Australian Federal Court Rejects Exclusion of Non-Resident Shareholders from Class Actions

On June 3, 2021, the full Federal Court of Australia (the “Full Court”) affirmed a single judge’s rejection of an attempt by BHP Group Limited (“BHP”) to exclude non-resident shareholders from a class action against it.[1] The Full Court ruled that under Part IVA of the Federal Court of Australia Act 1976 (Cth) (“Part IV”), courts can adjudicate class action claims that include non-residents, and that “there is nothing about Part IVA evincing an intention to the contrary.” This decision is a victory for securities class actions in Australia and reaffirms the country as a hospitable place for global investors. However, as open class actions approach mediation or settlement, the Full Court signaled support for courts using registration or class closure orders to prevent non-resident investors from pursuing similar claims against defendants in other countries.

The Underlying Class Action
On November 5, 2015, the Fundao Dam at the Germano Iron Mine in Brazil collapsed, causing a tragic mudslide that killed 19 people and resulted in massive environmental damage. The dam was a joint venture between Vale S.A. and BHP, which is headquartered in Melbourne with its securities trading on multiple exchanges including the Australian Securities Exchange (ASX). Following news of this disaster, BHP share prices plummeted and continued to fall as news stories highlighted the worsening financial consequences of the collapse. By February 4, 2016, the stock had fallen 30%. Shareholders who purchased BHP shares before the dam collapse filed an open class action against BHP under Part IV. The Federal Court dismissed an application by BHP to exclude claims of foreign residents and BHP appealed to the Full Court.

Foreign Class Members Are Not Excluded from Class Actions Under Part IV
The Full Court analyzed and dismissed several of BHP’s arguments that foreign residents lacked viable causes of action. Most importantly, as part of its analysis, the Court described the long history of non-resident litigation in Australia and examined the legislative intent behind Part IV, concluding it was designed to broadly and liberally allow such actions, including by non-residents.

Among other things, the Full Court cited a general principle of Australian law that its authority to decide an action generally rests on a jurisdictional “anchor” in which a court examines a defendant’s connections to the jurisdiction, not the connection of class members or their claims. The Full Court reiterated the principle that “the jurisdiction of Australian courts in personal actions depends on the defendant’s presence in the territorial jurisdiction at the time of service . . . . In such cases it is not necessary to show any other connection with the jurisdiction” (emphasis in decision).[2] The Full Court essentially stated that class members’ contacts with the jurisdiction, including whether they are residents or not, is not important and the focus of the court should instead be on whether the defendant is anchored to the jurisdiction.

The Full Court stated further that Part IV was designed to allow for a variety of class action structures, including closed classes in which claimants affirmatively opt-in to a case, and that non-residents are permitted to take part in such classes. It also noted that non-residents may pursue claims directly against defendants. The Full Court concluded that it would therefore be a “surprising result” if the law permitted non-residents to take part in these types of actions in their own names but prohibited them from participating in open class actions.[3]

Courts May Use Registration or Class Closures to Protect Defendants from Non-Resident Suits in Other Countries
The Full Court considered the potential prejudice to defendants if non-resident class members re-litigate claims in other countries. BHP made an alternative argument that the Full Court should use its discretionary powers under section 33ZF and ss22 of the FCA Act, in the interests of justice, to exclude foreign residents from the class to protect the company’s interests in certainty and finality. The Full Court noted that Part IVA gives the court discretion to ameliorate any prejudice caused by non-resident groups without adopting the extreme step of excluding them entirely from the class. It stated:

[w]ithout expressing any concluded view, in the particular circumstances of the present case it might be argued that immediately prior to the hearing or in the context of a settlement proposal or mediation there may be some merit in an order requiring a non-resident class member to take a positive step to opt-in to the class action, although the class action is otherwise conducted on an opt-out basis . . . [this] would address any real prejudice in having a passive, non-resident group member being able to commence a separate proceeding elsewhere by requiring group members outside Australia to take a step demonstrating that they have attorned to the Court’s jurisdiction.”[4]

However, the Full Court also stated that “it is beyond the scope of this judgment to enter into extended debate about any form of ‘opt-in’ or class closure orders and it is unnecessary to do so.” Nevertheless, the Full Court suggested it would permit registration or class closure orders to protect defendants from the potential for prejudice from foreign residents.

In sum, the decision re-affirms Australia as a plaintiff-friendly jurisdiction for securities litigation. Open classes can encompass non-resident investors, subject to later attempts by defendants to exclude them.

The Australian securities class action system will continue to function similar to passive claim filings in the United States. FRT recommends investors with any losses in Australian class actions automatically take part in them, if they qualify.

[1] BHP Group Limited v Impiombato [2021] FCAFC 93.
[2] Id. at ¶61.
[3] Id. at ¶54.
[4] Id. at ¶92.

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