FEDERAL COURT OF AUSTRALIA

Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323

ORDERS

THE COURT ORDERS THAT:

1.    The applications for approval of settlements in proceedings VID 1483 of 2011, VID 1484 of 2011, VID 1485 of 2011 and VID 187 of 2013 are refused.

2.    The parties and the objectors to settlement approval are granted liberty to apply.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MURPHY J:

A.    INTRODUCTION

1    Before the Court are applications for approval of settlements in four overlapping but not identical representative proceedings or “class actions” under Part IVA of the Federal Court of Australia Act 1976 (Cth) (“the Act”). Each class action has been settled in principle by a deed of settlement signed by exchange of counterparts on 7 April 2015 (“Settlement Deed”), subject to Court approval pursuant to s 33V of the Act.

2    Each of the class actions arises out of a failed managed investment scheme in forest plantations managed by the Willmott Forests corporate group (“the Schemes”). They are brought by investors that acquired an interest in one or more of the Schemes and make claims against the responsible entities of the Schemes, certain directors and officers of the responsible entities (“the Directors”) and the financial institutions that provided loans to some investors for the acquisition of the interest (“the Lenders”):

(a)    proceedings No. VID 1483 of 2011, VID 1484 of 2011 and VID 1485 of 2011 relate to the 2007, 2008 and 2009 Schemes (“the 2007/08/09 Schemes proceedings”) and

(b)    proceeding No. VID 187 of 2013 relates to the 2010 Scheme (“the 2010 Scheme proceeding”).

3    Settlement is one of the most important stages in a class action and it can raise difficult issues in relation to the interests of the group members, whom I will call “class members”. The Court has an onerous task in a settlement approval hearing, assuming a protective role in relation to the interests of class members, akin to a guardian or the role the Court assumes when approving an infant’s compromise. The Court will not approve a settlement unless it is satisfied that the settlement is fair and reasonable having regard to the interests of the class members who will be bound to it, including by not preferring one group of class members over another.

4    In the present cases many class members retained the solicitor for the applicants, Macpherson and Kelley (“M+K”) (“client class members”) but the great majority did not (“non-client class members”). When the Notice of Proposed Settlement was before the Court for approval I noted that the settlements fell outside the pleaded case and I reached the view that counsel should be appointed as a contradictor to represent the interests of non-client class members. Mr Lachlan Armstrong QC was appointed to the role of Contradictor. M+K provided the Contradictor with all necessary information, including confidential information, and I directed that the cost of his appointment be shared between the parties.

5    I recognise the difficulties in reaching a settlement in complex multi-party class action litigation, but in the present circumstances the settlements cannot be approved. In broad summary I refuse to approve the settlements for the following reasons.

6    First, the settlements include binding admissions by the applicants on behalf of class members that the class members’ loan agreements with the Lenders are valid and enforceable (“the binding loan enforceability admissions”). This will constitute a significant detriment for some class members because, if the settlements are approved, class members will be precluded from defending loan enforcement proceedings by the Lenders on any basis, even in reliance on claims or defences that are not pleaded in the class actions and which are based in a class member’s individual or unique circumstances. The detriment is 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 that, if they did not opt out, they would be so precluded. The settlements do not allow class members an opportunity to opt out at this point.

7    It is significant too that orders were made in the proceedings which provide that class members who did not “register” in the class member registration process are not permitted to seek the benefits of any settlement (“non-participating class members”). As a result of these orders about 77% of class members in the 2007/08/09 Schemes proceedings (approximately 2,427 persons) and 52% of the class members in the 2010 Scheme proceeding (approximately 182 persons) are not permitted to obtain the benefit of the present settlements. For these class members, unlike for registered class members, the detriment of the binding loan enforceability admissions imposed under the settlements is not balanced by any benefit.

8    Second, there were substantial difficulties in funding the proceedings which resulted in significant gaps in the preparation of the cases. M+K did not inform class members of these matters. If class members had been properly informed they may have chosen to opt out of the proceedings by the date fixed, or an order to extend the opt out period could have been sought. As I have said, the settlements do not allow class members to opt out at this point.

9    Third, having regard to the terms of settlement several potential conflicts of interest (by which I also mean conflicts of duty and duty) arise. These include:

(a)    a conflict between the interests of class members who registered in the class member registration process (“registered class members”) on the one hand, and the interests of “non-participating class members” on the other;

(b)    a conflict between M+K’s duty to the applicants and registered class members who are the firm’s clients, and its duty to non-client class members particularly non-participating class members; and

(c)    a conflict between M+K’s interest in receiving legal costs and the class members’ interests in minimising the legal costs they paid, or at least in paying only reasonable costs.

10    These conflicts were not recognised or properly addressed in the materials. The settlements may constitute a significant detriment for non-participating class members, most of whom are not M+K’s clients, in circumstances where they are not permitted to obtain any benefit under the settlements and were not clearly informed that a settlement might be reached which precluded them from defending loan enforcement proceedings on any basis, even by relying claims or defences that are not pleaded in the class actions and which are based in a class member’s individual or unique circumstances. The settlements should not be approved until the conflicts are recognised and properly dealt with.

11    Fourth, class members who are or were M+K’s clients in the proceedings paid costs and disbursements to the firm totalling approximately $7.835 million. The applications seek orders that $4.1 million to be paid by the respondents in the proceedings be expended on the pro rata reimbursement of class members who are or were M+K’s clients and paid legal costs. This represents reimbursement of about 51% of the costs paid by class members in the 2007/08/09 Schemes proceedings and about 57% of the costs paid in the 2010 Scheme proceeding. The applicants submitted that, in circumstances where the applications do not seek orders for the approval of M+K’s costs or for the payment of costs to M+K (those costs having already been paid), the firm was not required to put on material to satisfy the Court as to the reasonableness of its costs. I do not agree. The Court has a supervisory role in relation to costs paid by class members. The legal costs charged should be scrutinised as part of the settlement approval process, particularly when the costs are significant, there is a conflict of interests in relation to costs, and there is evidence that some important legal work underpinning M+K’s entitlement to legal costs was not performed.

12    Fifth, the gaps in case preparation and some shortcomings in the confidential opinion of counsel means that I am not presently satisfied that the applicants’ lawyers were in a position to properly inform the Court as to the prospects of success. These matters must be addressed if (revised) settlements come before the Court for approval.

13    The submissions of the applicants and the respondents advance similar arguments and it is usually unnecessary to set out which party made a particular submission. For convenience I usually describe the submissions of the applicants and the respondents as those of “the settlement parties”. I thank counsel and the solicitors for the parties and the represented objectors, and Mr Armstrong QC as Contradictor, for the high quality of the written and oral submissions. I have drawn directly upon them at some points.

B.    OVERVIEW OF THE PROCEEDINGS

14    The applicants and class members invested in tax-effective managed investment schemes in which Willmott Forests Ltd or a related subsidiary (“Willmott Forests”) was the responsible entity and the Scheme property was a forest plantation. Each Scheme was promoted to the public by Willmott Forests through publication of a product disclosure statement (and sometimes a supplementary product disclosure statement) (“PDS”) which invited prospective investors to acquire an interest in a Scheme. Investors were able to finance the acquisition of an interest in a Scheme by borrowing from the relevant Lender. In the 2007/08/09 Schemes the Lenders were MIS Funding No 1 Pty Ltd (“MIS”), which is a wholly owned subsidiary of the Commonwealth Bank of Australia (“CBA”) and CBA itself. In the 2010 Scheme the Lender was Willmott Finance Pty Ltd (“Willmott Finance”), which was a member of the Willmott group.

15    Each Scheme was a long term investment requiring investment over a period of between 15 and 25 years. The investor made an upfront, tax-deductible payment to acquire an interest in the Scheme with no further fees being payable until a fee based on a percentage of the proceeds of sale of forest products following harvest, more than 15 years later. By taking out a loan to acquire the interest the investor could increase the tax benefits associated with the investment.

16    The contention that the PDSs did not disclose significant risks associated with an alleged “deferred fee model” adopted by the responsible entities lies at the heart of each case. The gist of this contention is that the upfront application fees paid by investors were insufficient to cover the cost of planting the trees and maintaining them until harvest and that Willmott Forests therefore depended on sales of interests in future managed investment schemes to fund the obligation to maintain the relevant forest plantations until harvest.

17    None of the Schemes survived to the point where the forest plantations were harvested. On 6 September 2010 receivers and managers were appointed over the assets and undertakings of Willmott Forests and its wholly owned subsidiaries (including the seventh respondent in VID 1485 of 2011, Bioforest Limited (“Bioforest”)). On 22 March 2011 Willmott Forests and its subsidiaries were placed into liquidation.

18    Investors may have received significant tax deductions at the time they acquired an interest in a relevant Scheme, but the collapse of the Willmott Group meant that they did not receive a return on the investment and their interest in the relevant Schemes became worthless. The investors may have had the benefit of retaining the use of monies that were otherwise required to be paid in tax, but in the finish they were left with no asset and sometimes left owing substantial monies to a Lender. The investors in the 2010 Scheme did not receive a tax benefit because the trees had not been planted when that Scheme collapsed.

19    On 22 December 2011 the applicants, Mr David and Mrs Margaret Kelly and Mr Aaron Grant commenced the 2007/08/09 Schemes proceedings, namely:

(a)    VID 1483 of 2011, brought by Mr and Mrs Kelly on their own behalf and on behalf of all persons who acquired an interest in one or more of the 2007/08 Schemes or the scheme for which Bioforest was responsible entity (“Bioforest Scheme”) using loan finance obtained from the respondent Lender, MIS (“the MIS proceeding”); and

(b)    VID 1484 of 2011, brought by Mr Grant on his own behalf and on behalf of all persons who acquired an interest in the 2009 Scheme using loan finance obtained from the respondent Lender, CBA (“the CBA proceeding”).

(c)    VID 1485 of 2011, brought by Mr and Mrs Kelly and Mr Grant on their own behalf and on behalf of all persons who acquired an interest in one or more of the managed investment schemes described in the pleadings as the 2007/2008 Scheme, the Bioforest Scheme and the 2009 Scheme whether or not they used loan finance to acquire the interest. The proceeding is brought against Willmott Forests and Bioforest which were the responsible entities for the Schemes and former directors or officers of those companies;

20    In short, VID 1485 of 2011 is brought against the responsible entities and the Directors in relation to the 2007/08/09 Schemes, while the MIS and CBA proceedings are each brought against the Lender that provided loans to the investors in those Schemes.

21    On 13 March 2013 the applicant, Mr Braeden Lord, commenced the 2010 Scheme proceeding on his own behalf and on behalf of all persons who acquired an interest in the 2010 Scheme, whether or not they used loan finance from the Lender, Willmott Finance to acquire the interest. The proceeding is brought against Willmott Forests, the Directors and Willmott Finance.

22    The proceedings have been case managed together and the evidence in one case is evidence in the other cases.

C.    THE SETTLEMENT APPROVAL APPLICATIONS

23    On 7 April 2015 the parties exchanged signed counterparts of the Settlement Deed. On 9 April 2015 the applicants filed interlocutory applications in each of the four proceedings seeking orders or declarations:

(a)    approving a Notice of Proposed Settlement to be published to class members, pursuant to ss 33X and 33Y of the Act;

(b)    approving the settlement between the parties on the terms set out in the Settlement Deed, pursuant to ss 33V and 33ZF;

(c)    authorising the applicants for and on behalf of the class members (other than those class members who have filed an opt out notice), nunc pro tunc, to enter into and give effect to the Settlement Deed and transactions contemplated for an on behalf of the class members, pursuant to s 33ZF; and

(d)    that the persons affected and bound by the settlement of the proceeding be the applicants, the respondents and the class members, pursuant to ss 33ZB and 33ZF.

The applications also sought orders that each proceeding be dismissed, the amounts paid for security for costs be refunded to the class members who contributed them, the costs orders made in the proceeding be vacated, and that there be no order as to the costs of the proceeding.

24    The applicants relied on nine affidavits by Mr Ronald Willemsen, the partner with the conduct of the proceedings at M+K, four affidavits sworn 9 April 2015, two affidavits sworn 9 June 2015, two affidavits sworn 16 July 2015 and one affidavit sworn 7 August 2015. The affidavits sworn on 16 July 2015 include as a confidential annexure a “Confidential Opinion of Applicants’ Counsel” by Mr Russell Moore of Counsel (“Counsel’s Opinion”).

25    The Directors relied upon affidavits by their solicitor, Ms Susan Phillips, a partner of Brian Ward & Partners, sworn on 16 July 2015 and 3 August 2015. MIS and CBA relied upon affidavits sworn by their solicitor, Mr Cameron Hanson, a partner of Herbert Smith Freehills, on 17 July 2015, and by Mr Stylianos Tserkezidis, a manager in the Group Credit Structuring team of the CBA, on 17 July 2015.

26    Each of the settlement parties put on detailed written and oral submissions in support of settlement approval.

27    Fourteen class members filed Notices of Objection to settlement approval:

(a)    in the 2007/08/09 Schemes proceedings objections were filed by:

(i)    registered class members Mr Simon Braham (who was given leave to file an Amended Notice of Objection), Mr Dean Nealon, Mr Deen Potter, Mr James Anderson, Mr Peter Harrison, Mr Shane McGlinn, and Mr Ashley McInally;

(ii)    non-participating class members Dr Nihad Jackson, Mr John Spenceley, Mr Martin Rennick, Mr Ai Saito, and Mr Zvoni Sostarko on behalf of Devine Designer Homes; and

(b)    in the 2010 Scheme proceeding objections were filed by registered class members Mr McInally, Mr George Tsardanis and Ms Louise and Mr John Rendon.

28    Mr Braham, relied upon his affidavit affirmed on 15 June 2015, and the affidavit of his solicitor, Mr Demian Walton, sworn 17 June 2015. Dr Jackson relied on her affidavit sworn 16 June 2015. Mr Braham and Dr Jackson also retained counsel to appear on their behalf. Eight other objectors also filed affidavits in support of their objections but they did not appear or make submissions at the hearing.

