Time to think outside the square on opt-out notices

The question dealt with in this judgment was what form of notice ought be given to class members as a result of the HCA Decision.

In this matter Lee J previously made a ‘common fund order’, which was overturned by the High Court in BMW Australia Ltd v Brewster; Westpac Banking Corporation v Lenthall (2019) 374 ALR 627; [2019] HCA 45 (HCA Decision). The question dealt with in this judgment was what form of notice ought be given to class members as a result of the HCA Decision.

It was not in dispute that some form of notice should be given to class members to advise them of the effect of the HCA Decision (and to advise them of their right to opt out). However, the respondents opposed the form of draft notice proposed by the applicants, and contended that the Court:

  • did not have power to approve a notice which signified to class members that one option for them was to sign a funding agreement with the funder (JKL), and also foreshadowing an ‘expense sharing order’ (being, in effect, a ‘common fund order’) at the conclusion of the proceeding; or
  • if it did have power, it ought not do so as a matter of discretion.

At [6] and following, his Honour analysed what, precisely, was determined in the HCA Decision, and concluded that it did not preclude an ‘expense sharing order’ being made at the conclusion of a proceeding (as opposed to a ‘common fund order’ being made early in the proceeding pursuant to s 33ZF(1) of the Federal Court of Australia Act 1976 (Cth) (FCAA)). At [12] and [16] his Honour said:

[12] … contrary to [the respondents’] present submissions, the holding in Brewster does not stand for the proposition that this Court is bereft of power to make an order (at the conclusion of a proceeding in equity, or upon finalisation of a Court approved settlement, under s 33V of the Act) to distribute rateably funding costs including commission from a sum obtained on settlement or upon judgment; nor, obviously enough, does it prevent the Court approving a notice which foreshadows an intention of an applicant to seek some form of Expense Sharing Order at the stage of settlement or upon judgment…

[16] … no dicta of a majority of judges can be identified in Brewster, which impose a duty of obedience foreclosing any argument that some form of Expense Sharing Order can be made at settlement or judgment to prevent unjust enrichment in an appropriate case (as foreshadowed in the Class Actions Practice Note (GPN-CA) at [15.4]). [emphasis in original]

Further, the broad powers of the Court under ss 33X and 33Y of the FCAA in relation to the distribution of notices to class members meant that his Honour was satisfied that “a notice should be sent which not only provides for opt out, but also includes the important information that the [‘common fund order’] is no longer operative, and the real world consequences that flow from this reality. The real issue is what precise content should be conveyed in the notice as a matter of discretion …” (at [23]).

In relation to the content of the notice, the respondents initially contended that the notice proposed by the applicants did not convey to class members (accurately or at all) that, in light of the HCA Decision, unless a sufficient number of class members entered into funding agreements, the future funding of the proceeding was in jeopardy; but then appeared to contend that such information ought not be included in the notice, as a matter of discretion, because it would amount to the Court issuing a notice for the purpose of facilitating book-building, which was not a purpose for which the notice provisions were designed. His Honour rejected that argument, and held, in effect, that the whole purpose of giving notices to class members was to ensure that they were advised of the true facts, whatever they might be.

At [29]-[30] his Honour said:

[29] What is necessary to convey to group members may have some degree of commonality across similar types of Pt IVA proceedings, but what needs to be conveyed to group members must be assessed on a case-by-case basis. The bespoke circumstances of this case include that the funding arrangements had been predicated on a [‘common fund order’] being made; that such an order was erroneously made; and given it has now been set aside, there is an appreciable risk the funding will cease and, as a consequence, the proceeding will not continue (and the group member claims will be unable to be advanced). The material before the Court establishes the unremarkable fact that absent JKL forming the view that it will obtain a commercial return, it is unlikely to have an appetite to maintain funding.

[30] … It seems to me that given what group members have previously been told about the [‘common fund order’] is no longer operative, they should be told something about the basis upon which the class action is now being funded. To tell them about the current funding arrangements, and yet omit what [the respondents] in submissions recognised correctly as the most important aspect of the message (that is, that the funding is conditional, or may be conditional, on certain things happening), would be at best, decidedly odd and at worst, misleading to group members. [emphasis in original]

Finally, in relation to the form of the notice, his Honour considered that the form of notice proposed by the applicants was far too complex, and unlikely to be comprehensible to many class members (and therefore proposed his own form of simplified notice, which he annexed to his reasons). His Honour also:

  • noted that under an opt out regime, where consent of class members to be included in the class is not required, provision of notices to class members, so as to inform them of their rights, is critical;
  • cited various literature which pointed to the low levels of literacy among a significant proportion of the Australian community;
  • indicated, therefore, that in some cases many of the class members would be incapable of reading or understanding the notices that are sent to them; and
  • accordingly, considered that it was time for the Court and parties in general to ‘think outside the square’ in terms of providing notices to class members, including, for example, by the provision of notices in audio-visual (rather than written) form, and by the use of social media.

His Honour’s observations (at [42]ff) warrant repeating:

[42] But implicit in the regime is the notion that complex material can be conveyed to group members by notification, which allows those group members to make informed decisions which may affect their legal rights. For anyone experienced in class actions, one commonly comes across empirical evidence strongly suggesting that the process of written notification must have miscarried. It is far from uncommon to see examples where people opt out, even when a decision to opt out is counterintuitive (and indeed plainly contrary [to] a group member’s interests)…

[45] … there are, of course, different types of group membership. Some include highly sophisticated classes where all or the majority of the group members have access to legal representation. Others, such as this case, involve very significant classes (in this case, 88,000), and it is inevitable there will be persons within the class who are unsophisticated in financial and legal matters, including those who may have either literacy problems, or at least have some difficulty in taking in complex information in written form. Given the protective role of the Court, it is important to bear in mind that those with low levels of literacy are more prone to disadvantage and are more vulnerable in their interactions with the legal system … [A]dvanced Western societies have reached a stage where significant parts of the community, and, in particular, younger members of the community, more readily digest information conveyed to them in an audio-visual rather than written form.

[48] … If information must be conveyed in writing, there is a need to adopt a form of language, structure and design, which maximises the chance of all the intended audience readily understanding the information sought to be communicated.

[49] Leaving aside the adoption of plain language, I consider the time has come for those proposing notices to consider new modes of communicating complex information. This need will only become more acute as we progress (if that is the right word) further into the age of social media.

[50] Put more directly, it is simply complacent to continue to make the assumption that sending complex information in written form is the best way of communicating information to group members in some types of class actions, and consideration should be given as to whether supplementary or substitute modes of conveying information should be adopted.

Case details

Lenthall v Westpac Banking Corporation (No 2) [2020] FCA 423

  • Federal Court of Australia, Lee J, 2 April 2020
  • Applicants’ Solicitors: Shine Lawyers
  • Respondents’ Solicitors: Allens
  • Applicants’ Funder: JustKapital Litigation Pty Ltd

Read more about this case on Austlii: Lenthall v Westpac Banking Corporation (No 2) [2020] FCA 423

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