class members are known. (45)
However, the opt in approach has been criticised because it limits access to justice as those potential group members who cannot be located and notified will miss the opportunity to be involved in the litigation, and may not have the resources to commence their own litigation. Further, class actions allow for costs to be shared giving rise to economies of scale that will be lost or reduced for those group members who are not included in a class action. (46) The opt in approach has also been criticised as inefficient as those who wish to bring the same action against the defendant, but have not joined the class action must bring separate proceedings, potentially resulting in a multiplicity of proceedings for the same cause of action. (47) This outcome defies the principle of providing the most efficient use of public resources and administration of justice.
Both the Federal and Victorian Courts have held that the opt in approach is not permitted under their respective class actions legislation. (48)
3. Limited Group or Closed Class
The third approach which has recently been approved by the Federal Court, is the limited group or closed class procedure whereby only those group members who have formally consented to be represented in the proceedings prior to commencement are included. (49) The Full Federal Court arrived at the above decision through statutory construction of the words 'as representing some or all of them' in s 33C(1) to 'expressly permit the representative party to commence a proceeding on behalf of less than all of the potential members of the group'. (50) Existing group members are able to opt out of the proceedings but new group members cannot opt in. (51) The Victorian Law Reform Commission Civil Justice Review has also recommended the adoption of the limited group class action in Victoria. (52)
The limited group approach has the same advantages and disadvantages as an opt in approach but has been advocated on the basis that it reduces the ability of group members to free ride. However, this reduction in free-riding means that class action promoters such as litigation funders will effectively become the gatekeepers of access to justice. They will be able to choose which group members participate and on what terms. In shareholder class actions this may mean that the proceedings are brought on behalf of institutional investors but not individuals. (53) Litigation funding is a relatively new phenomenon in Australia and it is difficult to predict whether funding agreements will be open to negotiation and accessible to all or whether such agreements will exclude the very people that the class action regime was designed to empower. The recent development of the closed class clearly represents the need for the courts to choose between the competing ideals of removing 'free riders' from the justice system (as achieved by the opt in and closed class) and ensuring access to justice for all (as encouraged by the opt out class).
In Multiplex Funds Management Limited v P Dawson Nominees Pty Ltd, (54) where the closed class was defined by reference to those persons who had signed a funding agreement, Jacobson J conceded that 'it is difficult to see how this [class definition] can be reconciled with the goals of enhancing access to justice and judicial efficiency in the form of a common binding decision for the benefit of all aggrieved persons'. (55) However, Jacobson J was unwilling to apply policy considerations that were not expressed or implied in the statute and instead adopted a strict literal interpretation of the legislation. The fundamental policy issues should, however, be front of mind when drafting the rules. It should also be noted that the key words 'some or all' in s 33C are not repeated in r 7.4.
4. Any or All Approaches
The current UCPR regime allows for any of these approaches to be adopted, subject to the court ordering otherwise, with that discretion likely to be heavily influenced by the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings. (56) This position is unsatisfactory as it allows class action promoters to choose a structure which advances their commercial interests but not necessarily societal interests such as access to justice and the efficient use of court resources. It also introduces a degree of uncertainty in that representative parties and group members have no certainty as to whether the format of the proceedings when commenced will be allowed to continue. It also invites challenges to the chosen procedure. (57)
D. Substitution of the representative party
There are circumstances in which it may be necessary for the representative party to be replaced. For example, if the representative party becomes insolvent, a new representative party will need to be substituted. Similarly, where a representative party settles or otherwise resolves their own action, or for other reasons wishes to withdraw from the proceedings, some guidance is required as to when, why and how the representative party may be changed.
Section 33T of the Federal Court of Australia Act 1976 (Cth) provides that, if, on an application by a group member, it appears to the Court that a representative party is not able adequately to represent the interests of the group members, the Court may substitute another group member as representative party and may make such other orders as it thinks fit. (58) This provision may apply in circumstances of death, bankruptcy, insolvency or dissolution of the representative party.
Section 33W of the Federal Court of Australia Act 1976 (Cth) provides that a representative party may, with leave of the Court, settle his or her individual claim in whole or in part at any stage of the representative proceeding. A representative party who is seeking leave to settle, or who has settled, his or her individual claim may, with leave of the Court, withdraw as representative party. Where a person has sought leave to withdraw as representative party, the Court may, on the application of a group member, make an order for the substitution of another group member as representative party and may make such other orders as it thinks fit.
At present, the UCPR does not provide any guidance as to the procedures to be followed where the representative party withdraws from proceedings, becomes bankrupt or dies. There are no provisions for the substitution of the representative party in such situations.
E. Adequacy of representation
It is fundamental to representative proceedings where group members are bound by the outcome of litigation, but are not before the Court to protect their own interests, that their representative will loyally advance their interests. (59) Adequate representation is one of the mechanisms that alleviates the otherwise unacceptable situation that a group member's rights are determined in absentia without him or her being afforded a hearing that addresses their interests. (60)
The applicability of adequacy of representation to representative proceedings was recognised by the High Court in Carnie v Esanda Finance Corporation Ltd, (61) where Brennan J observed that:
it is precisely because of the flexible utility of the representative action that judicial control of its conduct is important, to ensure not only that the litigation as between the plaintiff and defendant is efficiently disposed of but also that the interests of those who are absent but represented are not prejudiced by the conduct of the litigation on their behalf. The self-proclaimed carrier of a litigious banner may prove to be an indolent or incompetent champion of the common cause in the courtroom ... I would add that if, for any reason, the court is not satisfied that the interests of the absent but represented class are being properly advanced, the court should exclude the represented persons from the action. That power can be exercised at any time before the judgment is perfected. (62)
The High Court's approach is consistent with the historical development of group litigation as explained by Professor Yeazell,
the represented must rely on the congruence of their interests with those of the representatives as the incentive for effective representation; the self-interest of the representative rather than the consent and supervision of the represented drives the active party. (63)
The UCPR should codify the requirement of adequacy of representation so as to specify whether it should be: (a) a pre-requisite to the commencement of a representative proceeding, as is the case in the US; (b) a basis for the replacement of the representative party as is the case under s 33T of the Federal Court of Australia Act 1976 (Cth) or; (c) inadequate representation would require the discontinuance of the proceedings. The rules should also specify who can raise the issue: group members, the defendant and/or the Court. Adequate representation impacts primarily upon group members. However, they are frequently unable to assess the adequacy of representation as they do not have the knowledge or resources to consider the issue. It is therefore appropriate that the Court on its own motion or the defendant be able to raise the issue of adequacy of representation.
