The New South Wales representative proceeding: a class action half-way house.

• Author: Legg, Michael

If class actions of the kind now available in the Federal Court are to be permitted in New South Wales ... then this should only be done with the backing of appropriate legislation or rules of court, adequate to the complexity of the problem, and appropriate to the requirements of justice. (1)

Contents I. Introduction II. Background--The Challenger Decision III. Amendments to the Uniform Civil Procedure Rules IV. A Half-Way House for Class Actions I. Introduction

Following the decision in O'Sullivan v Challenger Managed Investments Limited ('Challenger') (2), the Uniform Civil Procedure Rules 2005 (NSW) ('UCPR') were amended in what appears to be an attempt to make the requirements for the commencement of representative proceedings reflect the requirements in Part IVA of the Federal Court of Australia Act 1976 (Cth) which created the Federal Court class action. Unfortunately, the amendments did not address a number of important aspects of class action procedure so that the procedural guidance provided for such complex proceedings is inadequate.

This article critically reviews the UCPR amendments with the aim of suggesting further amendments that would provide better guidance to the court and legal practitioners. The analysis is also of interest to other jurisdictions that have not yet adopted a modern class action regime but wish to accommodate the growing demand for securities, cartel, consumer protection and product liability proceedings with numerous claimants.

2. Background--The Challenger Decision

   The UCPR commenced on 15 August 2005 and provided for representative proceedings in r 7.4 which effectively mirrored Part 8 r 13 of the Supreme Court Rules 1970 (NSW).

   In April 2007, White J delivered his decision in Challenger on an application to strike out the representative proceeding. In that case, the plaintiff, O'Sullivan had commenced proceedings pursuant to r 7.4 of the UCPR on behalf of herself and group members who had invested in a property trust. The case involved allegations of misleading or deceptive conduct.

   At the time of White J's decision and until November 2007, r 7.4 of the UCPR provided that:

   (1) This rule applies to any matter in which numerous persons have the same interest or same liability in any proceedings.

   (2) Unless the court orders otherwise, the proceedings may be commenced and carried on by or against any one or more persons as representing any one or more of them.

   White J's decision appeared to have significant ramifications for the future conduct of representative proceedings in the NSW Supreme Court as he held that, inter alia:

   1. the relief claimed in a representative proceeding must be 'beneficial to all' (3); and

   2. representative proceedings will not be appropriate for damages claims where loss must be demonstrated by each individual. (4)

   The decision had the potential to significantly restrict the scope of representative proceedings as it would have prevented representative proceedings being brought in New South Wales for damages claims where quantum, reliance and/or causation had to be individually proved. The attraction of the representative proceeding was further diminished by White J's observation that limitation periods on individual damages claims may continue to run even though a representative proceeding for declaratory relief was on foot. (5) It should be noted that, although the impact of this decision in New South Wales has been ameliorated by the changes to the UCPR, the decision will remain persuasive in the Federal Court for proceedings brought under Order 6 r13 of the Federal Court Rules. (6) Given the consequences of White J's decision, the Rules Committee resolved to review r 7.4 of the UCPR.

3. AMENDMENTS TO THE UNIFORM CIVIL PROCEDURE RULES

   1. Representative proceedings rule amended

      On 9 November 2007, r 7.4 of the UCPR was amended to provide that: (7)

      (1) Subject to sub-rule (5), this rule applies to any proceedings concerning:

      (a) any matter in which:

      (i) numerous persons have claims against the same person, and

      (ii) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances, and

      (iii) the claims of all those persons give rise to a substantial common issue of law or fact, or

      (b) any matter in which numerous persons have the same liability.

      (2) Proceedings to which this rule applies may be commenced and, unless the court orders otherwise, carried on by or against any one or more persons as representing any one or more of them.

      (2A) Any such proceedings may be commenced:

      (a) whether or not the relief sought:

      (i) is, or includes, equitable relief, or

      (ii) consists of, or includes, damages, or

      (iii) includes claims for damages that would require individual assessment, or

      (iv) is the same for each represented person, and

      (b) whether or not the proceedings:

      (i) are concerned with separate contracts or transactions between the defendant in the proceedings and individual represented persons, or

      (ii) involve separate acts or omissions of the defendant done or omitted to be done in relation to individual represented persons.