D.    THE CLASS MEMBER REGISTRATION AND OPT OUT PROCESS

29    It is first necessary to explain the class member registration and opt out process and the different rights enjoyed by registered class members and unregistered (or non-participating) class members. By orders made on 14 March 2014, 25 March 2014 and 3 April 2014 in the 2007/08/09 Schemes proceedings and 3 April 2014 in the 2010 Scheme proceeding, class members were required to decide whether to register and whether to opt out of the proceedings. Class members who wished to register were required to complete a registration form, which, in the 2007/08/09 Schemes proceedings included a requirement to contribute to security for costs or to provide information to show that they were financially unable to do so. The registration and opt out notices sent to class members are central to my decision.

The background to the requirement to register

30    On 17 December 2012 I refused the respondents’ application for security for costs in the 2007/08/09 Schemes proceedings, holding that such an order was likely to stifle the applicants’ and class members’ pursuit of their claims: Kelly v Willmott Forests Ltd (in liquidation) (2012) 300 ALR 675; [2012] FCA 1446 (“Kelly No 1”). The respondents appealed that decision. On 14 June 2013 the Full Court allowed the appeal, holding that an order for some security for costs was appropriate given the nature of the underlying claims and the proven ability of at least a not insignificant number of class members to contribute to a fund for such a purpose: Madgwick v Kelly (2013) 212 FCR 1; [2013] FCAFC 61 (Allsop CJ, Jessup and Middleton JJ).

31    Accordingly, on 5 August 2013 I ordered a regime requiring class members to make a rateable contribution to a $6.58 million fund for security for costs (which was the unchallenged evidence as to the respondents’ party-party costs up to trial). M+K were required to send a notice to class members that the Court intended to fix the amount of security for costs at $6.58 million and that it was likely that the Court would stay the proceedings if the security was not paid. Class members were requested to inform M+K whether they were prepared to make a rateable contribution to security and, if not prepared to do so, to advise the reason for the refusal. If a class member’s refusal to contribute was based on an asserted financial incapacity to make the requested contribution he or she was requested to provide information as to the basis of the asserted inability: Kelly v Willmott Forests Ltd (in liquidation) (No 2) [2013] FCA 732 (“Kelly No 2”).

32    Upon completion of that process Mr Willemsen gave evidence that the applicants and class members were unable to provide security for costs of $6.58 million but could provide security of $1.73 million. At that point, on Mr Willemsen’s calculation, there were 446 client class members and approximately 3,319 non-client class members. Mr Willemsen deposed:

(a)    in relation to the 446 client class members, that 83 class members did not respond to the letter seeking a contribution to security, 62 class members agreed to make the requested rateable contribution, 86 class members agreed to make a lesser contribution, and 217 class members advised they were not prepared to make any contribution; and

(b)    in relation to the 3,319 non-client class members that 193 of the letters seeking a contribution were returned to M+K marked “return to sender”, 2,970 class members did not respond to the letter, 33 class members agreed to make the requested rateable contribution, 23 class members agreed to make a lesser contribution, and 112 class members advised that they were not prepared to make a contribution.

33    The respondents sought a stay of the proceedings until the applicants provided in the sum of $6.58 million. I refused that application as I considered a stay would cause a real injustice to those applicants and the class members who had contributed to security and to those class members who were financially unable to contribute to security. Despite my concern as to the effect upon access to justice, I proposed a class closure process to reduce the class to those persons who made a contribution to security or who were able to satisfy the parties that their refusal to contribute was reasonable. I took the view that this would provide a better balance between the respondents’ concern to obtain security for costs and the risk of stultifying the proceedings, and was preferable to staying the proceedings: Kelly v Willmott Forests Ltd (in liquidation) (No 3) [2014] FCA 78 (“Kelly No 3”) at [87]-[96]. I directed M+K to make further efforts to obtain contributions to security from large investors, and in the finish the fund for security for costs totalled approximately $2 million.

The application for class member registration and opt out

34    On 28 February 2014 the applicants in the 2007/08/09 Schemes proceedings sought orders for publication of a notice to class members regarding class member registration and opt out. On 3 April 2014 the parties in the 2010 Scheme proceeding (except for the Directors) sought similar orders. The parties were in broad agreement as to the form of the orders to be made (“the registration and opt out orders”).

35    The parties did not seek the class closure order I had suggested. Such an order would have meant that any class member who did not meet the requirements for a registration (including the requirements in relation to security for costs) would have been excluded from the class. The downside for the respondents in such an order would have been that, if the class actions were ultimately successful, it might be expected that some former class members would have had a renewed interest in pursuing their rights against the respondents. They might have re-agitated those rights provided they were still within time to do so.

36    The orders sought by the parties provided a better result for the respondents. They operated so that class members who did not satisfy the requirements for registration continued to be class members, but were excluded from seeking any relief in the proceeding or any benefit from a settlement (hence the description “non-participating class members”). In recent years such orders have become a relatively common device in “open class” representative proceedings. It is likely that the parties sought orders in that form because they provided the respondents with a greater level of finality on settlement or judgment.

37    There was no suggestion at the time of the registration and opt out orders that the parties apprehended a settlement in which the applicants would enter into binding loan enforceability admissions on behalf of the class members, which would preclude class members from defending loan enforcement proceedings on any basis, even in reliance on claims or defences which are not pleaded in the class actions and which are based in a class member’s individual or unique circumstances. I did not anticipate such an eventuality.

The class member registration and opt out notices

The Annexure A Notices

38    By the orders made on 14 March 2014 in the 2007/08/09 Schemes proceedings, and on 3 April 2014 in the 2010 Scheme proceeding, M+K were required to give to class members a notice (the “Annexure A Notice”) and a Class Member Registration Form (“Registration Form”). This was to be done by sending the Notice and the Registration Form to the last known email or mail address of the class members, and by publishing the Notice in The Australian, on M+K’s website and on the website of the liquidators of Willmott Forests and Willmott Finance.

39    In the 2007/08/09 Scheme proceedings the Annexure A Notice and the Registration Form were sent to all class members except those listed on Annexure C to the orders. They were sent to approximately 2,978 class members, the great bulk of whom were not clients of M+K. Annexure C comprised 427 class members (most of whom were clients of M+K) who the parties agreed had satisfied the security for costs requirements by making an appropriate contribution to security, by pledging an appropriate contribution to security, or by showing that his or her inability to contribute was reasonable.

40    The Annexure A Notice provided information to class members about their right to opt out of the proceeding and the requirement to register as a class member, including the requirements in relation to security for costs. The Registration Form sought information as to any monies the class member had provided towards security for costs, the amount the class member intended to provide towards security for costs, and the class member’s current financial circumstances.

41    In the 2010 Scheme proceeding the Annexure A Notice and the Registration Form were sent to all persons listed on the growers register for Willmott Forests Premium Forestry Blend 2010 Project, except for clients of M+K. The materials are not clear but it appears that the Notice and Registration Form were sent to approximately 218 class members who were not clients of M+K. In this proceeding security for costs was provided through an After the Event insurance policy so the Form did not seek information in that regard.

42    The Annexure A Notice and the Registration Form in this proceeding were relevantly the same as in the 2007/08/09 Schemes proceeding, except that they did not include information in relation to security for costs.

43    The Annexure A Notice in each proceeding informed class members that any person who wished to opt out of the proceedings was required to file an opt out notice by 2 June 2014, and that to be registered they were required to deliver a Registration Form to M+K by 2 June 2014.

The Annexure B Notice

44    By the same orders M+K were required to send a notice to class members in the form of Annexure B to the orders. In the 2007/08/09 Schemes proceedings the Annexure B notice was sent to the 427 class members listed on Annexure C to the 14 March 2014 orders. Of those 427 class members, 296 were clients of M+K and 131 were not. The materials are not clear but it appears that in the 2010 Scheme proceeding the Annexure B Notice was sent to about 139 class members who were clients of M+K.

45    The Annexure B Notice in each proceeding was a relatively standard form opt out notice which informed class members about the right to opt out of the proceedings. It did not include information about the registration procedure because these class members were treated as registered, having already shown their intention to participate in the case.

The orders for non-participating class members

46    The orders of 14 March and 3 April 2014 created the category of non-participating class members by providing that any class member who did not register:

…shall remain a group member for all purposes of this proceeding but shall not, without leave of the Court, be permitted to make any claim or seek any relief in this proceeding, or seek any benefit pursuant to any settlement of this proceeding.

E.    THE NUMBER OF REGISTERED AND NON-PARTICIPATING CLASS MEMBERS

The number of class members in the 2007/08/09 Schemes proceedings

47    Mr Willemsen deposed that before opt out there were approximately 3,405 class members in the 2007/08/09 Schemes proceedings, and that 240 class members filed opt out notices. The class therefore comprises approximately 3,165 persons. He said that 2,427 class members did not register in the class member registration process, and that there were 738 registered class members, of whom 512 were clients of M+K and 226 (about 31%) were not.

48    Therefore, 2,427 of the class members (about 77%) are not entitled to seek relief in the proceedings or obtain a benefit from settlement. Only 738 of the 3,165 class members (about 23%) are entitled to do so.

The number of class members in the 2010 Scheme proceeding

49    Mr Willemsen deposed that before opt out there were approximately 357 class members in the 2010 Scheme proceeding, and that 10 class members filed opt out notices. The class therefore comprises approximately 347 persons. He said that 182 class members did not register in the class member registration process, and that there are 165 registered class members, of whom 139 were clients of M+K and 26 (about 16%) are not.

50    Therefore, 182 of the class members (about 52%) are not entitled to seek relief in the proceeding or obtain a benefit from settlement. Approximately 165 of the 347 class members (about 48%) are entitled to do so.

F.    The NOTICES OF PROPOSED SETTLEMENT

51    By orders made on 20 May 2015 in each proceeding M+K was required to publish a Notice of Proposed Settlement to class members by 22 May 2015, by sending it by email or prepaid ordinary post to their last known address and by placing a short form of the notice in The Australian newspaper. The form of the Notice of Proposed Settlement in the 2007/08/09 Schemes proceedings and the 2010 Scheme proceeding relevantly differed only to the extent that the terms of settlement are different and because class members in the 2010 Scheme proceeding were not required to make a contribution to security for costs.

52    The Notice informed class members of the essential terms of the settlements, their right to object to the settlements and their right to appear and make submissions at the settlement approval hearing. I am satisfied that they were sent to class members in accordance with the orders.

G.    The OBJECTIONS to settlement approval

53    The Contradictor put on detailed submissions opposing settlement approval and I will not summarise them here. The other objections may be briefly summarised as follows:

54    The objections were filed pursuant to the Notice of Proposed Settlement sent to class members which, amongst other things, informed class members of the effect of the binding loan enforceability admissions. The Notice relevantly stated that:

The Deed is a legally binding document which binds the Lead Applicants, the respondents and M+K. If the proposed settlement is approved by the Federal Court, the Deed will bind you as a Group Member in the Willmott Group Proceedings, whether or not you are a Registered Group Member (unless you opted out of the Willmott Group Proceedings). Only Registered Group Members will be permitted to seek any benefit under the Deed.”

And that:

It is important that you understand that Group Members will not be able to make individual claims or rely upon other defences that they may have additional to those common claims made in the Willmott Group Proceedings. This includes any individual or unique defences that they may have to claims by CBA or MISF for repayment of associated loans.

It is important that all Group Members who borrowed from CBA or MISF to fund their investment in a Willmott Managed Investment Scheme understand that by approval of the settlement they will acknowledge and admit that the loans they obtained are valid and enforceable by CBA and MISF. (Underlining in original.)

55    In light of the objections the settlement parties argued that:

(a)    the low level of objections showed that the great majority of class members have no objection to the settlements and, by inference, that the settlements are fair and reasonable;

(b)    no class member complained that he or she had understood the registration and opt out notices in the narrow manner which the Contradictor contended they would be understood; and

(c)    no class member came forward and identified a claim based in his or her individual or unique circumstances, and by inference that no class members had such a claim.

56    In my view there is little force in these contentions. First, except perhaps in relation to sophisticated class members, I do not consider the class members’ silence should be taken to indicate their approval or indicate the fairness of a settlement.

57    Second, it is an overstatement to say that no class member asserted that he or she did not understand the registration and opt out notice to state that there was a possibility that class members would or might be precluded from defending loan enforceability admissions in reliance on claims or defences which were not pleaded and which are based in their individual or unique circumstances. Senior Counsel for Mr Braham submitted that he had no reasonable expectation that the applicants could or would bind him to a settlement that contained an admission that is loan agreements were valid and enforceable although, as the respondents noted, Mr Braham was silent on this issue in his affidavit. It is likely that the same complaint lies behind the objections by Ms and Mr Rendon, Mr Tsardanis and Mr McInally. Each of them had engaged lawyers to defend loan enforcement proceedings brought by Willmott Finance, had defences on foot, and had paid more than $13,000 in legal fees in those proceedings. There would have been no point to their maintaining that approach had they been aware that they would or might be precluded from relying on their defences.

58    As Professor Morabito has said, “the practical realities of class actions have led a number of [US] Courts to conclude that minimal objection to the proposed settlement may not necessarily be equated to approval of the settlement by the class”: Morabito V, “Judicial Responses to Class Action Settlements that Provide No Benefits to Some Class Members” (2006) 32 Monash University Law Review 75, 88-89. I note also that the respected empirical legal researchers Geoffrey Miller and Theodore Eisenberg concluded that:

… notwithstanding frequent statements in judicial decisions to the contrary, the level of dissent is at best weak evidence of the fairness, adequacy, and reasonableness of class action settlements.

(Eisenberg T and Miller G, “The Role of Opt-Outs in Class Action Litigation: Theoretical and Empirical Issues” (2004) 57 Vanderbilt Law Review 1529, 1538.) In my view it cannot be said that there is any necessary correlation between a low level of objections and the fairness or reasonableness of a settlement.

59    Third, I deal with the contention that no class member has a claim based in his or her individual or unique circumstances at [244]-[247] below.