Settlement rather than trial is the norm in class action proceedings. (64) However, settlement is more complex in the class action setting because the settlement is negotiated between the representative party and the defendants but impacts upon group members who may have delegated settlement authority or who have not yet been identified.
Consequently, there is the possibility of conflict and collusion. The interests of the representative party (or the class action promoters) may conflict with the interests of the group members, or there may be collusion between the representative party and defendant. The need to protect absent group members is provided for by rules requiring court approval of any settlement. In the Federal Court, a class action may not be settled or discontinued without the approval of the Court pursuant to s 33V. The Federal Court has acknowledged that it has a role to play in protecting absent group members in relation to settlement. (65) The UCPR should at a minimum expressly require Court approval of any settlement or discontinuance of proceedings.
The UCPR, or the Court by way of a practice note, could also go further and provide guidance on the criteria and procedure for assessing the approval of a settlement. (66) Section 33V makes no express reference to the criteria for approving settlement. However, the Federal Court has developed the following criteria for approving settlement, (1) to assess whether the proposed settlement or compromise is fair and reasonable and adequate having regard to the claims made on behalf of the group members who will be bound by the settlement; and (2) 'to be satisfied that any settlement or discontinuance of representative proceedings has been undertaken in the interests of the group members as a whole, and not just in the interests of the applicant and the respondent'. (67) The 'fair and reasonable and adequate' requirement has been further explained by reference to the 'nine factor test' applied in the United States Court of Appeals for the Third Circuit, namely (1) the complexity and duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining a class action; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement in light of the best recovery; and (9) the range of reasonableness of the settlement in light of all the attendant risks of litigation. (68)
The reference to adequacy and the nine factor test has attracted some criticism both because it is derived from the US Federal Rules of Civil Procedure on approving class action settlements and because some settlements do not involve a known sum but rather are schemes administered by the lawyers for the representative party in which the amount to be offered to each group member, and in some cases the total amount of the settlement, is not certain at the time of the hearing to have the settlement approved. (69) In the case of a settlement scheme it has been suggested that, in addition to considering any terms that are obviously unreasonable or unfair, the Court should focus on any group members who object to a settlement and their stated reason. (70)
It should be noted that this criticism is, itself, subject to reproach. The 'fair and reasonable and adequate' requirement is now specified in r 23(e)(1)(C) of the US Federal Rules of Civil Procedure but that requirement was added from 1 December 2003. Prior to that the US rule, like s 33V, specified no criteria for approving a settlement. (71) The 'fair and reasonable and adequate' formula developed at common law as US judges looked for a touchstone for approving settlements. (72) In any event, group members are not necessarily best placed to assess the fairness of a settlement as they may not have the incentive to monitor a settlement offer or access to legal advice to make informed submissions. (73) Nonetheless, the judiciary and lawyers would benefit from guidance as to the requirements for an acceptable settlement.
In Challenger, White J held that group members in a representative proceeding are not parties to the proceedings and therefore cannot be subject to a costs order due to r 42.3(1) of the UCPR. (74) The new amended rules do not address the question of costs in representative proceedings.
By way of comparison, the Federal Court of Australia Act 1976 (Cth) provides, at section 43(1A) that in a representative proceeding commenced under Part IVA, the Court may not award costs against a group member except as authorised by ss 33Q or 33R. The usual position is therefore that only the representative party is liable for costs. There are two exceptions. Section 33Q(3) provides that a sub-group representative party is liable for costs associated with the determination of the issue or issues common to the sub-group members. Section 33R states that where an individual group member appears in the proceeding for the purpose of determining an issue that relates only to the claims of that member, the individual group member, and not the representative party, is liable for costs associated with the determination of the issue.
This approach to costs is appropriate for representative proceedings in which an opt out approach is taken to defining the class. As group members are not individually identified, it would be both impractical and inconsistent with the policy of promoting access to justice, to impose costs on group members who have not actively consented or expressed any acknowledgment of the proceedings. This policy position or reasoning does not apply to an opt in or closed class procedure where group members make a conscious decision to join the proceedings. Where plaintiffs are joined in proceedings under r 6.19 of the UCPR, each plaintiff is liable for an adverse costs order. It may be more consistent to approach liability for costs from the perspective that joinder and opt in or closed class proceedings should be treated in the same way. As the plaintiffs or group members have affirmatively elected to pursue litigation they should be equally liable for any adverse costs order. The plaintiffs or group members may in turn seek an indemnity from a litigation funder to protect them against the risk of an adverse costs order. It seems only fair that, if the group members are able to pool their resources to commence litigation, that they also take joint responsibility for adverse costs orders should they arise. Finkelstein J identified several ways for group members to cost share, including direct contribution and funding agreements. (75) Each of these models could also be used to cater for an adverse costs order as well as sharing the costs of proceedings.
