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Federal Court of Australia approves its power to make future orders for class closure

The following piece was contributed by Lillian Rizio and Max Hensen of Australian law firm, Piper Alderman The Full Federal Courts’ decision in Parkin v Boral Limited (Class Closure) [2022] FCAFC 47 (Parkin) confirms the courts’ power to issue pre-mediation (and settlement) soft class closure notices to group members. The decision hints at the (positive) appetite of the Federal Court in making future orders for class closure that facilitate a just outcome,[1] simplifies the assessment of quantum prior to settlement, and reduces an element of risk in funded litigation. Opt-Out Nature of Class Actions   The Australian position on class closure orders is set out in Part IVA of the Federal Court of Australia Act 1976 (Cth) (Act). It serves as a guide for commencing Class Actions in the Federal Court of Australia, and is the reason why they are run on an ‘opt out,’ and ‘open’ basis. By virtue of the Act, class actions are commenced by a representative applicant on behalf of ‘group members.’ Group members are not required to register their interest, provide their consent, or even have knowledge of the proceedings on foot. Whilst the Act provides that a group member might ‘opt-out’ of the proceedings,[2] it does not compel one to submit information prior to settlement or judgment in order to participate. Ultimately, an ‘opt-out’ proceeding means that the size and composition of a class is difficult to quantify in pre-settlement discussions. Uncertainty as to the potential quantum of a claim complicates settlement negotiations. Background The parties in Parkin sought clarification from the Federal Court on its statutory power to issue notices to class members following two 2020 judgments handed down in the Court of Appeal of New South Wales. Both judgements considered the court’s powers pursuant to the Civil Procedure Act 2005 (NSW), in sections that mirrored the powers conferred by the Act on the Federal Court. In Haselhurst v Toyota Motor Corporation Australia Ltd t/as Toyota Australia,[3] the court found that its statutory powers did no extend to authorise it to make orders relating to class closure before settlement. It rationalised that, a class closure order extinguishes the cause of action of a group member. Therefore, that ordering the issuance of one was beyond the scope of its statutory ‘gap-filling’ power in facilitating a just outcome. In Wigmans v AMP Ltd[4] the court found that making an order to issue a notice for soft closure was contrary to the ‘fundamental precept’ of the class action regime.[5] Here, it rationalised that a group member was entitled to not act prior to settlement, or judgement. Questions In seeking clarity on the courts’ statutory powers, the parties in Parkin filed applications which put two questions to the Court. Namely, whether:
  1. section 33ZF of the Act permitted the Court to make orders to notify group members that, if they failed to register their interest, or opt out by a given date, they would remain a group member, but not be entitled to benefit from settlement (subject to Court approval) (Question One); and
  2. section 33X(5) permitted the court to order that group members be notified that in the event of a settlement, the Applicant would seek an order which (if made) would prevent a group member that had failed to register their interest, or opt out by a given date, from being entitled to benefit from settlement (Question Two).
Findings and Discussion Ultimately, the court found that, whilst no power under s 33ZF of the act was ‘enlivened,’[6] the specific power available under s 33X(5) permitted the court to issue the orders sought by the Applicant in Question Two. As to the precedential decisions from the Court of Appeal in New South Wales, the court in Parkin found that:
  1. the decision in Wigmans[7] was ‘plainly wrong.’ Here, the court affirmed that s 33X(5) conferred a power that was ‘broad and unqualified’[8] with respect to making an order that a notice be issued to group members at ‘any stage’ and of ‘any matter’[9]; and
  2. contrary to Wigmans[10] assertion on ‘fundamental precept,’ the court held that whilst group members may take a passive role in proceedings, they can also be required to act prior to settlement, and that the court may exercise its statutory powers to motivate them to do so.
In its discussion relevant to Question One, the court found that the power conferred by s 33ZF was discretionary and ‘gap filling.’[11] On the facts, the court did not consider that a ‘gap’ applied, given the relevance of s 33X(5) in providing a resolution to the issue at hand. Interestingly, however, the court hinted at its sentiment towards potential future application of s 33ZF in the following comment: ‘one could not foreclose the possibility, depending upon the circumstances of the case, that such an order could advance the effective resolution of proceedings.’[12] Conclusion – What does it Mean The decision of the Full Federal Court, means that parties can expect to be awarded notices that identify the intention of ascertaining future class closure orders in proceedings. This has resulted in the ratification of a strategy in which parties can agree to obligate group members to affirm their interest, or opt-out prior to mediation (for settlement purposes). As for the future of class-closure, the court comments on the potential of the issuance of class closure orders enlivened by s 33ZF in instances where they effect the effective resolution of proceedings. Going forward, competing interpretations of the statutory powers conferred upon the courts leaves room for the High Court to interpret the matter, or perhaps, call for statutory reform.  Given the positive findings as to the ability for pre-mediation notices to be issued, the Federal Court will likely be the preferred jurisdiction for class actions commenced on an open class basis. About the Authors Lillian Rizio, Partner Lillian is a commercial litigator with over 14 years’ experience in high stakes, high value litigation. Lillian specialises in class action, funded and commercial litigation, with expertise across a broad range of sectors including financial services, energy & resources, insurance and corporate disputes. Max Hensen, Lawyer Max is a litigation and dispute resolution lawyer at Piper Alderman with a primary focus on corporate and commercial disputes. Max is involved in a number of large, complex matters in jurisdictions across Australia. For queries or comments in relation to this article please contact Lillian Rizio, Partner | T: +61 7 3220 7715 | E:  lrizio@piperalderman.com.au -- [1] Parkin v Boral Limited (Class Closure) [2022] FCAFC 47 at [144]. [2] Part IVA Section 33J Federal Court of Australia Act 1976 (Cth). [3] (2020) 101 NSWLR 890. [4] (2020) 102 NSWLR 199. [5] Wigmans v Amp Ptd (2020) 102 NSWLR 199 at [89]. [6] Parkin v Boral Limited (Class Closure) [2022] FCAFC 47 at [1]. [7] Wigmans v AMP Ltd (2020) 102 NSWLR 199. [8] Parkin v Boral Limited (Class Closure) [2022] FCAFC 47 at [111]. [9] Ibid. [10] Wigmans v AMP Ltd (2020) 102 NSWLR 199. [11] Parkin v Boral Limited (Class Closure) [2022] FCAFC 47 at [13]. [12] Parkin v Boral Limited (Class Closure) [2022] FCAFC 47 at [144].