60    In the present proceedings there is a further reason to attach little significance to the low level of objections. The Annexure A Notices, which were sent to the great majority of class members, informed them that if they did not register they were not permitted to seek relief in the proceedings or seek the benefit of a settlement. Class members who did not register must be taken to have understood this. Because non-participating class members were not entitled to obtain any benefit from a settlement it is unlikely that they will have paid close attention to the Notice of Proposed Settlement, and they may not have understood that the settlements include a binding admission that their loan agreements are valid and enforceable.

61    Care must be taken in approaching settlement approval on the basis that the silence of class members is equivalent to their assent. It is the Court’s responsibility to protect class members’ interests and the absence of objections (or a low level of objections) does not relieve it of the task: P Dawson Nominees Pty Ltd v Brookfield Multiplex Limited (No 4) [2010] FCA 1029 (“Brookfield Multiplex No 4”) at [23] (Finkelstein J).

H.    THE RELEVANT PRINCIPLES

62    The Court’s task in a settlement approval application under s 33V of the Act is to decide if it is satisfied that the settlement is fair and reasonable having regard to the interests of the class members who will be bound by it (including as between class members). The Court assumes a protective role in undertaking this task : Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250; [1996] FCA 1119 at 258 (Branson J); Lopez v Star World Enterprises Pty Ltd (1999) ATPR 41-678; [1999] FCA 104 (“Lopez”) at [16] (Finkelstein J); Brookfield Multiplex No 4 at [23]; Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [7]-[8] (Jacobson, Middleton and Gordon JJ).

63    The Court should be alive to the possibility that a settlement may reflect conflicts of interest, for example, between the applicant and class members, between client and non-client class members or between subgroups within the class, or between the duty of the applicant’s lawyers to client class members and the lawyers’ duty to non-client class members. It should be kept in mind that the Court assumes its onerous burden at a stage of the proceeding when the interests of the applicant and the respondent have merged in the settlement and neither side seeks to critique the settlement from the perspective of class members. Both sides have become “friends of the deal”.

64    In Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459; [2000] FCA 1925 at [19], Goldberg J set out a number of factors that may be relevant in an application for settlement approval:

(a)    the amount offered to each class member;

(b)    the prospects of success in the proceeding;

(c)    the likelihood of the class members obtaining judgment for an amount significantly in excess of the settlement offer;

(d)    the terms of any advice received from counsel and any advice from any independent expert in relation to the issues which arise in the proceeding;

(e)    the likely duration and cost of the proceeding if it continued to judgment; and

(f)    the attitude of the class members to the settlement.

65    His Honour also referred with approval at [19] to Re General Motors Corporation Pick-Up Truck Fuel Tank Products Liability Litigation (1995) 55 F 3d 768 in which the United States Court of Appeals for the Third Circuit referred at 785 to the nine-factor test it had adopted:

(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.

66    I respectfully adopt Goldberg J’s approach, but note that there is no requirement to deal with each of these factors. They are to be approached as a useful guide subject to the circumstances of any particular case: Haslam v Money for Living (Aust) Pty Ltd (Administrators Appointed) [2007] FCA 897 at [20] (Gordon J). I take the same approach to the settlement approval factors set out in Practice Note CM 17, which echo the factors discussed by Goldberg J. I have not dealt with each of these factors, or with each of the objections. It is unnecessary to do so when the settlements are to be refused on the grounds I set out.

67    The objectors’ reasons for opposing settlement approval are another useful point of reference by which to determine the fairness and reasonableness of the settlement: Hobbs Anderson Investments Pty Ltd v Oz Minerals Limited [2011] FCA 801 at [4] (Emmett J).

68    The central issue is whether the proposed settlement is fair and reasonable in the interests of class members to be bound to the settlement. The Court is not concerned with the position of the applicants or the respondents. They have solicitors and counsel to advise them as to how their interests will be best served in the litigation, whereas absent class members do not: Lopez at [15]. In the present cases, the absent class members are the non-participating class members and those registered class members who are not clients of M+K.

69    In my view the Court’s supervisory role is not limited only to those class members who do not have legal representation. The requirement for supervision flows from the use of the representative procedure which allows the applicant to bring the proceedings on behalf of other persons. The Court is concerned to protect the interests of all those represented persons, including by ensuring that a settlement does not favour one group of class members over another: Darwalla Milling Co Pty Ltd & Ors v F Hoffman–La Roche Ltd & Ors (No 2) (2006) 236 ALR 322; [2006] FCA 1388 (“Darwalla”) at [34] and [60]-[64] (Jessup J); Thomas v Powercor Australia Ltd [2011] VSC 614 (“Thomas”) at [25] (Beach J).

70    For this reason the Court requires the applicants’ lawyers to candidly disclose any possible issues of controversy attending the proposed settlement, in order to satisfy itself that the class members’ interests have been taken into account as fairly as might be expected of a lawyer acting directly for a client: Lopez at [16].

71    The interests of class members may be protected to an extent if they become clients of the solicitors for the applicants, but it should be kept in mind that they will not enjoy all of the benefits of a traditional solicitor-client relationship. This reduces the level of protection. Class members are not parties to the proceedings and do not direct the conduct of the proceedings: Mobil Oil Australia Pty Ltd v State of Victoria (2002) 211 CLR 1; [2002] HCA 27 (“Mobil Oil”) at [37]-[38], [40], and [50] (Gaudron, Gummow and Hayne JJ). This is so even where a class member signs a retainer with the applicant’s solicitor.

72    Further, the applicant’s solicitors ordinarily do not take detailed instructions from class members even when retained by them. This approach is usual because the number of class members often means that the utility of the class action mechanism would be lost or significantly reduced if it were necessary to do so, and because the initial trial ordinarily involves the Court deciding only the applicant’s personal claim and the questions of fact and/or law which are common to the class (“common issues”). Ordinarily, it is only if the common issues are decided in favour of the class that it will become necessary to take detailed instructions from class members regarding their individual or unique circumstances.

73    M+K took this approach in the present cases. The pro forma Retainer, Authority and Costs Agreement (“Retainer Agreement”) between M+K and its clients provides that instructions in the conduct of the proceedings will “primarily” be given by the applicants. The Retainer Agreement also provides that the class members who retain M+K “specifically instruct and retain M+K to make necessary decisions as to the procedural, investigative, preparatory, tactical and strategic decisions in relation to the conduct of the proceeding and, if specific instructions are required from anyone, then to seek those specific instructions as appropriate”. M+K did not take detailed instructions from class members and for the great majority of them could not have known whether they had a claim or defence based in their individual or unique circumstances.

74    It is established that the Court should not second-guess the applicant’s lawyers as to whether the settlement ought to have been accepted, or to proceed as if it knows more about the actual risks of the litigation than those lawyers. The Court takes the applicant’s lawyers as it finds them, recognising that different applicants and different lawyers will have different appetites for risk. The question is whether the proposed settlement is within the range of reasonable outcomes, not whether it is the best outcome which the Court considers might have been won by better bargaining: Darwalla at [50]; Harrison v Sandhurst Trustees Limited [2011] FCA 541 (“Harrison”) at [13] (Gordon J).

75    Some authorities suggest that to assist the Court in better understanding the applicant’s prospects of success, the respondent’s lawyers should provide a confidential opinion to the Court which objectively or candidly describes the merits of the case: Brookfield Multiplex No 4 at [4]; Pathway Investments Pty Ltd v National Australia Bank Ltd (No 3) [2012] VSC 625 at [6] (Pagone J).

76    I respectfully take a different view. Usually, the applicant’s lawyer will have decided to accept a settlement without knowing the respondent’s view of the weaknesses in its defence or the respondent’s true “bottom line”. Requiring the respondent to provide a confidential opinion would put the Court in a better position to assess the applicant’s prospects of success than the applicant’s lawyers. Practical difficulties may also arise if a respondent’s lawyer is required to put on a confidential opinion. It is difficult to know what steps an applicant’s lawyers could take to proceed further with a case if settlement approval were refused on the basis of confidential information provided by the respondent’s lawyer to the Court, which could not be disclosed to the applicant or the applicant’s lawyer.

77    In my view the fairness of a proposed settlement must be assessed by reference to the circumstances which could reasonably be expected to be knowable to the applicant and/or the applicant’s lawyers.

I.    THE KEY FEATURES OF THE SETTLEMENTS

78    The four settlements are contained in one Settlement Deed. The settlement of each of the 2007/08/09 Schemes proceedings is conditional on settlement approval orders in the other 2007/08/09 Schemes proceedings. That is, the settlements are put forward as a “package”. The settlement of the 2010 Scheme Proceeding may be approved on a stand-alone basis.

The features of the 2007/08/09 Schemes proceedings settlements

79    There are seven key features to the settlements in these proceedings.

80    First, no compensation or damages is to be paid to the applicants or class members in respect of their losses, and there is no reduction in the outstanding balances of their loans from the Lenders.

81    This, coupled with the modest benefits in the settlements, is central to Mr Braham’s and other objections to settlement approval. Mr Braham argued that the benefits of the settlements are illusory, or at best inconsequential, particularly when considered against the loss by the class members of all their claims and defences in relation to loan enforcement proceedings by the Lenders. In response the settlement parties essentially submitted that, for registered class members, the settlements provide some modest benefits which are fair and reasonable and in class members’ interests because the proceedings are unlikely to be successful.

82    Second, $3.1 million will be paid by the respondents, to be expended on the pro rata reimbursement of class members who are or were M+K’s clients and paid a total of $6.086 million in legal costs to the firm.

83    If it is accepted that it is likely that the proceedings will be unsuccessful at trial, the reimbursement of approximately 51% of the costs paid to M+K will provide a benefit to class members who made such payments. They will receive no reimbursement if the proceedings continue and are unsuccessful. The materials show that about 396 client class members made contributions to legal costs ranging from as little as $395 through to as much as $364,395.

84    Of course, the lower the degree of risk that the proceedings will be unsuccessful at trial the lower the benefit of the partial reimbursement of legal costs. If the proceedings are likely to be successful and recovery obtained, class members could reasonably expect to be reimbursed a higher percentage of their costs.

85    Such reimbursement provides no direct benefit to approximately 31% of registered class members because registered non-client class members did not pay any legal costs. They did, however, receive a benefit through the preparedness of other class members to pay costs who are unlikely to have done so unless their reimbursement was to be prioritised in any settlement. In such circumstances it is appropriate to prioritise the reimbursement.

86    Third, approximately $2 million of contributions made by class members to a fund for security for costs will be returned to them, in circumstances where some adverse costs orders have been made.

87    If it is accepted that it is likely the proceedings will be unsuccessful at trial, this reimbursement will provide a benefit to client class members (and the small number of non-client class members) who made contributions to security for costs. Their contributions will be reimbursed in circumstances where they would be lost if the proceedings continue and are unsuccessful at trial.

88    Again, the lower the risk that the proceedings will be unsuccessful at trial the lower the benefit to class members of the reimbursement of contributions to security for costs. Their contributions will be reimbursed if the cases are successful.

89    Such reimbursement provides no direct benefit to the many registered class members who did not make a contribution to security for costs but they received an indirect benefit through the contributions. The proceedings would have been stayed if the contributions had not been made. In my view the reimbursement is appropriate.

90    Fourth, for registered class members who are in default under their loan contracts, the Lenders agree not to commence or take any steps to prosecute any debt recovery proceedings against them until at least 60 days after orders approving settlement, in which time class members will have an opportunity to pay the arrears. If the loan is brought up to date the Lenders will allow the balance of the loan to be paid over the remaining term.

91    If it is accepted that it is likely the proceedings will be unsuccessful, this term provides a benefit for class members because their loans will be immediately repayable in full if the proceedings continue and are unsuccessful.

92    The evidence is that there are 79 class members in default of their loan agreements with MIS and 76 class members in default of the loan agreements with CBA. This term of the settlements benefits approximately 155 class members out of the 738 registered class members (about 21%). It provides no benefit for class members who did not take out a loan.

93    Fifth, the applicants provide binding admissions on behalf of the class members as to the validity and enforceability of the loan agreements between the Lenders and class members. In my view these admissions constitute a significant detriment to those class members who wish to defend loan enforcement proceedings brought by a Lender, particularly any class member who has individual or unique grounds to do so. For non-participating class members this detriment is not balanced by any benefit under the settlements. I will deal separately with this term of the settlements.

94    Sixth, the applicants agree on behalf of the class members, that if a class member obtains damages or compensation in any Third Party Proceeding (as defined) and an order for contribution is made against a Lender or a related party in respect of those damages or compensation, the class member will indemnify the Lender or related party against that order for contribution (“the indemnity term”). “Third Party Proceeding” is broadly defined, and includes any claim brought by the applicant or a class member against a person who is not a party to the Settlement Deed arising out of or relating to their investment in one or more of the relevant Schemes.

95    While this term does not preclude class members from commencing proceedings against third parties, such as against financial advisors who recommended the acquisition of interests in the Schemes, it will to some extent inhibit class members in making such claims. To the extent that the third party may claim contribution from a Lender or related party there would be no point to such proceedings. For non-participating class members, who cannot seek a benefit from the settlement, this is a disadvantage which is not balanced by any benefit.

96    Seventh, the applicants, on their own behalf and on behalf of the class members, provide broad releases to the respondents’ benefit including that:

(a)    they release and discharge the respondents and their related parties from any “set-off or any other remedy or right” that the applicant or any class member may have against the respondents or their related parties relating to or arising out of or in respect of (either directly or indirectly) the enforceability of a loan agreement entered into by a class member with one or other of the Lenders;

(b)    they will not raise “any defence or right of set-off” against any of the respondents or their insurers where the defence or right of set-off relates to or arises out of or is in respect of (either directly or indirectly) any thing related to the proceedings including, without limitation, any thing arising out of or relating to the applicants’ or class members’ investments in any Scheme; and

(c)    they will not seek relief by way of cross claim or raise any defence or right of set-off against any of the respondents to the proceeding where such defence or right of set-off relates to or arises out of or is in respect of (either directly or indirectly) any thing relating to the proceeding including, without limitation, any thing arising out of or relating to the applicants’ or any class member’s investments in the Schemes.

The releases operate in support of the binding loan enforceability admissions.

