Insights

A SurfStitch in Time: Court Cannot Waive Opt-Out Rights in Australian Class Action

In Short:

The Situation:

The court's general power to make "any order [it] thinks appropriate or necessary to ensure that justice is done" in a class action has been employed to make a wide range of orders, including to remove the requirement for group members to be able to opt out of a class action, or be notified of their right to do so.

The Issue:

Two class actions against SurfStitch Group Limited settled after the company was placed into administration. The plaintiff in each class action sought court approval of the settlement and requested for the court to dispense with group members' right to opt out and receive notice of that right.

Looking Ahead:

Justice Stevenson determined that the general power over class actions could not be used to waive the requirement for group members to receive an opportunity to opt out, or be notified.


Summary of Facts:

On 15 November 2018, Justice Stevenson of the New South Wales Supreme Court handed down his decision in respect to two class actions against SurfStitch Group Limited [2018] NSWSC 1749.

In the case, the plaintiffs alleged that the company had breached legal requirements to disclose material events to the market, and made misleading or deceptive statements. SurfStitch then became insolvent and settled the class actions, as well as other creditors' claims, by a deed of company arrangement. To speed up the process of obtaining court approval for the settlement, the plaintiffs asked the court to dispense with both the requirement to fix a date by which members could opt out of the class actions, and the requirement to give notice of the right to opt out.

Section 183 of the Civil Procedure Act 2005 (NSW), and the federal equivalent, section 33ZF of the Federal Court of Australia Act 1976 (Cth), provide that the court can make "any order [it] thinks appropriate or necessary to ensure that justice is done" in a class action. The power has been interpreted to: (i) provide the court with the "widest possible power to do whatever is appropriate or necessary in the interests of justice being achieved in a representative proceeding"; and (McMullin v ICI Australia Operations Pty Ltd (1998) 84 FCR 1 at 4 (Wilcox J)); and (ii) accommodate "novel problems that might arise through a new statutory procedure for representative proceedings" (Money Max International Pty Ltd v QBE Insurance Group Ltd (2016) 245 FCR 191; [2016] FCAFC 148 at [165] (Murphy, Gleeson and Beach JJ)).

This power has been utilised by the Federal Court of Australia in Vernon v Village Life Ltd [2009] FCA 516 to make the very orders sought by the plaintiffs in the SurfStitch case.

Justice Stevenson nonetheless determined not to make the orders sought. His Honour reached this conclusion for two reasons. First, the right of group members to opt out of the class action is an important right given to them under Australian class actions legislation. Secondly, that legislation explicitly allows notice requirements to be waived, but only for claims that do not include damages (a monetary payout). To allow the general power to be used to overcome this, Justice Stevenson wrote, would amount to rewriting the legislation.

Justice Stevenson concluded that the previous authority of Vernon v Village Life Ltd, although not expressly overruled, was "plainly wrong" and refused to follow it. His Honour also stated that it was inconsistent with more recent federal court decisions, such as Perera v GetSwift Ltd (No 2) [2018] FCA 909, which had refused to use the general power to override a statutory prohibition against ordering costs against a group member.


Two Key Takeaways:

  1. While the Australian class actions regime has built-in flexibility to address novel problems, the key requirements of Australia's class actions regime, such as the right to opt out, must be followed carefully.
  2. Companies seeking to settle class actions should consider building time into any settlement in order to comply with all requirements of class actions legislation, rather than seeking to avoid any delay by using the court's general power to dispense with those requirements.

Lawyer Contacts

For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com/contactus.

John M. Emmerig
Sydney
+61.2.8272.0506
[email protected]

Michael J. Legg
Sydney
+61.2.8272.0720
[email protected]

Bowen C. Fox
Sydney
+61.2.8272.0503
[email protected]

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