The expansion of liability for costs may be of concern for some who believe it will act as a disincentive to the commencement of a limited group class action. The position taken in this article is that a limited group class action more closely resembles joinder and if substance is to prevail over form then the costs rules for joinder should apply. Moreover, if a litigation funding agreement with the usual indemnity for an adverse costs order is in place then group members will be unconcerned as to whether the court rules make them liable for costs or not, provided the funder remains solvent. (76)
The UCPR sets out general provisions in relation to appeals but these general provisions do not address issues particular to representative proceedings. For example, if an appeal is filed, are all group members presumed to consent to the same representation for the appeal proceedings? If some group members succeed at first instance, and others fail, what provisions are there for sub-group members to seek alternative representation? Section 33ZC of the Federal Court of Australia Act 1976 (Cth) provides guidance in the Federal Court class action regime. In the Federal Court, an appeal by the representative party on behalf of group members in respect of the judgment, and to the extent that the appeal relates to issues common to the claims of group members, may be brought as a representative proceeding (which must comply with the rules for representative proceedings with the exception of s 33J (opt out rights)). The parties to the appeal will be the respondent and the representative party (as the representative of the group members).
There are instances where representation on appeal is more complicated. For example, in Szabo v Dasford Holdings Pty Ltd, (77) an appeal was lodged against a judgment in a class action where the representative party, Ms Revian, had been removed. Accordingly, the appeal was run by a new group member, Ms Szabo, who had replaced the representative party. The respondents challenged the appeal on the grounds that there is no provision in the rules for an appeal against a judgment by an applicant and group members who were not a party to the action which was the subject of the judgment. (78) Nicholson J held that the appeal was allowable under s 33ZC(1)(b) as the new applicant was a sub-group representative bringing an appeal relating to issues common to the claims of sub-group members. (79)
Alternatively, where the appeal is in respect of the determination of an issue that relates only to a claim of an individual group member, s 33ZC makes it clear that the parties to the appeal will be that group member and the respondent.
Where a representative party chooses not to bring an appeal within the time fixed for instituting the appeal, an additional safeguard is provided for the group members whereby another member of the group may, within a further 21 days, commence an appeal as representing the group members. (80) Consent from individual group members to bring the appeal is not required. Similar provisions apply in relation to sub-groups in a representative proceeding. Section 33ZD provides that the same procedural rules apply in relation to appeals to the High Court from judgments of the Court in representative proceedings.
Similar guidance to that provided by the Federal Court of Australia Act 1976 (Cth) relating to appeals is required in the UCPR.
V. CLASS ACTION PROCEDURES--LEGISLATION OR COURT RULES
An important distinction between a legislatively created class action procedure and class actions pursuant to court rules is the framework for interpreting specific provisions. A legislative class action procedure is to be interpreted through the rules of statutory construction. (81) However, when the class action provisions are in court rules that are subject to an overriding purpose clause, then different factors are introduced into the interpretative exercise. The overriding purpose provision of the Civil Procedure Act 2005 (NSW) mandates that the UCPR are to be interpreted in accordance with the requirement that the court rules should 'facilitate the just, quick and cheap resolution of the real issues in the proceedings', and introduces mandatory considerations such as (a) the just determination of the proceedings, (b) the efficient disposal of the business of the court, (c) the efficient use of available judicial and administrative resources, and (d) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties. (82) Compliance with the overriding purpose clause also allows for a significant element of judicial discretion.
The impact of the different approaches to interpretation can be illustrated by two examples. Firstly class definition and the use of the limited group class action where the approaches of the Full Federal Court in Multiplex can be contrasted with the reasoning of Young CJ in Eq in Jameson v Professional Investment Services Pty Ltd. The second example is to look at the issue of multiple respondents and s 33C(1)(a) of the Federal Court ofAustralia Act 1976 (Cth) in the context of the UCPR. Both examples demonstrate that the use of legislation or court rules will impact upon how specific provisions are interpreted.
A. Class definition
In Multiplex, as explained above, the Full Federal Court took a textual approach to statutory interpretation and shunned policy considerations that were not expressed or implied in the Federal Court of Australia Act 1976 (Cth). (83) The Court held that a limited group class action is not excluded by the Federal Court of Australia Act 1976 (Cth) and thus could be adopted in class action proceedings. In Jameson, Young CJ in Eq was clearly influenced by the overriding purpose provision of the Civil Procedure Act 2005 (NSW) in examining the concept of a limited class action. (84) His Honour opined that, 'from a public policy perspective, the best way forward is that which offers the most efficient use of public resources in terms of being quick and inexpensive whilst at the same time offering the most efficient administration of justice to the parties and represented members'. (85)
Young J recognised the efficiency in having a class action brought on behalf of the represented entities as opposed to each person bringing their own action but also noted that a limited group did not avoid a multiplicity of proceedings as other persons with the same cause of action who had not signed up to the proceedings would still be able to bring suit. (86)
The differences in approach are further highlighted by Lindgren J in Multiplex who specifically referred to the decision in Jameson so as to indicate that he disagreed with Young J's focus on the overriding purpose of the statute and instead preferred that close attention be paid to the specific terms of the statute. (87) The competing approaches arise because the class action regime in the Federal jurisdiction is found in the Federal Court of Australia Act 1976 (Cth) whilst in NSW it is in the court rules. The overriding purpose clause requires that a judge consider policy issues that may not be permissibly considered in the course of statutory construction and provides the judge with greater discretion and flexibility than the rules of statutory construction so as to enable the achievement of the overriding purpose.
