Joint sittings, common fund orders and comity

Anna Olijnyk

10.04.19

Something unusual happened in Sydney on 4 and 5 February this year. The Full Court of the Federal Court and the New South Wales Court of Appeal sat together, in the same courtroom, to hear two matters: one in each jurisdiction. Each matter – Westpac Banking Corporation v Lenthall [2019] FCAFC 34 in the Federal Court and Brewster v BMW Australia Ltd [2019] NSWCA 35 in the New South Wales Court of Appeal – concerned the legality and constitutionality of common fund orders in class actions. On 1 March, both courts handed down judgment in their respective matters.

This post will begin by outlining the issues in the two cases. The focus of the post, though, will be on the joint sitting: why was this procedure chosen and how did it work? I conclude by speculating on the possibilities and complications with using joint sittings in future.

Issues in the cases

Facts

Brewster and Lenthall are both class actions funded by a litigation funder.

The New South Wales matter, Brewster, is a claim against BMW by customers whose cars were fitted with faulty Takata airbags. At least five other actions have been commenced against other vehicle manufacturers on a similar factual basis, in what may be one of the biggest groups of class actions yet seen in Australia. Mr Brewster applied for a common fund order; BMW challenged the Supreme Court’s power to make such an order. The court’s power to make the order was removed to the Court of Appeal as a question for separate decision.

Lenthall is a claim in the Federal Court by customers of Westpac’s financial planning services, alleging breaches of duty in providing financial advice. The case managing judge made a common fund order, and Westpac appealed.

Common fund orders

Common fund orders have become a regular feature of class actions involving litigation funders. Often made quite early in proceedings, a common fund order is an order that the litigation funder may claim from any judgment sum or settlement amount, in priority to the plaintiffs, the amount of legal costs and other expenses incurred, plus a percentage of the judgment sum or settlement.

The purpose of a common fund order is to give a litigation funder an assurance of a return on its investment if the action is successful. This furthers the public policy objective of allowing litigation funders to support class actions by large numbers of plaintiffs whose individual claims would otherwise not be litigated. It forces defendants to respond to major claims that otherwise might be considered uneconomic to pursue.

Common fund orders are not uncontroversial. In both New South Wales and the Federal jurisdiction, a class action may be commenced on an ‘opt out’ basis. This means all persons falling within the factual compass of a claim in a class action are plaintiffs unless they have performed a positive act to opt out of the action. A person can be a party to a class action without even knowing it. This is where common fund orders become problematic. Because a common fund order (a) binds the entire class and (b) reduces the pool of money available for distribution between class members if the action is successful, the order can have the effect of diminishing the rights of class members who have no idea the order is even under contemplation.

Given the competing interests involved, and the emerging importance of common fund orders, it is not surprising that common fund orders became the subject of intermediate appellate scrutiny in Brewster and Lenthall.

The issues and outcome

The defendants challenged the respective courts’ power on broadly similar bases. In both matters, the defendants argued:

• The court’s general power to make orders in the management of class actions (s 183 of the Civil Procedure Act 2005 (NSW) and s 33ZF of the Federal Court of Australia Act 1976 (Cth)) did not extend to making common fund orders;

• Making a common fund order is not an exercise of judicial power and infringes Chapter III of the Constitution;

• A common fund order is an acquisition of property from class members, other than on just terms, in breach of s 51(xxxi) of the Constitution.

In Lenthall, the defendant also submitted that the actual order made was not authorised by s 33ZF.

Section 78B notices were issued, but no Attorney-General chose to intervene.

Both courts resolved all issues in favour of the plaintiffs, holding that common fund orders were constitutional and authorised by the relevant legislation. In both cases, the judgment was unanimous (Allsop CJ, Middleton and Robertson JJ in the Federal Court and Meagher, Ward and Leeming JJA in the New South Wales Court of Appeal).

Why the joint sitting?

Meagher, Ward and Leeming JJA explained that the chief reason for the joint sitting was to avoid ‘the practical difficulty which would arise insofar as the court which would deliver judgment first would be accorded the deference associated with Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.’ In Farah Constructions, Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ said (at [135]):

Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong.

