Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Federal Court of Australia Amendment Bill 1991

Download PDFDownload PDF

House: Senate Portfolio: Attorney- General Purpose To allow representative proceedings in the Federal Court where seven or more people have claims against the same person, the claims all arise out of the same, similar or related circumstances and give rise to a substantial common issue of law or fact.

Background A `class action' is defined generally as an action that allows a single applicant to bring proceedings on behalf of a group or class of people with similar claims against the same defendant. Class actions can include claims for damages and proceedings can be commenced without the need to identify each member of the class and without the consent of each member. Class members can opt out of proceedings if they do not wish to be bound by a courts decision. This form of class action is available in the United States and the Canadian province of Quebec. The Australian variant of the class action, the representative action, allows a single applicant to start proceedings on behalf of numerous people who have the same interest in the proceedings. However, in most Australian jurisdictions a representative action is limited to: cases where an injunction or declaration is sought; cannot be used to claim damages; and group members have no right to opt out of proceedings once they have commenced.

A number of arguments have been advanced by advocates of class actions to support the use of the procedure, including: * it reduces the cost of litigation by spreading the cost of litigation among all members of the class represented; * it makes litigation practicable even though the recovery of damages by any individual member of the class may be small; and * the class action procedure helps deter improper business practices without requiring new government regulation, more bureaucracy, or a large increase in public spending.

Critics of class actions argue: * that the availability of an American style class action in Australia would lead to a huge increase in litigation and that the costs of defending these actions and of paying settlements will have to be passed on to consumers; * that unwieldy class actions will unduly burden the courts at a time when court resources are unequal to the demands placed on them; and * that an increased court load can lead to divergent results in similar circumstances, creating an appearance of injustice.

In February 1987, the Australian Law Reform Commission (ALRC) was requested, among other matters, to inquire into and report on the adequacy of Federal and Territory law relating to class actions. The ALRC released its report, Grouped Proceedings In The Federal Court, in October 1988. The ALRC identified a number of deficiencies in the present system, including that there is no effective federal procedure by which claims for damages arising from a multiple wrongdoing can be grouped so that common issues can be dealt with at the same time and no federal procedure enabling proceedings to be brought for damages on behalf of a group or class of people.

The ALRC concluded that

"An effective grouping procedure is needed as a way of reducing the cost of enforcing legal remedies in cases of multiple wrongdoing. Such a procedure could enable people who suffer loss or damage in common with others as a result of a wrongful act or omission by the same respondent to enforce their legal rights in the courts in a cost effective manner. It could overcome the cost and other barriers which impede people from pursuing a legal remedy. People who may be ignorant of their rights or fearful of embarking on proceedings could be assisted to a remedy if one member of a group, all similarly affected, could commence proceedings on behalf of all members. The grouping of claims could also promote efficiency in the use of resources by enabling common issues to be dealt with together. Appropriate grouping procedures are an essential part of the legal system's response to wrongdoing in an increasingly complex world". 1

The principal objection of the ALRC to the traditional representative procedure is its limited nature. In the opinion of the ALRC, the traditional representative procedure

"... does not achieve the desired goal because it requires all persons representing to have the same interest. Members of a group may have claims which differ from those of each other although arising from the same factual circumstances. For example, one member might seek to rely only on a federal claim only while another may also have a claim arising under State law. The relief claimed for those persons may not be the same as that sought by the applicant personally and may go beyond a declaration or injunction." 2

The business community is strongly opposed to the ALRC proposal. For example, The Australian Financial Review of 13 September 1988 reported that a joint working party has been formed to fight the ALRC proposal. The working party included the Business Council of Australia, the Confederation of Australian Industry, the Metal Trades Industry Association and the Australian Retailers Association. The objections of the working party to the ALRC proposal included that:

* the need for class actions, to replace existing legal procedures has not been established; * there has been no cost- benefit analysis of the proposal; * the cost to business and the community will be high and out of proportion to the problems of providing compensation; * it will encourage litigation; and * the procedure will be used as a device by consumer advocates to pursue quasi- political objectives which have nothing to do with compensation.

Main Provisions A new Part IVA (proposed sections 33A- 33ZJ) that deals with representative proceedings will be inserted into the Federal Court of Australia Act 1976 by clause 3. A proceeding may only be brought under this Bill in respect of an action arising after the commencement of this Bill (proposed section 33B).

Proposed section 33A contains the following definitions:

`Group member' - a member of a group of persons on whose behalf a representative proceeding has been started;

`Representative party' - a person who starts a representative proceeding; and

`Representative proceeding' - a proceeding started under proposed section 33C (see below).

Where seven or more people have claims against the same person, the claims all arise out of the same, similar or related circumstances and give rise to a substantial common issue of law or fact, a proceeding may be started by one or more of those persons as representing some or all of them (proposed section 33C). Where at any stage of a representative proceeding, it appears to the Court that there are less than seven group members, the Court may, on such conditions as it thinks fit, order the proceedings to continue or be discontinued (proposed section 33L).

The consent of a person to be a group member will not be required unless that person is: the Commonwealth, a State or a Territory; a Minister or an officer of a State or Territory; a company established for a public purpose, other than an incorporated company or association (proposed section 33E).

