Class action update: High Court settles debate on “soft” class closure orders
In an important class action development, the High Court has settled the debate between the Federal Court and the NSW Court of Appeal, ruling that there is a power to make “soft” class closure orders in class action matters.
Soft class closure is counterintuitive. Unlike the US, we have an “opt-out” system which means that all eligible members are automatically included in the class, unless they specifically opt-out. However, because it is not economic for plaintiffs’ firms and litigation funders, most class actions include a registration process (i.e. even if you are eligible, you will not be included in any settlement outcome unless you actively register).
Arguably, this defeats the very purpose of an opt-out system and can mean that legitimate class members miss out, often because they didn’t read the fine print on the notice setting out what they must do to register. The High Court doesn’t think so.
The rules in NSW and the Federal Court in relation to class action notices are, in effect, identical. The NSW Court of Appeal held that soft closures were inconsistent with an opt-out regime. The Full Court of the Federal Court held otherwise. In Victoria, the rules are worded differently and expressly allow for soft closure notices.
Latest ruling – Lendlease
In Lendlease Corporation Limited v Pallas [2025] HCA 19 (Lendlease Corporation Decision), the High Court unanimously found that section 175(5) of the Civil Procedure Act 2005 (NSW) (equivalent to Section 33X of the Federal Court of Australia Act 1976) enables the NSW Supreme Court to approve a soft closure notice.
The High Court acknowledged the opt-out regime but nevertheless held that soft closure notices do not create an “opt in” class action model. This is because the notice inherently considers the interests of group members even if it could result in some being shut out for failure to register. There is nothing in the regime to prevent the Court from requiring group members, having been properly notified, to take positive steps. In fact, soft closure notices can provide greater certainty for mediation with respect to the size and quantum of the claim, especially given that any settlement requires Court approval.
Intuitively, some may disagree with the High Court’s approach given the nature of the regime. However, when viewed in the context of the pragmatic development of the class action industry in Australia, it is not out of place or unexpected. Clearly this area of the law continues to evolve.
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