Do you come from a land Down Under?Globalisation of class actions and BHP Group Limited v Impiombato
By ruling that foreign residents can be group members in a class action issued in Australia, the High Court of Australia has globalised an already buoyant class action regime.
This landmark decision introduces new questions regarding risk assessment, class size, “double dipping” and enforcement where jurisdiction now hinges on the defendant’s domicile rather than the location and residency of group members.
A shareholder class action was issued against BHP alleging a failure to inform the market of a risk that a dam at its Brazilian mine released approximately 50 million cubic meters of waste water in the largest tailing dam rupture ever recorded. Shortly following the collapse, BHP’s stock price dropped, wiping away market capitalisation of more than $25 billion.
The class members include persons who owned shares in BHP entities and allege that they suffered losses resulting from BHP's failure to disclose information about issues with the dam which fall foul of the continuous disclosure obligations and constitute misleading and deceptive conduct. Evidence was tendered which indicated that the class contained a substantial number of foreign residents who owned BHP stock.
The High Court’s rationale
The sole issue for the Court was a question of statutory construction: does Pt IVA of the Federal Court of Australia Act 1976 (Cth) permit representative proceedings to be brought on behalf of group members who are not resident in Australia? The High Court unanimously held: Yes.
The High Court found that Part IVA does not contain any express geographic or territorial restriction on the identity of “persons” who can be group members in a representative proceeding. BHP unsuccessfully argued that foreign residents should not be part of the class on the presumption (common law and statute) that Australian laws do not have extraterritorial effect. The High Court rejected this argument, finding that there is no basis to infer any territorial limitation into Part IVA, which allows the inclusion of all persons as group members in a representative proceeding, regardless of whether they are Australian residents, so long as they have claims of the type described in Section 33C(1) of the Federal Court of Australia Act 1976.1
This decision raises a number of issues for companies to consider:
- Australia has an “open class action” regime. Whilst any group members must satisfy the pleaded definition of “group member” in order to participate, nonetheless in trying to estimate how large the class size may actually be, defendants may be confronted with assertions that the class size is significantly larger on account of foreign residents.
- Flowing on from that issue, there are potential challenges in dealing with foreign group members in the registration, opt-out and settlement approval (or settlement challenge as the case may be) processes.
- There is a conceivable risk that group members, who in many class actions are largely anonymous, could recover losses in a class action brought in another country and then seek to recover similar losses in Australia, giving rise to a risk of “double dipping”.
- Increased flexibility for litigation funders and promoters of class actions as group size expands across international borders, which may embolden those who stand to gain financially.
While this decision is specific to the Federal Court, the impact of this decision in other class action jurisdictions with similar legislation is yet to be determined. The recent introduction of contingency fees for class actions issued in the Supreme Court of Victoria saw an increase in filings. Perhaps this gateway for foreign group membership may see likewise.
1 Section 33C(1) provides that if (a) 7 or more persons have claims against the same person, and (b) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances, and (c) the claims of all those persons give rise to a substantial common issue of law or fact, then a representative proceeding may be brought.