Treasury Wine Decision Confirms Shift in Class Action Closure Process

by Mintz Levin - Class Action Recovery For Mutual Funds
Contact

Recently, in Melbourne City Investments Pty Ltd v. Treasury Wine Estates Limited (“Treasury Wine”), the Full Court of the Federal Court of Australia considered a primary judge’s class closure order which broke new ground in group action practice in Australia.  The Treasury Wine case is part of a growing trend in Australian securities litigation toward class proceedings similar to the U.S. model, where investors do not have to be a named plaintiff to participate in a recovery.  Rather, in this case, prior to the issuer and the representative plaintiff mediating the case, investors needed to “register” by submitting their transaction data.  When the case settled after mediation, those who registered could recover from the settlement fund, but those who did not register were shut out of the settlement. Registering was not without risks, however, as the mediation could have failed. Some investors may have feared that by submitting their transaction data they were exposing themselves to the defendants and potential discovery in the event the case did not settle. However, the case did settle after mediation, and those who registered were rewarded.

In an effort to foster settlement, Australian courts often order class closures before settlement discussions.  Typically, group members were required to register their interest before any mediation took place, with any members who did not register being barred from sharing in any settlement or bringing their claims after settlement was finalized.  Before Treasury Wine, however, unregistered group members were also barred from sharing in any judgment if settlement was not finalized.  Thus, failing to register as a class member before a closure order issued had the effect of barring a group member’s claims, whether or not settlement was achieved.

In Treasury Wine, the primary judge issued a class closure order that broke with this practice.  There, the judge ordered that any unregistered class members would lose their right to share in a settlement or bring their claims after settlement was finalized.  However, the judge ordered that if a settlement was not reached, unregistered group members could still participate in any subsequent judgment.

The judgment was appealed to the Full Court, which first considered whether the primary judge was correct in doubting whether the court could make this type of class closure order.  First, the Court noted that when Australia’s Parliament enacted its representative proceeding statutory scheme (known as the “Part IVA regime” after Part IVA of the Federal Court of Australia Act), it “expressed a legislative intent to adopt an opt out rather than an opt in procedure.”  Treasury Wine at ¶ 72.  The Court further noted that “[c]lass proceedings are intended to require little or no active involvement by class members and class members participate principally for the limited purpose of taking the benefit or suffering the burden of the findings made on common questions.”  Id. at ¶ 73.

The Court noted that requiring a group member to proactively register in order to share in a settlement arguably clashed with the “opt out” nature of Australian class action claims, stating that “[i]t must be accepted that the requirement for class members to take active steps to ‘register’ in order to share in a settlement of a class action undercuts to some extent the opt out rationale underpiunning the Part IVA regime.” Treasury Wine at ¶ 72. However, it found that the court’s power to make a class closure derived from section 33ZF of the Federal Court of Australia Act, which states that “the Court may, of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.”

The broad language of section 33ZF essentially allows the court to make any order that is necessary to facilitate justice.  The Full Court held that a class closure order falls under this provision, but “[t]here must be good reason to exercise the discretion to make a class closure order which may operate to deny the benefits of a settlement to class members who do not opt out and who do not take the active steps of registering.”  Treasury Wine at ¶ 73. The Court further held that“if a class closure order operated to facilitate the desirable end of settlement, it may be reasonably adapted to the purpose of seeking or obtaining justice in the proceeding.” Id. at ¶ 74. The Court recognized that the idea behind a class closure order is to allow the parties to know how many group members will share in a settlement, enabling the parties to base their negotiations on a known number of beneficiaries.  A class closure order also provides for finality, in that it assures the parties that if settlement is reached, they will not be subject to additional claims on the subject.  The Full Court held that these interests were sufficient to satisfy section 33ZF.

While the Full Court allowed that a class closure order can be proper in order to aid in the settlement process, it took care to note that not all class closure orders are appropriate.  Most importantly, it cautioned against issuing class closure orders that would bar group members from sharing in a judgment if settlement fell through.  It stated that “the facilitation of settlement is a good reason for a class closure order but, if settlement is not achieved, an order to shut out class members who do not respond to an arbitrary deadline is not.” Treasury Wine at ¶ 76.  The Court noted various factors that judge’s should weigh in determining the appropriateness of class closure:

Whether it is appropriate to order class closure is a question of balance and judicial intuition. The Court must take into account the interests of the class as a whole in requiring class members to take steps to facilitate settlement, and consider the surrounding circumstances including the point the case has reached, the attitude of the parties, and the complexity and likely duration of the case.

Treasury Wine at ¶ 79.  The Court found the closure order in this case appropriate because, among other things:

the order was made in circumstances where the trial of the case was imminent and the parties had agreed to mediate within three months, the proceeding was at a stage where the parties were in a position to realistically assess the prospects of victory or defeat, the lawyers for the applicant were experienced in class action litigation and able to assess whether class closure was in the interests of class members, and both parties considered that a class closure order should be made in order to facilitate settlement.

Treasury Wine at ¶ 80.

Hindsight has proven the Court’s prediction that class closure orders of this type will facilitate settlement.  Once the class was closed in this case, TWE settled the matter, and those who registered have started to receive distributions.

The development of the framework articulated by the Court bears watching, particularly for institutional investors with large holdings in Australian issuers.  As this blog has mentioned previously, the Australian “continuous disclosure” regime may be beneficial to protect investors from fraud.  However, it appears that Australia’s representative proceeding practice is evolving toward requiring institutions to carefully monitor “open class action” in Australia and register their claims in order to take part in any settlement.  Additionally, as in this case, investors may only have a few weeks to register their claims after the Court approves the class closure procedure.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Mintz Levin - Class Action Recovery For Mutual Funds | Attorney Advertising

Written by:

Mintz Levin - Class Action Recovery For Mutual Funds
Contact
more
less

Mintz Levin - Class Action Recovery For Mutual Funds on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.