B. Multiple respondents
The VLRC addressed the well-trodden debate surrounding the requirement in s 33C(1)(a) of the Federal Court ofAustralia Act 1976 (Cth) of 'claims against the same person' in multiple respondent cases. (88) This language has been incorporated into r 7.4(1)(a)(i) of the UCPR. The Full Federal Court in Philip Morris (Aust) Ltd v Nixon held that the requirement meant that each applicant and all group members must have a claim against all respondents. (89) A majority of the Full Federal Court in Bray v F Hoffman-La Roche Ltd held that the requirement meant that each applicant had to have a claim against all respondents but it was not necessary for every group member to have claims against all respondents. (90) A third option is the Ontario approach where claims against multiple respondents can be pursued where one representative party and some of the group members only have a claim against one respondent and a different representative party and group members have a claim against another respondent provided that there is a common issue of fact or law. (91)
This debate may play out very differently in NSW. First, any of the three approaches is open under the UCPR as there is no equivalent to s 33D(1) of the Federal Court of Australia Act 1976 (Cth) that requires a representative party to have an individual claim against each respondent. (92) Secondly, the overriding purpose requirement means that a Supreme Court judge must have regard not to rules of statutory construction but instead to how to 'facilitate the just, quick and cheap resolution of the real issues in the proceedings'. A focus on resolving the real issues in a just, quick and cheap manner may mean that r 7.4(1)(a)(i) of the UCPR does not have the prominence of its Federal Court of Australia Act 1976 (Cth) counterpart in federal case law because the focus must surely be on identifying common issues that upon resolution materially aid in resolving the litigation. Indeed it may necessitate the Supreme Court departing from the High Court's finding in Wong v Silkfield Pty Ltd that a 'substantial common issue of law or fact' is not a large or significant issue but rather is 'directed to issues which are 'real or of substance". (93) Resolving a substantive issue does not necessarily aid in the resolution of the litigation unless it is also a substantial part of the claim. Exactly how substantial a common issue needs to be to give effect to the overriding purpose requirement will need to be resolved on a case-by-case basis. For present purposes the short point is that policy concerns are given greater play when an overriding purpose clause applies so that the same wording in court rules and legislation may give rise to quite different results and NSW may differ from the Federal and Victorian jurisdictions in their application of class action requirements.
While the amendments made to r 7.4 of the UCPR have addressed the immediate consequences of the decision in Challenger, many serious difficulties remain. While it appears that the Rules Committee has attempted to transform the representative proceeding into a modern class action, it is submitted that their efforts will, ultimately, be unsuccessful. A modern class action is a complex proceeding. It involves many competing interests, not just those of the plaintiff and defendant, but also those of a range of class members whose interests will often not coincide. A class action will often involve complex factual and legal issues where the amount in issue may well be considerable. In these circumstances it is inevitable that the litigation will often be hard fought and any available point will be taken. Accordingly, it is imperative that the regime under which the class action is conducted deliver certainty and consistency. That, in turn, requires rules of practice and procedure which are comprehensive.
The amendments that have been made to r 7.4 do not satisfy these criteria. A range of key issues are left to be determined by the parties or the Court. This will inevitably lead to increased expense and delay as the parties and the Court grapple with the rules or engage in interlocutory skirmishing designed to achieve an advantage in the substantive proceedings. In these circumstances, potential plaintiffs and class action promoters will simply take their proceedings elsewhere to a jurisdiction where they can be sure of an acceptable level of certainty and consistency.
Rather than attempting to address the problem by way of comparatively minor amendments to the existing rules, the issue should be addressed head on. Either the NSW Uniform Rules Committee or the Parliament should adopt a modern class action regime that will deliver the level of certainty and consistency that is required. It might be argued that any decision to adopt a comprehensive class action regime should be made by Parliament, after appropriate consultation, given the multitude of policy issues involved and the ramifications for consistency between Australian jurisdictions if NSW has its regime in court rules subject to an overriding purpose clause. However, it can also be said that as the Rules Committee has embarked on the process of reform, it should finish the job.
The piece meal approach that is reflected in the recent amendments to the UCPR was attempted and failed in Victoria. Victoria then went on to introduce a regime that mirrored the provisions of the Federal Court of Australia Act 1976 (Cth). While not without its faults the regime that has been adopted in Victoria and federally has proved to be reasonably successful. Accordingly, New South Wales should, in adopting a modern class action regime, introduce a procedure which at least mirrors that in the Federal Court of Australia Act 1976 (Cth). The Courts and litigants in NSW will then be able to draw upon the jurisprudence that has developed in the Federal and Victorian Courts. (94) This will inevitably lead to a reduction in the costs of class action litigation and ensure consistency in the three major jurisdictions in Australia.
(1) Esanda Finance Corporation Ltd v Carnie (1992) 29 NSWLR 382 ('Esanda v Carnie'), 390 (Gleeson CJ).
(2) (2007) 214 FLR 1.
(3) Challenger (2007) 214 FLR 1, 13. Mere common questions of law and fact were deemed insufficient to commence a representative proceeding where the relief sought by group members required individual determination, but a claim for declaratory relief would be a legitimate basis to commence representative proceedings: 58-60. See also Challenger (2007) 214 FLR 1, 13-14, citing Wong v Silkfield Pty Limited (1999) 199 CLR 255, 261; Lord Aberconway v Whetnall (1918) 87 LJ Ch 524, 526 and Prudential Assurance Co Limited v Newman Industries Limited  1 Ch 229, 251-252.
(4) Challenger (2007) 214 FLR 1, 16, 18. The Challenger decision and its potential ramifications are discussed in more detail in M Legg, V McBride and S Clark, 'The Challenge of Class Actions in the Supreme Court of NSW' (2007) 45(8) Law Society Journal 56.
(5) Challenger (2007) 214 FLR 1, 16.
(6) See the comments of Jacobson J in Multiplex Funds Management Limited v P Dawson Nominees Pty Limited (2007) 164 FCR 275, 298-9. An appeal was lodged against Whites J's decision in Challenger but was later withdrawn.
(7) Uniform Civil Procedure Rules (Amendment No 19) 2007, NSW Government Gazette No 167 on 9 November 2007.
(8) Uniform Civil Procedure Rules 2005 (NSW) r 7.4(4B) may be contrasted with s 33X of the Federal Court of Australia Act 1976 (Cth) which contains the same general power to require notices but also specifies particular events of which notice must be given, such as the right to opt out, but allows for the Court to dispense with notice where there is no claim for damages. Section 33Y of the Federal Court of Australia Act 1976 (Cth) provides further requirements for notice such as how to give such a notice. Uniform Civil Procedure Rules 2005 (NSW) r 7.4(4C) may be contrasted with s 33ZE of the Federal Court of Australia Act 1976 (Cth) which not only suspends the limitation period but also provides for it to begin running again if the group member opts out or the proceedings are determined without resolving the group member's claim.
