In Lam v Rolls Royce Plc (no 5) [2016] NSWC 1332 the NSW Supreme Court made class closure rules that every defendant, and their insurers, dream of.

The Rolls Royce class action was brought on behalf of those persons who were on board a flight when the Rolls Royce engine failed and who suffered psychological injury as a result of the experience consequent upon the engine failing.

In an earlier judgment (Lam No. 3) Justice Beech-Jones closed the class determining that passengers with overseas contact details who did not register with the plaintiff’s solicitors would be removed from the class and that passengers with Australian contact details who did not register with the plaintiff’s solicitors were to remain in the class but they could not participate in any settlement or resolution without the leave of the Court. To facilitate the orders, notices were sent to Australian-addressed group members noting that if they did not register their claim by the relevant deadline they would be bound by the settlement of the class action but would not, without obtaining the Court’s leave, be entitled to claim a share of any settlement moneys and would lose the right to sue the defendant separately for any injury or for compensation.

In this decision (Lam No. 5) Rolls Royce had sought Orders dismissing the claims of the remaining 84 unregistered group members and also seeking an Order confirming that it operates as a final determination of their rights to claim damages or relief against Rolls Royce. Justice Beech-Jones noted that the group members who had chosen not to register or to actively opt out had been given sufficient opportunity to do either and concluded that either such group members did not wish to pursue a claim or did not have material to put forward to support a claim.

This judgement enables settlement of the class action to occur with a defined number of claimants but, even more significantly, any remaining potential class members (from Australia) who had not actively opted out of the class action, can no longer make a claim. This means that defendants (and their insurers) have a cap on other potential claims, when considering an amount at which to settle the existing class action.

This is likely to encourage:

1. Earlier resolution (see my comments on the GIO/AMP class action below); and 

2. Greater certainty.

It puts pressure on potential class participants to actually form a position and put up their hand rather than “freeloading” while others take the risk and they “wait and see”.

Furthermore, in the GIO/AMP shareholder class action (King v AG Australia Holdings Ltd (formerly GIO Australia Holdings Limited)) a significant concern for Respondents was that if settlement occurred with identified class members, how many other investors and with what potential value of claims, would subsequently seek to make a claim against the defendants? In GIO/AMP, there were approximately 67,000 shareholders who owned and retained shares during the period of the hostile takeover bid. Of these, approximately 22,000 engaged the class action lawyers. Class members did not wish to settle the class action for a fixed sum, without knowing amongst how many class members it needed to be shared. For Respondents, a significant problem with potential early resolution was whether, if settlement with the identified class took place, a number of subsequent claims would be brought, meaning that costs and potential settlement sums would have to be incurred all over again (which is exactly what was sought to be avoided by or capped by participating in a settlement). The great unknown of this potential sum made settlement difficult. Ultimately, settlement of GIO/AMP class action was aided by the comfort provided by limitation periods.

It will be a delight if the precedent set in Lam v Rolls Royce PLC (No. 5) is followed and more settlements occur well prior to expiry of limitation periods and potential claimants in class actions are forced to make an early decision on whether they intend to join a class by specifically and actively reserving their rights or waiving rights of recovery completely.