Lenthall and Brewster did not involve interpretation of the same legislation. But the class action regime under the Civil Procedure Act 2005 (NSW) was modelled on the equivalent provisions of the Federal Court of Australia Act 1976 (Cth), arguably making this a potential instance for the application of the Farah Constructions principle.

The joint sitting was convened as part of a larger effort on the part of the two courts to cooperate in the management of class actions. In the space of one month (9 May-7 June 2018), five class actions against AMP Ltd were commenced, one in the Supreme Court and four in the Federal Court. The resulting scuffle about transfer of actions between courts culminated in an application for what was described as an ‘anti-anti-anti-suit injunction’: each court sought to restrain the other from exercising certain powers. In Wileypark Pty Ltd v AMP Ltd [2018] FCAFC 143, Allsop CJ delivered a strong warning against conduct that might involve a lack of comity (at [11]):

[C]omity between the Supreme Courts of the States and Territories and the Federal Court in the concurrent exercise of federal jurisdiction is of the utmost importance. Indeed, to put it thus may be to suffer understatement. In an integrated federal judicature such comity is a Constitutional assumption of the utmost practical and institutional importance.

His Honour drew on Kirby P’s observations in Beecham (Australia) Pty Ltd v Roque Pty Ltd (1987) 11 NSWLR 1:

It is unseemly, at this stage in the history of the Australian Federation for arguments as to the most convenient forum within Australia for the hearing of a case to be resolved by [an anti-suit injunction]. After Federation, the former colonies of Australia, as States, acquired constitutional status as component parts of the Federation. The State courts, although not Federal courts, are recognised in Chapter III of the Constitution as constituents of the judicial system of the Commonwealth. In these circumstances it is constitutionally inappropriate, in my view, to proceed in a State court to apply principles of private international law [relating to anti-suit injunctions] which have been developed to govern the relationships between courts of foreign countries. Not only does this do offence to the ordinary use of language and common expectations in Australia today.  In my opinion, it ignores the terms of and implications in the Australian Constitution as to the relationship between State courts as part of the court structure of the Australian Commonwealth.

On this view, comity between Australian courts is not just a good idea; it’s a constitutional requirement.

Spurred on by the Wileypark fiasco, the Federal Court and Supreme Court developed a Protocol for Communication and Cooperation between Supreme Court of New South Wales and Federal Court of Australia in Class Action Proceedings. The Protocol envisages that, as soon as the existence of competing class actions becomes apparent, the two courts may convene a joint case management conference for the purpose of ascertaining, among other things:

the suitability of the matters for joint or concurrent hearing of a selection hearing and procedure for the approval of fee and cost proposals from lawyers/litigation funders [and] the parties’ submissions as to appropriate jurisdiction…

After the directions hearing, the relevant judges of both courts will confer to determine the appropriateness of a range of actions, including a joint hearing of preliminary matters or of one of the class actions. Another possible step is, ‘to the extent possible the appointment of an acting judge from one jurisdiction to hear one of the competing class actions proceedings in the other jurisdiction.’ This latter possibility is, of course, subject to constitutional limits. A Supreme Court judge could not be appointed to the Federal Court, as an acting appointment is not consistent with s 72 of the Constitution. There may also be questions whether the appointment of a Federal Court judge to the Supreme Court would fall foul of either the Boilermakers or the Cigamatic principle.

In any event, it was in this spirit of cooperation that the joint sitting in Lenthall and Brewster was convened.

How did the joint sitting work?

The two courts sat together in the same courtroom. Counsel for both parties made submissions. There was ‘broad adoption’ by each party of their counterpart’s submissions in the other case (Brewster at [13]). So far, this procedure does not really challenge the conventional mode of court proceedings. It can be conceptualised as two separate cases run side-by-side, with each court, in effect, receiving two sets of submissions from each party. For example, the Federal Court heard submissions from the defendant’s counsel in Brewster and also heard additional submissions for the defendant, this time put by the defendant’s counsel in Lenthall.

Things become conceptually complicated when it comes to dialogue between bench and bar. What if a Federal Court judge asked a question of counsel in the New South Wales case? Is counsel obliged to respond? Does the response form part of the submissions in the Federal Court case, or the New South Wales case, or both? In the joint sitting, there was an understanding ‘that counsel appearing for federal litigants were under no obligation to answer any questions asked by a State judge, and vice versa.’ (Brewster at [13])

From all reports, the joint sitting ran smoothly and appears to have been a successful innovation.

