Recent class action judgments have considered the potential for conflicts of interests arising in the course of class actions.[1] The latest example of this arose in the Ford class action where Justice Perram of the Federal Court refused to grant orders sought by the lead applicant to restrain the respondent from communicating offers of settlement to group members. In doing so, his Honour, emphasised the role the Court plays in protecting the interests of non-party group members (ie group members who have not retained the lead applicant’s lawyers). In this case, his Honour found that non-party group members were not being unfairly treated by the direct offers being made: rather, it was the lead applicant and her lawyers whose interests might be affected by a reduction in the size of the class if people accepted the offers.

Why did the lead applicant want these orders?

In May 2016, a class action was commenced against Ford Motor Company of Australia Limited, claiming that:

  • Ford had imported, sold, supplied and distributed vehicles with automatic transmissions that were defective, in breach of a statutory guarantee under the Australian Consumer Law; and
  • Ford’s promotional materials failed to mention the existence of the alleged problems, and therefore constituted misleading or deceptive conduct.

This is an ‘open’ class action, with the class being persons who had purchased the affected vehicles within the relevant timeframe. As is common, the firm representing the applicant, Bannister Law, has a dedicated website through which persons can register their interest in participating in the class action and enter into a fee agreement with Bannister Law (on a no-win no-fee basis). To date, not all purchasers of the allegedly defective vehicles have contacted Bannister Law. In fact, many approached Ford directly and, in some of these cases, Ford has communicated offers of settlement to vehicle owners which have included releases of the owner’s rights and confidentiality clauses.

The lead applicant sought orders restraining Ford from (among other things):

  1. sending letters offering settlement to group members; and
  2. communicating with group members other than in accordance with a protocol proposed by the applicant.

The Court’s jurisdiction and role as guardian

The Court accepted that it had power to restrain the ability of a respondent to communicate with group members under s 33ZF of the Federal Court of Australia Act 1976 (Cth) (Act), using its general power to make orders that it thinks “appropriate or necessary to ensure that justice is done in the proceeding.”

Perram J emphasised the need for the Court to ensure that group members not before the Court were not unjustly disadvantaged by the actions of the parties who were. His Honour noted that in using its jurisdiction, the Court must look out for the interests of the non-party group members, rather than the interests of those running the class action. In exercising its powers, Perram J noted, the Court’s role is akin to that of a guardian.

Unfairness and injustice in settlement offers

Turning to whether Ford’s direct settlement offers to group members were fair and just, Perram J cited the decision of Courtney v Medtel[2], in which Sackville J held the following conditions were appropriate for settlement offers:

  • the offer be in writing;
  • the consequences of accepting and not accepting the offer be explained;
  • the period for acceptance be sufficient for a Group Member who wishes to do so to have a genuine opportunity to obtain legal advice; and
  • making it clear that the Group Member is entitled to seek and might benefit from independent legal advice.

Perram J considered the context of the offer to be critical in considering the settlement offers: in each instance, the communication process was initiated by the customer and not Ford, in that it was the customer and not Ford who made initial contact regarding the allegedly defective vehicle. Ford was not “actively seeking out group members to persuade them to surrender their rights as group members” and the fact that vehicle owners were seeking out Ford meant that there was nothing exploitative about the situation. The four criteria referred to above were held to have been met by Ford.

Conflicts of interest

The lead applicant made several submissions in respect of content that she considered should have been included in Ford’s offers of settlement, including:

  • naming Bannister Law as a potential source of advice in terms of deciding whether to accept each offer;
  • noting that the vehicle owner might get more or less in the class action;
  • requiring the vehicle owner when accepting the offer to say whether they had, or had not, obtained legal advice; and
  • notifying vehicle owners of ways of finding out about the class action, specifically via Bannister Law's website.

Perram J rejected each of these submissions. In doing so, His Honour highlighted a concern in the conduct of class actions regarding the conflicts of interest which may arise. Perram J stated that there was no legitimate basis upon which s 33ZF(1) might warrant any intervention by the Court. His Honour went on to note that:

It is not necessary to resolve … the question whether Bannister Law might itself have a conflict between its own potential interest in expanding the class and its duty to give disinterested advice to a vehicle owner on whether to stay in the class action or accept Ford’s offer and be removed from it.[3]

The very nature of class actions is such that conflicts may arise in relation to litigation funding arrangements, fee arrangements with law firms, disclosures to group members and the terms of proposed settlements. In considering the proposed settlement of the Willmott Forests class action, Murphy J noted that several potential conflicts of interest existed under the terms of settlement proposed, including between:

His Honour refused to approve the proposed settlement on the basis that the settlements may constitute a significant detriment for non-participating (and largely non-client) class members, stating that:

The settlements should not be approved until the conflicts are recognised and properly dealt with.[5]

The Federal Court's draft Class Actions Practice Note expressly requires applicant’s solicitors and litigation funders to disclose any potential conflicts of interests to the applicant and class members. We expect this practice note to be finalised later this year.

See the full judgment in Capic v Ford Motor Company of Australia Limited [2016] FCA 1020 here.