(9) Challenger (2007) 214 FLR 1, 7.
(10) Ibid 21-27.
(11) Uniform Civil Procedure Rules (Amendment No. 15) 2007, NSW Government Gazette No. 116 dated 7 September 2007.
(12) Esanda v Carnie (1992) 29 NSWLR 382, 390 (Gleeson CJ).
(13) Ibid 389 (Gleeson CJ).
(14) (1983) 144 DLR (3d) 385.
(15) Esanda v Carnie (1992) 29 NSWLR 382, 390 (Gleeson CJ).
(16) For a discussion of ss 34 and 35 of the Victorian Supreme Court Rules, see P Dawson Nominees Pty Ltd v Multiplex Ltd (2007) 242 ALR 111, 122; Zentahope Pty Ltd v Bellotti (Unreported, Supreme Court of Victoria, Appeal Division, Brooking, Fullagar and Tadgell JJ, 2 March 1992); V Morabito and J Epstein, Class Actions in Victoria: Time for a New Approach (Victorian Attorney-General's Law Reform Advisory Council Expert Report 2, 1997) 15.
(17) See Zentahope Pty Ltd v Bellotti (Unreported, Supreme Court of Victoria, Appeal Division, Brooking, Fullagar and Tadgell JJ, 2 March 1992) 25 (Brooking J):
[Section] 35 says nothing about the consequences of the death, bankruptcy or dissolution of the plaintiff, or of one of several plaintiffs, or of what is to be done if the plaintiff, or one of several plaintiffs, wishes to withdraw from the litigation, or if the persons represented wish to replace the plaintiff with some other person. It says nothing about what is to be done if some or all of the persons represented wish to withdraw from the litigation. Nothing is said on the important question whether orders for costs may be made in favour of or against represented persons. The section does not say whether represented persons are to be, or may be, treated as parties to the litigation for any purpose. The effect of the litigation on the running of time under the Statute of Limitations is not mentioned. Appeals are not dealt with. How far the consents given under subs(2) or subs(4) will authorise amendments to the pleadings, or the addition or substitution of persons as defendants, is not dealt with. Nothing is said on the subject of counter-claims. The effect of a compromise entered into by the plaintiff is not dealt with. The section leaves open the question whether the plaintiff may discontinue the action ... S35 does not expressly say whether there may be included in a representative proceeding claims which are not made pursuant to s 35 ... Nor does it say whether the whole proceeding must fail if there is a defence to the claim of the plaintiff, as was the case both under the Chancery practice and under the Judicature Act Rule ... Beyond empowering the Court to give directions concerning the conduct of the proceeding, the section is silent as to procedure.
See also G Reinhardt, 'Class Actions in Victoria: Quo Vadis?' (1993) 67 Law Institute Journal 61, 62 and Morabito and Epstein, above n 16, 15.
(18) M Tilbury, 'The Possibilities for Class Actions in Australian Law' (Paper presented at the 28th Australian Legal Convention, Hobart, 26-30 September 1993) 133.
(19) Tilbury, above n 18, 133, 134. Tilbury concluded at 149 that
[w]hat prevents the traditional representative action from fulfilling the functions of modern class actions is not the wording of the relevant rules, but the absence from those rules of detailed procedures--such as those which are now found in the federal regime and whose absence has contributed to the evisceration of 'the overly brief and enigmatic provisions' of ss 34 and 35 of the Supreme Court Act 1986 (Vic) which would allow the effective and efficient management of such actions. Not unreasonably, courts have, typically, taken the view that, without such procedural directions, they simply cannot turn the traditional representative action into a class action.
(20) Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd and Others (2005) 63 NSWLR 203 (Mason P), (Hodgson and Sheller JJ agreeing) 278.
(21) Victorian Law Reform Commission, Civil Justice Review, Report No 14 (2008) <http://www.lawreform.vic.gov.au/ wps/wcm/connect/Law+Reform/Home/Com pleted+Projects/Civil+Justice/LAWREFORM+-+Civil+Justice+Review:+Report>.
(22) Ibid 559-560, 693-694.
(23) The Victorian Law Reform Commission's recommendations are systematically addressed in S Stuart Clark and Christina Harris, 'The Push to Reform Class Action Procedure in Australia: A Defence Perspective' (2008) 32(3) Melbourne University Law Review forthcoming.
(24) Commonwealth, Parliamentary Debates, House of Representatives, Second Reading Speech, 14 November 1991, 3176 (Attorney-General); Bright v Femcare Ltd (2002) 195 ALR 574, 605-6:
the principal objects of the class action procedure ... are: (1) to promote the efficient use of court time and the parties' resources by eliminating the need to separately try the same issue; (2) to provide a remedy in favour of persons who may not have the funds to bring a separate action, or who may not bring an action because the cost of litigation is disproportionate to the value of the claim; and (3) to protect defendants from multiple suits and the risk of inconsistent findings.
(25) P Dawson Nominees Pty Ltd v Multiplex Limited (2007) 242 ALR 111, 116.
(26) The three types of class action are available under US Federal Rules of Civil Procedure r 23 and are set out in r 23(b)(1), (2) and (3). Rule 23(b)(3) is the most common type of class action and has the following requirements which the plaintiff must demonstrate are met at the certification hearing: the class is so numerous that joinder of all members is impracticable (numerosity), there are questions of law or fact common to the class (commonality), the claims or defences of the representative party are typical of the claims or defences of the class (typicality), the representative party will fairly and adequately protect the interests of the class (adequacy of representation), questions of law or fact common to the members of the class predominate over any questions affecting only individual members (predominance); and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy (superiority).
(27) Subject to the right of appeal under US Federal Rules of Civil Procedure r 23(f). See Hevesi v Citigroup Inc, 366 F3d 70 (2d Cir, 2004) for an appeal of certification in the Worldcom class action.