97    The asserted benefits of the settlements are modest, and largely apparent only if it is accepted that the proceedings are likely to fail. While the benefits of the settlements largely go to M+K’s clients, it must be borne in mind that they funded the proceeding, provided most of the security for costs, and make up about 69% of registered class members. Registered non-client class members received a benefit from their having done so. In my view the prioritised reimbursement of costs and security for costs is appropriate in the circumstances. However, the binding loan enforceability admissions will constitute a significant detriment for some registered class members and some non-participating class members. For some registered class members the detriment of the admissions will outweigh the benefits of the other terms of settlement. For non-participating class members the detriment will not be balanced by any benefit.

The features of the 2010 Scheme proceeding settlement

98    The settlement of this proceeding has six key features.

99    First, no compensation or damages is to be paid to the applicants or class members. However, the settlements provide for substantial reductions in class members’ outstanding loans. The Lender, Willmott Finance, agrees not to commence or take any steps to prosecute any debt recovery proceedings until at least 30 days after the Effective Date (defined as 35 days after settlement approval) and to provide class members with outstanding loans with the following three options which will be accepted as payment in full:

(a)    Option 1 - each class member repays 50 cents in the dollar on the amounts outstanding on their loans, doing so within 14 days of the Effective Date;

(b)    Option 2 - each class member repays 60 cents in the dollar on the amounts outstanding on their loan, doing so in equal monthly instalments over 12 months with the first instalment to be paid 30 days after the Effective Date, and provides Willmott Finance a direct debit authority in respect of such payments; or

(c)    Option 3 - each class member repays 70 cents in the dollar on the amounts outstanding on their loan, doing so in equal monthly instalments over 24 months with the first instalment to be paid 30 days after the Effective Date, and provides Willmott Finance a direct debit authority in respect of such payments.

100    This term provides a substantial benefit for class members who have an outstanding loan with Willmott Finance. It provides for a significant reduction in their outstanding loans, depending upon how speedily a class member is prepared or able to repay the loan. The materials show that all but 14 of the registered class members in this proceeding had loans with Willmott Finance, although it is not clear how many have paid off their loans.

101    This term does not provide any benefit to non-participating class members (about 52% of the class) because they are not entitled to the benefits of any settlement.

102    Second, $1.408 million will be paid by the respondents, $1 million of which is to be expended on the pro rata reimbursement of class members who are or were M+K’s clients and who paid a total of $1.749 million in legal costs to the firm.

103    If it is accepted that it is likely that the proceedings will be unsuccessful at trial, the reimbursement of approximately 57% of the costs paid to M+K will provide a benefit to those class members who paid costs. They will receive no reimbursement if the proceedings continue and are unsuccessful. Again, the lower the risk that the proceeding will be unsuccessful at trial the less the benefit of the partial reimbursement of legal costs.

104    This term provides no direct benefit to about 16% of registered class members (because registered non-client class members did not pay costs) but they received an indirect benefit from the costs that client class members paid. In such circumstances it is appropriate to prioritise the reimbursement.

105    Third, $408,000 (being the balance of the $1.408 million paid by the respondents) will be expended on a payment to Amtrust Europe Limited for an After the Event insurance policy taken out by the applicant to cover adverse costs. This insurance benefited the applicant because it protected him from liability for adverse costs and all class members benefited because they avoided a requirement to pay security for costs. The payment is the price of that benefit.

106    Fourth, the applicant provides binding loan enforceability admissions on behalf of the class members. Again, in my view these admissions will constitute significant detriment to class members who wish to defend loan enforcement proceedings brought by the Lender, particularly any class member who has individual or unique grounds to do so. For non-participating class members this detriment is not balanced by any benefit. As I have said, I will deal separately with this issue.

107    Fifth, the applicant agrees to the indemnity term on his own behalf and on behalf of the class members. As I said of the cognate clause, this term provides that if a class member obtains damages or compensation in any Third Party Proceeding (as defined) and an order for contribution is made against a Lender or a related party in respect of those damages or compensation, the class member will indemnify the Lender or related party against that order for contribution. To some extent this term of the settlements is likely to inhibit class members in making claims against third parties. For non-participating class members, who receive no benefit from the settlement, this is a disadvantage which is not balanced by any benefit.

108    Sixth, the applicants, on their own behalf and on behalf of the class members, provide broad releases to the same or effect as the releases in the 2007/08/09 Schemes proceedings.

109    In my view the benefits of the settlement in the 2010 Scheme proceeding are significant for registered class members with outstanding loans, but low for registered class members who did not take out loans or who have paid them off. Again, it is significant to my decision that the binding loan enforceability admissions will constitute a significant detriment for some registered and some non-participating class members. For some registered class members this detriment may outweigh the benefits of the settlement and for non-participating class members the detriment will not be balanced by any benefit.

J.    THE BINDING LOAN ENFORCEABILITY ADMISSIONS

110    It is common ground that the binding loan enforceability admissions will preclude class members from defending loan enforcement proceedings by a Lender on any basis, even in reliance on claims, defences or counterclaims not pleaded in the class actions and which are based in the class member’s individual or unique circumstances.

111    The Contradictor’s opposition to settlement approval focused on this term of the settlements, and it is also significant to the objections by Mr Braham, Mr Anderson, Mr Nealon, Dr Jackson, Mr Sostarko, Mr Spenceley, Mr Rennick, Mr McInally, Ms and Mr Rendon and Mr Tsardanis.

112    In brief summary the Contradictor submitted (supported by Mr Braham) that:

(a)    the applicants had no authority or standing to plead claims made by class members beyond those claims founded in the same, similar or related circumstances and sharing a substantial common question of fact or law (see s 33C of the Act). Essentially, the Contradictor argued that the applicants had no authority to represent class members in the proceedings in relation to any individual claims or defences they possessed;

(b)    the applicants had no authority to settle claims beyond those claims founded in the same, similar or related circumstances and sharing a substantial common question of fact or law, or indeed any claims outside the pleaded case. Essentially, the Contradictor argued that through the binding loan enforceability admissions the settlements purport to settle class members’ rights in relation to claims which fall outside those for which the applicants had authority to represent the class members and outside the pleaded case;

(c)    in the circumstances the Court has no power to approve the settlements; and

(d)    in the alternative, in the exercise of discretion the Court should not approve the settlements because, in all the circumstances, a settlement including the binding loan enforceability admissions is not fair or reasonable.

113    The settlement parties submitted that the applicants had authority to make such claims (alternatively, that class members were required to either raise their individual or unique claims within the class actions or to opt out), the applicants had authority to reach settlements in terms of the Settlement Deed, that the Court has power to approve the settlements, and that settlements including the binding loan enforceability admissions are fair and reasonable.

114    It is unnecessary to decide the questions of authority and power in the present applications because:

(a)    assuming that the applicants had authority to plead claims by class members beyond those based in the same, similar or related circumstances and sharing a substantial common question of fact or law (see s 33C of the Act), it is plain that the proceedings do not plead any claims based in class members’ individual or unique circumstances. The pleadings only advance claims based on the common circumstances of the applicants and class members (“common claims”);

(b)    assuming that Part IVA allows the applicants to put forward claims based in the individual or unique circumstances of class members, or that the Part allows class members to advance their individual or unique claims within the class actions (see ss 33Q, 33R and 33S of the Act) neither the applicants or any class member did so; and

(c)    assuming that the applicants had authority to settle class members’ claims or defences which are not pleaded in the class actions and which are based in their individual or unique circumstances, in the circumstances of the present cases I refuse to approve settlements that include the binding loan enforceability admissions. In the circumstances I do not consider the settlements to be fair or reasonable having regard to the interests of class members to be bound by them. However, that is not to say that settlements including such admissions could never be approved.

I do not decide the questions of authority and power and I deal with the applications by the exercise of my discretion in relation to settlement approval.

The settlement parties’ submissions

115    The settlement parties made the following main contentions. First, they submitted that the binding loan admissions are a necessary and appropriate term of the settlements because they provide finality to the respondents. They pointed to the public interest in finality of litigation and noted that the Settlement Deed is not unusual in providing for finality.

116    Second, in their central thrust, the settlement parties submitted that class members were given an opportunity to opt out of the proceedings and should have opted out if they wished to pursue other claims against the respondents in relation to the subject matter of the proceedings, including claims not pleaded by the applicants and claims or defences that are individual or unique to a class member.

117    They noted that the proceedings seek declarations (in respect of each pleaded cause of action) that the applicants and class members are not liable under their loan agreements with the Lenders and claim damages on behalf of the applicants and class members comprising their past and future liability under the loan agreements. They argued that the enforceability of the loan agreements is a principal issue in the proceedings and that class members must have understood that the enforceability of the loan agreements was a matter which was likely to be covered in any settlement.

118    They submitted that the Annexure A and Annexure B Notices informed class members that they would be bound by any judgment or settlement unless they opted out. On their submissions, class members were fully informed of the consequences of not opting out and must be assumed to have chosen not to do so on the express basis that they would be precluded from commencing any other proceedings against the respondents in relation to the matters the subject of the proceedings, or in relying on any individual or unique claim or defence in loan enforcement proceedings. They contended that, if class members did not opt out, the fact that a settlement will preclude them from raising individual defences or counterclaims “is a necessary consequence of the representative proceeding regime.”

119    On the settlement parties’ contentions, if class members have an individual or unique claim against the respondents (which is not statute barred and which they would not otherwise be estopped from advancing were the trial to proceed) they were required to assess whether they wished to pursue that claim at the opt out stage. They contended that if the Court were to permit class members to rely on the availability of any individual or unique claims or defences as a basis for ceasing to be a class member, or for objecting to settlement approval, then the purpose of the opt out process would be frustrated.

120    Third, in a related submission the settlement parties contended that if the proceedings continue to judgment and the applicants are unsuccessful (as the respondents contended is likely) class members will be estopped from seeking to challenge the enforceability of the loan agreements in any further proceeding under the principles in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45 (“Anshun”) or the principles of abuse of process. They submitted that there is nothing in Part IVA to suggest that s 33ZB of the Act should be read down so that the binding effect of a judgment on a class member is not the same as the binding effect of that judgment on the representative party. On this argument the binding loan enforceability admissions were not unfair to class members as they would have lost any right to pursue their individual or unique claims or defences in any event.

121    In this regard the settlement parties submitted that class members who did not opt out could and indeed were required to raise any additional or individual causes of action or defences beyond the pleaded case within the class actions, but did not do so. They contended that if a class member considered that the applicants were not pursuing some alternative claim, whether or not that claim is common to all group members or a claim that is individual or unique to the particular group member, there were various options open to him or her to advance that claim. They submitted that class members could and were required to seek:

(a)    (in respect of an individual or unique claim) directions:

(i)    under s 33Q for the establishment of a subgroup and to appoint another class member as the representative party in relation to those issues; or

(ii)    under s 33R to permit the class member to appear in relation to those issues;

(b)    (if the issues raised by the alternative claim could not properly or conveniently be dealt with in the proceedings) directions under s 33S for the commencement of separate proceedings (either individual proceedings if the alternative claim related only to the particular class member or another representative proceeding if the alternative claims are common to a number of class members); or

(c)    orders under s 33T to substitute another class member as the representative party.

They argued that no class member in the present proceedings had done so, despite being on notice through the Annexure A and Annexure B Notices.

122    Fourth, the settlement parties submitted that assertions by class members that they will be deprived of real and valuable rights that they would be able to independently press if the settlement were not approved, or that they were unaware of the possibility that those rights might be lost at the opt out stage, should be treated with great scepticism by the Court. They submitted that, to the extent that the binding loan enforceability admissions involved a detriment to class members, no class member had come forward with evidence that the detriment is anything other than theoretical, particularly the non-participating class members.

123    They argued that it could not be assumed that, in circumstances where the non-participating class members were insufficiently interested in the proceedings to register or opt out, that they might nevertheless have other claims (which they are not estopped from advancing, and which would not be statute barred) and which they might wish to prosecute or maintain after any trial of the proceedings.

124    Fifth, the settlement parties submitted that to the extent that the binding loan enforceability admissions amount to a disadvantage for non-participating class members, this is not a consequence of the settlements but of the registration and opt out orders which provided that class members who did not register are not entitled to seek the benefit of any settlement. They noted, and I accept, that if the settlement is not approved, by reason of the registration and opt out orders there is no prospect that the non-participating class members can obtain relief or a benefit by way of a judgment.

125    In these submissions the settlement parties relied heavily on judgments in the Great Southern class action by Croft J in Clarke v Great Southern Finance Pty Ltd (in liquidation) (No 2) [2012] VSC 338 at [16]-[18] (“Clarke No 2”) and Clarke v Great Southern Finance Pty Ltd (in liquidation) [2014] VSC 516 (“Clarke No 4”) and Judd J in Clarke v Great Southern Finance Pty Ltd (in liquidation) [2014] VSC 569 (which I will call “Clarke No 3”).

Consideration

126    For the reasons I now explain, I do not accept the settlement parties’ submissions. In my view the imposition of the binding loan enforceability admissions upon class members, in combination with the failure/refusal to offer them an opportunity to opt out of the settlements, means that the settlements are not fair or reasonable. In broad summary, this is because:

(a)    the binding loan enforceability admissions are likely to constitute a significant detriment for some class members;

(b)    the settlement parties give too much weight to the benefits of finality of litigation for the respondents;

(c)    the Annexure A and B Notices did not unambiguously inform class members that if they did not opt out they would or might be precluded from defending loan enforcement proceedings on any basis, including by relying on claims or defences which are not pleaded in the class actions and which are based in their individual or unique circumstances, having regard to:

(i)    the audience to whom the Notices were directed;

(ii)    the context in which class members read the Notices; and

(iii)    the terms of the Notices; and

(d)    if the class actions proceed to judgment and the applicants are unsuccessful on the common issues, it is unlikely that class members will be precluded from relying on individual claims or defences by an Anshun estoppel or because of abuse of process, essentially because:

(i)    class members could not have raised their individual or unique claims within the framework of the class actions, but even if they could there was no “requirement” for them to do so; and

(ii)    assuming it was open to class members to raise their individual or unique claims within the framework of the class actions, in the circumstances (including that the Notices were ambiguous) it was not “unreasonable” for them not to have done so.

