The Australian High Court endorses soft class closure notices

Introduction

In a landmark decision with major implications for representative proceedings in Australia, the High Court of Australia in Lendlease Corporation Limited v Pallas [2025] HCA 19 has confirmed that Courts have the power to approve ‘soft class closure’ notices under section 175(5) of the Civil Procedure Act 2005 (NSW) (CPA).

The decision resolves a long-standing inconsistency in legal authority and provides welcome clarity for litigants, funders and insurers. It confirms that Courts may facilitate fair and efficient settlement of class actions by notifying group members that failure to register could result in exclusion from a settlement’s benefits, even though they remain bound by the outcome.

Background

The decision arose from a shareholder class action against Lendlease Corporation Ltd and related parties. The representative plaintiffs alleged breaches of continuous disclosure obligations and misleading or deceptive conduct in relation to securities issued by Lendlease in the period between 17 October 2017 and 8 November 2018.

The proceeding was brought as an open class under Part 10 of the CPA. During the relevant period, over 444 million securities were traded on the Australian Securities Exchange, indicating the class size was potentially large and indeterminate. This uncertainty posed a challenge to settlement discussions, as the parties had limited information about the number and identity of group members.

To address this, Lendlease sought orders that a notice be issued to group members under sections 175(1) and 175(5) of the CPA. The proposed notice would advise group members of three options:

• Option A – register to participate in the proceeding and remain eligible to share in any settlement or judgment
• Option B – opt out of the proceeding and preserve individual rights to pursue separate claims
• Option C – take no action, such that group members would remain bound by any judgment or approved settlement but may, without leave of the Court, be excluded from receiving any benefit from the settlement

The NSW Court of Appeal, applying its earlier decision in Wigmans v AMP Ltd (2020) 102 NSWLR 199, held that the Supreme Court of NSW did not have power to approve such a notice, reasoning that it effectively converted the opt-out regime into an impermissible opt-in system. That interpretation conflicted with the Full Court of the Federal Court’s reasoning in Parkin v Boral Ltd (2022) 291 FCR 116, which upheld the validity of similar notices under the Federal Court regime. Lendlease appealed.

High Court’s decision

In the unanimous judgment delivered on 7 May 2025, the High Court allowed the appeal, finding that section 175(5) of the CPA empowers the Supreme Court to approve the giving of notices to group members concerning any matter relevant to their participation in representative proceedings, including the intention of one or more parties to seek a soft class closure order in the event of settlement.

Key findings in the judgment are:

• Broad scope of section 175(5) of the CPA – The Court confirmed that the term ‘any matter’ in section 175(5) should be construed liberally, consistent with its plain language and the legislative purpose of keeping group members adequately informed.
• No impermissible shift to opt-in – The proposed notice does not require group members to opt in to remain bound or to benefit from the proceeding. Rather, it simply informs them of the potential consequences of inaction, particularly in the context of settlement approval.
• No conflict with sectoin 175(6) of the CPA – The Court rejected the argument that section 175(6) restricts notices to past events. It held that a present intention to seek an order, such as the exclusion of unregistered members from a settlement’s benefit, is a relevant and permissible subject of notice.
• Clarification of Mobil Oil and Brewster – The Court emphasised that the statement from Mobil Oil Australia Pty Ltd v Victoria (2002) 211 CLR 1 that group members “need take no positive step” to benefit from a representative proceeding, reflects the general scheme, not a limit on judicial powers to manage proceedings or notify group members.
• Consistency with settlement approval powers – Since Courts have the power under section 173(2) of the CPA to approve settlements and make distribution orders, they must equally have power to ensure that group members are informed of matters relevant to that process.

Implications

The decision has immediate and significant consequences for parties involved in representative proceedings in Australia. Most notably, it restores parity between the Federal and NSW regimes.

Moreover, soft class closure orders provide a mechanism for defendants (and their insurers) to undertake a more precise loss assessment to registered group members thereby facilitating earlier settlement negotiations and potentially reducing the overall costs of class actions.

Defendants (and their insurers) will also be able to quantify the residual risk arising from group members who chose not to register to participate in the class action leaving their right to make a separate claim intact. This will allow defendants (and their insurers) to better assess the reasonableness of any settlement offers they receive.

The key takeaway for group members is simple: doing nothing may carry consequences. While the opt-out model remains intact, group members who fail to register may risk being excluded from any financial benefits of a settlement even though they are still bound by it. Courts retain discretion to allow late claims, but the default position has shifted in favour of early participation.