Don’t be tardy to the party. When it comes to Australian securities class actions, there is no such thing as being fashionably late.

CBA Surprise

Last quarter, clients were recently surprised by the court notice in the CBA Shareholder Class Action[1]. The notice itself wasn’t surprising. Such notices are regularly sent out prior to court-ordered mediation to encourage group members to register their claims before the parties attempt settlement[2]. What was surprising was the short amount of time provided for claimants to register and the threatened consequences for them failing to do so.

The court approved the CBA notice on April 7, 2022 and ordered its distribution by May 10, 2022. In mid-May, FRT started hearing from clients that had received the notice (we received it earlier directly from the case organizers). The notice required group members to opt-out of the class or register their claims by no later than June 7, 2022, less than 30 days later. It repeatedly warned that failing to register by the deadline:

could have significant consequences because the parties intend to seek an order that group members who do not register by the deadline will not be entitled to participate in any settlement that may be agreed to before 7 November 2022 [the date set by the court for the parties’ mediation].

The message was clear and dire: register now or risk losing your claim later without getting anything for it.

The Boral Decision

Hold on, you say, in 2020 didn’t the Australian Federal Court conclude they could not order hard class closures – orders extinguishing claims of those failing to register by court ordered deadlines before mediation? Yes, they did. But in life, it’s all about timing, and it turns out the issue is not if courts have the power to extinguish untimely registrant claims but when they can use that power.

On March 22, 2022, in the Boral case[3], the Federal Court ruled that class notices like the one in CBA are permitted. Technically, the CBA notice does not involve a hard class closure. It does not say the court will extinguish claims of those not registering by the deadline. Instead, it says that later, if and after a proposed settlement is reached, the parties intend to ask the court to limit participation to those that registered by the earlier deadline and to exclude those that failed to do so.

While the earlier 2020 decision precluded Federal Courts from extinguishing unregistered claims before settlement, Boral affirmed their power to do so after settlements have been struck and during the approval process.

Court powers over litigation proceedings rest on different civil procedure rules and the rules vary in scope. According to Boral, the rules give broader powers to judges to extinguish unregistered claims at the settlement approval stage than earlier in cases.

Challenges for AU Class Members Going Forward

Approved just 10 days later, CBA appears to be the first Australian class action notice following the Boral decision. It signals a new trend going forward: tight claim registration deadlines under threat of future exclusions. On April 22, 2022, for example, the court in the S&P CDO Class Action[4] set a mediation date and approved notice to group members. It ordered that notice be distributed by May 12, 2022 with a registration deadline of July 31, 2022, roughly 60 days later. The notice says in part:

If the Mediation results in a settlement, the applicants will seek Court approval of the settlement. The applicants will also ask the Court to make orders which will have the effect that any class member who has not registered by 31 July 2022 will not be entitled to participate in any settlement without leave of the Court, but will otherwise be bound by the terms of the settlement.

Similarly, on June 22, 2022, the court in the Brambles Shareholder Class Action[5] approved notice to group members in advance of trial. The court approved the notice on June 22, 2022, ordered its distribution by June 29, 2022, and set a registration deadline of July 26, 2022 – less than 30 days later. The notice says in part:

The trial in the Brambles Class Action is scheduled to run from 8 August 2022 to 8 September2022. If there is a settlement of the Brambles Class Action agreed by no later than 14 days after the conclusion of the trial, the Applicants intend to apply to the Court for an order to limit distribution of any settlement money to those Group Members who have registered their claims before 26 July 2022.

At the settlement approval stage, will the parties actually make motions to exclude late registrants and if they do, will the Federal Courts actually exclude those group members and extinguish their claims without compensation? Maybe or maybe not, but what claimant wants to take that risk or to spend money on counsel to fight for inclusion later?

It turns out the threat of future exclusion motivates class member action as effectively as the threat of current extinguishment. In CBA, thousands of investors rushed to register their claims before the deadline.