The detriment for some class members

127    The binding loan enforceability admissions will operate to bar class members from denying the enforceability of their loan agreements for any reason, even where they seek to rely on claims or defences that are not pleaded in the class actions and are based in their individual or unique circumstances. It is likely therefore that settlements including the admissions carry a significant detriment for some class members.

128    For some class members the binding loan enforceability admissions are likely to be of no moment and I note that many class members did not take out a loan or have already paid off their loan. Mr Tserkezidis, a Manager at CBA, deposed that MIS and CBA made 1,935 loans to investors in the 2007/08/09 Schemes. He said that as at 1 July 2015, 901 of those loans had been repaid in full, and 59 class members with outstanding loans had opted out. This means that approximately 975 of the approximately 3,165 class members in the 2007/08/09 Schemes proceedings (about 31%) have outstanding loans. The position appears to be different in relation to the 2010 Scheme as Mr Willemsen deposed that all but 14 of the registered class members took out loans to acquire their interests in that Scheme, but it is unclear how many of the non-participating class members did so.

129    I accept that some, perhaps many, registered class members (most of whom are M+K’s clients) may see the binding loan enforceability admissions as fair and reasonable. Under the settlements they will be reimbursed approximately half of the legal costs they paid and any contribution they made to security for costs. In the 2007/08/09 Schemes proceedings they will be allowed a period to catch up their loan repayments and then to pay the balance over the term of the loan, and in the 2010 Scheme proceeding they will receive a significant discount on the outstanding loan balance. Such class members may consider that the benefits under the settlements outweigh the detriment of the admissions, particularly if they consider that the relevant case has poor prospects of success. Also, some registered class members will be aware that they have no basis to defend loan enforcement proceedings other than on the grounds pleaded in the class actions and may therefore see the admissions as fair.

130    However, for other registered class members (both client and non-client) the detriment of the binding loan enforceability admissions may significantly outweigh any benefit in the settlements. For example, Mr Braham is a class member in the 2007/08/09 Schemes proceedings and he was a client of M+K at the relevant time. He paid a total of $165,000 in legal costs and contributed $50,000 to the fund for security for costs. At the date of the settlement approval hearing he owed CBA and MIS approximately $4.6 million pursuant to loans taken out to acquire interests in the Schemes. Under the settlements he will receive reimbursement of approximately $134,150, but he will be precluded from defending loan enforcement proceedings on any basis. He submitted, and I accept, that for him the imposition of the binding loan enforceability admissions is not balanced by any real benefit under the settlements.

131    Importantly, for 2,427 non-participating class members in the 2007/08/09 Schemes proceedings (about 77% of the class) and 182 non-participating class members in the 2010 Scheme proceeding (about 52% of the class), the detriment of the binding loan enforceability admissions is not balanced against any benefit.

132    The settlement parties submitted that the detriment for non-participating class members arises from the registration and opt out orders rather than from the settlements, but this submission misunderstands the effect of those orders. The binding loan enforceability admissions are imposed through the settlements, not through the orders. It is one thing to rely on the registration and opt out orders to exclude non-participating class members from the benefits of settlement or judgment, and quite another to impose a substantial detriment upon them through the settlements, particularly when (as I explain) that is to be done without adequate notice and without offering them an opportunity to opt out.

The benefits of finality for the respondents must be balanced with the class members’ interests

133    I accept, as the settlement parties contended, that parties to a settlement generally hope to resolve all their disputes and in most cases there is little point in seeking to settle proceedings without seeking to settle the totality of them: Tongue v Council of the City of Tamworth [2004] FCA 209 at [45] (Allsop J). As Gordon J said in Harrison at [26], when granting approval to a class action settlement:

…it is not uncommon in settlements for full releases to be made of all outstanding claims, whether directly at issue in the proceedings or not. The releases are given, as Counsel for the applicants submitted, as the price of finality.

Gordon J’s remarks were, however, made in the context of a settlement that allowed class members who were unhappy with the settlement to opt out at that point. The settlements in the present cases do not provide that opportunity.

134    It is easy to understand the basis on which the respondents sought the binding loan enforceability admissions: the Lenders’ interest in finalising the litigation surrounding the loans and the public interest in finality of litigation is plain. However, the benefits of finality must be balanced against the interests of class members. In the present cases the binding loan enforceability admissions coupled with the failure/refusal to provide class members an opportunity to opt out of the settlements gives too much weight to finality.

135    It is noteworthy that the Second Reading Speech for the Federal Court of Australia Amendment Bill 1991 (Cth) (Australia, House of Representatives, Parliamentary Debates (Hansard), 14 November 1991 at 3174-3175 (“Second Reading Speech”) did not include finality of litigation as a general objective of Part IVA. In fact, absolute finality is difficult to achieve for a respondent to Part IVA proceedings because class members have a right to opt out of the proceeding, and because they are often permitted to opt out of a settlement.

136    Although Part IVA does not expressly empower the Court to provide class members an opportunity to opt out of a settlement, it is clear that the Court has power to do so. Section 33J allows the Court to fix another date for opt out which will extend the period during which a class member may opt out, and 33ZF allows the Court to make any order which the Court thinks appropriate to ensure that justice is done in the proceeding. Nor is there anything in Part IVA to indicate a legislative intention against providing class members with an opportunity to opt out at the point of settlement. The courts have often provided class members such an opportunity: see Courtney v Medtel Pty Ltd (No 4) [2004] FCA 1233 at [15] (Sackville J); Morabito M, “Judicial Responses to Class Action Settlements that Provide No Benefits to Some Class Members” (2006) 32 Monash University Law Review 75, 96; Grave D, Adams K and Betts J, Class Actions in Australia (2nd ed, Law Book Co, 2012) p 579.

137    In the United States the Courts are expressly required to give consideration to allowing class members to opt out of a settlement. In December 2003 Rule 23 of the United States Federal Rules of Civil Procedure was amended to provide that in class actions “the Court may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so.” As Professor Morabito has noted, this amendment was based on a recognition of the benefit of providing an additional safeguard for class members by allowing them to opt out at the point of settlement.

138    In Principles of the Law of Aggregate Litigation (Issacharoff S, Klonoff R, Nagareda R and Silver C, American Law Institute Publishers, 2010) pp 242-3 the learned reporters said that “as a matter of fairness, a class member should have an opportunity to opt out after learning about the actual terms of a settlement”. They expressed the following principle:

Second Opt-Out

In any class action in which the terms of a settlement are not revealed until after the initial period for opting out has expired, class members should ordinarily have the right to opt out after the dissemination of notice of the proposed settlement. If the court refuses to grant a second opt-out right, it must make an on-the-record finding that specific reasons exist for its refusal.

While recognising that a court may find that a second opt out would be inappropriate in a particular case, the reporters said:

Specifically, the likelihood of a second opt out would have the salutary effect of forcing the parties to reach terms that are sufficiently attractive to deter massive opt outs. Defendants seek global peace, and large numbers of opt-outs defeat the very purpose of a class action, particularly when there is any likelihood that opt-outs would pursue their own litigation. To avoid large numbers of opt-outs, the parties would inevitably avoid settlements that are patently unfair to class.

139    Allowing class members to opt out of a settlement may reduce the incentives for a respondent to settle, but this can be dealt with by the inclusion of terms, for example, which allow a respondent to withdraw from a settlement if more than a specified percentage of class members or more than a specified proportion of total class claims opt out of the settlement. Such terms are common in class action settlements in the United States and have been included in a number of Australian settlements: e.g. King v AG Australia Holdings Ltd (formerly GIO Australia Holdings Ltd) [2003] FCA 980.

140    Whether it is in the interests of justice to provide class members with an opportunity to opt out at the point of settlement will, of course, depend upon the circumstances of the case. In the present cases the failure to provide class members with an opportunity to opt out of the settlements is material to my refusal to approve them.

The failure to provide adequate notice to class members

141    The settlement parties submitted that class members should be taken to have chosen not to opt out on the express basis that the consequences of not opting out might include that they would be precluded in other proceedings from relying on claims or defences which are not pleaded in the proceedings and are based in their individual or unique circumstances. In this submission they relied on the decisions in Clarke No 2, Clarke No 3 and Clarke No 4.

142    In Clarke No 3 Judd J dealt with an application by a group of class members seeking orders that they cease to be class members, pursuant to ss 33KA and 33ZF of the Supreme Court Act 1986 (Vic). The application was made after the proceeding had been settled but before the settlement approval hearing. The principal submission by the class members was that they should be permitted to cease to be class members (in effect, to opt out of the settlement) because the settlement provided that the plaintiff on behalf of the class members admitted the validity and enforceability of their loan agreements. If the settlement was approved class members would be precluded from raising any claims or defences in other proceedings on grounds which were not pleaded in the class actions, including claims or defences which were individual or unique to their circumstances. The class members submitted that had they known that their right to maintain such claims or defences might be restricted through a settlement in the class action they would have taken steps to opt out of the proceedings.

143    His Honour held (at [22]) that the application was not competent as class members had no right to apply under ss 33KA and 33ZF, and his Honour proceeded to act on his own motion (at [26]). Therefore, strictly speaking, his Honour’s detailed reasons are obiter dicta.

144    His Honour said (at [46]) that the appropriate protection of the individual claims of class members

…is adequately achieved through the opt out process, provided the opt out notice is sufficient to define the scope of the proceeding and permit a meaningful decision. The notices were sufficient for that purpose. Had the applicants a viable basis to resist their obligations under the loan agreements, on grounds other than those pleaded in the group proceeding, they had an adequate informed opportunity to choose whether to opt out prior to the commencement of the trial, and ought to have done so. Nor was there any ambiguity about the prospect of settlement. ERA Legal was under no illusion as to their clients’ prospects for maintaining individual defences while remaining a member of the group. (Emphasis added.)

145    His Honour went on to say (at [51]-[53]):

The nature of the group proceeding was defensive.  The plaintiffs alleged that the loan agreements were void and unenforceable.  The Bank contended to the contrary.  Group members had an opportunity to opt out of the proceeding, insofar as they might wish to maintain a different or novel defence.  Upon judgment, group members would be bound by answers to the common questions, and thereafter precluded from litigating other defences to the obligations under the loan agreements.

It should have come as no surprise to group members to find, as a term of the Deed of Settlement, the Bank would insist on their right to recover under the loan agreements.  Group members were advised of the possibility of a negotiated settlement prior to the opt out deadline.  No doubt they hoped for a different and better outcome. 

To permit a number of group members, dissatisfied with the terms of the Deed, to opt out would be inconsistent with the benefits they have enjoyed as group members throughout the trial.  The term binding group members to repay loan obligations does not, in my view, constitute a material change in the scope of the group proceeding.  Group members would be precluded from advancing new novel [sic] individual defences had the case proceeded to judgment.  Thus, to include in the Deed a term precluding them from relitigating a challenge to loan obligations in the Deed, negotiated by the parties, cannot constitute a material change to the scope of the issues for final determination between the parties, nor was it inherently unfair.

146    In Clarke No 4 Croft J dealt with the settlement approval application. A large number of class members opposed settlement approval on the basis that, amongst other things, the binding loan enforceability admissions in the settlement deed would preclude them from running defences or counterclaims in loan recovery proceedings that were argued to be outside the pleaded case, including defences or counterclaims which were individual or unique.

147    Croft J held that it was incumbent on objectors to provide particulars of their individual defences or counterclaims and to articulate the reasons why the loss of such individual rights meant that the settlement was not fair or reasonable. In the absence of such particulars and reasons his Honour held that no weight should be given to that aspect of the class members’ objections (at [119]). Then, on the assumption that there was some reality in the objectors’ assertions as to the existence of their individual claims, Croft J gave further consideration to the questions before the Court. To this extent his Honour’s detailed reasons are, strictly, obiter dicta.

148    His Honour said (at [123]):

It is clear….that the purpose of the opt-out procedure is to preserve the right of individuals with claims that arise from the same subject matter as the group proceedings to choose whether to commence individual proceedings.  The necessary corollary of this for group members who do not opt out is that they must be taken to have chosen to be bound by the issues raised in the group proceedings and their ultimate resolution.  If that were not so, the purposes of the group proceedings legislation would be frustrated.

149    His Honour concluded (at132]):

…any group members with purported claims or defences different to those pleaded in the group proceedings, and who wished to pursue those claims or defences, could have and should have opted out. By not opting out, as submitted by the [respondents], group members must be taken to have accepted that the claims as pleaded in the group proceedings represent all of the claims reasonably available to them. This is the reality of the way the class action regime operates. That being so, it follows that the [respondents] are entitled to assume that the only challenges to the enforceability of the Loan Deeds group members wished to pursue were those made in the group proceedings. It would not be reasonable for group members to raise different claims or defences in subsequent proceedings. Further, the [respondents] should be entitled to seek and achieve a complete settlement of the matters in dispute between them and the group members regarding the Loan Deeds. It would be an abuse of the Court’s process, especially having regard to the opt-out procedure, for any group members to frustrate this entitlement by bringing subsequent claims or defences regarding the Loan Deeds. (Emphasis added.)

His Honour approved the settlements which included binding loan enforceability admissions.

150    After I heard the present applications, Robson J handed down judgment in Timbercorp Finance Pty Ltd (In liquidation) v Collins and Tomes [2015] VSC 461 (“Collins and Tomes”). In this case three class members in the Timbercorp class action (Woodcroft-Brown v Timbercorp Securities Ltd (in liq) & Ors) sought to defend loan enforcement proceedings brought by Timbercorp Finance on grounds that included counter claims and defences not pleaded in that class action and at least one ground that was individual or unique to the class member (see [188]ff). They did so in circumstances where judgment had previously been delivered deciding the common issues in favour of the respondents, including Timbercorp Finance: Woodcroft-Brown v Timbercorp Securities Ltd (in liq) & Ors (2011) 253 FLR 240; [2011] VSC 427 (Judd J) (“Timbercorp”). In Collins and Tomes Robson J answered the preliminary question by holding that class members were not precluded from raising any of the defences pleaded by reason of their participation as class members in the Timbercorp class action.

