Declaration of interest: CBP Lawyers has acted in the proceedings described in this article.
In brief - Supreme Court case confirms "Anshun estoppel" principle
The Supreme Court of Victoria's recent approval of the settlement in Clarke (as trustee of the Clarke Family Trust) & Ors v Great Southern Finance Pty Ltd (Receivers and Managers Appointed) (in liquidation) & Ors [2014] VSC 516 ("Great Southern group proceedings") further confirms that group members to a class action who choose not to opt out, risk their opportunity and mechanisms to protect their rights and interests.
Application for removal from the group deemed inappropriate
In a recent judgment in the Great Southern group proceedings (Clarke (as trustee of the Clarke Family Trust) & Ors v Great Southern Finance Pty Ltd (Receivers and Managers Appointed) (in liquidation) & Ors [2014] VSC 569), prior to the approval of the settlement in the Great Southern group proceeding, Justice Judd of the Supreme Court of Victoria ruled on applications by group members to cease to be group members, following an in principle settlement of the group proceedings. His Honour held that these applications were inappropriately brought: the proper forum for the applicants' arguments was the application to the court for approval of the settlement.
The applicants argued that the proposed settlement would prevent them from raising further arguments, in defence of subsequent debt recovery proceedings, which were unique to them. His Honour rejected this view, and found that in the circumstances, those group members should have opted out of the group proceedings.
They failed to do so and accordingly, even if the settlement were not approved, the doctrine of "Anshun estoppel" (preventing a party from making claims which should have been made in previous proceedings), would preclude them from raising these further arguments in subsequent debt recovery proceedings.
Plaintiffs allege that Product Disclosure Statements defective and seek to avoid repaying loans
The Great Southern group proceedings arose out of the collapse of the Great Southern Group in 2009. The majority of investors in managed investment schemes conducted by Great Southern borrowed the funds to invest.
Investors in the managed investment schemes brought proceedings alleging that the Product Disclosure Statements (PDSs), which they said they relied on in deciding to invest, were "defective" in that the PDSs contained misleading or deceptive statements and omitted information that was required to be disclosed.
The lead plaintiffs sought to avoid their obligations to repay their loans to orders, seeking declarations (pursuant to section 1022C or section 1325(5) of the Corporations Act 2001, or alternatively section 12GM(7) of the Australian Securities and Investments Commission Act 2001), that loan deeds entered into between investors and the financiers were void and unenforceable.
The trial lasted almost a year and occupied 90 sitting days.
Acknowledgement clause forms key element of settlement
Following the trial, the Great Southern group proceedings settled (subject to approval of the court) only two days before the trial judge, Justice Croft, was due to deliver his judgment.
A key element of the settlement was a clause whereby the lead plaintiffs acknowledged and admitted that their loan deeds and those entered into by group members with the banks were valid and enforceable ("acknowledgement clause").
Group members object to acknowledgement clause
The acknowledgement clause was the primary ground on which certain group members objected to the approval of the settlement. Those group members brought applications seeking orders pursuant to section 33KA or alternatively section 33ZF of the Supreme Court Act 1986 (Vic) that they cease to be group members, to avoid being bound by the settlement (if approved). A further group of objectors sought an extension of time within which to opt out of the group proceedings, until after determination of the application for approval of settlement.
Essentially, the objectors argued that:
- They had valid defences to any debt recovery proceedings brought by the banks, that were not determined as common issues at the trial of the group proceedings.
- The acknowledgment clause was a fundamental change in the proceeding to what was contemplated at the time of the opt-out process prior to the trial. The objectors made their decisions not to opt out of the group proceedings on the expectation that the validity and enforceability of the loan deeds would be litigated and determined by judgment.
- The objectors did not wish to forego defences available to them in debt recovery proceedings.
- Allowing the objectors to cease to be group members would ensure minimal disruption to the litigation.
The opt-out notice stated:
As a group member, unless you choose to opt out of the Great Southern group proceeding(s), one or more of the Great Southern group proceeding(s) will determine your rights, if any, to compensation or other relief.
[if you do not opt out], under Australian law, you will be bound by the outcome of the Great Southern group proceeding(s) which affects you and any settlement, judgment or determination made in it. If the Great Southern group proceeding(s) is unsuccessful, you will not be able to make claims in other proceedings in relation to the matters the subject of the Great Southern group proceedings.
