An Australian Perspective on Class Action Settlements
| Published date | 01 May 2006 |
| DOI | http://doi.org/10.1111/j.1468-2230.2006.00588.x |
| Date | 01 May 2006 |
| Author | Vince Morabito |
An Australian Perspective on Class Action Settlements
Vin ce Morabito
n
Recent studies of the class action device have prompted legal commentatorsto turn their atten-
tion to the crucial issue of whether this device should be introduced in England and Ireland and,
if so, whatfeatures this device should possess.The aim of this article is to contribute to this debate
by providingan analysis of the Australian experience with one of the most crucial aspects of this
device, namely, the settlement of class proceedings. The United States jurisprudence on class
action settlements is also extensively referred to.
INTRODUCTION
The comprehensive studies of class actions that have recently been undertaken by
Dr Rachael Mulheron
1
and by the Law Reform Commission of Ireland (‘Irish
Commission’)
2
have brought to the fore a crucial iss ue. The issue in que stion is
whether England and Ireland should emulate the Federal Court of Australia, the
Supreme Court of Victoria and many American and Canadian jurisdictions by
introducing the class action device. Groups of similarly situated claimants have
been able to institute class proceedings in the Federal Court of Australia, since
March 1992, pursuant to Part IVA of the Federal Cour t of Austra lia A ct 1976 (Cth)
and in the Supreme Court of Victoria, since January 2000, pursuant to Part 4A
of the Supre me Court Act 1986 (Vic).The aim of this article is to make a contribu-
tion to an informed debate as to whether class proceedings should be introduced
in England and Ireland and, if so, how these proceedings should be governed.
This will be achieved by providingan Australian perspective on class proceedings.
Instead of providing a necessarily super¢cial review of howAustralia’s legisla-
tures and Courts have grappled with the numerous and complex issues raised by
multi-party proceedings, this article contains a detailed review of the Australian
experience with one of the most important aspects of the class action device,
namely, the settlement of class proceedings. Most ‘orthodox’ proceedings are
settled. A similar scenario applies with respect to class proceedings.
3
Indeed the
incentives to settle are usually stronger in class proceedings as a result of the
greater liability^vis-a
'-vis defendants in traditional litigation^that class action
n
Associate Professor, Department of Business Lawa nd Taxation, Monash University.
1 R. Mulheron, The Class Action in Common Law Legal Systems: AComparative Perspective (Oxford:
Hart Publishing; 2004).
2 Law Reform Commission of Ireland, Consultation Paper on Multi-Party Litigation (Class Actions)
(Consultation Paper no 25; 2003) (‘LRCI Paper’); and Law Reform Commission of Ireland,
Multi-PartyLitigation(Report no 76; 2005) (‘LRCI Report’).
3 See Note,‘Developments in the Law ^ Class Actions’ (1976) 89Harvard Law Review 1318, 1536.
(‘Harvard Note’); and T.Willging, L. Hooper and R. Niemic, Empirical Study of Class Actions in
FourFederal District Courts: Final Report to the AdvisoryCommittee on CivilRules (Washington DC:
Federal Judicial Center,1996)60 (‘FJC Report’).
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(2006) 69(3)MLR 347^382
defendantsgenerally face in the event of avictory bythe plainti¡ class. The settle-
ment of class actions is also ‘encouraged by the courts and favored by public
policy’.
4
Furthermore, class action settlements raise unique and complex issues as a
result of a combination of factors. One such factor is that the outcome of class
proceedings, including settlements, binds not only the formal parties, the repre-
sentative plainti¡ and the defendant, but also the claimants represented by the
plainti¡, the class members, who usually have little or no i nvolvement in the set-
tlement process and in the proceedings themselves.
5
Another factor is the exis-
tence of strong incentives that may prompt the named parties to execute
sub-optimal settlement agreements.
6
As a consequence, it is generally agreed that
the judicial approval of class action settlements constitutes an essential feature of
contemporary class action regimes.
7
This was also the view of the Irish Commis-
sion when it released, in July 2003, its consultation paper on multi-party litiga-
tion.
8
But this proposal was abandoned when the Irish Commission released its
¢nal report in September 2005.
9
This development was the directconsequence of
the fundamental change in the nature of the regime that the Irish Commission
recommended to deal with multi-party litigation. The Irish Commission’s con-
sultation paper contained the principal proposal that a class action regime be
introduced in Ireland.
10
The mechanism that the Irish Commission preferred, to
determine who would be bound by a proceeding brought pursuant to such a
regime, was the opt out device.
11
By the time its ¢nal report came out, the Irish
Commission had decided that the most appropriate device to deal with group
litigation was no longer the opt out class action device but instead a Multi-Party
4 A. Conte and H. Newberg, Newbergon Class Actions (St. Paul, Minn: ThomsonWest,4th ed, 2002,
Vol 4 ) 8 7.
5SeeHansberry vLee 311US 32, 40^41 (1940); J. Cox,‘Information Famine,Due Process, and the
Revised Class Action Rule: When Should Courts Provide a Second Opportunity to Opt Out?’
(2004) 80Notre Dame Law Review377, 385^386;De vlinvScardelletti536 US 1, 10 (2002); and Lord
Woolf, AccesstoJustice^FinalReportto the Lord Chancelloronthe CivilJusticeSystemin England andWales
(1996) 24 5.