(28) General Tel Co v Falcon, 457 US 147, 161 (1982) and Amchem Products Inc v Windsor, 521 US 591, 615 (1997).
(29) See US Federal Rules of Civil Procedure 23 Advisory Committee's Note to 2003 amendments.
(30) Australian Law Reform Commission, Grouped Proceedings in the Federal Court, Report No 46 (1988), -. For a contrary view see R Mulheron, 'Justice Enhanced: Framing an Opt-Out Class Action for England' (2007) 70(4) Modern Law Review 550, 568 where she comments that the decision not to require certification in a Part IVA of the Federal Court of Australia Act 1976 (Cth) class action
... has been singularly unsuccessful. Litigation under Part IVA has been mired in numerous interlocutory applications about issues that could better have been addressed at a certification hearing.
(31) (Emphasis added). If representative proceedings are discontinued, the group members may commence individual proceedings. Representative proceedings are also subject to applications for strike out or summary judgment in accordance with the Uniform Civil Procedure Rules.
(32) In Wong v Silkfield Pty Limited (1999) 199 CLR 255, 267, 'substantial' was held to mean 'real or of substance' rather than 'large' or 'of special significance'.
(33) Ibid 267-8 (quoting Spender J at first instance in Wong v Silkfeld Pty Limited (1998) ATPR [paragraph] 41-613, 40-726).
(34) See Shipley v Masu Financial Management Pty Limited  NSWSC 252, (Unreported, Hammerschlag J, 3 April 2008) ,  where Hammerschlag J, applying the amended Uniform Civil Procedure Rules 2005 (NSW), cites the test developed in Wong v Silkfield without reference to the omission in the Uniform Civil Procedure Rules 2005 (NSW) of s 33N.
(35) R Mulheron, The Class Action in Common Law Legal Systems: A Comparative Perspective (2004) 303-309.
(36) See Australian Law Reform Commission, above n 30, -; Alberta Law Reform Institute, Class Actions, Report No 85 (2000) -, Ontario Law Reform Commission, Report on Class Actions, Toronto: Ministry of the Attorney General (1982) 467-492, Scottish Law Commission, Multi-Party Actions, Report No 154 (1996) Edinburgh: HMSO, [4.47]-[4.70]. See also Federal Rules of Civil Procedure (US) rr 23(b)(1) and (2) which create mandatory class action where no opportunity to opt out or opt in is afforded but all entities which fall within the group definition are bound by the outcome.
(37) Multiplex Funds Management Limited v P Dawson Nominees Pty Limited (2007) 164 FCR 275, 282 (Lindgren and Jacobson JJ) 291, 293-5 (French J agreeing).
(38) An opt in approach was employed by Carnie v Esanda Finance Corporation Ltd (1996) 38 NSWLR 465, 473, Keelhall Pty Ltd t/as 'Foodtown Dalmeny' v IGA Distribution Pty Ltd  NSWSC 816, ,  and Tuxford v State of New South Wales  NSWSC 445 (Unreported, Master Harrison, 27 May 2004) . A limited group approach was employed by Challenger (2007) 214 FLR 1, 6, 19. An opt out approach was employed by Cauvin v Philip Morris Limited  NSWSC 736, (Unreported, Windeyer J, 22 August 2002)  and Shepherd v Australia and New Zealand Banking Group Limited (1996) 20 ACSR 81, 83-84, but at 99-100 it was held that an opt out approach was not appropriate.
(39) M Legg, 'Institutional Investors and Shareholder Class Actions' (2007) 81 Australian Law Journal 478, 487. See also Federal Rules of Civil Procedure (US) r 23(c)(2), Federal Court Rules (Canada) r 299.23, Code of Civil Procedure (Quebec) Arts 1006(e), 1007, Class Proceedings Act 1992 (Ontario) s 9, Class Proceedings Act 1996 (British Columbia) s16 (though a non-resident of British Columbia may opt in). The main exception is the UK which has adopted an opt in approach in relation to its Group Litigation Order procedure (Civil Procedure Rules (UK) 19.10 to 19.15) but there have been recommendations for the addition of an opt out approach (Civil Justice Council, Improving Access to Justice through Collective Actions: A Series of Recommendations to the Lord Chancellor, July 2008, 130-135 <http://www.civiljusticecouncil.gov.uk/ files/Improving_Access_to_Justice_through _Collective_Actions.pdf>.
(40) Australian Law Reform Commission, above n 30, ; Mulheron, above n 35, 37.
(41) Second Reading Speech by the Attorney-General, above n 24, p 3177. See also Jameson v Professional Investment Services Pty Ltd (2007) 215 FLR 377, 388 where Young CJ in Eq noted that the opt-out approach 'promotes the public interest by allowing persons with socio-economic disadvantages to be part of the proceedings primarily because they are shielded from exposure to costs'.
(42) IMF Australia Ltd, The Shareholder (August 2006) 1, 3: 'IMF will be unlikely to offer funding for a class action if shareholders ... are able to 'freeload' on the legal work being paid for IMF'; R Osman-Chin and M Priest, 'Funding headache for class actions', The Australian Financial Review, 29 September 2006, 58.
(43) A statutory version of the common fund approach has been advocated by Legg, above n 39, 488.
(44) V Morabito, 'Class Actions: The Right to Opt Out Under Part IVA of the Federal Court of Australia Act 1976 (Cth) (1994)' 19 Melbourne University Law Review 615, 620.
(45) Mulheron, above n 35, 30.
(46) See Morabito and Epstein, above n 16, 16:
in relation to those who cannot initiate individual proceedings because of economic, social or psychological barriers, the end result is denial of access to justice. Those who can commence individual proceedings, and who are not aware of the class suit will not receive the benefits flowing from a single adjudication of similar claims such as the availability of greater resources;
See also B Kaplan, 'Continuing Work of the Civil Committee: 1966 Amendments of the Federal Rules of Civil Procedure (1)' (1967-1968) 81 Harvard Law Review 356, 397-8.