Objectors see acknowledgement clause as material change
The objectors argued that there had been a "material change" in the scope of the group proceeding, reflected in the acknowledgement clause, which had not been contemplated at the time of the opt-out process. The objectors argued that had they known that their right to maintain individual defences to debt recovery proceedings might be restricted, they would have opted out.
In response, the bank defendants submitted that had the objectors wished to advance a different case from that formulated by the lead plaintiffs, they should have opted out. The objectors' applications were predicated on the assumption that had the group proceedings proceeded to judgment adverse to the plaintiffs, group members would have retained the right to raise defences in debt recovery proceedings on grounds other than those litigated in the group proceedings.
Judge rejects objectors' bid to cease being group members
Justice Judd held that the objectors had no right to invoke powers under section 33KA or section 33ZF, as those powers may only be exercised on the application of a "party" or of the court's own motion. As group members are not parties to a group proceeding, the objectors had no right to seek to invoke those powers.
Further, Justice Judd held that the powers under section 33KA and section 33ZF are not intended to be invoked by group members to avoid the binding effect of an adverse judgment or settlement. Rather, group members have the opportunity and mechanisms to protect their rights and interests through the opt-out process and also by opposing the application for approval of the settlement.
This issue had previously been considered by the trial judge, Justice Croft, in an earlier application in the Great Southern group proceedings. In his reasons on that application (see Clarke & Ors v Great Southern Finance Pty Ltd (in liq) & Ors (No 2) [2012] VSC 338), Justice Croft held that:
- Section 33KA gives the court a very wide discretion to order that a person cease to be a group member.
- The overall consideration is what is just and expedient in the circumstances of the case.
- The principles in relation to abuse of process and "Anshun estoppel" are relevant - that is, a group member would be prevented from raising issues in subsequent proceedings that should have been raised in the group proceeding. If any group member sought to pursue individual proceedings which were determined involving issues which were determined by the group proceedings, the individual proceedings would be stayed on the basis of abuse of process, "Anshun estoppel" or election.
- Group members bear the risk of not being able to agitate all aspects of their defences or counterclaims by electing to remain group members.
These issues had also been considered in other class actions. The objectors argued that estoppel should not be applied with its full rigour to group proceedings, because group proceedings contemplate the advancement of particular claims peculiar to individual group members after the conclusion of the trial on the common questions.
The objectors contended that they should be permitted to advance defences in debt recovery proceedings that were not specifically addressed by the lead plaintiffs in the trial of the group proceeding.
Opt-out process adequately protects individual claims
Justice Judd held that appropriate protection of individual claims is adequately achieved through the opt-out process. His Honour distinguished between the individual circumstances of a group member on a question of reliance, which may be litigated following the conclusion of a group proceeding, and the issues that group members may be entitled to raise by way of defences in separate debt recovery proceedings. The resolution of individual issues of reliance is a natural extension of group proceedings.
His Honour found that:
- The Great Southern group proceedings were defensive to the banks' rights to enforce loan deeds.
- Existing potential defences to debt recovery proceedings were subsumed in the group proceedings and it should have come as no surprise to group members that the acknowledgement clause was a term of the deed of settlement.
- Group members were advised of the possibility of a negotiated settlement in the opt-out notice.
- To permit group members to cease to be group members or to opt out at this stage of the proceeding would be inconsistent with the benefits they had enjoyed as group members.
- The acknowledgement clause did not constitute a material change in the group proceeding.
- Group members would have been precluded from advancing novel individual defences had the case proceeded to judgment in any event.
- The appropriate forum in which objections to the terms of the deed of settlement ought to be raised is at the hearing of the application for approval of the settlement.
The applications to cease to be group members or to extend the time to opt out of the group proceedings were refused.
Circumstances unusual but "Anshun estoppel" principle applies
The objectors' applications to cease to be group members and to opt out were made in unusual circumstances, in which the Great Southern group proceedings were defensive in nature and where settlement occurred on the cusp of judgment being delivered.
Nevertheless, Justice Judd has confirmed the application of the "Anshun estoppel" principle to group proceedings. To avoid being bound by a settlement of a group proceeding, objectors should object to the approval of the settlement, rather than seek to cease to be a group member or to opt out after in principle settlement has been reached.
Subsequent to Justice Judd's decision, the settlement was approved by Justice Croft on 11 December 2014.