"You've got the power!" The High Court rules on "soft" class closure

Introduction

Australia has an “open” class action regime.  Class actions may be commenced by a representative party on behalf of a group of persons notwithstanding that members of the group may not be aware of, or have consented to, a claim being made on their behalf.  There is no requirement that group members “opt-in” to receive the benefit of any court judgment.  Instead, group members are entitled to “opt-out” and prosecute their own individual claim relating to the same subject matter.

However, as the High Court’s recent decision in Lendlease Corporation Limited v Pallas [2025] HCA 19 illustrates, group members may be required to take certain positive steps to share in any settlement of a group proceeding.

The decision makes clear that the Supreme Court of NSW is empowered to issue notices informing group members of the parties' intention to seek orders that group members not registered at the time of a pre-trial mediation be precluded from receiving the benefit of any settlement reached at the mediation.  In unanimously allowing the appeal and overturning the NSW Court of Appeal, the High Court has aligned this power under the NSW class actions regime with the equivalent power in the Federal Court regime.

The making of such an order is an example of “soft” class closure, which is a term that describes the preclusion of group members from sharing in any settlement proceeds if they have not registered by a certain time or event.

 

Background

Prior to the decision, the Court of Appeal of the Supreme Court of NSW (Court of Appeal) and the Full Court of the Federal Court of Australia (Full Federal Court) were at odds. In the decision under appeal,¹ the Court of Appeal had followed its earlier decision in Wigmans v AMP Ltd² by unanimously holding that the Supreme Court did not have power to order that such a notice be issued under s 175(5) of the Civil Procedure Act 2005 (NSW) (CPA).

On the other hand, in Parkin v Boral Ltd³ the Full Federal Court had earlier ruled that the Federal Court was empowered to make such an order under the corresponding materially identical provision in s 33X(5) of the Federal Court of Australia Act 1976 (Cth) and that Wigmans v AMP Ltd was “plainly wrong”.

 

The arguments for and against

The bases for the Court of Appeal’s decision, which were argued by a contradictor before the High Court, included the following:

• The obligation of a representative party under the “opt-out” system is to act in the interests of group members by pursuing the common claims of the group, including unregistered group members. To “bargain away”⁴ the claims of unregistered group members in order to settle the proceeding for the benefit of registered group members promotes a conflict.⁵
• The proposed notice creates a scenario in which an “opt-out” scheme (a fundamental precept⁶ of Part 10 of the CPA) would be converted to one in which a group member must “opt-in” to be entitled to the benefits of the proceeding and to avoid their claim being extinguished.
• The Court of Appeal’s decision in Wigmans v AMP Ltd was not “plainly wrong”, as a departure from the Court of Appeal’s own prior decision would require.⁷

The arguments advanced by the appellants included the following:

• Notifying group members of an intention to seek an order excluding unregistered group members from a settlement assists settlement negotiations. Such a notice incentivises registration and the data on the size and composition of the group collected in the registration process aids the parties to assess quantum on a more informed basis than would be possible by a voluntary registration process.⁸
• Whilst the class action regime in Australia is predicated on an “opt-out” scheme, as observed by the High Court in BMW Australia Ltd v Brewster, “group members will have to take action at some stage to obtain the actual payment of any monetary relief to which they have established an entitlement”.⁹
• Part 10 of the CPA (like the provisions in s 33 of the Federal statute) expressly confers a supervisory protective duty on the Court to ensure that the class actions regime operates fairly.¹⁰ Whilst a party may seek an order that has the effect of precluding unregistered group members from benefitting from a settlement, approval of the settlement is always a matter for the Court’s discretion.¹¹  

 

The High Court’s decision

In four separate judgments, the High Court unanimously allowed the appeal in favour of Lendlease and held that the NSW Supreme Court does have the power to order the giving of the proposed notice. The High Court emphasised that the question posed by the appeal is not concerned with the merits of the appellant’s proposed notice or the issue of whether the Supreme Court should exercise a power to make an order which may exclude unregistered group members from a settlement.¹²

The High Court observed that if group members are not notified of the intention of one or more of the parties to seek such an order, that does not prevent the parties applying for such an order at a settlement approval hearing. Critically, if a notice is issued, the party or parties applying for the order will be able to support their application by submitting that group members had an opportunity to participate in the settlement by registering if they so wished.¹³