(47) Jameson v Professional Investment Services Pty Ltd (2007) 215 FLR 377, 389. This criticism has also been raised in the US by the Class Action Committee of the Commercial and Federal Litigation Section of the New York State Bar Association, 'Opting Out on Opting In' (1998) 4 (1) NY Litigator 49, 51 (arguing that the opt in approach will make multiple class actions more likely except in relation to small claims where the loss of efficiencies may make a class action unviable).
(48) Dorajay Pty Ltd v Aristocrat Leisure Ltd (2005) 147 FCR 394, 431; Rod Investments (Vic) Pty Ltd v Clark  VSC 449, (Unreported, Hansen J, 18 November 2005) ; Multiplex Funds Management Limited v P Dawson Nominees Pty Limited (2007) 164 FCR 275, 294 (Jacobson J).
(49) Multiplex Funds Management Limited v P Dawson Nominees Pty Limited (2007) 164 FCR 275, 282, 299 held that a class action may be commenced with the express consent of a narrowly defined class. In that case, the class was defined to include only investors who had entered into a litigation funding agreement with the particular funder prior to the commencement of the proceedings.
(50) Ibid 291.
(51) Section 33J of the Federal Court of Australia Act 1976 (Cth) clearly provides that a group member has the right to opt out of a representative proceeding by written notice. However, in the context of a closed or limited class, this right may be illusory. Jacobson J acknowledges in Multiplex Funds Management Limited v P Dawson Nominees Pty Limited (2007) 164 FCR 275, 295, that the execution of a funding agreement (that may require group members to pay a proportion of the costs of the whole proceeding notwithstanding that the group member may opt out during the proceeding), acts as a substantial practical disincentive to a group member to exercise the right to opt out of the proceeding. Accordingly section 33J which allows group members in the Federal Court to opt out of proceedings may become, in practice, redundant in those circumstances.
(52) Victorian Law Reform Commission, above n 21, 559.
(53) Legg, above n 39, 485.
(54) (2007) 164 FCR 275.
(55) Ibid 292, 294.
(56) See s 56 of the Civil Procedure Act 2005 and Jameson v Professional Investment Services Pty Ltd (2007) 215 FLR 377, 387-90.
(57) Mulheron, above n 35, 34.
(58) See Wong v Silkfield (1999) 199 CLR 255, 266 and Bright v Femcare Ltd (1999) 166 ALR
743, 754 referring to section 33T as a significant safeguard.
(59) M Legg, 'Judge's role in settlement of representative proceedings: Lessons from United States class actions' (2004) 78 Australian Law Journal 58, 63.
(60) See Bright v Femcare Ltd (1999) 166 ALR 743, 742-5, 755 recognising that the rules of natural justice, including the right to be heard, are an essential element in the judicial process and are applicable to a Part IVA representative proceeding. The other mechanisms for protecting absent group members are the right to opt-out and notices. However, these measures offer incomplete protection as they are based on the absent group member being aware of the proceedings which may not be the case.
(61) (1995) 182 CLR 398.
(62) Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398, 408.
(63) See Yeazell S, 'From Group Litigation to Class Action, Part I: The Industrialization of Group Litigation' (1980) 27 UCLA Law Review 514, 522, cited with approval in Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398, 429 (McHugh J). See also Femcare Ltd v Bright (2000) 100 FCR 331, 345.
(64) See eg Neill v P & O Cruises Pty Ltd  FCA 1325 (Unreported, Weinberg J, 30 October 2002); Jarrama Pty Ltd v Caltex Australia Petroleum Pty Ltd  FCA 1114 (Unreported, Crennan J, 27 August 2004); Courtney v Medtel Pty Ltd (No 5) (2004) 212 ALR 311; Tasfast Air Freight v Mobil Oil Australia Ltd  VSC 457 (Unreported, Bongiorno J, 22 October 2002); Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322; Guglielmin v Trescowthick (No 5)  FCA 1385 (Unreported, Mansfield J, 12 October 2006); Haslam v Money for Living (Aust) Pty Ltd (Administrators Appointed)  FCA 897 (Unreported, Gordon J, 8 June 2007); Taylor v Telstra Corporation Ltd  FCA 2008 (Unreported, Jacobson J, 13 December 2007).
(65) See eg Lopez v Star World Enterprises  FCA 104 (Unreported, Finkelstein J, 28 January 1999), -.
(66) This suggestion was made by the ALRC in relation to the Federal class action procedure. See Australian Law Reform Commission, Managing Justice: A Review of the Federal Civil Justice System (1999) [7.108].
(67) Haslam v Money for Living (Aust) Pty Ltd (admin apptd)  FCA 897, (Unreported, Gordon J, 8 June 2007)  citing Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459, 465 for the first proposition and ACCC v Chats House Investments Pty Ltd (1996) 71 FCR 250, 258; Lopez v Star World Enterprises Pty Ltd  ATPR 141-678,  and Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322, 332 for the second proposition.
(68) Re General Motors Corporation Pick-Up Truck Fuel Tank Products Liability Litigation (3d Cir, 1995) 55 F3d 768, 785; Williams v FAI Home Security Pty Ltd (2000) 180 ALR 459, 465. See also the Federal Judicial Center, Manual for Complex Litigation (4th ed, 2004) 315-318, which sets out a more extensive list of factors for consideration.
(69) See Jessup J's criticism of the nine factor test and the concept of adequacy in Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322, 332-5. See also Taylor v Telstra Corporation Ltd  FCA 2008 (Unreported, Jacobson J, 13 December 2007) for a further example of a settlement scheme where the total amount of the settlement was unknown at the time approval was granted.
(70) Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322, 335.
(71) See Legg, above n 59, 60, which sets out the US Federal Rules of Civil Procedure before and after the amendment.
