The historic joint sitting of the Federal Court of Australia and the NSW Court of Appeal (together the Court), handed down judgments on 1 March 2019, confirming the Court’s right to make common fund orders (CFO), in the matters of Westpac Banking Corporation v Lenthall [2019] FCAFC 34 and Brewster v BMW Australia Ltd [2019] NSWCA 35.
CFOs allows a class action to be conducted on an ‘opt-out’ basis where members obtain benefit from successful litigation despite not signing up as part of the class.
The submissions before the Court, against the Court’s power to make CFOs were:
1. whether section 183 of the Civil Procedure Act 2005 (NSW) or sections 33ZF and 23 of the Federal Court Act 1976 (Cth) authorises the Court to make a CFO;
2. if the above do not provide authority, whether Chapter III of the Constitution is contravened by making a CFO;
3. failing 1 & 2 above, whether making a CFO amounts to an acquisition of property other than on just terms, contrary to s 51(xxxi) of the Constitution.
The Court rejected all three of the submissions.
Sections 33ZF and 23 Federal Court Act
Westpac’s interpretation as to the width of section 33ZF was too narrow and the section should be interpreted such that “it is the widest possible power that extends to all procedures appropriate or necessary to deal with the matter on a just basis”.
Further to this rejection, the Court found that the operation of sections 33V and 33Z do not operate as a constraint on the Court’s right to make orders in accordance with section 33ZF.
Section 183 CPA
The Supreme Court found that if the Court is of the view that a CFO is appropriate or necessary to ensure justice is done in the proceedings, the general wording, considering the fact that CFOs did not exist when this section was enacted, enabled the Court to make a CFO.
Judicial Power
The Court found in relation to the second submission that “it is difficult to conceive of a function or standard more appropriate to the judicial branch of government than considering and deciding (upon application and evidence) what is appropriate to do justice in a proceeding.”
Acquisition of Property
The Court concluded that a CFO does not have the effect that the section is a law with respect to the acquisition of property other than on just terms within the meaning of s 51(xxxi). Additionally, the Court noted that to the extent that the proceeds of any group members’ cause of action constituted value, its value had not yet been established.
Given the recent Royal Commission into the financial industries, we consider that this decision is a significant step forward for class action litigation. CFOs allow members who have suffered (potentially unknown) loss as a result of illegal activity by large organisations to be included as a member of the class action and receive appropriate compensation.