High Court finds Judges have power to make ‘soft’ class closure orders

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The High Court of Australia has unanimously settled the question of whether judges have power to make ‘soft’ class closure orders, resolving a long-standing debate between state and federal courts and proving clarity for litigants, funders and insurers.

Class closure orders 

A ‘soft’ class closure order requires group members to register, prior to mediation, to register, in order to share in any settlement sum. The general practice is for parties to apply to the court for an order for the distribution of a notice to group members, foreshadowing an intention to seek closure orders if the mediation is successful. If the mediation is unsuccessful, the class re-opens and unregistered members share in any sum ultimately awarded.

Background 

The issue arose in the context of a shareholder class action against Lendlease Corporation Ltd and the responsible entity of the Lendlease Trust (together Lendlease) in the New South Wales Supreme Court. The plaintiffs / respondents alleged breaches of continuous disclosure obligations and misleading and deceptive conduct in relation to various securities issued by Lendlease in 2017 and 2018.  

Proposed soft class closure notice

Section 175(5) of the Civil Procedure Act 2005 (NSW) (CPA) provides:

The Court may, at any stage, order that notice of any matter be given to a group member or group members. 

In preparation for mediation, Lendlease sought an order that notice be given to group members under s 175(5) of the CPA, that if group members did not register, they would be excluded from the benefit of any settlement sum, even though they would remain bound by the outcome. The proposed notice would advise group members of three options:

• Option A – register to participate and remain eligible to share in any settlement amount 
• Option B – opt out of the proceeding and preserve the right to pursue a separate claim 
• Option C – take no action and remain bound by any approved settlement, but be excluded from any settlement benefit 

NSW Court of Appeal decision

Contrary to the position in the Federal Court and the Victorian Supreme Court, the New South Wales Court of Appeal unanimously ruled that the Supreme Court of NSW did not have power under s 175(5) of the CPA to issue such a notice.  

The NSW Court of Appeal had previously held in Wigmans v AMP (2020) 102 NSWLR 199 (Wigmans), that there was no power to order soft class closure notices. The Full Court of the Federal Court however in Parkin v Boral Limited (Class Closure) (2022) 291 FCR 116 (Parkin) held that Wigmans was plainly wrong and should not be followed.

Lendlease submitted before the NSW Court of Appeal, that Wigmans should be overruled and Parkin should be applied.  (The Victorian Supreme Court has specific statutory power to make soft closure orders under s 33ZG of the Supreme Court Act 1986 and has therefore avoided the debate).  

The plaintiffs / respondents did not take a different position on the question of power, however, they expressly reserved their position on the question of discretion (whether the court should exercise its discretion to issue the notice if there was power to do so).

The NSW Court of Appeal held that: 

• Wigmans was not ‘plainly wrong’ and therefore must be applied;   
• The proposed soft class closure notice would: 
  • turn ‘the statutory scheme on its head’ by effectively converting the ‘opt out’ regime (in which group members are entitled to the benefits of the proceeding unless they opt out) into an impermissible opt-in system; and  
  • place the representative plaintiff in an untenable position of conflict between its interest in settling the proceeding, and the interests of unregistered group members who may be excluded from the settlement

Lendlease appealed to the High Court, so the question could be settled.

The High Court decision 

Across four separate judgments, the High Court unanimously allowed the appeal in favour of Lendlease and held that section 175(5) of the CPA does allow the Supreme Court to approve the giving of notices to group members, concerning any matter relevant to their participate in class actions, including the intention of a party to seek a soft class closure order in the event of settlement.  

The High Court made the following key findings: 

• As the Supreme Court has power to approve settlements and to make an order limiting participation to registrants as part of settlement approval, there is no justification to limit the power to ensure that group members be kept informed of matters relevant to that process. Section 175(5) should be construed widely.  Justices Gordon and Stewart noted (at [91]):

It would be contrary to [the purpose of s 175(5)] if the Court had power to approve a settlement that excluded unregistered group members, but did not have power to inform group members of the intention to seek settlement on this basis. 

• The proposed notice would not have the effect of transforming the class actions regime from an ‘opt out’ regime to an opt-in regime: group members who did not register, remained group members.  The ‘general architecture” of the class actions regime was that group members need take no positive steps to obtain the benefit of the proceeding.  However, as Justices Gordon and Stewart noted (at [97]):

Even an opt in model, especially in the case of an open class, will require group members at some point to provide information in order to share in the benefit of any settlement or judgment. Whilst ordinarily that takes place after settlement of an action, or the obtaining of a favourable judgment, there will be cases where it will be in the interests of a just, quick and cheap resolution of the real issues for such information to be supplied at an earlier stage. 

• The question posed by the appeal was concerned with power, not with the merits of the proposed soft class closure notice.  Whether or not a notice should be issued in a proceeding is ultimately a matter for the court’s discretion. 

• The potential conflict identified by the NSW Court of Appeal was not relevant to the question of whether the Supreme Court had power to order that the proposed notice be issued.  It was relevant only to the discretion as to whether to exercise that power.

• In any event, the representative plaintiffs remained obliged to act in the interests of all group members, both registered and unregistered.  Further, the court retains a supervisory and protective role and has several options to manage actual or potential conflicts, including declining a settlement, appointing a contradictor or replacing a representative plaintiff who is unable to adequately represent group members.

Lendlease Corp Ltd v Pallas [2025] HCA 19

High Court of Australia | Gageler CJ, Gordon, Edelman, Steward, Gleeson, Jagot and Beech-Jones JJ | 7 May 2025
Appellant’s Solicitors: Herbert Smith Freehills
Respondent’s Solicitors: Maurice Blackburn Lawyers
Contradictor instructed by Minter Ellison

AustLII Link

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