151    His Honour respectfully disagreed (at [679]) with the statements of Judd J in Clarke No 3 and Croft J in Clarke No 4. While my decision turns on the facts of the present cases, I take a broadly similar view to that of Robson J, and I respectfully disagree with the statements of Judd and Croft JJ in Clarke No 2, Clarke No 3 and Clarke No 4. I note that judgment in an appeal against the decision in Collins and Tomes is currently reserved before the Supreme Court of Victoria Court of Appeal.

152    I do not accept that a “necessary corollary” of the right to opt out is that class members who do not do so must be taken to have accepted that the claims pleaded in a class action represent all claims “reasonably available” to them. Amongst other things, this would entail that class members would be precluded in subsequent proceedings from raising even those claims or defences that were insufficiently “related” to the applicant’s claims to satisfy the threshold requirements of s 33C of the Act, and also precluded in relation to sufficiently “related” claims which were not pleaded in the class action and which are based in the individual or unique circumstances of a class member.

153    Nor do I accept that it is necessarily unreasonable for class members, in subsequent proceedings, to assert different claims or defences to those advanced in a class action. Whether class members should be permitted to do so will in part depend upon the sufficiency of the opt out notice provided to class members. In regard to the sufficiency of an opt out notice I respectfully take a different approach to Judd and Croft JJ. In my view if an opt out notice is to operate to preclude class members from subsequently advancing any claims or defences that are not pleaded in the class action and which are based in their individual or unique circumstances, that must be stated in unambiguous terms. The Court must be cautious to ensure that the individual rights of class members, in relation to claims about which the Court knows nothing, are not impinged upon.

154    In Clarke No 3 (at [45]-[46]) Judd J accepted as correct the statement of French J (as he then was) in Zhang v Minister for Immigration, Local Government and Ethnic Affairs (1993) 45 FCR 384 at 405; [1993] FCA 715 (“Zhang”), where his Honour explained:

…in a case in which the group members have not raised individual claims but have been defined into the group on their related circumstances and the common issue, it is necessary that care be taken to ensure that claims based on individual circumstances of which the Court knows nothing are not prejudiced.

As Judd J accepted (at [46]), the interests of class members in relation to their individual claims can be protected through the opt out process “provided the opt out notice is sufficient to define the scope of the proceeding and permit a meaningful decision” by class members as to whether or not to opt out.

155    In Collins and Tomes Robson J disagreed with the statements of Judd and Croft JJ as to the sufficiency of the opt out notices in the Clarke class action. His Honour found (at [618]) that the notices did not fairly warn class members that, unless they opted out, they would or might be precluded from raising any individual defences to loan enforcement proceedings. His Honour said that this was a critically important issue to the class members and the notices failed to address it. I agree.

156    I consider the opt out notices in the present cases were insufficient to put class members on notice that they would or might be precluded in the way the settlement parties now contend. Whether an opt out notice is sufficient to permit class members to make a “meaningful decision” (to use Judd J’s expression in Clarke No 3) in relation to their right to opt out requires an understanding of the context in which class members will read the notice, and a consideration of the terms of the notice having regard to the audience to which it is directed. Given the importance of the decision to class members, if it is to be contended that if they do not opt out they will or might be precluded from advancing claims or defences which are not pleaded in the class action and which are based in their individual or unique circumstances, the opt out notice must unambiguously state this warning in terms that are understandable by a layperson.

157    I also agree with Robson J that where an opt out notice purports to provide a warning about the consequences of not opting out (as the Annexure A and B Notices in the present cases did) class members are likely to treat them as comprehensive and “not merely selective of some of the adverse consequences that might flow from not opting out while omitting other adverse consequences”: Collins v Tomes at [620]. This acts to aggravate the failure to warn.

158    The principal purpose of a notice under 33X or 33Y of the Act is to ensure that class members can make an informed decision concerning their rights. Clarity and simplicity are essential if an opt out notice is to have its intended effect: King v GIO Australia Holdings Limited [2001] FCA 270 at [14]-[16] (Sackville, Hely and Stone JJ).

159    In the present cases the registration and opt out notices were aimed at a broad class of investors who, although made up of people with sufficient wealth to invest in the Schemes, included the undiscerning as well as the shrewd, the less educated together with the well-educated and the uninformed and accepting together with those who are astute, informed or sceptical. The notices were not directed to a class of lawyers and should not be construed as if they are to be read by such an audience. As Wilcox J said in McMullin v ICI Australia Operations Pty Ltd (No 6) (1998) 84 FCR 1; [1998] FCA 658 at 260:

Any notice that is to be issued to members of the public in connection with a representative proceeding must be readily comprehensible by non-lawyers. It should be written in plain English.

In my view, to support their submissions the settlement parties sought to carefully parse the Annexure A and B Notices as a lawyer would, selectively relying on some parts of the Notices and ignoring or downplaying other parts. That is not how the Notices should be construed, but even if they are I consider the Notices are not clear.

160    At the time I approved the Annexure A and Annexure B Notices there was no suggestion by the parties that the proceedings might be settled on a basis that included terms such as the binding loan enforceability admissions. This may explain why the Notices failed to inform class members in unambiguous terms that if they did not opt out they would or might be precluded from defending loan enforcement proceedings on any basis, including in reliance on claims or defences that are not pleaded and which are based in their individual or unique circumstances.

161    It is significant that the applicants conceded that the binding loan enforceability admissions:

…may create a risk that some Group Members may lose an individual right to contest the validity and/or enforceability of a loan agreement, which risk may not have been envisaged by every Group Member or at least by those Group Members who had no knowledge that such a compromise could reasonably arise from the Group Proceedings.

In my view this concession did not go far enough. In the present circumstances I find it difficult to see how class members could have reached an understanding of the “risk” to which the applicants refer, or obtained the “knowledge” that the binding loan enforceability admissions could reasonably arise.

162    Importantly, in their written submissions the applicants said that the “risk” they identified was “obviously mitigated” by the Notice of Proposed Settlement because the notice informed class members who were concerned about the binding loan enforceability admissions that they could opt out or object. This submission misunderstood the terms of the settlements and the Notice of Proposed Settlement. Under the settlements class members are not afforded an opportunity to opt out and the Notice of Proposed Settlement did not state otherwise.

The context in which the Notices were read

163    I now turn to the context in which the Annexure A and Annexure B Notices were read by class members. The context included that the proceedings only make claims based in issues that are common to all class members, the allegations that the loan agreements are void and unenforceable is only made in relation to the common claims, and the Defences only respond to the common claims. Any class members who reviewed the pleadings (to which they were referred by the Notices) are likely to have concluded that the proceedings did not concern any individual or unique claim or defence which they possessed.

164    Those class members who sought advice from M+K are likely to have been left with the same impression. Mr Willemsen deposed:

In a great many of [sic] conversations I had with group members who were or became M+K clients I said to them that the class actions for Willmott investors were going to be dealing with common issues and were expected to be a cost-effective way for claims to be brought to Court, the alternative of bringing individual claims being so expensive as to be prohibitive.

165    Mr Willemsen also said that when taking initial instructions from clients it was M+K’s practice to deal only with the common issues. M+K did not at that point seek instructions in respect of any issues that any client may have had different from those pleaded in the class action or which were unique to the client. It is hard to see why class members would have seen their individual or unique circumstances as significant in the decision whether to opt out when the class lawyers did not even ask about them.

166    Further, the Retainer Agreements provided to M+K’s clients (and I infer to many class members who declined to become clients of the firm) informed them that the unique issues of class members were to be dealt with at a later stage of the proceedings. Clause 10 of the Retainer Agreement stated:

After the case for investors has been built up and the best time, strategically, has arrived to address each investor’s own unique issues and embark on settlement negotiations the stage 2 individually time-costed fees will be billed to me/us by reference solely to my/our individual file. No part of the stage 2 fees will be applied to the class action file as they relate only to my/our own unique issues and evidence.

The materials indicate that Stage 2 was not reached (except perhaps in relation to 87 class members who were individually sued by a Lender). At no point did M+K advise class members that the time had “arrived to address each investor’s own unique issues”.

167    The pre-prepared script, used by M+K in responding to approximately 250 telephone enquiries and 104 email enquiries about the registration and opt out process, is also relevant. In part it stated:

If you would prefer to initiate proceedings in relation to your Willmott investment on your own, or would prefer to reserve the right to initiate proceedings at some time in the future, you must opt-out of the Willmott Class Actions. If you remain a class member you will be bound by any decision made in the Willmott Class Actions.

168    The script did not clearly inform class members that if they did not opt out they might be precluded from relying on their unique individual circumstances in defending loan enforcement proceedings by a Lender. Instead, M+K informed class members that they should opt out if they wished to initiate their own proceedings against the respondents. The two situations may involve quite different considerations. It might be expected that many class members would lack the resources to bring their own proceedings against the respondents, whereas they might have little option but to defend loan enforcement proceedings brought against them.

169    The materials show that M+K recognised the distinction between common and individual issues, and informed class members that individual issues would be dealt with at a later stage of the class actions. I conclude from the materials that very few class members were advised that their individual issues meant that they should opt out and commence separate proceedings.

170    Importantly, there is nothing in Mr Willemsen’s evidence to show that even one class member asked about the potential for a settlement that included a term that might preclude the class member from defending loan enforcement proceedings in reliance on claims or defences which are not pleaded in the class actions and which are based in his or her individual or unique circumstances. I would expect some class members, particularly the 87 class members who were already defending loan enforcement proceedings, to have raised such a question had they been on notice that such an outcome was possible. Mr Willemsen did not state that M+K advised even a single class member that there was a possibility that he or she would or might be so precluded.

The terms of the Annexure B Notices

171    I start with the Annexure B Notices because they are more straightforward. In each proceeding this Notice was in relevantly the same terms and it largely went to class members who were M+K’s clients. I infer that it went to class members such as Mr Braham, Mr Nealon, Mr Anderson, Ms and Mr Rendon, Mr Tsardanis and Mr McInally, each of whom objected to the binding loan enforceability admissions.

172    The Notice commenced by informing class members that it is important and should be carefully read. It provided a summary of the claims in the proceedings which referred only to the pleaded common claims. It summarised the respondents’ defences and stated:

The Respondents reject the allegations and are defending the claims on a number of grounds, including that the product disclosure statements were not defective or misleading or deceptive, there was no unconscionable conduct and no duty of care was breached.

The Notice did not refer to any claims or defences based in class members’ individual or unique circumstances. At the end of the Notice class members were told where they could obtain a copy of the pleadings. Any class member who looked at the pleadings would have seen that they only made claims based in the common circumstances of the applicants and all class members.

173    Next, under the heading “What is a class action?” the Notice explained the concept of class members being “bound” by a judgment or settlement in a class action. It stated:

What is a class action?

A class action is an action that is brought by one person (“the Applicant”) on his or her own behalf and on behalf of a group of people (“class members”) against another person (“the Respondent”) where the Applicant and the class members have similar claims against the Respondent.

Class members are bound by any judgment or settlement entered into in the class action unless they have opted out of the proceeding. This means that:

(a)    if the class action is successful, class members may be eligible for a share of any settlement monies or Court-awarded damages;

(b)    if the class action is unsuccessful, class members are bound by that result; and

(c)    regardless of the outcome of the class action, class members will not be able to pursue their claims against the Respondent in separate legal proceedings unless they have opted out.

(Emphasis added in italics.)

174    The settlement parties contended, and I accept, that the word “similar” in the opening paragraph of this section echoed the requirements of s 33C of the Act. In the context, class members are likely to have understood the phrase “bound by any judgment or settlement entered into in the class action” by reference to their “similar” claims. That is, the common claims made in the proceeding, as they were summarised in the preceding paragraph or as they were made in the pleadings to which class members were referred.

175    The settlement parties sought to rely on sub-paragraph (c) in this section, arguing that it informed class members that unless they opted out they would have no right to pursue any claims against the respondents in separate proceedings. I do not accept that the Notice clearly stated this. First, this section is headed “What is a class action?” and it is directed at describing class actions generally rather than expressly dealing with the consequences of not opting out (which is dealt with in a later section).

176    Second, the Notice warned of a preclusion from bringing claims in separate proceedings rather than a preclusion from defending proceedings, such as loan enforcement proceedings. As I have said, the two situations involve different considerations. While many class members may lack the resources to bring their own proceedings against the respondents, they might have little choice but to defend loan enforcement proceedings.

177    Third, a later section of the Notice (which expressly dealt with the consequences for class members of not opting out) said something different. The later section provided:

What will happen if you choose to remain a class member?

Unless you opt out, you will be bound by the outcome of the class action. If the class actions are successful, you will be entitled to share in the benefit of any order, judgment or settlement in favour of the Applicant and group members. (In some cases you may have to satisfy certain conditions before your entitlement arises.) If the actions are unsuccessful or not as successful as you might have wished, you will not be able to sue on the same claim in any other proceedings. (Emphasis added in italics.)

178    In my view this qualifies sub-paragraph (c) in the earlier section. There is only one way to read the phrase “you will not be able to sue on the same claim”. In the circumstances class members are likely to have read the phrase to mean that if they did not opt out they would be precluded from suing in other proceedings on the common claims that were pleaded. I note again that the stated preclusion is against suing on the same claim and not in relation to defending proceedings. This section seriously undermines the settlement parties’ argument.

179    In my view there is little in the Annexure B Notice to support the settlement parties’ submission that class members would have understood the Notice to mean that, if they did not opt out, they would or might be precluded from defending loan enforcement proceedings by relying on claims or defences which are not pleaded in the class action and which are based in their individual or unique circumstances. In any event, it cannot be said that the Notice unambiguously so provided.

The terms of the Annexure A Notices

180    The Annexure A Notices in each proceeding were relevantly the same. The only difference of significance is that the Notice in the 2010 Scheme proceeding did not include the section headed “What is security for costs?” because class members in that case were not required to provide security.

181    An Annexure A Notice was sent to approximately 2,978 of the 3,405 class members in the 2007/08/09 Schemes proceedings, and to 218 of the approximately 357 class members in the 2010 Scheme proceeding, the great majority of whom were not clients of M+K.