6 See overview below.
7 See Australian Law ReformCommission, Grouped Proceedingsin the FederalCourt (Report no 46;
1988) para 218 (‘ALRC 1988 Report’);Ontario Law ReformCommission, Reporton Class Actions
(Report no 48; 1982) 806 (‘OLRC Report’); Report of the Attorney-General’s Advisory Committee on
Class Action Reform (Toronto;1990)48 (‘Ontario Committee Report’);Lord Woolf, aboven 5, 245;
Manitoba Law Reform Commission, Class Proceedings (Report no 100; 1999) 93 (‘MLRC
Report’); Alberta Law Reform Institute, ClassActions (Report no 85;2000) paras 323^328 (‘ALRI
Report’); Rules Committee of the Federal Court of Canada, Class Proceedings in theFederalCourt of
Canada (Discussion Paper, 2000) 85^87; South African LawCommission, The Recognitionof Class
Actionsand Public InterestActions in South African Law (Report, Project 88, August1998) para 5.20.8
(‘SALCReport’); LordChancel lor’sDepartment, ProposedNew Procedures forMulti-Party Situations
(London: Consultation Paper, 1997) para 43; and Law Reform Committee of South Australia,
ReportRelating to ClassActions (Report no 36,1977) 15. See,however, Scottish LawCommiss ion,
Multi-PartyA ctions (Report no 154,1996) para 4.92 (‘SLC Report’).
8 LRCI Paper, above n 2,paras 4.87^4.89.
9 LRCI Report,above n 2, paras 2.99^2.103.
10 LRCIPaper, aboven 2, para 3.23.
11 ibid para 4.77.
Class Action Settlements
348 rThe Modern LawReview Limited 2006
Acti on re gime
12
(with an opt-in devic e),
13
broadly similar to the Group Litigation
Order regime that has been operating in England andWales since 2000.
14
OVERV IEW
Under Part IVA and Part 4A, a class proceeding may be commenced where three
requirements are satis¢ed. The ¢rst requirement is that seven or more persons have
claims against the same person.
15
The second requirement is that the claims are in
respect of, or arise out of, the same, similar or related circumstances.The ¢nal prerequi-
site is that the claims of the group give rise to a substantial common issue of lawor fact.
Section 33V of Part IVA and section 33Vof Part 4A provide that a proceeding
commenced underthese regimes may not be settled or discontinuedwithout the
approval of the Court.They also empower the Court to make such orders as are
just with respect to the distribution of any money paid undera settlement or paid
into Court. Similar provisions may be found in the class action regimes that cur-
rently operate in the United States and in Canada.
16
Justice Bongiorno of the
Supreme Court of Victoria has revealed that:
[The principles upon which the requirement of judicial approval of class action set-
tlements is based] might be said to be those of the protective jurisdiction of the
Court, not unlike the principles which lead the Court to require compromises on
behalf of infants or persons under a disability to be approved.
17
The need for Courts presiding over class proceedings to assume the demanding
role advocated above by Justice Bongiorno was aptly explained by the United
States Court of Appeals for the Seventh Circuit:
The problem in the class-action setting, and the reason that judicial approval of the
settlement of such an action is required, . . . is that the negotiator on the plainti¡s’
side, that is, the lawyer for the class, is potentially an unreliable agent of his princi-
pals . . . Ordinarily the named plainti¡s are nominees, indeed pawns,of the lawyer,
and ordinarily the unnamed class members have individually too little at stake to
spend time monitoring the lawyer^ a ndthe ironly coordination is through him . . .
The danger of collusive settlements ^ . . . rendered much greater than in the ordin-
ary litigation by th e tenuousness of the control exerted by the client (principal) over
the lawyer (agent) ^ makes it imperative that the [trial] judge conduct a careful
inquiry into the fairness of a s ettlement to the class members before allowing it to
12 LRCI Report, above n 2,paras 2.03^2.07.
13 ibid paras 2.20^2.26.
14 For a comprehensiveand cogent critique of the English regime, see Mulheron, aboven 1, ch 4.
15 Part IVA, s 33C(1) and Part 4A, s 33C(1).
16 UnitedStates Federal Rulesof Civil Procedure, Rule 23(e); Codeof Civil Procedureof Quebec,RSQ,cC-
25,Book IX, arts 1016 and 1025; Class ProceedingsAct, SO 1992, c 6, s 29 (Ontario); Class Proceedings
Act, RSBC1996,c 50, s 35 (British Columbia); Class Actions Act, SS 2001,c C -12.01, s 38 (Saskatch-
ewan);Clas s Actions Act, SNL 2001,c C-18.1, s 35 (Newfoundland); ClassProceedings Act,SM2002,
c 14^Cap C130, s 35 (Man itoba);FederalCourt Rules1998 (SOR/98^ 106)Rules 299.31and 299.32;
and Class Proceedings Act, SA 2003,c C- 16.5, s 35 (Alberta).
17 Tasfast Air Freight PtyLtd vMob il Oil Austral ia Ltd [2002] VSC 457, para 4. See also Cox, above n 5,
385.
Vince Morabito
349rThe Modern LawReview Limited 2006
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