More pre-mediation registrations are good. Plaintiffs and the class have an interest in everyone who is eligible making their claims known before mediation so their losses can be included in negotiations. Total registered losses set the upper boundary on negotiations and drive bigger settlement outcomes. Class members showing-up later – after settlements are struck – dilute the recoveries for earlier claimants because at that point the resolution amount is fixed. The greater the dilution, the less each class member gets and the less likely a court will be to approve the settlement as fair and reasonable. So courts and parties aren’t particularly welcoming to tardy claimants.

The challenge for AU class members now relates to the short amount of time given for pre-mediation registrations – time windows narrowed by inefficiencies in the AU notification process. Corporate defendants have every interest in short registration periods. Less time means fewer registrants, which means less in losses to negotiate against. Corporate defendants, not class counsel, are responsible for overseeing distribution of class notices, which are only sent to those in the share registries. Most shares are held in street name, not the names of beneficial owners, so it’s up to the brokerage or investment firms to send the notices to their clients.[6] Their processes vary and notices may not reach every eligible claimant, and in any event take time to get there, which is precious given the short window – perhaps 30-60 days or less – given for registration.[7]

The Solution

Nobody enjoys fire drills. Each year approximately eight to twelve Australian class actions settle. Unless investors register for all filed securities class actions early in proceedings, which is not required and most prefer not to do, after the Boral decision they must hustle every time to meet tight deadlines and avoid the risk of getting nothing later.

Again, in CBA, it appears FRT clients received notice in mid-May, a month after the court approved it and halfway through the 60-day registration period. In the S&P case, FRT clients received notice as late as end of June and early July, with less than 30 days left before that registration deadline. In Brambles, group members were given less than 30 days after distribution of notices to register, regardless of how long they took to reach them.

The better solution is to engage a third-party service provider to monitor Australian securities class actions, one that will get these notices early and directly from the case organizers or other sources and notify you promptly. The provider will also ensure your paperwork and trading data gets submitted before registration deadlines. You’ll have peace of mind. You won’t worry about not getting class notices or getting them too late to act and missing deadlines. You’ll be confident you get excluded later at the approval stage for being untimely. In short, you’ll never again be tardy to the party.

[1] Zonia Holdings Pty Ltd v. Commonwealth Bank of Australia Ltd (VID1085/2017)

[2] Court notices use equivalently the terms ‘class members’ and ‘group members’.  This article does the same.

[3] Parkin v Boral Limited (Class Closure) [2022] FCAFC 47

[4] ACN 117 641 004 PTY LTD (In Liquidation) (In its Capacity as Trustee of the Vale Cash Management Fund) & ORS v S&P Global, Inc. (a company incorporated in New York) & ANOR (NSD881/2020)

[5] Holly Southernwood & Anor v. Brambles Ltd. (VID972/2018)

[7]  In Bambles, the notice cites the large percentage of group members reliant on third parties to forward these registration notices:

“[T]he  identities  and  claims  of  all  Group  Members  are  not known.  While Brambles shares are transacted on the ASX with a share registry, that registry does  not  provide  a  high  degree  of  clarity  as  to  Group  Member  identities  and  claims,  for reasons including because many Group Members hold and transact shares through nominee or custodian entities, who appear on the share registry but do not hold the underlying interest in  the  shares.  Brambles  2016  and  2017  Financial  Results  disclose  that  over  80%  of  the company’s shares were held by one of these entities.  (Emphasis added.)

[8] Unlike the US, Australian courts do not order publication of notices and do not order brokers and other nominees to forward notices to their clients.  Instead, they order that plaintiffs’ counsel post documents on the law firm websites.  They may also post notice on the court website.  The lawyers and funders voluntarily send notices directly to known larger claimants and third-party claim filers.  However, such direct notification is not consistent across case organizers.

About FRT

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Founded in 2008, Financial Recovery Technologies (FRT) is the leading technology-based services firm that helps the investment community identify eligibility, file claims and collect funds made available in securities and other class action settlements. Offering the most comprehensive range of claim filing and monitoring services available, we provide best-in-class eligibility analysis, disbursement auditing and client reporting, and deliver the highest level of accuracy, accountability and transparency available. For more information, go to www.frtservices.com.

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