By: Amanda Beattie and Samantha Younane

At a glance

• The NSW Court of Appeal has confirmed that existing authority is not “plainly wrong” and that soft class closure orders cannot be made in the NSW Supreme Court.
• The decision confirms that the position in New South Wales diverges from that in the Victorian and the Federal jurisdictions where soft class closures are available pursuant to either an express power (Victorian Supreme Court) or pursuant to appellate authority (Federal Court).

Earlier this week, the NSW Court of Appeal delivered a decision in the Lendlease class action¹ which confirmed soft class closure orders cannot be made in class actions commenced in the NSW Supreme Court. This was a topic we considered last month, where we noted that soft class closure orders were unlikely to be made in NSW unless the issue was tested in the Court of Appeal. The decision is at odds with the position in the Federal Court and Victorian Supreme Court where orders of this kind are available either by way of express power or pursuant to appellate authority.

The question of the power to make soft class closure orders in NSW was removed to the Court of Appeal with reference to Wigmans,² which found that notices could not be issued to group members if they extinguished their rights if they do not register, and Parkin,³ in which the Full Court of the Federal Court found that Wigmans was “plainly wrong”. The question ultimately before the Court was not whether the power to make the order sought existed, but whether the decision in Wigmans (which prevented the order being made) was plainly wrong and there were compelling reasons to depart from it. It was accepted that, unless that could be shown, the Court was bound to follow the decision in Wigmans, the consequence being that there would be no power to make a soft class closure order in the underlying Lendlease proceeding.

In response to that fundamental question, Bell CJ (with whom all of the judges agreed) noted that the question is one upon which opinions might differ, as evidenced by the decision in Parkin, but that he was not persuaded by the reasoning in Parkin that Wigmans was plainly wrong and therefore the Court was bound to follow it. Much of the reasoning informing this aspect of the decision turned on a re-examination of the powers under the Civil Procedure Act (NSW) to make those orders, with the Court reaching the view that the powers under the Civil Procedure Act did not support the making of soft class closure orders.

One of the key concerns the Court raised is the “insoluble conflict of interest” on the part of the plaintiffs which arose by consequence of the order. This issue was raised in Wigmans and developed further in this decision. In short, the alleged conflict stems from the plaintiffs acting for two sets of group members with diverging interests – those who have registered and those who have not. The interests of registered group members would be to achieve a settlement, whereas the interests of unregistered group members would be to oppose any settlement – because they would not benefit from it, but their claim would be extinguished by it. In that context, Bell CJ noted that: what is really happening is an attempt in the interests of the defendant and a subset of group members (namely, those who register prior to any in principle settlement being reached) to secure a settlement one element of which is the claims of remaining group members (namely, those who have not registered) are extinguished.

This issue was the subject of separate comments from Ward P, who disagreed with the conclusion of the Court in Wigmans that an order of this kind gave rise to the conflict. In her Honour’s view, while the proposed notice may give rise to differences in interests within the class, that does not necessarily result in the existence of an insoluble conflict of interest. The point in time at which that conflict would crystallise is at settlement approval and the Court can make orders which avoid the conflict materialising. Indeed, the proposed order in this case allowed for the possibility of unregistered group members obtaining the benefit of the settlement with the leave of the Court.

Ultimately, the decision is a useful summary of the position on soft class closure orders, but has (subject to any appeal) affirmed, at appellate level (and unanimously), that the powers under the Civil Procedure Act 2005 (NSW) do not extend to making soft class closure orders.

Implications of the decision

• The decision confirms that the powers under the Civil Procedure Act 2005 (NSW) do not extend to making soft class closure orders.
• While these kinds of orders are sought by defendants, it is generally understood that they facilitate settlement by providing certainty to defendants (and to some extent, the plaintiffs) when negotiating an outcome. That being the case, the unavailability of soft class closure orders, in addition to the potential conflicts which may arise on the part of the plaintiffs, will no doubt inform a plaintiff’s choice of forum when issuing new proceedings.
• The number of class actions filed in NSW has declined over the past few years (with new filings concentrated largely in Victoria and also the Federal Court) and this decision is likely to be a factor which continues to drive that trend.
• In the absence of soft class closure, we may see the emergence of more complex settlement structures which preserve the rights of unregistered group members, such as tiered settlement structures.⁴

^[1] David William Pallas & Julie Ann Pallas as trustees for the Pallas Family Superannuation Fund v Lendlease Corporation Ltd [2024] NSWCA 83

^[2] Wigmans v AMP Ltd (2020) 102 NSWLR 199

^[3] Parkin v Boral Ltd (2022) 291 FCR 116

^[4] Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) (No 3) [2017] FCA 330