The unanimous decision of the High Court on 9 November 2016 in Timbercorp Finance Pty Ltd (in liq) v Collins & Timbercorp Finance Pty Ltd (in liq) v Tomes may increase the likelihood of satellite litigation by individual group members following group proceedings.
It follows from the decision that, if group proceedings are heard, group members are only bound by the answers to common questions and the pleadings; they are not, for example, precluded from raising individual claims which were not raised in the group proceeding.
The decision does not, however, deal expressly with court approved settlements of group proceedings which seek to settle matters beyond the scope of common questions.
Insurers will need to consider the implications of this decision in considering the value and finality of judgments, and potentially settlements, for group proceedings.
This eBulletin summarises the decision and discusses its implications for insurers.
Following the collapse of the Timbercorp Group, a group proceeding was commenced in the Supreme Court of Victoria against Timbercorp Securities Ltd (Timbercorp Securities), Timbercorp Finance Pty Ltd (Timbercorp Finance) and various directors of each company.
The group proceeding related to an alleged failure to disclose information about "significant risks", which resulted in the product disclosure statements of various managed investment schemes being defective, and misleading and deceptive conduct. Timbercorp Securities was the responsible entity of the schemes and Timbercorp Finance issued loans to the group members in order for them to acquire interests in the schemes. Collins and Tomes were group members, with neither having opted out of the class.
The group proceeding was dismissed at trial and on appeal. Special leave to the High Court was refused.
Timbercorp Finance subsequently commenced recovery proceedings against more than 1,200 investors, including Collins and Tomes, seeking repayment of the outstanding loan amounts plus interest.
Collins and Tomes filed individual defences based on the specific representations given to them and a broader allegation that the loan monies were used for the Timbercorp Group's general business rather than the specific investor's lots.
Timbercorp Finance argued that Collins and Tomes should be precluded from bringing their individual defences because they had previously been members of the unsuccessful group proceeding. Timbercorp Finance's main arguments were:
- the principle of Anshun estoppel operated to preclude the individual defences. Anshun estoppel will preclude raising a subsequent claim in a proceeding where the claim is so relevant with the subject matter of the original proceeding that it is unreasonable for the party not to have raised it in that proceeding;
- the lead plaintiff in a group proceeding is a "privy in interest" of a group member. A "privy in interest" is where a person represents the interest of another individual in an earlier proceeding. Since the lead plaintiff would be estopped from raising more claims, the group members should as well; and
- raising the individual defences now rather than in the group proceeding amounts to an abuse of process — by not raising their individual defences in the group proceeding, Collins and Tomes denied the Supreme Court the opportunity to determine how best to manage the issues raised in the context of the common questions.
The trial judge found in favour of Collins and Tomes. Timbercorp Finance appealed to the Court of Appeal, which upheld the trial judge's decision. Timbercorp Finance then sought special leave to appeal to the High Court, which was granted.
The High Court unanimously upheld the Court of Appeal's decision that Collins and Tomes were not precluded from bringing individual defences in the recovery proceedings even though they were group members in the group proceeding.
The High Court found that Collins and Tomes' failure to opt out or to seek to have their individual defences case managed by the judge in the group proceeding did not lead to them being Anshun estopped from raising the defences now. The High Court noted that the only similarity between the individual defences and the common issues in the group proceeding was the relief sought. This was considered to be insufficient to require the individual defences to have been raised.
The High Court also considered that the lead plaintiff in the group proceeding was not a "privy in interest" of the group members. The High Court examined the provisions of Part 4A of the Supreme Court Act 1986 (Vic) (which governs group proceedings) and determined that the lead plaintiff represents group members only with respect to the common claims that are the subject of the group proceeding. Accordingly, the High Court found that the lead plaintiff does not represent group members in relation to any individual claims.
Finally, the High Court rejected the argument that not raising the individual claims in the group proceeding was an abuse of process. The High Court considered that there was no evidence that the failure to do so affected the case management of the proceeding. If the defences were raised, the High Court considered it is likely their determination would have been postponed, which would have placed Timbercorp Finance in the same position as it currently is in.
Implications for insurers
The High Court's decision allows group members to pursue further individual claims not covered by the common questions in an unsuccessful group proceeding, provided it was reasonable for them not to have done so during the group proceeding.
In assessing reasonableness, the nature of the common questions answered by the court in the group proceeding will be key. The High Court's decision demonstrates that it is not enough for a subsequent claim to be similar to the common questions. Rather, it will be necessary for the claim to have been expressly pleaded and answered by the court in the group proceeding if it is to prevent subsequent litigation.
Critically, the ruling affects the ability of a defendant in a group proceeding to achieve certainty following judgment, since the defendant could still face thousands of related individual claims by group members. A defendant to a group proceeding should seek to define the common issues broadly and include as many potential claims as possible.
We note that the High Court did not expressly deal with the power of a court to approve a settlement under the Federal Court of Australia Act 1976 (Cth) or the breadth of releases (and more specifically, any carve out) which the settlement may encompass. Nevertheless, parties wishing to settle a group proceeding with any releases may wish to adopt an approach consistent with the High Court's findings in order to avoid the risk of the release being challenged.
The decision is particularly likely to affect group proceedings that arise out of claims in contract law and financial services. These types of cases often involve a number of alternative bases for claims arising out of the same factual scenario, and therefore they could be more likely to give rise to alternative claims which were not covered by the group proceeding.