Federal Court considers ‘Great Southern’ issues – lead applicants’ authority to bind group members
Kelly v Willmott Forests Pty Ltd (Kelly)
The Federal Court has recently been required to again consider the question of the extent to which the named parties in a group proceeding can, in settling the proceeding, bind the group members to their compromise. In particular, whether it is fair, reasonable and in the interests of group members that, in consideration for the benefit of the settlement, the group members should be precluded from agitating rights against the defendants not pleaded by the applicants or addressed by the common questions.
The applicants in the three group proceedings heard together under the citation Kelly v Willmott Forests Pty Ltd (Kelly) have recently applied for approval of a proposed settlement of each of the proposed proceedings. The application was heard before Murphy J at the end of July. His Honour has reserved his decision.
The proceedings were brought, respectively against the companies that were the responsible entities of so-called ‘tax effective forestry schemes’ and two lenders that provided loans to the applicants and certain group members to fund the acquisition of their interest in the relevant schemes.
In short, the applicants in Kelly allege that the product disclosure statements pursuant to which the interests in the schemes were sold were defective. On the basis of those alleged defects, the proceedings seek relief in the nature of declarations that the applicants and group members ‘not be liable’ for any loans, fees or costs in connection with the relevant scheme and that any loans are void or otherwise unenforceable.
Such relief sought in similar proceedings has been described as “defensive.” That is, the applicants seek to avoid what would otherwise be an obligation to repay money to the relevant financiers.
The proposed deed of settlement in Kelly includes a term that the relevant applicant, on its own behalf and on behalf of those group members, acknowledges and admits the validity and enforceability of the relevant loan agreements (Enforceability Term).
Two particular points of interest arise from the application for settlement approval; a novel procedural development concerning the approval of proposed settlements of group proceedings, and a further agitation of the question of the extent to which group proceedings are capable of determining ancillary rights of group members not determined by answering the common questions.
First, as part of its case management of the settlement approval application, the Court required that separate counsel be appointed to act as a contradictor to the application for settlement approval. Kelly is, as far as the writer’s research has revealed, the first time that a court has appointed a contradictor to represent group members in an application to settle a group proceeding. While that is the case, it is far from unheard of for a court in a group proceeding to appoint a contradictor in circumstances where the interests of actual or putative group members are potentially affected and no party to the proceeding objects to the orders sought.
Binding group members
Secondly, Kelly raises again for consideration the extent to which the determination of a group proceeding is capable of binding group members to admissions that go beyond the pleadings.
In particular, whether the applicants have the power, standing or authority to bind the group members to the Enforceability Term; a term that makes admissions regarding causes of action potentially available to group members beyond those that would be determined by answering the common questions and including any defences to the enforceability of the relevant loans.
The questions for the Court, ultimately, are (1) whether such a power can be found within the provisions of Part IVA, or whether it can be implied in those provisions that provide the authority for the applicant to commence the proceeding on behalf of the group member in the first place; and (2) whether the principle of ‘issue estoppel’, and Anshun estoppel in particular, might extend the reach of any judgment beyond the pleaded claims.
Beginning with the second question, it is trite to observe that the Anshun estoppel operates to preclude the subsequent agitation of issues not raised in a proceeding, but that a party might have raised had they exercised reasonable diligence. The question in the context of a group proceeding, however, is whether and if so the extent to which, determination of the common questions would ‘estop’ a group member (who is not a party to the proceeding) from agitating a cause of action (or defence) that is not pleaded in the relevant group proceeding and determined by answering the common questions.
One approach to that question was adopted by Judd J in Clarke v Great Southern Finance Pty Ltd. That decision concerned an application by certain group members, made in the shadow of the application for approval of a proposed settlement, to be removed from the class in a group proceeding that concerned similar failed agricultural schemes as in Kelly and in which similar relief was sought.
One of the bases on which that application was pursued was that a term in the proposed settlement with the same effect as the Enforceability Term constituted a material change to the scope of the proceeding and that such a change was unfair because it occurred after the date by which the group members were entitled to opt out. Those group members maintained that they had defences available to them to the enforceability of the relevant loans other than those pleaded by the plaintiffs.
While Judd J determined that the group members did not have standing to bring that application, his Honour went on to consider whether the Part IVA procedure can operate to extinguish those ancillary rights. His Honour determined that the fact that some individual issues might ordinarily be left to be resolved after determination of the common questions “does not overcome the ordinary application of the broad rule of public policy that would prevent a group member form agitating, in another proceeding, separate claims that might properly have been brought forward in the group proceeding” (emphasis added).
Moreover, the care that should be taken to ensure that “claims based on individual circumstances,” not addressed by the common questions and “of which the court knows nothing, are not prejudiced” is addressed by the opt out process. That is, that group members that wish to preserve those individual rights ought opt-out when provided the opportunity.
In light of Judd J’s decision in Clarke, therefore, one question that the Court in Kelly might well address in determining whether Part IVA empowers the applicants to bind the group members to the Enforceability Term, is the limits of the individual claims of group members that “might properly have been brought forward in the group proceeding.” In particular, do those limits include causes of action (or defences) that are not held by the applicant and that do not satisfy the requirements of similarity of circumstances or commonality of questions in s33C?
Following the hearing of the settlement approval application in Kelly, the High Court handed down its decision in Tomlinson v Ramsay Food Processing Pty Ltd (Tomlinson). At issue in Tomlinson was the limits on the theory that a person whose legal interests stood to benefit from the making or defending of a claim by someone else in an earlier proceeding will be subject to an issue estoppel in relation to those claims.
In the context of Kelly, and in light of the decision in Tomlinson, the limits of that estoppel are determined by asking whether the group members are a ‘privy in interest’ to the applicants’ claim. While that question might well be answered in the affirmative in relation to the common questions in the proceeding, it is arguably an open question as to whether the lead applicants were ‘privies in interest’ in relation to ‘non-common’ claims unique to group members.
Moreover, it is apparent from the decision in Tomlinson that even if that were so, it is not the end of the enquiry. Critical to the determination of whether an issue estoppel should arise is a consideration of the extent to which the ‘privy’ was provided an opportunity to exercise control over the presentation of evidence and the making of arguments in the Part IVA proceeding. In this regard, it is to be noted that the plurality in Tomlinson included “modern class actions” within a list of traditional forms of representation that bind those represented to estoppels. Again, that categorisation arguably leaves open the question of whether or not it is limited to the common questions in the proceeding.
Regardless, the answer to the question posed in Kelly will further clarify whether ancillary rights of group members can be extinguished by group proceedings. It therefore has the very real potential to affect decisions by group members in the future whether or not to remain as members of the class.
 See Kelly v Willmott Forests Pty Ltd (in liq)  FCA 1466
 Clarke v Great Southern Finance Pty Ltd (in liq)  VSC 569 at  per Judd J
 See for example King v AG Australia Holding Ltd  FCA 1420 and Dorajay Pty Ltd v Aristocrat Leisure Limited  FCA 1311, both concerning the participation in a settlement by group members that had been excluded because of their failure to comply with a procedural requirement.
 See in particular s33C, 33D and 33H of the Federal Court Act 1976 and its equivalents
  VSC 569
 On the grounds that they were not “parties” to the proceeding within the meaning of s33KA of the Supreme Court Act 1986, a provision that does not find an analogue in the Federal Court Act.
 Ibid at 
 Ibid at 
  HCA 28
 Ibid at 
 Ibid at