Australian Class Action Settlement Distribution Scheme Design: Deciding Who Gets What

By Gilsenan, Rebecca; Legg, Michael | University of Queensland Law Journal, June 2019 | Go to article overview

Australian Class Action Settlement Distribution Scheme Design: Deciding Who Gets What


Gilsenan, Rebecca, Legg, Michael, University of Queensland Law Journal


I INTRODUCTION

Class actions are legal proceedings brought on behalf of numerous persons, known as group members. Settlement of class actions is the most common way in which this form of litigation is resolved. A key step in the settlement process is the distribution of the settlement funds to the group members. This requires the settlement sum to be divided among the group members who have suffered loss. In some situations, it may also require as a preliminary step the determination of liability, or that the group member has a recognised claim. The division and distribution takes place pursuant to a court-approved settlement distribution scheme ('SDS'). Although each SDS is central to the determination of the actual amount that an individual group member receives from a class action settlement, the design and operation of SDSs have attracted little critical attention. (1)

This article seeks to start the process of elucidating the operation of SDSs by explaining the operation of three main types of class action SDS: (1) global sum with formula; (2) global sum with individualised assessment; and (3) process approach. The first type of SDS is used extensively in shareholder class actions. The second and third are predominantly used in mass-tort or product-liability class actions.

The article then draws on the SDS models and case law to develop guiding principles or steps for the design of an SDS. It sets out four such principles or steps: first, the foundational law that guides the extent to which the substantive law that governs the claims that have been brought is applied in the settlement context through concerns such as substantive fairness, cost and delay; second, the choice of SDS model, which is mainly influenced by whether an individualised process is needed, and to a lesser extent whether the defendant has a role to play; third, the balancing of fairness, cost and delay in applying the law and finding the facts within the SDS chosen; and, fourth, ensuring that an SDS affords procedural fairness to claimants.

II BACKGROUND

Class actions were introduced into Australia through the enactment of the Federal Court of Australia Amendment Act 1991 (Cth), which provided for 'representative proceedings' through inserting Part IVA into the Federal Court of Australia Act 1976 (Cth). Part IVA commenced on 4 March 1992. Since then, class action procedures based on the federal regime have been progressively adopted in Victoria, New South Wales and Queensland. (2)

The majority of class actions settle. (3) However, a class action may not be settled or discontinued without the approval of the court. (4) This includes examining 'the structure and workings of the scheme by which... [the overall settlement sum] is proposed to be distributed among group members'. (5) The court considers whether the settlement is fair as between the group members, as well as between the plaintiff and the defendant; in other words, settlement approval requires consideration of the settlement inter se as well as inter partes. (6) The court examines whether the distribution of the settlement among group members pursuant to the SDS is fair and reasonable. (7) Consequently, the SDS needs to be approved by a court order as part of the settlement approval process. (8) This in turn means that the terms of the SDS need to be explained and justified as part of the evidence filed and submissions made seeking judicial approval of the settlement. (9) SDS design is a critical component of the class actions settlement process.

III GLOBAL SUM WITH FORMULA-BASED SETTLEMENT DISTRIBUTION SCHEME

A global sum with formula-based SDS contains two components. A global sum to settle the class action is negotiated between the plaintiff and the defendant. The class action is settled for a specific amount so that the amount available for distribution is capped at that amount, albeit with any interest earned also being available for distribution. …

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