In relation to the issue of the potential conflict of a representative plaintiff seeking or consenting to an order excluding unregistered group members, the Court observed that if the notice achieves its purpose of maximising group member registrations, then the notice will in fact have minimised the potential conflict by ensuring that as many group members as possible can benefit from a settlement.¹⁴ In any event, the Court has a number of options to manage actual or potential conflicts such as to decline to approve a settlement, replace a representative plaintiff who is unable to adequately represent group members, or to appoint a contradictor to represent the interests of unregistered group members.¹⁵

In all the circumstances, the Court retains the power not to grant the order foreshadowed by the notice.¹⁶ Unregistered group members will always be able to seek orders from the Court that they be entitled to some part of any settlement amount as a condition of court approval.  The form of the notice makes this expressly clear: it states that whether there may be another opportunity to register a claim following settlement “will be a matter for the Court".¹⁷

 

Key Take-aways

• Defendants to class actions should not be discouraged from seeking orders requiring group members to register to participate in a settlement as that:
  • enables any negotiations to proceed on accurate estimates of the size of the group and not on hypothetical numbers that could be used to inflate the “asking price” for settlement;
  • assists with finality, which is always a paramount concern for any defendant looking to resolve a group proceeding.
• Actual or perceived conflicts between the interests of unregistered group members and the representative plaintiff may be managed by the exercise of the courts’ supervisory protective duty and the tools available to it to ensure that justice is done in the proceedings.¹⁸
• To that end, it assists a Court when being asked to approve a settlement to determine whether the settlement is reasonable in all the circumstances.
• This decision is not authority for the proposition that “soft” class closure orders will be made in any particular case. In every case, the making of an order and/or approval of any settlement are matters for the court’s discretion.

 

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¹ Pallas v Lendlease Corporation Ltd [2024] NSWCA 83; 114 NSWLR 81.
² Wigmans v AMP Ltd [2020] NSWCA 104; 102 NSWLR 199; 381 ALR 100.
³ Parkin v Boral Limited (Class Closure) [2022] FCAFC 47; 291 FCR 116; 400 ALR 663.
⁴ “Contradictor's Submissions”, Submission in Lendlease Corporation Limited v Pallas [2025] HCA 19, 10 October 2024, [53].
⁵ Pallas v Lendlease Corporation Ltd [2024] NSWCA 83; 114 NSWLR 81, [106]-[117] (Bell CJ); [138] (Gleeson JA); [139] (Leeming JA); [160] (Stern JA).
⁶ Pallas v Lendlease Corporation Ltd [2024] NSWCA 83; 114 NSWLR 81, [97]-[101] (Bell CJ); [138] (Gleeson JA); [139], [141]-[158] (Leeming JA); [160] (Stern JA).
⁷ [94]-[123] (Bell CJ); [138] (Gleeson JA); [139], [141]-[159] (Leeming JA); [160] (Stern JA)
⁸ “Appellant's Submissions”, Submission in Lendlease Corporation Limited v Pallas [2025] HCA 19, 10 October 2024, [8].
⁹ BMW Australia Ltd v Brewster (2019) 269 CLR 574, [74].
¹⁰ “Appellant's Submissions”, Submission in Lendlease Corporation Limited v Pallas [2025] HCA 19, 10 October 2024, [14]-[19].
¹¹ “Appellant's Submissions”, Submission in Lendlease Corporation Limited v Pallas [2025] HCA 19, 10 October 2024, [7].
¹² Lendlease Corporation Limited v Pallas [2025] HCA 19, [79] (Gordon and Steward JJ).
¹³ Lendlease Corporation Limited v Pallas [2025] HCA 19, [43] (Gageler CJ, Gleeson and Jagot JJ).
¹⁴ Lendlease Corporation Limited v Pallas [2025] HCA 19, [45] (Gageler CJ, Gleeson and Jagot JJ).
¹⁵ Lendlease Corporation Limited v Pallas [2025] HCA 19, [98] (Gordon and Steward JJ).
¹⁶ Lendlease Corporation Limited v Pallas [2025] HCA 19, [45] (Gageler CJ, Gleeson and Jagot JJ).
¹⁷ Lendlease Corporation Limited v Pallas [2025] HCA 19, [82] (Gordon and Steward JJ).
¹⁸ Section 183 Civil Procedure Act 2005 (NSW) cf s33ZF Federal Court of Australia Act 1976 (Cth).