12 July, 2016
Timbercorp Finance Pty Ltd (In Liq) v Collins and Tomes [2016] VSCA 128
What you need to know
- One objective of a class action regime is to avoid a multiplicity of proceedings and thereby enable parties to resolve a large number of claims in a timely and cost efficient way.
- However, the Victorian Court of Appeal has held that resolution of a class action does not necessarily prevent members of the class from raising individual claims or defences in other proceedings.
- To mitigate this risk, a defendant should seek to ensure that the terms of any settlement of a class action, and any opt out notice regarding participation in the settlement, make it clear that group members will be precluded from later raising related claims or defences.
The Timbercorp class action
The Timbercorp Group collapsed in 2009 having invested more than $2 billion in agribusiness projects through managed investment schemes on behalf of about 18,500 investors. A class action was brought in the Supreme Court of Victoria on behalf of investors, based on alleged deficiencies in product disclosure statements issued in relation to the schemes. The class action was dismissed at first instance. The group was then unsuccessful in the Court of Appeal, and its application for special leave to appeal to the High Court was refused.
Following the unsuccessful class action, Timbercorp Finance (which had lent money to investors to finance investments in the scheme) commenced separate proceedings against three investors to recover money outstanding under their loans.
In the recovery proceedings, the Supreme Court had to decide whether the defendants could raise certain defences which could have been dealt with in the class action. The defences were essentially
(a) the defendants had not been advanced a loan and did not acquire a relevant interest in the agricultural project, and (b) it had been represented that in the event of default, recourse would be limited to the investment in the schemes.
The defendants had not opted out of the class action, but nor had they taken an active role in that proceeding.
Anshun estoppel rejected at first instance
Timbercorp argued that the defences should have been brought forward in the class action, and the defendants were precluded from raising them in the recovery proceedings in accordance with the legal principle described in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 (Anshun estoppel).
Anshun estoppel is a principle which promotes finality of litigation by requiring parties to a dispute to plead all claims or defences on which they rely. A party will be prohibited from raising an issue in a later proceeding if it was "so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it".
At first instance, the Supreme Court (Robson J) held that Anshun estoppel did not arise, primarily because (a) it was not open to group members to bring forward their individual claims in the class action, and (b) even if they could have, it was not unreasonable for them not to have done so in all the circumstances. For further detail on the background and first instance decision, see our Class Action Update: Failed investor class action not the end of the line dated 9 September 2015.
Court of Appeal also rejects Anshun estoppel
The Court of Appeal (Warren CJ, Santamaria and McLeish JJA) granted Timbercorp leave to appeal but unanimously dismissed the appeal.
The Court decided that the group members had not acted unreasonably when they failed to opt out of the class action or raise claims outside the common issues determined in the class action.
Contrary to the decision at first instance, the Court of Appeal held that it was open to the group members to bring forward their individual claims in the class action, specifically under section 33Q of the Supreme Court Act 1986 (Vic). However, this did not create an estoppel, as the Court considered that:
- a group member who has not opted out ought not be taken to have accepted the determination of the class action as the complete resolution of any and all related claims or defences; and
- a group member does not exercise any control over the way in which the plaintiff, who owes no duty to group members, conducts the proceeding.
The Court concluded that it was not unreasonable for the group members not to opt out or raise individual claims in the class action, given that:
- the opt out notice in the class action contained no warning that group members would be precluded from bringing individual claims or defences in any subsequent proceedings;
- the factual and legal bases for the defences raised by the group members in the recovery proceedings were substantially different from the plaintiff's claim in the class action; and
- Timbercorp was unlikely to suffer any prejudice by the group members having not raised their individual defences in the class action, as the individual defences would most likely have been heard separately in any event, due to their number and complexity.
Additionally, the Court of Appeal held that the group members were not bound by any estoppel that might apply to the plaintiff because (a) the plaintiff was not acting as the agent or fiduciary of the group members, and (b) the group members were not claiming "under or through" the plaintiff in the class action.
Finality in class actions
Defendants should be mindful that the resolution of a class action will not automatically bring to an end all aspects of the dispute with all group members. That is particularly so where group members have individual claims or defences with a different factual or legal basis to the lead plaintiff in a class action, as those claims or defences may be raised by group members in separate proceedings.
A defendant can seek to mitigate this risk by advocating that any opt out notice to be sent to group members stipulate that members who choose not to opt out of the class action will be (a) bound by the determination of the lead plaintiff's claim, and (b) precluded from raising individual claims or defences in subsequent proceedings. This may be challenging in practice, as the plaintiff's lawyers will usually draft the notice for approval by the Court.
If the settlement of a class action is agreed, it is open to the defendant to seek a release that precludes the plaintiff and any group member from raising any related claims or defences in subsequent proceedings. Two recent decisions give some guidance on the extent to which class action settlements can include releases to finalise outstanding matters between the group members and a defendant.
In Farey v National Australia Bank Ltd [2016] FCA 340, the Federal Court held that the plaintiff in a class action has the implied authority of group members to agree a release which extends beyond the pleaded case, in order to achieve a settlement of the proceeding. However, in Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323, the Federal Court warned that the benefits of finality of a class action must be balanced against the interests of group members. In that case, the Court refused to approve a settlement agreement which contained wide releases in favour of the defendant where group members had not been given the opportunity to opt out of the settlement.
Accordingly, while it is open to a defendant to seek a broad release when settling a class action, the wider conduct of the proceeding may be relevant to the Court's decision about whether to approve the settlement.
For further information, please contact:
Andrew Harpur, Partner, Ashurst
andrew.harpur@ashurst.com