New UK Litigation Funder Rankings 

Conducted by over 200 researchers in more than 200 global jurisdictions, Chambers Research collates more than 6,000 tables that rank some of the world's most important business enterprises.  Chambers has released their UK litigation funding rankings, although they have yet to release their methodology, leaving many to wonder how they arrived at their results. That said, the Chambers Research team organizes their list into five bands, as detailed below:  Band 1 Bench Walk Advisors LLC Harbour Litigation Funding Limited Therium Capital Management Limited Band 2 Augusta Ventures Burford Capital Woodsford Litigation Funding Band 3 Balance Legal Capital Litigation Capital Management Band 4 Asertis Orchard Global Asset Management Omni Bridgeway Band 5 LionFish Litigation Finance Some prominent funders are notably absent, while others are curiously listed. What are your thoughts?

LegalPay Exits First Successful Insolvency Investment 

LegalPay is proud to announce the firm's first successful exit. In less than nine months, LegalPay was able to achieve a 26% return for investors who funded a facility to rescue Yashomati Hospitals.  According to VCCircle.com, LegalPay's CEO Kundan Shahi calls the Yashomati Hospitals deal a landmark deal.  Mr. Shahi says that the nine month turnaround illustrates LegalPay's operational 'excellence.' Shahi notes that third party funding can be a great opportunity for firms looking for help in restoring their business, similar to what Yashomati Hospitals achieved here. Click here to read more about the deal. 

Therium Found Liable for HSBC Court Fees 

The ECU Group Plc recently lost a claim against HSBC Bank, alleging that HSBC was culpable for front running and manipulation of international markets. In a decision that has implications for the funding sector, Therium has been held liable for costs.  One Essex Court reports that Therium has funded a wide variety of ECU claims. Yet the HSBC claims were successfully defended, and Mrs Justice Moulder handed down judgment in a third-party costs application made by HSBC Bank Plc, leaving Therium holding the bag. Therium was held liable for all costs incurred by HSBC from the date when costs were incurred, rather than the execution date of the funding agreement, which was a later date and would have resulted in less costs to cover.  Click here to read more about the case.

The Merging of Finance and Litigation Teams 

Now more than ever, in-house legal and finance professionals can collaborate to build solid affirmative recovery teams. The notion of siloed teams is an obsolete economic framework when it comes to litigation finance, according to new research published by Burford Capital. Burford Capital suggests that the stereotypical barriers between corporate litigation and finance teams should be dismantled as part of firm wide innovation.  The notion that litigation teams incrementally increase firm expenses should be considered antiquated thinking. Even more, Burford suggests that new revenue channels are available to teams that construct aggressive affirmative recovery systems between legal and finance teams.  Click here to read more about Burford's insights on this matter.