(72) See Report of the Judicial Conference Committee on Rules of Practice and Procedure (September, 2002) 13 <http://www.uscourts.gov/ rules/jc0902.html>: 'New Rule 23(e)(1)(C) would adopt an explicit standard for approving a settlement for a class: the proposed settlement must be 'fair, reasonable, and adequate.' This is the standard that has been stated in the case law.
(73) Christopher Leslie, 'The Significance of Silence: Collective Action Problems and Class Action Settlements' (2007) 59 Florida Law Review 71 arguing that silence by group members is not an endorsement of a settlement and explaining why group members may not object to a settlement. In particular, because of a collective action problem whereby an individual group member's cost of objecting may be greater than the value of their share of any settlement so that it is rational not to object to an inadequate settlement (at 113).
(74) Challenger (2007) 214 FLR 1, 19. Uniform Civil Procedure Rules 2005 (NSW) r 42.3(1) states that 'Subject to rule 42.27, the court may not, in the exercise of its powers and discretions under section 98 of the Civil Procedure Act 2005, make any order for costs against a person who is not a party.' There are exceptions to this rule which would allow a costs order against a group member in particular circumstances, such as failure to comply with judgment, breach of an undertaking, contempt of court, abuse of process, etc. See also Carnie v Esanda Finance Corporation Limited (1995) 182 CLR 398, 420.
(75) P Dawson Nominees Pty Ltd v Multiplex Ltd (2007) 242 ALR 111, 120.
(76) Michael Legg, 'Shareholder Class Actions in Australia: The Perfect Storm?' (2008) 31(3) UNSW Law Journal 669, 697, 703.
(77)  FCA 1438 (Unreported, RD Nicholson J, 25 November 2002).
(78) Ibid .
(79) ibid .
(80) See Jenkins v NZI Securities Australia Limited and Others (1994) 52 FCR 572 in which the representative party did not lodge an appeal, but a group member who had not opted out brought the appeal as representative of the group members pursuant to section 33ZC(6). The appeal was successful.
(81) see eg Multiplex Funds Management Limited v P Dawson Nominees Pty Limited (2007) 164 FCR 275, 292-3.
(82) See Civil Procedure Act 2005 (NSW) ss 56, 57; Idoport Pty Ltd v National Australia Bank Ltd (2000) 49 NSWLR 51, -; Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386,  (Kirby J); City of Sydney Council v Satara  NSWCA 148 (Unreported, Beazley JA, Tobias and McColl JJA, 8 June 2007) ; Dennis v Australian Broadcasting Corporation  NSWCA 37 (Unreported, Spigelman CJ, Basten and Campbell JJA, 1 April 2008) .
(83) See Multiplex Funds Management Limited v P Dawson Nominees Pty Limited (2007) 164 FCR 275, 292 and text accompanying footnotes 47-51.
(84) Jameson v Professional Investment Services Pty Ltd (2007) 215 FLR 377, 389.
(85) Ibid . See also Keelhall Pty Ltd t/as 'Foodtown Dalmeny' v IGA Distribution Pty Ltd (2003) 54 ATR 75,  where it was held that
to permit the proceedings to go forward as representative proceedings, far from facilitating the just, quick and cheap resolution of the real issues, would give rise to a procedural morass likely ultimately to be able to be resolved only by a disaggregation of the representative proceedings into separate proceedings.
(86) Jameson v Professional Investment Services Pty Ltd (2007) 215 FLR 377, 389.
(87) Multiplex Funds Management Limited v P Dawson Nominees Pty Limited (2007) 164 FCR 275, 282.
(88) Victorian Law Reform Commission, above n 21, 528-531.
(89) Philip Morris (Aust) Ltd v Nixon (2000) 170 ALR 487, 520-521 (Sackville J, with whom Spender and Hill JJ agreed); King v GIO Australia Holdings Ltd  FCA 1543 (Unreported, Wilcox, Lehane and Merkel JJ, 1 November 2000) , . Lower courts have followed Philip Morris (Aust) Ltd v Nixon. See Johnstone v HIH Ltd  FCA 190, (Unreported, Tamberlin J, 5 march 2004) ; Guglielmin v Trescowthick (No 2) (2005) 220 ALR 515, 522; Auskay International Manufacturing & Trade Pty Ltd v Qantas Airways Ltd  FCA 1458, (Unreported, 29 September 2008) .
(90) Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317, 371-3 Finkelstein J (with whom Carr J agreed). In McBride v Monzie Pty Ltd (2007) 164 FCR 559, 561, Finkelstein J stated that Philip Morris has been overruled by Bray. See also Victorian Law Reform Commission, above n 21, 559 recommending the adoption of this approach.
(91) See Class Proceedings Act 1992 s 5 and Bendall v McGhan Medical Corp (1994) 106 DLR (4th) 339. See also Vince Morabito, 'Class Actions Against Multiple Proceedings' (2002) 30 Federal Law Review 295, 313-315.
(92) See Philip Morris (Aust) Ltd v Nixon (2000) 170 ALR 487, 514; Victorian Law Reform Commission, above n 21, 529.
(93) Wong v Silkfield Pty Ltd (1999) 199 CLR 255, 267.
(94) See eg Shipley v Masu Financial Management Pty Limited  NSWSC 252 (Unreported, Hammerschlag J, 3 April 2008) ,  where Hammerschlag J draws on the interpretation of the Federal Court of Australia Act 1976 (Cth) in applying the amended Uniform Civil Procedure Rules.
Michael Legg,* Vanessa McBride [dagger] and S Stuart Clark [double dagger]
* Senior Associate, Litigation and Dispute Resolution Group, Clayton Utz and Visiting Fellow, Faculty of Law, UNSW.
[dagger] Solicitor, Clayton Utz.
[double dagger] Managing Partner, Litigation and Dispute Resolution, Clayton Utz.
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|Author:||Legg, Michael; McBride, Vanessa; Clark, S. Stuart|
|Publication:||University of Western Sydney Law Review|
|Date:||Jan 1, 2008|
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