Proposed section 33J provides that the Court is to set a date before which a group member may opt out of a representative proceeding. The Court may extend the date on the application of a group member, the representative party or the respondent (i.e. the person against whom the action

is brought). The hearing of a representative proceedings, except with the leave of the Court, is not to start earlier than the date before which a group member may opt out.

On application by the representative party, the Court may, at any stage of a representative proceeding, allow the application starting the proceeding to be amended to change the description of group members (proposed section 33K).

Where relief claimed in a representative proceeding includes payment of money to group members (other than in respect of costs) and on application by the respondent, the Court concludes that it is likely that if judgement were to be given in favour of the representative party the cost to the respondent of identifying the group members and distributing the amounts ordered to be paid would be excessive having regard to the total of those amounts, it may order that the proceeding be discontinued or stayed in so far as it relates to payments of money to group members (proposed section 33M).

The Court may, on application by the respondent or of its own motion, order a representative proceeding discontinued where satisfied it is in the interests of justice to do so because:

* the costs that would be incurred are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or * all the relief sought can be obtained by way of a proceeding other than a representative proceeding; or * the representative proceeding will not provide an efficient and effective way of dealing with the group members claims; or * it is inappropriate that the claims be pursued by way of a representative proceeding (proposed section 33N).

Where the Court makes an order under proposed sections 33L, 33M or 33N discontinuing a representative proceeding, the proceeding may be continued by the representative party on his/her behalf. On application, the Court may also join a person who was a group member to the proceeding (proposed section 33P).

If it appears to the Court that determination of the issue/issues common to all group members will not finally decide the claims of all group members, the Court may give directions in relation to the determination of the remaining issues. In a case where there are issues common to the claims of some only of the group members, the Court may give directions setting- up a sub- group made up of those group members and appointing a person to be the sub- group representative party. Where a person other than a representative party is appointed to be a sub- group representative party, that person will be liable for costs associated with the determination of the issue/issues common to the sub- group members (proposed section 33Q).

When giving a direction under proposed section 33Q (see above), the Court may allow an individual group member to appear in the representative proceeding for the purpose of determining an issue that relates to his/her claims alone. Where this occurs, the individual group member will be liable for costs associated with the determination of the issue (proposed section 33R).

Proposed section 33S provides that where an issue cannot properly or conveniently be dealt with under proposed sections 33Q or 33R, the Court may: if the issue concerns only the claim of a particular group member, give directions relating to the start and conduct of a separate proceeding by that group member; or if the issue is common to the claims of all members of a sub- group, give directions relating to the start and conduct of a representative proceeding in relation to their claims.

Proposed section 33T will allow the Court, on application by a group or sub- group member, to substitute another group member as the representative party or sub- group representative party, where it appears to the Court that a representative or sub- group representative party is not able adequately to represent the interests of the group or sub- group members.

Proposed section 33V provides that a representative proceeding may not be able to be settled or discontinued without the approval of the Court. Where the Court gives such an approval it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court.

Proposed section 33W provides that a representative party may, with the Court's approval, at any stage of a representative proceeding settle his/her individual claim. A representative party seeking Court approval to settle, or who has settled his/her individual claim may, with the Court's approval, withdraw as a representative party. Where a person has sought Court permission to withdraw as representative party, the Court may, on application of a group member, order the substitution of another group member as representative party. Before allowing a person to withdraw as a representative party, the Court will have to be satisfied that notice of the withdrawal application has been given to group members and in sufficient time for them to apply to have another person substituted and any application for the substitution to be determined. The Court may allow a person to withdraw as a representative party subject to such conditions and costs as the Court considers just. In making provision for the distribution of money to group members, the Court may provide for: * the establishment and administration of a fund made up of the money to be distributed; * either the payment by the respondent of a fixed amount of money into the fund, or the payment by the respondent into the fund of such instalments, on such terms, as the Court directs to meet group members claims; and * entitlements to interest earned on money in the fund. The costs of administering a fund will be

borne by the fund, or by the respondent, as the Court directs. Where the Court orders the establishment of a fund, the order is to require and contain certain matters, including: that notice be given to group members; the way in which a group member is to make a claim for payment out of the fund and establish his/her entitlement to payment; and specify a day on or before which the group members are to make a claim for payment out of the fund (proposed section 33ZA).

On the start of a representative proceeding, the running of any limitation period that applies to the claim of a group member to which the proceedings relate will be suspended. The limitation period will not start to run again unless the group member opts out of the proceeding under proposed section 33J (see above), or any appeals arising from the proceeding are determined without finally disposing of the group member's claim (proposed section 33ZE).

Proposed section 33ZJ will allow the Court, on application by a representative or sub- group representative party, where it has made an award of damages in a representative proceeding and is satisfied that costs reasonably incurred in relation to the proceeding by the person making the application are likely to exceed the costs recoverable by them, to order an amount equal to the whole or a part of the excess be paid to them out of the damages awarded.

References 1. Australian Law Reform Commission, Grouped Proceedings In The Federal Court, October 1988, p. 34. 2. Ibid., p. 44.

Bills Digest Service 26 September 1991 Parliamentary Research Service

For further information, if required, contact the Law and Government Group on 06 2772430.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1991.

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1991.