More joint sittings in future?

Is the Lenthall/Brewster joint sitting a sign of things to come? The joint protocol, discussed above, seems to contemplate joint sittings in class actions in the future.

There remain some questions about how these joint sittings will work. For example, as explained above, counsel in one of the Lenthall/Brewster matters were under no obligation to answer questions asked by a judge in the other matter. It is not difficult to imagine this arrangement becoming awkward in practice. What if counsel declined to answer a question? They would be obliged to answer the same question if asked again by a judge of the other jurisdiction. What impression would the bench take from this situation?

Another possibly problematic area is discussion between judges of different courts. After the Brewster/Lenthall hearing, the judges of each court undertook not to speak to judges of the other court about the cases. This appears to be a response to ‘concerns’ raised by counsel for BMW (Brewster at [13]). However, judges of both courts were at pains to state that they did not see any principled objection to such inter-court discussion. Allsop CJ, Middleton and Robertson JJ related this to the issue of comity in the Australian judicial system (Lenthall at [2]):

In an integrated federal judicature, with two benches hearing two matters with overlapping issues in federal jurisdiction, it would be passing strange if a principle underpinning the fair, impartial and due administration of justice prevented discussions between the members of the Courts involved in deciding the cases, having just heard all the arguments in the same courtroom, as if the members of the bench of the other Court were strangers or third parties having private communications with the Court.

Their Honours added that, of course, ‘if any issue raised in such discussions had not been adequately ventilated, natural justice might require that some step be taken’ (Lenthall at [2]).

With respect, and acknowledging that the matter was not the subject of argument, I wonder if the position is so clear. Their Honours cite Re JRL; Ex parte CJL (1986) 161 CLR 342, in which Mason J explained (at 350-1) that, while it was improper for a judge to receive private communications from a party to a case or a stranger to the case, it was acceptable for a judge to consult with ‘other judges of his court who have no interest in the matter’. It is also, of course, acceptable for a judge sitting on a full court to discuss a case with other members of the bench. But judges of another court, who have participated in a joint sitting, do not obviously fall within any of these categories. They are not, after all, hearing the same case.

This brings me to another potential limitation of joint sittings. It will be a rare instance in which two cases in different jurisdictions raise the same issues. Brewster and Lenthall illustrate the point: although both cases were about the legality of common fund orders, the legal issues were different. Some of the issues turned on construction of the similar, but not identical, legislative provisions for managing class actions in each jurisdiction.

The constitutional issues, meanwhile, were quite distinct because of the different constitutional principles that apply in the Commonwealth and State courts. Recall that the defendants argued that common fund orders amounted to an acquisition of property other than on just terms. Section 51(xxxi) does not limit State legislative power, prompting the defendant in Brewster to adopt a rather circuitous argument involving s 79 of the Judiciary Act 1903 (Cth). In another constitutional argument, the defendants in both matters argued that a common fund order involved an exercise of non-judicial power. Acceptance of this argument would have been fatal to common fund orders at the federal level but, at State level, would have required further argument on whether common fund orders breach the Kable principle. Meagher, Ward and Leeming JJA noted (Brewster at [83]) that

The parties’ submissions in the two proceedings tended to assimilate the constitutional issues, overlooking the significant differences in each case.

To maximise the benefits of joint sittings, it is important that submissions are alive to the differences in the constitutional and statutory law of different jurisdictions.

All this is not to pour cold water on the concept of joint sittings. In my forthcoming book, I argue that innovation is not only a persistent motif in the history of Anglo-Australian civil procedure, but also a necessary response to the challenges posed by complex civil litigation. As with any innovation, though, joint sittings call for considerable care and reflection on the part of judges and lawyers if they are to yield the expected benefits.

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Anna Olijnyk is a Lecturer at Adelaide Law School, University of Adelaide.

Suggested Citation: Anna Olijnyk, ‘Joint sittings, common fund orders and comity’ on AUSPUBLAW (10 April 2019) <https://auspublaw.org/blog/2019/04/joint-sittings-common-fund-orders-and-comity/>