182    The notices are lengthy and not straightforward for a non-lawyer to understand. I mean no criticism of the parties in this regard as the task of combining information about class member registration, security for costs and the right to opt out in one notice was not without difficulty.

183    The Annexure A Notice commenced by informing class members that the Notice is important and it should be carefully read. Doing so in the same terms as the Annexure B Notice, the Notice provided a summary of the claims in the proceedings which referred only to the pleaded common claims and summarised the respondents’ defences. It did not refer to any claims or defences based in class members’ individual or unique circumstances. At the end of the Notice class members were told where they could obtain a copy of the pleadings. Any class member who read the pleadings would understand that they only advanced claims based in circumstances common to the applicants and all class members.

184    Next, under the heading “What is a class action?” the Notice explained the concept of class members being “bound” by a judgment or settlement (doing so in the same terms as the Annexure B Notice). As I said in relation to that Notice (at [171]) class members are likely to have understood the reference to being “bound by any judgment or settlement entered into in the class action” as meaning their “similar” claims, being the common claims pleaded, as they were summarised in the preceding paragraph or as they were made in the pleadings to which class members were referred. In my view class members are likely to have understood sub-paragraph (c) to be qualified by the later section which expressly dealt with the consequences of a failure to opt out in the present cases.

185    Next, a section headed “What is security for costs?” (which was not included in the Notice in the 2010 Scheme proceeding) informed class members of the requirements in relation to security for costs. It said:

What is security for costs?

At this stage of the class action proceedings, the Court has ordered the Applicants to provide $1,730,379 as security for the legal costs of the Respondents. The Applicants are not able to personally fund security in that amount. Accordingly, the class members have been requested to contribute towards a pool of funds.

Each class member who wishes to pursue a claim against any or all of the Respondents in the class action proceedings is requested to make a real contribution to the pool of funds to be used as security for costs. If they do not agree to make such a contribution the class member is requested to provide information to explain why the class member is unable or reasonably unwilling to contribute to the pool of funds to be used as security for costs.

You cannot be compelled to provide a contribution to security for costs. However, if you fail to make a contribution and also fail to provide information showing that you are unable or unwilling to do so and that your unwillingness is reasonable, there may be serious consequences for your legal rights. You may lose your rights to make any claim in respect of or relating to the subject matter of these class actions against the respondents in this or any other proceeding.

Importantly, if the Applicants are successful in the class action proceedings, the contributions made to provide security for costs will be returned to the class members that contributed the money. (Emphasis added in italics.)

In the 2007/08/09 Schemes proceedings similar words to the emphasised passage also appeared in the Registration Form.

186    One cannot be certain how class members will have understood the phrase “in respect of or relating to the subject matter of these class actions”. The settlement parties submitted that the “subject matter” of the proceedings includes the loan agreements to fund the purchase of an interest in a Scheme and is not limited to the causes of action pleaded. They argued that class members would have understood that by not registering they faced the prospect that any claim they might have in relation to the loan agreements might be compromised.

187    I do not accept this. Lawyers may understand the breadth of the expressions “subject matter” and “relating to” but the Annexure A Notice was not directed to such an audience. The meaning of the expression “subject matter of these class actions” is not clear-cut and class members may well have understood it to mean the common claims pleaded in the proceedings. The expression “relating to” may have provided a broader meaning but, having regard to the later reference in the Notice to the “same claim”, class members may have taken it to refer to claims related to the common claims pleaded.

188    Such questions of construction are matters for lawyers and the fact that these questions as to the proper construction of the Notice arise illustrate that it failed to unambiguously inform class members that, if they did not register (or opt out), they would or might be confronted by the preclusion for which the settlement parties now contend. Class members could have reasonably expected that the possibility of such an outcome would be clearly stated, if indeed that was to be the case.

189    The next section of the Notice headed “What class members must do”, which expressly dealt with the consequences of not registering and not opting out, is central to my decision. It stated:

What class members must do

If you consider that you are a class member in the WFL class actions, you must choose one of the following options:

(Emphasis added in italics.)

190    Again, there is only one way to read the phrase in Option A “you will not be able to sue on the same claim in any other proceeding including by way of defence [or] counterclaim”. In the circumstances class members are likely to have understood it to mean that, if they did not opt out, in subsequent proceedings they could not rely on the common claims pleaded in the class actions, whether by claim, defence or counterclaim. It is unlikely that class members will have understood it to mean that they would or might be precluded from relying on claims or defences which are not pleaded in the class actions and which are based in their individual or unique circumstances.

191    The section titled Option B informed class members that if they wished to preserve their right to initiate their own legal action against the respondents they should opt out. It did not inform them that they should opt out if they wished to preserve any rights to defend proceedings brought against them. As I have said, these situations may involve different considerations.

192    The settlement parties contended that a necessary corollary of Option B is that class members would understand that, if they did not opt out, all of their rights would be determined within the class actions. I doubt that class members would have understood that this extended to the possibility that they might be precluded from defending loan enforcement proceedings upon grounds that are individual and unique to them, which are not pleaded in the actions and about which M+K knew nothing.

193    The section titled Option C informed class members that, if they did not register or opt out, they would remain class members but would be prevented from making a claim “in respect of or relating to the subject matter of the class actions”, and “[i]n other words if you do nothing, you will lose your rights to bring any claim against any of the Respondents in relation to the allegations made in these class action proceedings” (emphasis added).

194    As I have said, one cannot be sure how class members will have understood the broad expression “relating to the subject matter of the class actions”. The expression may be read broadly, but if class members read it having regard to the reference in Option A to a preclusion from suing on the “same claim” or by reference to the preclusion from suing “in relation to the allegations made in these class action[s]” they are likely to have understood it more narrowly. They may have understood the Notice to indicate a preclusion on suing in other proceedings on the common claims pleaded in the proceeding and claims related to them.

195    In the context in which class members read the Notice, it is unlikely that they would have understood Option C to mean that, if they did not register or opt out, they would or might be precluded from defending loan enforcement proceedings by relying on claims or defences which are not pleaded in the class actions and which are based in their individual or unique circumstances. Class members could reasonably expect any such preclusion to be unambiguously stated, if it was to be the case.

196    As can be seen, the Annexure A and B Notices used different expressions at different points to explain how class members might be bound by the outcome of the class actions. For example, at one point the Annexure A Notice informed class members that they would be precluded from bringing any claim or defence “in respect of or relating to the subject matter of the class actions”, and then immediately narrowed this to a preclusion “in relation to the allegations made in the class actions”, and at another point the Notice informed class members that they would be precluded only from suing on the “same claim”. The few sentences in the Notice which touched on the important issue of whether judgment or settlement in the class actions might foreclose class members’ rights to bring or defend proceedings based on claims which are not pleaded and which are based in their individual or unique circumstances are in my view ambiguous.

197    In the circumstances it would be wrong to infer from the Notices that class members were aware of but untroubled by the prospect that an outcome of the class actions could include a settlement that bound them into an admission that their loan agreements were valid and enforceable, or a foreclosure on claims or defences that are not pleaded in the class actions and are based in their individual or unique circumstances. It is noteworthy that there is no evidence that even one class member asked about the potential for a settlement that would preclude him or her from defending loan enforcement proceedings in reliance on their individual or unique circumstances. In my view the proper inference from the terms of the Notices, the context in which they were read by class members, and the complexity of the legal questions involved, is that many class members are unlikely to have understood that such an outcome was possible.

198    In any event, it cannot be said that the Notices unambiguously informed class members that if they did not register or opt out they would or might be subject to a settlement which precluded them in the way the settlement parties now contend.

Will class members be precluded from relying on individual claims, defences or counterclaims by Anshun estoppel or abuse of process?

199    The settlement parties further submitted that settlements including the binding loan enforceability admissions are fair and reasonable because, if the proceedings continue to judgment and are unsuccessful (as the respondents contended is likely), class members will be barred by Anshun estoppel or by principles of abuse of process from challenging the enforceability of their loan agreements in subsequent proceeding.

200    In this submission the settlement parties again relied heavily on the decisions in Clarke No 2, Clarke No 3 and Clarke No 4. In Clarke No 3 Judd J said (at [35]) that the applications to cease to be class members were “predicated on the assumption that, had the case proceeded to an adverse judgment, group members would retain the right to defend existing or potential recovery proceedings on grounds other than those explicitly litigated in the proceeding.” His Honour rejected that proposition. At [38] Judd J cited with approval the remarks of Croft J in Clarke No 2 (at [16]-[18]) where his Honour said:

A further consideration is that it is, in reality, the opponents of this application who bear the risk of not being able to agitate all aspects of their defences or counterclaims by electing to remain group members.  The risk they run is that on determination of the Group Proceedings, they will not be permitted – on the basis of abuse of process, Anshun estoppel, election or perhaps on other bases – to pursue all or any aspects of their defences or counterclaims in the individual proceedings.

201    At [50]-[53] Judd J said:

While it is true that the proposed individual defences might theoretically be raised in existing proceedings that have been stayed, this group proceeding was unusual. It took the form of a collective defence to the Bank’s rights of recovery under loan agreements. Existing and potential defences were subsumed in the group proceeding. That was the intended purpose of the group proceeding. The mere existence of a prior recovery proceeding brought by the Bank, or a counterclaim, does not assist the applicants.

The nature of the group proceeding was defensive. The plaintiffs alleged that the loan agreements were void and unenforceable. The Bank contended to the contrary. Group members had an opportunity to opt out of the proceeding, insofar as they might wish to maintain a different or novel defence. Upon judgment, group members would be bound by answers to the common questions, and thereafter precluded from litigating other defences to the obligations under the loan agreements.

It should have come as no surprise to group members to find, as a term of the Deed of Settlement, the Bank would insist on their right to recover under the loan agreements. Group members were advised of the possibility of a negotiated settlement prior to the opt out deadline. No doubt they hoped for a different and better outcome.

To permit a number of group members, dissatisfied with the terms of the Deed, to opt out would be inconsistent with the benefits they have enjoyed as group members throughout the trial. The term binding group members to repay loan obligations does not, in my view, constitute a material change in the scope of the group proceeding. Group members would be precluded from advancing new novel individual defences had the case proceeded to judgment. Thus, to include in the Deed a term precluding them from relitigating a challenge to loan obligations in the Deed, negotiated by the parties, cannot constitute a material change to the scope of the issues for final determination between the parties, nor was it inherently unfair.

202    In Clarke No 4 Croft J said (at [125]):

It is a “central and pervading tenet of the judicial system [that] controversies, once resolved, are not to be reopened except in a few, narrowly defined, circumstances”. [D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1, 17 [34] (Gleeson CJ, Gummow, Hayne and Heydon JJ).] This principle is reflected in the doctrines of issue estoppel, Anshun estoppel and abuse of process. In Johnson v Gore Wood & Co [[2002] 2 AC 1] Lord Bingham discussed the distinctions between these principles and said [at 31]:

But Henderson v Henderson [(1843) 3 Hare 100; [1843-60] All ER Rep 378] abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them.  The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter.  This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole.  The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all.

Chief Justice French approved the emphasised part of this passage in Aon Risk Services Australia Limited v Australian National University [(2009) 239 CLR 175 at 194 [34]]  Lord Bingham, then the Master of the Rolls, commenced his Lordship’s judgment in the Court of Appeal in Barrow v Bankside Agency Ltd with reference to the rule in Henderson v Henderson:

The rule … is very well known.  It requires the parties, when a matter becomes the subject of litigation between them in a court of competent jurisdiction, to bring their whole case before the court so that all aspects of it may be finally decided (subject, of course, to any appeal) once and for all.  In the absence of special circumstances, the parties cannot return to the court to advance arguments, claims or defences, which they could have put forward for decision on the first occasion but failed to raise.  The rule is not based on the doctrine of res judicata in a narrow sense, nor even on any strict doctrine of issue or cause of action estoppel.  It is a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on for ever and that a defendant should not be oppressed by successive suits when one would do.  That is the abuse at which the rule is directed.

(Emphasis in original.)

203    Croft J held that the binding loan enforceability admissions in that settlement were not unfair to class members because, upon judgment or settlement, class members would be barred from asserting any claims or defences that their loan agreements were unenforceable because of issue estoppel, Anshun estoppel and abuse of process. His Honour said (at [126]) that “the enforceability clauses cannot and do not detract from the fairness and reasonableness of the settlement; they simply provide certainty for all parties as to where the group members stand.”

204    In Collins and Tomes Robson J respectfully disagreed with their Honours’ statements in Clarke No 2, Clarke No 3 and Clarke No 4 and, while my decision is based in the facts of the present cases, I take a broadly similar view to Robson J.

205    There is no question that judgment in a Part IVA proceeding will bind class members (s 33ZB of the Act) and they will be precluded in subsequent proceedings from asserting claims that were unsuccessful in the class action. Nor is there any real question that the principles of Anshun estoppel and abuse of process apply to Part IVA proceedings such that a judgment may preclude class members from later asserting claims that could have been made in the class action.

206    As the plurality (Gaudron, Gummow and Hayne JJ) said in Mobil Oil (at [34]), what is decided in a class action is:

…the claims that are made, or could be made, against the defendant by all those in the “class” or “group” that is identified in the proceeding… (Emphasis in original.)

Their Honours said (at [39]-[40]):

...There is, therefore, a real possibility that some group members would remain “perfectly ignorant of the proceedings, and of what is really going on”. That is, some of those who would benefit from success in the proceeding (but thereby lose the opportunity to pursue their individual claim in some way, or to some effect, different from the group proceeding) may have their rights affected without their knowing or consenting to that being done.

So much follows from the fact that Pt 4A provides for what is sometimes called an “opt out”, rather than an “opt in”, procedure. (Emphasis added. Citations omitted.)

