This article was written by Beth Stewart, Hugh Atkin and Moira Saville.
Last month, the High Court of Australia in Timbercorp Finance Pty Ltd (in liq) v Collins; Timbercorp Finance Pty Ltd (in liq) v Tomes  HCA 44 (9 November 2016) unanimously upheld a decision of the Victorian Supreme Court and the Victorian Court of Appeal to allow members of a failed class action to raise defences not raised in the class action in subsequent individual loan enforcement proceedings. The High Court held that so long as it was reasonable for group members not to have raised their individual defences in the group proceeding, group members were not precluded by way of Anshun estoppel or an abuse of process from subsequently raising individual claims. A full copy of the judgment can be found here.
The decision is important as it confirms that defendants in class actions may have difficulty achieving finality of judgment, as group members may be able to bring individual claims (or raise individual defences) not captured by the common questions of law or fact in the class action.
Following the collapse of the Timbercorp Group in June 2009, a group proceeding in the Victorian Supreme Court was commenced under Pt 4A of the Supreme Court Act 1986 (Vic) (Act) against Timbercorp Securities Ltd (Timbercorp Securities), Timbercorp Finance Pty Ltd (Timbercorp Finance) and various directors of each company.
The Appellant in this case, Timbercorp Finance, provided loans to investors in horticultural and forestry projects which were operated as managed investment schemes by Timbercorp Securities. The Respondents, Mr & Mrs Collins and Mr Tomes, had both applied for loans from Timbercorp Finance for their investment in the managed investment schemes operated by Timbercorp Securities. They were also members of the class in the group proceeding.
In the group proceeding, the lead plaintiff sought orders that their and the group members’ loans were void and unenforceable as a result of a number of alleged breaches of the disclosure requirements for investment products by Timbercorp Securities. The group proceeding was dismissed both at first instance in the Victorian Supreme Court, and on appeal to the Victorian Court of Appeal.
After the conclusion of the group proceeding, the Appellant commenced recovery proceedings against 1,288 investors, including the Respondents, alleging defaults under the loan agreements.
The Respondents sought to defend the recovery proceedings on various individual bases, unconnected with arguments as to whether the disclosure requirements for investment products had been breached.
Further background can be found in our earlier Insight here.
The High Court unanimously upheld the decision of the Victorian Supreme Court and the Victorian Court of Appeal that Collins and Tomes were not precluded, by way of Anshun estoppel or an abuse of process, from bringing those individual defences in the recovery proceedings.
Anshun estoppel operates to prevent a party from bringing claims which should have been pursued in former proceedings. The High Court emphasised that there could be no estoppel unless it appeared ‘that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it.’
The Appellant submitted that the Respondents should be estopped for two reasons:
- The group members were “privies in interest” of the lead plaintiff, and it was unreasonable for the lead plaintiff not to have raised the individual issues on behalf of the Respondents; or
- It was unreasonable for the Respondents themselves not to have raised the issues in the context of the group proceeding, or not to have opted out of the proceeding.
(a) Group members as the ‘Privy in Interest’ of the lead plaintiff
A ‘privy in interest’ is one who claims through or under another person. The High Court accepted that the group members were privies in interest of the lead plaintiff insofar as the group members’ claims which gave rise to the common questions of law or fact in the class action were advanced by the lead plaintiff, but rejected the appellants’ submissions that the group members were privies in relation to discrete claims and defences. In so reasoning, the Court placed weight on the fact that, under the class action regime in Pt 4A of the Supreme Court of Victoria Act 1986 , “a plaintiff in group proceedings represents group members only with respect to the claim the subject of that proceeding, but not with respect to their individual claims”.
The High Court confirmed that the Respondents’ failure to opt out or to seek to raise their individual claims in the group proceeding did not lead them to be Anshun estopped from subsequently raising those defences. The only connection between the matters in the group proceeding and the individual defences was the relief sought (ie declarations that the loans were void and unenforceable). It was therefore not unreasonable that the Respondents did not raise their individual defences in the group proceeding. In assessing ‘reasonableness,’ the Court referred to the relatedness of the defences with the common questions; the control the plaintiff had over the group proceedings, and the financial burden of raising those defences in the group proceeding. It was also noted that there was no potential inconsistency between the judgment in the group proceeding and any subsequent judgment in relation to the Respondents’ defences.
Abuse of Process
The Appellant alleged that by failing to bring their individual defences in the group proceeding, the Respondents deprived the Victorian Supreme Court of the opportunity to decide how to best manage the proceeding. The High Court decided that there was no evidence to suggest that the case management decisions of the Court were affected. In fact, even if the Respondents had raised their individual claims in the group proceeding, it is likely that they would have been postponed to be tried separately.
All that could be said was that the Respondents did not bring their individual claims to the attention of the Court. This did not amount to an abuse of process.
The High Court’s decision affects the ability of a defendant in a group proceeding to achieve finality of judgment. Since group members will not be precluded from bringing individual related claims, defendants could face any number of claims that were not covered by the common questions answered in the group proceeding.
It remains to be seen whether the Court’s clear statement of principle as to the limits of the representative plaintiff’s authority to represent the class has any impact on various aspects of class action procedure which have developed without firm legislative authority. For example, the propriety and efficacy of the approval of settlement agreements and consequential orders purporting to release or extinguish related, but non-common claims of group members might well be impacted by the Court’s statement.
In another instance of a group proceeding not being the end of a matter, the New South Wales Supreme Court recently set aside default judgments entered against two borrowers in relation to the Great Southern managed investment schemes. In that case, the judge decided that the borrowers’ argument that they were not group members and therefore not bound by the settlement was a triable issue and therefore they should be able to put on a defence.