Mustang Litigation Funding of Wayzata, Minnesota; Mustang Specialty Funding I and II; James “Jimmy” Beltz, and Kevin Cavanaugh Remove Legal Bay Lawsuit to New Jersey Federal Court

Legal Bay, The Lawsuit Settlement Funding Company, announced today that on June 15, 2022, its recent New Jersey State Court lawsuit filing against Mustang Legal Funding and its principals has been removed to the United States District Court for the District of New Jersey, Newark Vicinage, by the Mustang Entities, James Beltz, and Kevin Cavanaugh. The case now bears the following docket name: Legal Bay LLC v. Mustang Funding LLC, et al., No. 22-cv-3941 (ES) (JBC). The matter has been assigned to District Judge Esther Salas and Magistrate Judge James B. Clark, III. Previously, Legal Bay had notified its business contacts of the suit's filing, but had not made any public statements. With the removal of Legal-Bay's action to Federal Court, Legal Bay believes that the time is now appropriate to disseminate a notice to the ligation funding industry about its lawsuit and its importance to the industry's direction and commercial standards. Chris Janish, CEO of Legal Bay, commented, "Our complaint against the Mustang entities and their principals is a public record at this point, and we will let the legal process play out in Federal Court. Legal Bay's purpose in pursuing this matter is not only to protect its own interests from the Mustang defendants' misconduct, but to send a message that their documented, abhorrent behavior is not limited to the Mustang defendants, but commonplace in the litigation and pre-settlement funding industry. These issues will hopefully, at long last, be formally addressed by Legal Bay's lawsuit." Legal Bay has asked the court to dissolve its joint venture with the Mustang entities and is asserting other equitable and legal claims against the Mustang defendants. Legal Bay has reason to believe that, in addition to the equitable relief it is entitled to, its monetary damages are substantial. The exact amount of those damages is not yet fully calculable, but will be determined in due course during the litigation. Janish added: "While we had hoped to avoid the need for a lawsuit, our hands were tied by Mustang's continuing misconduct. Legal Bay looks forward to continuing their work with the industry's leaders and regulators in order to find better ways to protect members engaged in formal business relationships from deceptive and anti-competitive business practices in the industry, as well as initiatives for better disclosures to consumers where previous legislation has fallen short." Legal Bay is represented by Fox Rothschild LLP within its Morristown, New Jersey office, and Timothy P. Kebbe, Esq. of Hawthorne, New York. Mustang and the other defendants are represented by Kasowitz, Benson, Torres, & Friedman LLP, of Manhattan.

WestConnex Construction Claim Funded by Omni Bridgeway Australia 

The Australian office of Omni Bridgeway has organized funding vehicles for land owners impacted by WestConnex roadway construction in Sydney.  Omni says they have partnered with Dentons Australia to puruse a claim against WestConnex, which erected a 33 kilometer underground motorway. The blueprint was designed to connect New South Wales avenues, and was undertaken in conjunction with the Australian government.  Litigation funding agreements will be offered to help repair damage from tunnel vibration, along with water and soil damage from the construction. You can find more information at https://WestConneXClassAction.com.au.

Cash4Cases Inc. Found Guilty of Funding Fraud

Jaeson Birnbaum, suspected owner of Cash4Cases Inc. has been found guilty of a felony in New York State for his role in a litigation funding fraud scheme. Mr. Birnbaum stands to be expelled from the New York State Bar Association for funding crimes. The Postman 24 reports that Mr. Birnbaum conned investors out of funds to run his Cash4Cases Inc. scheme. In September, Birnbaum pleaded guilty to securities fraud. On June 21, a New York appeals court confirmed recommendations for Birnbaum being disbarred. You can read more about the litigation funding scam here.

Augusta Ventures on Cross Border Funding 

Augusta Ventures has published new research into pitfalls associated with self funding cross border dispute resolution. Augusta suggests that international litigation should be supported by third party funding rather than self funding practices that may jeopardize balance sheets. Augusta says that third party funding can foster conditions that promote expeditious international dispute resolutions. Driving better outcomes with legal costs off balance sheet is becoming a priority for large, international companies.  Furthermore, Augusta says funders can help clients with solutions associated with asset recovery. Click here to read more about Augusta's findings.