In brief: The recent Great Southern class action settlement included a term by which group members acknowledged and admitted that loans taken out with independent financiers to finance investments in Great Southern managed investment schemes were valid and enforceable. Two separate Victorian Supreme Court decisions found that such a term was fair and reasonable because, among other things, it provided finality to the litigation. Partner Belinda Thompson (view CV) and Senior Associate Kate Austin examine the decisions and their implications.*
HOW DOES IT AFFECT YOU?
- The class action mechanism provides for the final resolution of multiple claims, with the opt-out mechanism preserving the right of individuals to pursue individual claims.
- Achieving finality to class action litigation is important to class action defendants. Defendants are entitled to expect that those group members who do not opt out of a class action will not bring further claims following a judgment or settlement of a class action.
- Releases and covenants not to sue by group members are the usual manner in which defendants seek to achieve finality. Positive acknowledgments by group members of the kind found in the Great Southern class action settlement have not been previously considered.
- The court's acceptance of the loan acknowledgements, and its analysis that they simply reflected the practical effect of any judgment or settlement having regard to the opt-out mechanism, demonstrate that the courts are focused on finality as an important objective of civil litigation, including the class action regime. Courts are willing to give effect to that objective when approving class action settlements.
Following the collapse of the Great Southern Group in June 2009, a series of group proceedings were commenced on behalf of investors who acquired interests in Great Southern Managed Investment Schemes (MISs) between March 2005 and July 2008 (the Great Southern Group proceedings).
The defendants to the Great Southern Group proceedings included members of the Great Southern group of companies and certain directors of Great Southern, as well as Bendigo and Adelaide Bank and its related entities (the BEN Parties) and Javelin Asset Management Pty Ltd (Javelin). The BEN Parties and Javelin hold funded loans taken out by investors to fund the purchase of their MIS interests.
The trial of the Great Southern Group proceedings began in late October 2012 and concluded in late October 2013 before his Honour Justice Croft. The plaintiffs' principal claim was that the responsible entity, Great Southern Managers Australia Limited, issued product disclosure statements which were 'defective' under Part 7.9 of the Corporations Act 2001 (Cth). No allegations of wrongdoing were made against the BEN Parties or Javelin. However, the plaintiffs sought consequential declarations that the loans were void and unenforceable.
In July 2014, shortly before judgment was due to be handed down, the parties settled the Great Southern Group proceedings. A term of the settlement for those group members with loans with the BEN Parties or Javelin was an acknowledgment and admission that their loans were valid and enforceable.
A number of group members objected to the settlement on the grounds that the acknowledgments were not fair and reasonable. A sub-group of group members (the objectors) also applied for orders that they cease to be group members.1 In both cases, the group members did not wish to be bound by the settlement as they argued it would require them to give up individual defences available to them to challenge the validity of their loans which they had not yet raised. Initially, both the objectors' applications and the settlement approval application were brought before Justice Judd for determination. However, the settlement approval application was subsequently transferred to the trial judge, Justice Croft, so that the question as to whether the settlement was fair and reasonable to group members could be considered having regard to, among other things, his Honour's informed view of the parties' prospects of success, including the unpublished reasons for judgment.
Justice Judd refused the objectors' applications to cease to be group members in a decision handed down on 14 November 2014 (the Opt-Out decision).2 Central to his Honour's decision was his rejection of the objectors' argument that they could raise individual defences to the validity of their loans following judgment on the common questions.
His Honour emphasised that the very purpose of the Great Southern Group proceedings was for group members to mount a common challenge to the validity of their loans. If group members had other individual bases upon which to mount a challenge, then they had the opportunity to opt out before the trial, and should have done so. However, having remained group members, upon judgment, the group members would be bound by the answers to the common questions and prevented from litigating new individual defences.3 Justice Judd saw no reason why the doctrines of Anshun estoppel and abuse of process, which prevent a party from bringing a claim that should have been brought in earlier proceedings, should not apply to group proceedings in the usual way.4
Following the Opt-Out decision, Justice Croft delivered his judgment approving the settlement on 11 December 2014 (the Approval decision).6 In doing so, in the public interest and for transparency, his Honour released his unpublished reasons for judgment. These reasons stated that the plaintiffs' claims 'completely and comprehensively failed at trial'.7
His Honour considered that the acknowledgments were fair because they were part of an overall commercial compromise which reflected the parties' assessment of the prospects of success at trial (an assessment ultimately borne out by the unpublished reasons for judgment) and provided finality to the litigation.8 His Honour recognised finality as a relevant factor to be considered in determining whether a class action settlement was fair and reasonable and as an objective of the Civil Procedure Act 2010 (Vic) and s29(2) of the Supreme Court Act.9
Like Justice Judd, his Honour found that the acknowledgments were simply a practical reflection of where group members would have stood upon judgment or settlement – they would be prevented by the doctrines of Anshun estoppel and abuse of process from litigating any further challenges to their loans. His Honour stated that:
It is clear, therefore, as submitted by the Bank Parties, 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 would be frustrated.10
To make this express in the terms of settlement, was to ensure that the position of all parties and group members was made absolutely clear so as to avoid uncertainty and the prospect of extensive further litigation.11