      (3) At any stage of the proceedings, the plaintiff may apply to the court for an order appointing one or more of the defendants or one or more of the other persons to represent any one or more of them.

      (4) If a person who is not a party to the proceedings is appointed as referred to in subrule (3), that person must be joined as a party under rule 6.24.

      (4A) If it appears to the court that determination of the issue or issues common to all the represented persons will not finally determine the claims of all the represented persons, the court may give directions in relation to the determination of the remaining issues.

      (4B) Without limiting subrule (4A), the court may direct that notice be given to some or all of the represented persons in the proceedings in respect of any matter.

      (4C) A represented person, whether or not joined as a party, is taken to have brought proceedings on the day on which the person became a represented person on all of the person's causes of action that may be determined by judgment in the proceedings.

      (5) This rule does not apply to proceedings concerning:

      (a) the administration of a deceased person's estate, or

      (b) property the subject of a trust.

      The adoption of rr 7.4(1) and (2A) of the UCPR allows representative proceedings to be used in a much broader range of circumstances than would have been possible following the decision in Challenger. The amendments also addressed other deficiencies in the old rule. For example, r 7.4(4B) now provides for the giving of notice to represented persons of any matter, and r 7.4(4C) stops time running in relation to the limitation period once a representative proceeding that will determine the represented person's causes of action is commenced. (8)

   2. Res Judicata clarified

      In Challenger, it was submitted by the defendant that any judgment in the proceedings would not bind the group members other than the representative plaintiff due to r 7.5(1) of the UCPR which provided that a judgment or order made in representative proceedings 'is not enforceable against any of those persons who is not a party except by leave of the court'. (9)

      White J held that a mistake had been made in the drafting of r 7.5(1), and his Honour construed the provision to mean that the legal principle of res judicata applied to bind the group members of the action to any order or judgment made in the proceedings. (10)

      On 7 September 2007, r 7.5(1) was amended to reflect White J's interpretation, so that it now provides that:

      A judgment or order made in proceedings in which a party has, pursuant to rule 7.4, represented a number of persons binds all of those persons, but is not enforceable against any of those persons who is not a party except by leave of the court. (11) IV. A HALF-WAY HOUSE FOR CLASS ACTIONS

      As early as 1992, in Esanda v Carnie, the NSW Supreme Court acknowledged that the provisions for representative proceedings were inadequate to accommodate class action proceedings as provided for in the Federal Court. (12) Gleeson CJ referred to the origins of the representative proceeding in English law, which was intended for use in cases in which the same interest was clearly held, for example where there was a common asset, fund, or common property. (13) Gleeson CJ adopted the words of Estey J in Naken v General Motors of Canada Ltd, (14) that 'the rule, consisting as it does of one sentence of some thirty words, is totally inadequate for employment as the base from which to launch an action of the complexity and uncertainty of this one.' (15) Although the rule in NSW has been expanded by the recent amendments, it remains inadequate in certain key respects.

      The present situation in NSW bears many similarities to that of Victoria in the late 1980s. In 1986, ss 34 and 35 of the Supreme Court Act 1958 (Vic) were introduced. Those provisions bore a strong resemblance to r 7.4 and, in particular, attempted to expand the application of representative proceedings without providing the necessary procedural requirements and guidance. (16) Ultimately, ss 34 and 35 were considered to be so deficient due to the array of procedural issues that were left open, that they were repealed in their entirety and replaced with the current class action regime which mirrors the provisions of the Federal Court of Australia Act 1976 (Cth). (17)

      Class action proceedings, as provided for in the Federal Court of Australia Act 1976 (Cth) and the Victorian Supreme Court Act 1986 (Vic), are governed by detailed procedural rules. In 1993, Michael Tilbury commented that the class action procedure provided under the Federal Court of Australia Act 1976 (Cth) is a 'great advance' on the state models for representative proceedings. (18) Tilbury noted that, in addition to specifying the conditions for group litigation, the relief claimable and the effect of judgment on the...