Foreign Residents Can Participate as Group Members in Australian Class Actions

In BHP Group Ltd v Impiombato & Anor  [2022] HCA 33, the Australian High Court unanimously held that foreign residents can participate as group members in Australian Class Actions. Class actions (referred to as “representative proceedings”) can be commenced in Australia when the following criteria (set out in Part IVA of the Federal Court Act 1967 (Cth) (the “Act”)) are met:

  1. at least seven people must have claims against the same person;
  2. the claims must arise out of the same, similar or related circumstances; and
  3. the claims must give rise to substantial common issues of law or fact.

If these criteria are met, a proceeding may be commenced by one or more of those persons as representing some or all of those with a similar claim (being, “group members”).

As in the US, a representative party does not need to have the consent of a group member in order to commence a class action on that group member's behalf. The relevant provisions of the Act simply require that notice be given to class action group members, providing those group members with the opportunity to ‘opt out' of the proceedings. However, contrary to the system in the US, there is no requirement for “class certification” in Australia.

The Australian High Court has recently ruled, confirming the decision of the Full Federal Court of Australia, that Australian non-residents can participate as group members. The class action in question was brought following the Mariana dam disaster in Brazil in November 2015 (on similar grounds as the shareholder class action commenced against BHP in the US). BHP owned a 50% interest in the Brazilian company which owned and operated the Fundão dam. Following the failure of the dam, BHP's share price declined significantly on the Australian Stock Exchange (ASX) (and on other international stock exchanges). The group members of the class action against BHP in Australia were defined to include shareholders of BHP who had suffered a loss on the ASX as a result of the drop in BHP's share price. The applicants alleged that BHP had been in possession of information since 2012 which it failed to disclose to the ASX (in accordance with requirements of Australian Corporations legislation) and that BHP engaged in misleading or deceptive conduct.

BHP brought an application seeking to have foreign residents excluded from the class of group members, arguing that the Australian class action regime must be interpreted as excluding group members who do not reside in Australia. In making this argument, BHP sought to rely on a presumption which exists under common law and statute - that Australian laws do not have extraterritorial effect.

Interestingly, BHP did not dispute that a class action could be commenced by a representative applicant who resided outside of Australia, just that the reference to “persons” in the definition of “group member” should be read to exclude non-residents. This was because, according to BHP, a judgment of the Federal Court (in relation to a class action) otherwise had the potential to affect the rights of “unknowing and unconsenting group members”.

All seven justices of the High Court dismissed BHP's appeal. Kiefel CJ and Gaegler J delivered a joint judgment, finding that the issue was entirely one of statutory construction. The reasons for their judgment included that:

  1. The relevant provisions of the Act which empower the Federal Court to make a decision binding non-resident group members (including those who have not consented to become group members) do not infringe any principle of international law or international comity. Finding at [14]: “whether and for what purposes a judgment given by the Federal Court in a representative proceeding might be taken to determine the existence, or preclude the exercise of legal rights under the domestic law of another country is a matter to be determined under the domestic law of that country.” In Kiefel CJ and Gaegler J's view the “bottom line” was that Pt IVA of the Act is concerned with the exercise of jurisdiction by the Federal Court.
  2. there was an “immediate logical hurdle” with BHP's position that it was permissible for a representative applicant to be a non-resident, however not a group member. At [17]: “If a person in the pool can become a representative irrespective of their place of residence… why can a person in the pool become a group member only if resident in Australia?”

The plurality judgment delivered by Gordon, Edelman and Steward JJ included similar findings, with the Justices adding that:

  1. The text, context and purpose of Pt IVA of the Act demonstrate that it was intended to encompass all persons irrespective of whether they are Australian residents, so long as the claims fall within the jurisdiction of the Federal Court.
  2. the intention of the legislature in enacting Pt IVA of the Act (including the relevant opt out provisions) was to ensure that “persons are not made subject to the Court's jurisdiction (or bound by a judgment given in a representative proceeding) if they are unwilling to participate”. This mechanism is what ensures the “integrity” of Part IV of the Act.
  3. At [66]: “The determination of the group members' claims as a matter of Australian law does not have any effect or execution outside Australia.”
  4. The Plurality also noted the practical limitations of excluding non-residence, highlighting (at [75]): “how is residence to be determined?... Residence may be a complex inquiry with a range of different standards…”

This decision raises a number of practical consequences for Australian corporations. The first and the most obvious one being the need to include in any assessment of class action risk that the constitution of the class can extend to non-residents. The second is the added complexity for companies listed on the ASX and other international stock exchanges which may face class actions in multiple jurisdictions, and may need to develop global class action risk strategies. And third, ASX listed multi-national companies should review their insurance arrangements to ensure that claims brought by group members who reside outside of Australia are not excluded.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.