207    In Tomlinson v Ramsey Food Processing Pty Ltd (2015) 323 ALR 1; [2015] HCA 28 at [40] (“Tomlinson”) (handed down after the present applications were heard but in relation to which the parties made submissions) the majority (French CJ, Bell, Gageler and Keane JJ) said:

Traditional forms of representation which bind those represented to estoppels include representation by an agent, representation by a trustee, representation by a tutor or a guardian, and representation by another person under rules of court which permit representation of numerous persons who have the same interest in a proceeding. To those traditional forms of representation can be added representation by a representative party in a modern class action. Each of those forms of representation is typically the subject of fiduciary duties imposed on the representing party or of procedures overseen by the court (of which opt-in or opt-out procedures and approval of settlements in representative or class actions are examples), or of both, which guard against collateral risks of representation, including the risk to a represented person of the detriment of an estoppel operating in a subsequent proceeding outweighing the benefit to that person of participating in the current proceeding. (Emphasis added. Citations omitted.)

The Court accepted that class members in Part IVA proceedings may be bound to an estoppel which precludes them from advancing claims in subsequent proceedings if those claims could have been made in the class action.

208    Before me, it is common ground that a judgment or settlement of the class actions will bind class members to an estoppel in respect of the common claims which are pleaded in the actions. It is also common ground, at least between the Contradictor and the settlement parties, that a judgement or settlement may bind class members to an estoppel in respect of common claims that could have been pleaded in the class actions but were not. Mr Braham, however, contended that a class member could only be bound to an estoppel in respect of common claims that are pleaded, and not common claims which are not pleaded.

209    I am not inclined to agree with Mr Braham’s contention, but it is unnecessary to decide this question given my view that, in the present circumstances, class members are unlikely to be estopped in relation to any individual or unique claims they possess and that class members should be afforded an opportunity to opt out of the settlements.

210    Before dealing further with this issue I note that a decision as to whether class members may later be precluded from asserting claims or defences by the principles of Anshun estoppel or abuse of process is premature at this point. There is little or no material before the Court as to any claims or defences which class members may possess which are based in their individual or unique circumstances, and it cannot be conclusively decided that, if the class actions proceed to judgment, a particular class member will be precluded from asserting his or her individual or unique claims in subsequent proceedings. Amongst other things, the precise nature of any particular class member’s individual or unique circumstances has not been identified and there is no evidence before the Court as to; (a) whether such a class member received legal advice about the registration and opt out notice; (b) how the class member understood the notice; (c) when the class member became aware that he or she had a viable claim or defence based in his or her individual or unique circumstances; (d) why the class member did not raise his or her individual or unique claim within the class action; or (e) why the class member did not opt out. It cannot be known at present whether it is just in all the circumstances that the class member be so precluded.

Could class members, or were class members required to, raise their individual or unique claims or defences in the class actions?

211    In dealing with the possibility that class members may be confronted by an Anshun estoppel, the first main question is whether class members could have raised their individual or unique claims or defences within the framework of the class actions by making applications under ss 33Q, 33R or 33S of the Act. The settlement parties submitted not only that class members were entitled to make an application under these provisions and thereby assert their individual claims or defences, but that they were required to do so if they were to avoid being precluded from relying on their individual claims or defences in subsequent proceedings.

212    I do not accept this submission. It is common in class actions for some class members to share claims with the applicant which are based in the same, similar or related circumstances and to also have another claim or claims against the respondents arising from the same milieu but based in their individual circumstances (or at least in different circumstances to the applicant). The words “same, similar or related circumstances” in s 33C(1) refer to tiers of similarity between the claims commencing at the narrowest point with “sameness” and widening through “similarity” to “relatedness”. “Relatedness” is the outer limit of eligibility. As French J (as he then was) said in Zhang (at 404-405):

In each case there is a threshold judgment on whether the similarities or relationships between circumstances giving rise to each claim are sufficient to merit their grouping as a representative proceeding. At the margins, these will be practical judgements informed by the policy and purpose of the legislation. At some point along the spectrum of possible classes of claim, the relationship between the circumstances of each claim will be incapable of definition and a sufficient level of particularity, or too tenuous or remote to attract the application of the legislation.

213    A part of a class member’s claim which is based in his or her individual circumstances may nevertheless be “related” to the common claims. Whether that part of a class member’s claim should be dealt with within the class action or outside it will depend on the facts and a practical judgment may be required.

214    Ordinarily, courts take the approach of leaving the identification of class members’ individual issues or claims until after an initial trial in which the Court hears and decides the common issues and the applicant’s individual claims: Merck Sharp & Dohme (Australia) Pty Ltd v Peterson [2009] FCAFC 26 at [7] (Moore, Sundberg and Tracey JJ). After the decision on the common issues the Court can decide whether there are any individual claims and may give directions to deal with them in separate proceedings or within the framework of the class action. As Lindgren J said in Bright v Femcare Ltd (2002) 195 ALR 574; [2002] FCAFC 243 (“Bright v Femcare”) at 580 [18]:

…ordinarily one would expect that, in an attempt to give effect to the legislative intention, a means will be sought, by case management techniques, to enable a representative proceeding to continue to the stage of resolution of the substantial common issues on the basis that after that stage is completed, an order under s 33N or directions under s 33Q will be made…

I took this course in the present cases and the parties were directed to prepare common questions for determination at the initial trial. The initial trial was to determine the common questions and the applicants’ personal claims.

215    On the settlement parties’ construction of Part IVA any class member who possesses an individual or unique claim must either give up that claim at the opt out stage or bring his or her own proceeding. I do not accept this. I say this, first, because this construction is likely to lead to a multiplicity of proceedings and it is inconsistent with the general objectives of Part IVA in the Second Reading Speech which include allowing claimants to group their common claims so as to reduce legal costs and increase efficiency. It is also inconsistent with the aim of protecting defendants from multiple suits and the risk of inconsistent findings: Bright v Femcare at [152] (Finkelstein J).

216    Consider the position of class members who have claims based in the same, similar or related circumstances as the applicant and which give rise to a substantial common question of fact or law, which are supplemented by some additional claims based in their individual circumstances. As the Contradictor submitted, on the settlement parties’ argument:

(a)    those class members are required to identify their individual claims and opt out of the class action in order to avoid the possibility that a judgment or settlement at the common issues stage would be both unsatisfactory for them and bar them from subsequently litigating their individual issues;

(b)    having opted out, those claimants must commence separate proceedings which are likely to plead the same common claims (although supplemented by an articulation of their individual claims). Immediately, the respondents face essentially duplicated proceedings, perhaps many of them, which may be brought in different courts. So do the courts;

(c)    almost inevitably, the applicants in the class action, the respondents, and the plaintiffs in the individual cases will be drawn into interlocutory disputes about matters such as the transfer of cases between registries of the Court or between courts, the stay of the individual cases or the class action, the consolidation of the various cases into one court, shared discovery, shared experts and joint representation. This is inefficient and wastes the resources of the parties and the courts;

(d)    this inefficiency and waste occurs in circumstances where the core of the various cases continues to be the common issues pleaded in the class action, when the class action will deal with the claims of those claimants, and when the class action is likely to be further advanced towards trial than the cases brought by individual plaintiffs. In most cases it is likely that the class action will proceed first;

(e)    if the class action proceeds first and resolves the common issues in favour of the applicant and class members:

(i)    there is likely to have been no need for class members to have opted out in the first place and no requirement for them to articulate their individual issues. The time and cost expended in individual pleadings and interlocutory disputation will have been wasted; and

(ii)    the claimants who opted out to bring their own proceedings will not be bound by any finding on the common issues. Those individual plaintiffs, the respondents and the courts are likely to be caught up in further disputation while the parties work out whether, and if so how, the result in the class action applies to the individual proceedings; and

(f)    if the class action proceeds first and resolves the common issues against the applicant and class members then it can be accepted that the individual plaintiffs might proceed with their cases. Because they opted out they will not be bound by the result in the class action, but there is a likelihood that the courts will treat an attempt by them to revisit the common issues determined in the class action as an abuse of process: Reichel v Magrath (1889) 14 App Cas 665 at 668 (Lord Halsbury LC); State Bank of NSW Ltd v Stenhouse Ltd (1997) Aust Tort Rep 81-423 at 64,089 (Giles CJ Comm D); Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231 at [88]-[99] (Giles, McColl and Campbell JJA). It is likely that any trials of the individual actions will, in substance, comprise trials only of plaintiffs’ individual issues. Again, the time and cost expended in individual pleadings and interlocutory disputation would have been wasted because the same result could have been achieved, after determination of the common issues, by orders made in the class action under ss 33Q, 33R or 33S.

217    Second, it is established that the position of class members is “essentially passive” until after resolution of the common issues: P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 2) [2010] FCA 176 at [31] (Finkelstein J); Thomas v Powercor Australia Ltd (Ruling No 1) [2010] VSC 489 at [37]-[39] (J Forrest J). This points away from any requirement on class members to identify any individual or unique claims they possess additional to their common claims and to opt out, failing which they will be confronted by an Anshun estoppel in relation to such claims.

218    Third, the settlement parties’ contention that ss 33Q, 33R or 33S entitled, indeed required, class members to raise any individual or unique claims within the class actions misconstrues those provisions.

219    Section 33Q provides:

Determination of issues where not all issues are common

(1)    If it appears to the Court that determination of the issue or issues common to all group members will not finally determine the claims of all group members, the Court may give directions in relation to the determination of the remaining issues.

(2)     In the case of issues common to the claims of some only of the group members, the directions given by the Court may include directions establishing a sub-group consisting of those group members and appointing a person who consents to the appointment to be the sub-group representative party on behalf of the sub-group members.

(3)     Where the Court appoints a person other than the representative party to be a sub-group representative party, that person, and not the representative party, is liable for costs associated with the determination of the issue or issues common to the sub-group members.

220    The section does not, in terms, extend a right to class members to appear to seek orders for the determination of sub-group or individual issues. The scheme of Part IVA is that the applicant has the conduct of proceedings on behalf of the class members. The applicant’s lawyers owe fiduciary duties to class members who are their clients and they also owe duties to class members who are not their clients. These duties may or may not be fiduciary in nature, but the applicant’s lawyers at least have a duty to act in the class members’ interests: McMullin v ICI Australia Operations Pty Ltd [1997] FCA 1426 (“McMullin”) (Wilcox J); Courtney v Medtel Pty Ltd (2002) 122 FCR 168; [2002] FCA 957 at [57] (“Courtney”) (Sackville J); King v AG Australia Holdings Ltd (formerly GIO Australia Holdings Ltd) (2002) 121 FCR 480; [2002] FCA 872 at [24], [27] (“King”) (Moore J); Bray v F. Hoffman-La Roche Ltd [2003] FCA 1505 at [15] (“Bray”) (Merkel J).

221    It is noteworthy that rights of appearance by class members in Part IVA proceedings are limited, and where class members are permitted to appear the Part expressly so provides: e.g. s 33T, 33R. There are good policy reasons for this. One can readily understand the inefficiency, cost and delay that could occur in large Part IVA proceedings if it was open to class members to appear to raise their individual issues at times of their own choosing. As Robson J said in Collins and Tomes at [524]:

The time, cost, inefficiency and delay of side-tracking the group proceeding to hold case management directions [under ss 33Q, 33R or 33S] for any interested group member on any question arising out of the same, similar or related circumstances might well be contrary to the overarching obligation under the Civil Procedure Act.

222    Robson J cited with approval the finding in Earglow Pty Ltd v Newcrest Mining Ltd (2015) 230 FCR 469; [2015] FCA 328 at [141], where Beach J refused to order that the individual claims of two class members be heard in the first stage of that class action, holding that it would not be conducive to resolving the proceeding “as quickly, inexpensively and efficiently as possible” as required by the overarching purpose in s 37M of the Act. Beach J explained:

First, they are likely at the least to cause the acceleration of the incurring of costs or additional costs that may otherwise (on some contingencies) never need to be incurred... Second, I cannot say that they would quicken the resolution of the proceedings; on one view they may even extend the first stage trial. Third, I also cannot be satisfied that the proceedings would run more efficiently if the orders were made.

I take a similar view.

223    If s 33Q extends a right to class members to appear to seek directions in relation to any individual claims that are not pleaded in the proceedings I would expect that to be clearly set out: Collins and Tomes at [423]. In the absence of plain words I do not construe s 33Q in a way that might seriously reduce the utility of the Part IVA procedure. In my view the power to give directions under s 33Q is to be exercised on application by an applicant or on the Court’s own motion.

224    Section 33R provides:

Individual questions

(1)    In giving directions under section 33Q, the Court may permit an individual group member to take part in the proceeding for the purpose of determining a question that relates only to the claim of that member.

(2)    In such a case, the individual group member, and not the plaintiff, is liable for costs associated with the determination of the question.

225    The section is permissive rather than coercive, which points away from class members being “required” to make an application or risk being precluded from subsequently asserting their individual claims. The power to permit an individual class member to appear is predicated on the Court giving directions under s 33Q, and such directions are to be given on application by a party or on the Court’s own motion, rather than on the application of a class member.

226    Section 33S provides:

Directions relating to commencement of further proceedings

Where an issue cannot properly or conveniently be dealt with under section 33Q or 33R, the Court may:

(a)    if the issue concerns only the claim of a particular member - give directions relating to the commencement and conduct of a separate proceeding by that member; or

(b)    if the issue is common to the claims of all members of a sub-group - give directions relating to the commencement and conduct of a representative proceeding in relation to the claims of those members.

227    Again, the provision does not, in terms, provide a right of appearance by a class member seeking case management directions. The power is predicated on a decision that an issue cannot properly or conveniently be dealt with under ss 33Q or 33R.

228    Section 33T relevantly provides:

Adequacy of representation

(1)     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 order as it thinks fit.

This section contemplates an application and appearance by a class member, but it is of no relevance in the present cases. There is no evidence that, at the relevant time, there were any grounds upon which any class member may have been able to satisfy the Court that the applicants were not adequately representing the interests of class members.

229    Importantly, even if it is accepted that ss 33Q, 33R, 33S, 33T (or 33ZF) entitle class members to seek directions in respect of their individual claims, there is nothing in those provisions to show that unless class members make application under those provisions they are required to do so on pain of losing their rights to assert such claims in subsequent proceedings. If it were intended that class members who did not make such applications risked losing their rights to rely upon individual claims that were not pleaded I would expect that to be stated in plain terms. I agree with Robson J’s remarks in Collins and Tomes (at [508]-[510]) where his Honour said: