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In an article published in 1997, it was suggested that the use of the class action device by aggrieved taxpayers in Australia deserved closer scrutiny as: (a) the court which has in place the best class action regime in Australia, the Federal Court, is also the most likely judicial forum for the resolution of the tax-related grievances of many taxpayers; and (b) there is nothing about tax litigation which renders it inherently unable to satisfy the prerequisites for class actions.[1] The taxpayer in the recent case of Dinning v Federal Commissioner of Taxation[2] presumably agreed with the analysis above as he attempted to bring a class action in the Federal Court, pursuant to the class action regime established under Pt IVA of the Federal Court of Australia Act 1976 (Cth) ("Pt IVA"). He sought to represent 7 other airline pilots whose employers, Ansett Australia Holdings Ltd ("Ansett") and Qantas Airways Ltd ("Qantas" ), received "garnishee" notices issued by the Commissioner of Taxation ("the Commissioner") pursuant to s 218 of the Income Tax Assessment Act 1936 (Cth) requiring them to remit a certain percentage of the base salaries of the pilots as they accrued from time to time.
This litigation constituted the first attempt to bring a class action against the Commissioner on behalf of a group of taxpayers, pursuant to the regime introduced in 1992 by Pt IVA.[3] Ryan J of the Federal Court of Australia held that the litigation initiated by Dinning could not be conducted as a class suit. The aim of this article is to critically evaluate Ryan J's judgment. This evaluation will show that Ryan J's judgment cannot be relied upon by the Australian Commissioner in the future - as authority for the principle that the class
1. action procedure is not a suitable vehicle for the commencement and conduct of tax litigation - as it was based on a number of propositions which were either inconsistent with previous judicial pronouncements on Pt IVA or which have been subsequently overturned by the High Court of Australia (Australia's highest court). Furthermore, his Honour's conclusion was based on the circumstances of the case before him rather than on any general notions that tax-related litigation and the class action procedure are incompatible.
An equally significant aspect of Dinning, which will also be canvassed in this article, is the discussion of the judicial approach that should be followed when an attempt is made to reconstitute as a class action a proceeding commenced in the ordinary way. This issue is also likely to arise in the State of Victoria as a result of the new Order 18A of the Supreme Court Rules, which came into operation on 1 January 2000.[4] In fact, this new Order introduced in Victoria a class action regime which is virtually identical to the Federal Court regime found in Pt IVA.[5] One of the few differences between the two regimes is that Order 18A, contrary to Pt IVA,[6] has a retrospective operation. In fact, Rule 18A.02(1) provides that the new regime "applies to a cause of action whether arising before or after 1 January 2000". This means that in the Supreme Court of Victoria (the State's highest court) an attempt to reconstitute as a class action under Order 18A a proceeding commenced in the ordinary way may be made in relation to causes of action that accrued before the commencement of the new class action regime.[7]
A class action has recently been defined by the South African Law Commission as "an action instituted by a representative on behalf of a class of persons in respect of whom the relief claimed and the issues involved are substantially similar in respect of all members of the class ...".[8] Applying this
wide definition of class actions,[9] it can be said that class actions are available, in one form or another, in all Australian jurisdictions. In fact, the rules of court of all Australian jurisdictions contain provisions permitting numerous persons to sue through a representative.[10] Order 6 Rule 13 of the Federal Court Rules, for instance, provides that "where numerous persons have the same interest in any proceeding the proceeding may be commenced, and, unless the Court otherwise orders, continued, by or against any one or more of them as representing all or as representing all except one or more of them". This "traditional" representative procedure was derived from Rule 10 of the English Rules of Procedure.[11] In addition to these representative action rules, class action regimes exist in South Australia[12] and, of course, Victoria and the Federal Court. These regimes were introduced to overcome numerous problems associated with the traditional representative procedure.[13]
Part IVA, which came into effect in March 1992, introduced the most extensive legislative framework regulating class actions ever seen in Australia.[14] The general effect of Pt IVA has been described by Gummow J and Olney J, respectively, as follows:
Part IVA assumes the investment by another law of the parliament of this court with jurisdiction to entertain the subject matter of the representative proceeding. Part IVA creates new procedures and gives the court new powers, in relation to the particular exercise of that jurisdiction. The new legislation exemplifies the distinction to be made between the jurisdiction of the court to hear and determine a matter and the powers and procedures of the court in relation to the exercise of that jurisdiction.[15]
Much of the conventional wisdom that traditionally is associated with civil litigation has been turned on its head and brought into the twentieth century, and hopefully beyond, by the provisions of the Federal Court Act 1976 relating to representative actions. In providing as it has done for such proceedings in this Court, Parliament has extended to the Court very extensive powers to ensure that real justice is done between the parties and done in a way which does not, as has been suggested, require individuals with virtually identical claims against a respondent to go to the Magistrates' Court and make out his or her own claim separately. I am therefore of the view that the Court's powers in relation to representative proceedings are there to enable the Court properly to deal with problems which might otherwise beset an individual litigant.[16]
Section 33C(1) allows class suits to be commenced in the Federal Court if the following three requirements are complied with:[17]
i. 7 or more persons[18] have claims against the same person;[19] and
ii. the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and
iii. the claims of all those persons give rise to a substantial common issue of law or fact.[20]
Section 33D[21] provides that, if the three prerequisites for the commencement of class suits set out above are satisfied, a representative
plaintiff has standing to commence a class suit as long as he/she has "a sufficient interest to commence a proceeding on his or her own behalf".[22] Part IVA is not available in respect of causes of action arising before 5 March 1992 which was, of course, the commencement date of Pt IVA.[23] Furthermore, an action under Pt IVA may not be commenced if the proceeding would be concerned only with claims in respect of which the Court has jurisdiction solely by virtue of the Jurisdiction of Courts (Cross- Vesting) Act 1987 (Cth)24 or a corresponding law of a State or Territory.[25] Order 73 Rule 3 of the Federal Court Rules provides that a representative action may only be commenced by the filing of an application in Form 129. As was noted by Lynch, "the essential difference between Form 129 and the conventional form of an application is that the representative party must specify the matters set out in s 33H(1) of the Act in the application".[26] Section 33H(1) requires that an application commencing a representative proceeding, or a document filed in support of such an application, must describe or otherwise identify the class members, to whom the proceeding relates, specify the nature of the claims made on their behalf and the relief claimed and specify the questions of law or fact, common to their claims.[27] Section 33H(2) makes it clear, however, that it is not necessary to name, or specify the number of, the class members.
The Federal regime confers upon the court presiding over the class suit the discretion to order that properly instituted class suits[28] no longer continue as class suits.[29] Section 33L confers upon the court the discretion to order that the proceeding no longer continue as a class suit where it appears, at any stage of the class suit, that there are less than seven class members.[30] Section 33M empowers the court to order the termination of a class action where the cost to the respondent of identifying the class members and distributing to them the damages won by the representative plaintiff would be excessive.[31] Section 33N allows the court - in certain circumstances and where it is in "the interests of justice" - to terminate a representative proceeding even though s 33C(1) has been adhered to.[32]
Dinning ("the applicant") brought before the Federal Court an application for an order of review pursuant to the Administrative Decisions (Judicial Review) Act 1977 (Cth) and pursuant to s 39B of the Judiciary Act 1903 (Cth) in respect of a decision of the Commissioner to issue a s 218 notice in relation to the applicant's tax liability. Ansett, the applicant's employer, was required, under the s 218 notice, to pay to the Commissioner out "of each of the payments where ANSETT ... become(s) liable from time to time to make to the taxpayer, forthwith upon the payment becoming due or coming to be held by ANSETT an amount of twenty cents in every dollar of the base salary until the amount of $66,543.81 due by the taxpayer is satisfied".[33]
Under s 218:
The Commissioner may at any time, or from time to time, by notice in writing require:
a) any person by whom any money is due or accruing or may become due to a taxpayer;
b) any person who holds or may subsequently hold money for or on account of a taxpayer;
c) any person who holds or may subsequently hold money on account of some other person for payment to a taxpayer; or
d) any person having authority from some other person to pay money to a taxpayer; to pay to the Commissioner, either forthwith upon the money becoming due or being held, or at or within a time specified in the notice (not being a time before the money becomes due or is held):
e) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of tax or, if the amount of the money is equal to or less than the amount due by the taxpayer in respect of tax, the amount of the money; or
f) such amount as is specified in the notice out of each payment that the person so notified becomes liable from time to time to make to the taxpayer until the amount due by the taxpayer in respect of tax is satisfied;
and may at any time, or from time to time, amend or revoke any such notice, ...
The substantive challenge against the s 218 notices was based on a number of propositions. One proposition put forward by the applicant was that s 218 required a finite or liquidated sum to be identifiable at the time when the notice is issued[34] with the consequence that "a notice could not require payment to the Commissioner from salary or wages payable under a contract of employment in respect of a period of employment which had not commenced when the notice was issued".[35] Another submission by the applicant was that as a result of s 218(1)(f) - which refers to "such amount as is specified in the notice" - a s 218 notice cannot require payment to the Commissioner of a specified percentage of a sum of money which may become due to the taxpayer in the future.[36]
At the first directions hearing, the applicant sought leave to convert the proceeding into a class action pursuant to Pt IVA. The applicant sought to act on behalf of 7 pilots working for Ansett or Qantas "whose circumstances regarding the issue of a s 218 notice or proposed issue of s 218 notice and whose facts in relation to their dealings with the [Commissioner] are similar in terms to those of the Applicant".[37] These 7 class members were all airline pilots who had been clients of the Institute of Taxation Research Pty Ltd ("the ITR") and had participated in a particular investment called the "ASEAN Books" investment. At first the applicant described the class as consisting of 62 clients of the ITR who were domestic air pilots employed by Ansett or Qantas. However, by the second directions hearing the class comprised, in addition to the applicant, the 7 pilots in relation to whom s 218 notices had actually been issued.[38]
The respondent opposed the reconstitution of the proceeding as a class suit and drew attention to the fact that the application lodged by the applicant did not comply with Order 73 Rule 3 of the Federal Court Rules as a Form 129 had not been filed. Ryan J indicated that, even if that defect could be cured, he was of the view that there was no "sufficiently substantial question of law or fact comprising the proposed group to warrant attracting the relatively complex procedural regime embodied in Part IVA".[39]
Ryan J was of the view that "to be 'substantial' [as the term is used in s 33C(1)(c)] a common issue is one the determination of which is capable of resolving all or a significant part of the issues of liability raised by the individual claims advanced by each member of the group".[40] In this case, the only common issue of fact identified by the Court was whether each class member's financial circumstances warranted the Commissioner issuing a s 218 notice requiring the airlines in question to remit 38% (or 20% in relation to the applicant) of the class member's "base salary" accruing from time to time. As the answer to this common question was dependent upon the individual financial circumstances of each class member and upon the information which was available to the Commissioner about those circumstances, Ryan J concluded that there was no substantial question of fact common to all members of the class.
In applying this very narrow definition of the phrase "substantial common issue of law or fact", Ryan J relied on the decision of the Full Federal Court in Silkfield Pty Ltd v Wong.[41] In this case, O'Loughlin and Drummond JJ provided a number of descriptions of this phrase, which as can be seen below, were all extremely narrow:[42]
an issue with some special significance for the resolution of the claims of all the group members.[43]
determination of the issue or issues common to the claims of all group members is likely to have a major impact on the conduct and outcome of the litigation.[44]
a matter the resolution of which will have a major impact on the litigation because it is an issue at the core of the dispute.[45]
litigation of this common issue would be likely to resolve wholly or to any significant degree the claims of all group members.[46]
The origin of this narrow construction of the term "substantial" can be found in Connell v Nevada Financial Group where Drummond J indicated
that:[47]
the object of Pt IVA would not be served if it was enough for there to be an issue common to each of the group members' claims that could not be dismissed as trivial or insubstantial, even though that common issue was, when compared with the other non-common issues raised in the various claims as to liability and damages, merely one of a number of issues which had to be resolved before each claim had to be determined. If, in addition to the common issue (or issues), the determination of each group member's claim involves other non-common issues, the litigation of which will, in a practical sense, have a real impact on the nature and extent of the interlocutory steps likely to be involved in bringing the case to a state of readiness for trial and the nature and duration of the trial, then that common issue will not be 'a substantial common issue' within s 33C(1)(c).
The term "substantial" did not appear in the provision, dealing with the prerequisites for a class suit, drafted by the Australian Law Reform Commission. In fact, Clause 12(1)(a) of the Commission's Bill provided that there must be a question which arises in the class representative's cause of action "that is common to that proceeding and to each group member's proceeding".[48] There is no explanation in either the Explanatory
Memorandum or the Parliamentary Debates on Pt IVA as to why the Commonwealth Parliament felt the need to insert the inherently subjective and imprecise term "substantial".[49] O'Loughlin and Drummond JJ placed extensive reliance on this legislative addition in reaching the conclusion that Parliament intended a narrow interpretation of s 33C(1)(c).[50]
However, three months after the Dinning decision the High Court held that, for the purposes of s 33C(1)(c), it was not necessary to show that litigation of the common issue of law or fact would be likely to resolve wholly, or to any significant degree, the claims of all group members. Gleeson CJ, McHugh, Gummow, Kirby and Callinan JJ were of the view that:[51]
clearly, the purpose of the enactment of Pt IVA was not to narrow access to the new form of representative proceedings beyond that which applied under regimes [the traditional representative procedures] considered in cases such as Carnie. This suggests that, when used to identify the threshold requirement of s 33C(1), 'substantial' does not indicate that which is 'large' or 'of special significance' or would 'have a major impact on the ... litigation' but, rather, is directed to issues which are 'real or of substance'.
The High Court's construction of the word "substantial" is plainly correct regardless of whether one adopts a purposive approach[52] or a literal approach[53] to the construction of s 33C(1)(c).[54] The narrow definition of "substantial" may also be attacked on the basis that it failed to recognise the fact that s 33C(1) and s 33N were intended to perform different functions.[55] This last consideration will be fully explored in Pt VI below.
It is immediately apparent that the High Court's formulation should result in a significant increase in the circumstances in which a class action may be said to raise substantial common issues of fact or law. It is also clear that s 33C(1)(c) only requires that there be either a substantial issue of fact or law but not both. It is, therefore, disappointing that after highlighting the common questions of law raised by the litigation in Dinning - whether a garnishee notice can attach to instalments of wages or salary as they accrue from time to time and whether the form of the notices issued in respect of Dinning was permitted by s 218 - Ryan J did not reveal the reasons for his conclusion that they were not substantial for the purposes of s 33C(1)(c).
In fact, it is submitted that one of the common issues of law identified by his Honour was substantial, for the purposes of s 33C(1)(c), even under the strict definition subsequently overturned by the High Court. The question of whether s 218 can authorise a notice that attaches to instalments of wages and salaries as they accrue from time to time was a question of vital importance for the cases of the applicant and each of the 7 class members. This is because a decision on that issue in favour of the applicant would have determined not only his claim, but also the claims of all the class members as it would have meant that the s 218 notices in question were invalid. Consequently, the common issue of law identified above was an issue of "special significance" for the resolution of the claims of all the class members and its resolution was "likely to have a major impact on the conduct and outcome of the litigation".
Support for this conclusion can be found in Zhang v Minister for Immigration, Local Government and Ethnic Affairs.[56] A class action had been commenced on behalf of all persons who had applied for and been refused refugee status since March 1992. The class representative argued that the rules of natural justice required that an oral hearing be granted to those seeking refugee status. In other words, it was submitted that this was a general legal right which applied automatically upon lodgment of the application, regardless of the particular circumstances surrounding each case. French J held that the claims of the class members warranted the use of the class action procedure for the determination of this common issue of law. It is difficult to see how the common issue of law in Dinning was less significant or substantial than that in Zhang.[57]
The only comments by Ryan J in relation to the common questions of law raised by the proceedings were that they could "be as effectively determined in the proceeding as presently constituted as they could in a representative proceeding".[58] With due respect, this comment seems rather
odd given that the right to initiate and continue a class suit,[59] under Pt IVA, is not dependent upon the ability to demonstrate that the class action procedure constitutes a mechanism for dealing with the legal dispute which, in the circumstances of the case, is superior to other procedures.[60]
But, perhaps, Ryan J's reasoning may be understood if emphasis is placed on a fairly unique feature of this case. As was indicated above, this case was commenced as an "individual" suit but then leave was sought, at the first directions hearing, to convert the proceeding into a class action. Consequently, it may be possible to distinguish Dinning, in future class actions initiated by taxpayers, on the ground that the issue before Ryan J was not whether the litigation satisfied the prerequisites outlined in s 33C(1) but instead whether a litigant who has commenced litigation pursuant to one procedure should then be allowed to pursue the action under a fundamentally different procedure. It is possible to argue that in the latter scenario the question to be addressed by the court should not simply be whether the suit satisfies the prerequisites for class suits but rather whether the plaintiff can persuade the court that there are strong reasons for the proposed change. The cogency of this line of reasoning is extensively explored in Pt VI below.
Ryan J's remaining grounds for his refusal to allow the proceeding to be reconstituted as a class suit were as follows:[61]
the seven other pilots in respect of whom s 218 notices have so far issued can be added to the present proceedings as applicants in their own right. That is not to say that the result to be arrived at may not be different in respect of each of the eight presently available applicants, but such joinder would permit each pilot to be bound by a finding of fact or ruling on a question of law which is applicable to him in common with any of the other applicants. I have already noted that Counsel for the applicant has resiled from the contention that the proposed group should comprise all 62 airline pilots for whom ITR has acted. When that consideration is added to the circumstances which I have already outlined, it becomes manifest, in my view, that it would not be an appropriate exercise of the Court's discretion to reconstitute the present action as a representative action.
In relation to the benefit identified by his Honour which would result from joining the other 7 pilots as applicants[62] - of providing legally binding findings and rulings on common issues - it needs to be remembered that this benefit may also accrue under the class action procedure. A unique feature of a class suit is that the class members are bound by the result of the suit without actually being parties to the action.[63] Consequently, they
can have the benefit of a successful action without having to shoulder the burdens and costs of litigation.[64] Indeed, "class action procedures were 'invented' in order to deal with the problems that were created by the use of the joinder procedure in suits involving multiple litigants".[65]
The last two sentences in the passage set out above indicate that an additional reason for Ryan J's ruling was that the class, proposed by the applicant, significantly diminished from 62 to 7 members. But, with due respect, the fact that the group sought to be represented by the class representative is not numerically significant is not a relevant consideration, for the purposes of Pt IVA, in determining whether a proceeding may be brought as a class suit. Section 33C(1)(a) clearly indicates that Parliament addressed the issue of the relevance of the size of the class and decided that there should be a minimum of 7 class members.[66] Consequently, unlike the rules governing the traditional representative procedure,[67] it is not necessary to show that the class consists of "numerous persons".[68] Mention should also be made of s 33H(2) which, in order to accommodate the "opt out" model employed in Pt IVA, expressly provides that it is not necessary for the application commencing a class action to name, or specify the number of, the class members.[69]
Another relevant provision is s 33L which provides that where, at any stage of the class action, it appears likely that there are fewer than 7 class members, the court is empowered to order (a) that the proceeding continue as a class action or (b) that the proceeding no longer continue as a class action under Pt IVA. In Tropical Shine Holdings Pty Ltd v Lake Gesture Pty Ltd, Wilcox J indicated that to terminate a representative dproceeding because there are less than seven class members "would be a drastic course, often productive of injustice and inconvenience; and it would conflict with the policy expressed by s 51 of the Federal Court of Australia Act that proceedings are not invalidated by a formal defect or irregularity unless the Court thinks substantial and irremediable injustice has occurred".[70]
In light of ss 33H(2) and 33L, it is not surprising that the Federal Court has held that to satisfy the "7 class members" requirement contained in s 33C(1)(a) it is only necessary for the representative plaintiff to demonstrate that it is likely that the group consists of at least seven members.[71] Consequently, Ryan J's reliance on the very limited size of the class may only be reconciled with the principles mentioned above if reliance is again placed on the argument that his Honour was justified in canvassing such matters because he was considering the somewhat broader issue of whether it would be an appropriate exercise of the court's discretion to significantly alter the type of proceeding which the Commissioner would be required to defend. But is this line of reasoning persuasive? Attention will now be turned to this issue.
The most surprising aspect of Dinning was that no reference was made to Australian Competition and Consumer Commission v Golden Sphere International[72] and Finance Sector Union of Australia v Commonwealth Bank of Australia Finance Sector[73] In both cases the Federal Court was required to adjudicate on precisely the same issue confronting Ryan J, namely, whether a judicial order should be granted to allow the applicant who had commenced proceedings in the "ordinary" way to convert them into a class action under Pt IVA. In Golden Sphere O'Loughlin J indicated that the representative plaintiff in that case "originally ... sought relief for itself only ... Subsequently however, it was granted leave to amend its application to seek further relief on behalf of a class comprising consumers".[74] No indication was provided by his Honour as to the reasons for granting the applicant leave to convert the proceedings into a Pt IVA action.
The applicants in Finance Sector commenced an action on 12 August 1998 seeking relief under s 178 of the Workplace Relations Act 1996 (Cth)[75] and s 23 of the Federal Court of Australia Act 1976.[76] On 9 October 1998
the applicants filed a notice of motion in the proceedings in question seeking an order that an application under Pt IVA be granted to allow them to commence a class action. The respondent opposed the making of this order on the basis that the court had no jurisdiction to do so. The respondent argued that Pt IVA should be interpreted as "providing exclusively for conduct of representative actions including the means of commencement of such actions".[77] This fact, together with the lack of any provisions in Pt IVA empowering the amendment of proceedings already commenced to become class actions, meant, according to the respondent, that Parliament did not intend the Federal Court to be vested with such a power. O'Connor J saw her task in this case as that of giving:[78]
effect to the purpose of Parliament as expressed in the language of its enactment, or, put another way, to give meaning to the legislation. In carrying out this task the Court must look for the purpose to which the provision is directed. It seems that, in this case, Part IVA was intended to create a particular regime for the conduct of representative proceedings which would assist the parties to such proceedings and those affected by them. It was not, in my view, however designed to make it difficult to commence proceedings or put procedural barriers in the way of so doing. It merely provides that, if one wishes to pursue representative proceedings then this must be done pursuant to the provisions of Part IVA.
In light of the observations above, it was not surprising that the court granted the order sought as "the narrower construction of the provisions, as argued by the respondent here, would cause additional expense and delay. To come to such a conclusion would in my view require express exclusion of what is sought here by the applicants".[79] It is vital to note that the order sought was granted by O'Connor J without any consideration been given to the question of whether the litigation satisfied the prerequisites for class suits found in s 33C(1). The judgment in Finance Sector also contains no reference to the factors considered and relied upon in Dinning such as the size of the class and whether the class action procedure would provide a superior method of dealing with the legal dispute than ordinary proceedings or the joinder procedure. Accordingly, in Finance Sector recognition of the existence of the court's power to allow the proceeding to be reconstituted as a class action meant that the order sought should be granted without the need to consider the ability of the proceeding to adhere to s 33C(1) or to request the applicant to provide persuasive reasons for the requested change.
The obvious question is whether the approach in Golden Sphere and Finance Sector is to be preferred to the very strict view enunciated in Dinning. It is posited that the approach of O'Connor J is to be preferred, both practically and conceptually, to the views articulated in Dinning. As was conceded by the respondent in Finance Sector, there is no: [80]
jurisdictional impediment to applicants who have commenced proceedings in the ordinary way to discontinue proceedings and seek afresh to commence representative proceedings or even begin representative proceedings and seek to have them joined with proceedings already commenced.
Consequently, from a practical perspective a refusal to grant the judicial order sought by the litigant who proposes to bring a class action has no significance other than that of causing additional expense and delay. Furthermore, for the reasons outlined below, such an outcome is not warranted by conceptual and contextual considerations.
Section 33C(1) reflects a deliberate decision by the Commonwealth Parliament not to impose on potential class representatives the requirement of seeking leave from the Federal Court before they may proceed with a class suit under Pt IVA. This rejection, of what is commonly referred to in the United States and Canada as the "judicial certification" requirement,[81] was based upon the following thesis formulated by the Australian Law Reform Commission:[82]
Class actions, like all litigation, are open to abuse. Because of the potential numbers involved and the fact that that many group members may be absent, specific safeguards have been built into the Commission's recommended procedure to protect the interests of both group members and respondents. In light of the recommended safeguards, the Commission sees no value in imposing an additional costly procedure, with a strong risk of appeals involving further delay and expense, which will not achieve the aims of protecting parties or ensuring efficiency. No certification procedure is recommended.
Accordingly, s 33C(1) does not require class representatives to apply to the court for an order authorising the action to be maintained as a class suit within a specified time. A Pt IVA class suit may be commenced, without prior judicial approval, if the requirements specified in s 33C(1) are adhered to.[83] Once the proceedings have been initiated, the respondent may then, of course, apply to the court and seek to persuade it that the action was not properly constituted as a class action for it failed to adhere to s 33C(1)[84]
(as the respondent subsequently attempted to do in Finance Sector itself)[85] or, alternatively, that even if s 33C(1) has been complied with, the class suit should be terminated pursuant to ss 33L, 33M or 33N.[86]
The approach adopted by Ryan J in Dinning of requiring compliance with s 33C(1) is, with due respect, clearly inconsistent with the principles stated above as it is tantamount to the imposition of a de facto judicial certification requirement. As a matter of principle, it is difficult to see why the right conferred by Parliament, of proceeding with a class suit without the need to seek judicial certification that s 33C(1) has been satisfied, should be lost simply because the decision to utilise the procedural regime established pursuant to Pt IVA was made after, rather than before, the commencement of the litigation.
The anomalous nature of this scenario is vividly illustrated by the fact, highlighted in Finance Sector, that there would be no legal impediment to the litigant, who has not been judicially authorised to convert the individual proceeding into a class action, terminating the proceeding and then initiating a class suit. Once that happens, as we have seen, Pt IVA does not require judicial certification of the class suit. It is, therefore, submitted that the Dinning approach would result in the undue elevation of the importance of form and legal strategies. In fact, whether you ask the court to allow you to change an existing proceeding into a class suit or instead terminate the proceeding in question and then start a new proceeding under Pt IVA, in relation to the same legal dispute, you are seeking to attain precisely the same goal. And yet pursuant to the Dinning approach, choosing the former strategy entails the need to overcome a procedural barrier which simply does not apply to the other strategy.
Similarly, with respect, criticisms may be levelled at Ryan J's reliance on the fact that the proceeding could satisfactorily be conducted under the joinder procedure pursuant to which the 7 pilots would be joined as applicants. This consideration bears a striking similarity to the scenario described in s 33N(b). Section 33N allows the court, on application by the respondent or of its own motion,[87] to order that the action no longer continue as a class action where:
it is satisfied that it is in the interests of justice to do so because:
a) the costs that would be incurred if the proceeding were to continue as a representative proceeding are likely to exceed the costs that would be incurred if each group member
b) conducted a separate proceeding;88 or
c) all the relief sought can be obtained by means of a proceeding other than a representative proceeding under this Part; or
d) the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members; or
e) it is otherwise inappropriate that the claims be pursued by means of a representative proceeding.
Paragraphs (b), (c) and (d) were not based on the recommendations of the Australian Law Reform Commission and there was no meaningful explanation in either the Explanatory Memorandum or the Second Reading Speech as to the intended ambit of s 33N[89] and, in particular, s3N(d).[90] Furthermore, the judicial pronouncements on s 33N have not yet provided a set of clear principles concerning its operation.[91] But, as was indicated in Pt V above, what is clear about s 33N is that it is not concerned with the question of whether a class suit was correctly commenced. The separate and distinct function which s 33N was intended to perform was clearly highlighted by the High Court in Silkfield:
One difficulty with the various formulations by the majority of the Full Court of the construction of para (c) of s 33C(1) is that they postulate the evaluation of the issues at a stage in litigation well beyond the threshold at which s 33C operates. That provision is concerned with the commencement, not subsequent conduct, of litigation using the procedures provided in Pt IVA.[92]
The circumstance that proceedings which pass the threshold requirement of s 33C may later be terminated as representative proceedings, by order made under s 33N, confirms rather than denies such a [broad] construction of s 33C(1).[93]
If the considerations relevant to the exercise of the power conferred upon the Federal Court by s 33N should not be permitted to affect either the construction or practical operation of s 33C(1), it is difficult to see why such considerations should have any bearing upon the question, arising in Dinning and Finance Sector, of whether a representative proceeding should be allowed to commence.
The reasoning in Finance Sector is entirely consistent with other provisions of Pt IVA. As was indicated by O'Connor J, other provisions of Pt IVA "allow representative proceedings, once commenced, to be amended, discontinued and reconverted to an individual proceeding. If one can begin representative proceedings and, if necessary, convert it later into individual proceedings, it would require very clear words to lead to the conclusion that the reverse process is precluded".[94] O'Connor J's judgment is also supported by the philosophy underlying Pt IVA. This philosophy is succinctly captured by the following observations contained in the Second Reading Speech of the Bill for the Federal Court of Australia (Amendment) Bill 1991 (Cth), which introduced Pt IVA:[95]
The Bill gives the Federal Court an efficient and effective procedure to deal with multiple claims. Such a procedure is needed for two purposes. The first is to provide a real remedy where, although many people are affected and the total amount at issue is significant, each person's loss is small and not economically viable to recover in individual actions. It will thus give access to the courts to those in the community who have been effectively denied justice because of the high cost of taking action.
The second purpose of the Bill is to deal efficiently with the situation where the damages sought by each claimant are large enough to justify individual actions and a large number of persons wish to sue the respondent. The new procedure will mean that groups of persons, whether they be shareholders or investors, or people pursuing consumer claims, will be able to obtain redress and do so more cheaply and efficiently than would be the case with individual actions.
With respect, it is difficult to see how the approach adopted in Dinning helps to attain the desirable aims identified in the passage above.
Two months after Dinning Lindgren J delivered his judgment in Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (No 2).[96] The Australian Competition and Consumer Association ("the ACCC") had commenced a Pt IVA class suit but, on 24 July 1998, Lindgren J had made an order under s 33N that the proceeding
no longer continue under Pt IVA. The following year the ACCC tried to persuade the court that circumstances had changed since July 1998 and that, consequently, the proceeding should again be allowed to proceed as a class suit under Pt IVA. Lindgren J declined to grant the order sought by the ACCC on the following grounds:[97]
In my opinion, I do not have power to make the order sought. There is no provision in the FCA Act expressly permitting me to do so. Part IVA contemplates only the commencement of proceedings as representative proceedings ... In particular, s 33A defines 'representative proceeding' as a 'proceeding commenced under section 33C'. Of course, proceeding NG 421 of 1998 satisfies the literal terms of that definition. But in my view, the order under s 33N made on 24 July 1998, unless and until set aside, has the effect that the proceeding can no longer be regarded as being within the definition. An order achieving the result now sought by the ACCC would be inconsistent with my order of 24 July 1998.
[Section 33P] contemplates as the only relevant 'consequence of [an] order that [a] proceeding not continue under [Part IVA]', that if the proceeding is to continue at all, it is to continue otherwise than under Part IVA.
At first glance, the judicial observations above may be interpreted as an endorsement of the approach taken in Dinning. But the scenario confronting Lindgren J in Giraffe was fundamentally different from the issues raised in Finance Sector and Dinning. In Giraffe the court had exercised the power conferred upon it by s 33N to order that the proceeding no longer continue as a class action under Pt IVA. Section 33P provides that where the court orders the discontinuance of a class suit, under ss 33L, 33M or 33N, the proceeding may be continued as a proceeding by the representative party on his/her own behalf and "on the application of a person who was a group member for the purposes of the proceeding, the court may order that the person be joined as an applicant in the proceeding". The ACCC did not attempt to challenge the s 33N order directly but, instead, tried to obtain an order which would be directly inconsistent with the 33N order. As Lindgren J correctly pointed out, unless the original s 33N order is set aside, there is no power vested in the court under Pt IVA to order that which the s 33N order, in conjunction with s 33P, directly prohibits, namely, the continuance of the action under Pt IVA.
In the recent and important case of Philip Morris (Australia) Ltd v Nixon Sackville J, with whose reasoning Spender and Hill JJ agreed, indicated that:[98]
in order for representative proceedings to be properly constituted the application (or a supporting document) must include the three categories of information specified in s 33H(1). If, for example, the application does not describe or otherwise identify the group members, as required by s 33H(1)(a), the application is liable to be struck out or the proceedings dismissed.
The comments above may be interpreted as having the practical effect that proceedings initiated in the normal way may never be converted into a class suit as the requirements specified in s 33H would not have been complied with at the time the relevant proceedings were commenced. However, this would not be an accurate interpretation of Sackville J's observation. As was indicated by the High Court in Silkfield the requirements for the originating process in a class action set out in s 33H are simply designed to show that the threshold requirements in s 33C(1) have been met.[99] Consequently, the reasoning outlined in Pt VI concerning the inappropriateness of requiring the plaintiff, wishing to change the proceedings to a class action, to demonstrate compliance with s 33C(1) before being allowed to avail herself of the Pt IVA regime is equally applicable to s 33H. Once the plaintiff is granted leave to amend her application, the task of complying with s 33H may be undertaken.
It has been submitted that Dinning is inconsistent with, and should not be preferred to, Golden Sphere and Finance Sector in relation to the principles that are to be employed when an attempt is made to reconstitute a proceeding commenced in the ordinary way as a class action under Pt IVA. It has also been shown that the interpretation and application of the elements of s 33C(1) in Dinning are contrary to the current case law on this provision. It is disappointing that after such a long wait, the first attempt to bring a class suit against Australia's Commissioner was made in such unique circumstances and was resolved pursuant to principles which are contrary to existing judicial pronouncements.
But Dinning is, nevertheless, instructive and positive to the extent that it has indicated that taxpayers who attempt to utilise the Pt IVA procedure will be treated by judges in the same way consumers and other users of this procedure are treated. That is to say, there is no indication at all in Ryan J's judgment of the existence of any principle of law to the effect that tax litigation and the class action procedure are inherently incompatible. It is submitted that this is a very significant aspect of Dinning. In fact, the lack of any prior attempts to resolve tax disputes pursuant to this procedure and of any discussion in the relevant legal literature of the ability of taxpayers to bring class suits may be explained[100] as the product of a belief by both tax advisers and commentators that the Pt IVA procedure is an avenue which is simply not available in the tax arena. Consequently, it is to be hoped that Dinning, together with the broad definition of the threshold requirement of "substantial common issue of law or fact" recently enunciated by the High Court, will prompt Australian tax advisers and commentators to take a closer look at the Federal class action regime.[101]
[*]Senior Lecturer in Law, Monash University (Victoria). The author would like to thank Professor Greg J Reinhardt of the Australian Institute of Judicial Administration for his comments and suggestions on an earlier draft of this article.
[1] V Morabito, "Taxpayers and Class Actions" [1997] UNSWLawJl 31; (1997) 20 UNSWLJ 372. A year later a broadly similar thesis was advocated by a Canadian commentator in relation to the Canadian class action regimes: DA Crerar, "The Restitutionary Class Action: Canadian Class Proceedings Legislation as a Vehicle for the Restitution of Unlawfully Demanded Payments, Ultra Vires Taxes, and Other Unjust Enrichments" (1998) 56 University of Toronto Faculty of Law Review 47.
[2] (1999) 99 ATC 4621.
[3] Reference should also be made to the class action in Roxborough v Rothmans of Pall Mall Australia [1999] FCA 1535 (per Hill, Lehane and Gyles JJ). The class representatives sought to recover from the respondent "amounts paid [by tobacco retailers in New South Wales] to the Respondent [which at the relevant time sold tobacco products by wholesale to the retailers in question] ... as licence fees under the [Business Franchise Licences (Tobacco) Act 1987 (NSW)] in the period 1 July 1997 to 5 August 1997 and before the decision of the High Court in Walter Hammond, which amounts were retained by the Respondent following that decision": ibid at para 3. The NSW Act in question required wholesalers and retailers of tobacco product to hold licences and to pay licence fees. On 5 August 1997, the High Court held that the NSW Act was unconstitutional as the licence fees it imposed upon wholesalers
[4] and retailers constituted duties of excise: Ha v State of New South Wales & Walter Hammond & Associates Pty Ltd v State of New South Wales [1997] HCA 34; (1997) 189 CLR 465. Section 90 of the Commonwealth Constitution prohibits the States from levying duties of excise and duties of customs. In Roxborough the class representatives were able to utilise the Pt IVA regime but were unable to win the case.
[4] Supreme Court (General Civil Procedure) Rules 1996 (Vic), Order 18A.
[5] In August 1995, a report, which evaluated the Victorian law on class actions, was prepared for the Victorian Attorney-General's Law Reform Advisory Council: V Morabito and J Epstein, Class Actions in Victoria - Time for a New Approach (1997). Acting pursuant to this report, the Council recommended to the Victorian Government that a legislative regime similar to Pt IVA be introduced in Victoria. There was no response by the Victorian Government to the Council's recommendation. This legislative inactivity presumably prompted the Supreme Court to take the initiative. Perhaps, this reluctance to even consider legislative reform of this area stemmed from a desire on the part of the Victorian Government not to run the risk of introducing regimes which would, again, be found by the Supreme Court to be totally unsatisfactory. In fact, the representative proceeding regime introduced by the Victorian Parliament in 1986, through the enactment of ss 34 and 35 of the Supreme Court Act 1986 (Vic), was "savaged [by Brooking and Tadgell JJ] with a ferocity rarely seen in the ordinarily calm climes of the Victorian Supreme Court": P Gordon, "The Case for Class Actions", paper presented at a forum on class actions, organised by the Public Interest Advocacy Centre (October 1996, Sydney), p 7. See Zentahope Pty Ltd v Bellotti (unreported, Supreme Court of Victoria, Appeal Division, Brooking, Fullagar and Tadgell JJ, 2 March 1992); and G Reinhardt, "Class Actions in Victoria - Quo Vadis?" (1993) 67 Law Institute Journal 61. Ironically, ss 34 and 35 were themselves enacted to overcome problems that had been experienced with Parliament's previous attempt to introduce a new representative action regime: see s 62(1C) of the Supreme Court Act 1986 (Vic); Marino v Esanda Limited [1986] VicRp 73; [1986] VR 735; and Victoria, Hansard, Legislative Council, 5 December 1986, 1659.
[6] Section 33B. This provision is reviewed in Pt II below.
[7] Consequently, throughout this article whenever a provision of Pt IVA is mentioned its corresponding Victorian provision will also be provided.
[8] South African Law Commission, The Recognition of Class Actions and Public Interest Actions in South African Law (Report, Project 88, August 1998), para 8. See also Australian Law Reform Commission, Grouped Proceedings in the Federal Court (Report No 46, 1988), para 2 ("Grouped Proceedings").
[9] The term class actions is sometimes used in a narrower sense. See, for instance, the comment of Kirby P in Esanda Finance Corporation Ltd v Carnie (1992) 29 NSWLR 382 at 390-391 that a class action is a "radical form of legal procedure [that] has been developed by the courts of the United States. But, it has a number of important features which distinguish it from a representative action ... The scope of the proceedings is typically much larger, the parties roped in far more numerous and uncertain, the relief sought is typically different and the costs rules and procedures fashioned are alien to ours". See also S P Charles, "Class Actions in Australia", paper presented at the 1996 Australian Bar Association Conference in San Francisco, p 4.
[10] See Charles, op cit n 9, at 1-4.
[11] This rule, which was scheduled to the Supreme Court of Judicature 1873 (UK), provided that "where there are numerous parties having the same interest in the one action, one or more of such parties may sue ... on behalf of or for the benefit of all parties so interested". For a recent and extensive review of the UK experience with class actions, see J Seymour, "Representative Procedures and the Future of Multi-Party Actions" (1999) 62 MLR 564.
[12] Supreme Court Rules 1987 (SA), Rule 34. For more details see Charles, op cit n 9, at 5-7.
[13] For more details, see Grouped Proceedings, op cit n 8, at paras 40-45; and Morabito and Epstein, op cit n 5, at ch 4. Some of these problems were removed by the decision of the High Court in Carnie v Esanda Finance Corporation Ltd [1995] HCA 9; (1995) 182 CLR 398.
[14] Part IVA was based upon the recommendations of the Australian Law Reform Commission: Grouped Proceedings, op cit n 8. However, the Commission recommended grouped proceedings in which each group member was to be the equivalent of a party to the proceedings, "but this recommendation was, rightly, not adopted in Pt IVA ... , since the effect of its adoption would have been to set at nought one of the essential characteristics and advantages of representative proceedings": M Tilbury, "The Possibilities for Class Actions in Australian Law", paper presented at the 1993 Australian Legal Convention, Hobart), p 2, n7. The Commonwealth Government also rejected the Commission's proposals for contingency fees and a grouped proceedings assistance fund. It is, therefore, not surprising that the Federal Court has frequently exhibited some reluctance to place too much emphasis on the Commission's report when construing specific provisions of Pt IVA. As was recently pointed out by Wilcox J in Nixon v Philip Morris (Australia) Ltd [1999] FCA 1107; (1999) 165 ALR 515 at para 116: "bearing in mind that, in drafting the Bill eventually presented to Parliament, the Government departed from the Commission's model in several important respects, it is a large assumption to ascribe to the Government all the Commission's views. Although the Commission's report undoubtedly provides relevant background to the Government's proposal, on matters of detail the Government must be allowed to speak for itself".
[15] Poignand v NZI Securities Australia Ltd [1992] FCA 369; (1992) 37 FCR 363 at 364-365 (per Gummow J). Similar comments were recently made by the High Court: Wong v Silkfield Pty Ltd (1999) [165] ALR 373 at 374 (per Gleeson CJ, McHugh, Gummow, Kirby and Callinan JJ). See also Explanatory Memorandum to the Federal Court of Australia (Amendment) Bill 1991 (Cth), para 3: "the procedural reforms in the Bill confer no new legal rights".
[16] Lopez v Star World Enterprises Pty Ltd (unreported, Federal Court, Olney J, No VG 133 of 1997, 18 April 1997), p 1. A somewhat different assessment of the likely impact of Pt IVA was provided, during the Second Reading of Pt IVA, by the current Treasurer, Mr Peter Costello, who at the time was the Shadow Attorney-General. He lamented that Pt IVA was "an attack on the way legal rights have been traditionally exercised under our system of law. Under our system of law a person who is aggrieved has the right to approach the court at his choice and to have that grievance heard. He decides whether to lodge a claim. He does not have his claim lodged by someone else without his consent and without his knowledge": Parliamentary Debates, House of Representatives (Cth), 14 November 1991, 3175. It is fascinating to note that reasoning similar to that articulated by the current Treasurer has recently "resurfaced" as the basis for a challenge to the constitutional validity of Pt IVA. In fact, in Femcare Ltd v Bright [2000] FCA 512 it was argued, among other things, that the procedures required to be followed by the Federal Court pursuant to Pt IVA were incompatible with proper judicial process. Fortunately, this constitutional challenge was dismissed by the Full Federal Court (per Black CJ, Sackville and Emmett JJ).
[17] To overcome the problems created by Markt and Co Ltd v Knight Steamship Co Ltd [1910] UKLawRpKQB 126; [1910] 2 KB 1021, s 33C(2) (and Victoria's Rule 18A.03(2)) provides that a class suit may be commenced even if the relief sought includes, among other things, claims for damages that would require individual assessment; and whether or not the proceeding is concerned with separate contracts or transactions between the respondent and the class members. In Markt the English Court of Appeal held that the "same interest" requirement, under the traditional representative procedure, meant that the procedure was unavailable in actions where separate and individual contracts were involved or in cases where damages were claimed.
[18] In Australian Competition and Consumer Commission v Golden Sphere International [1998] FCA 598; (1998) 83 FCR 424, O'Loughlin J held that the Australian Competition and Consumer Commission came within the meaning of the word "persons" appearing in s 33C(1)(a). In doing so, his Honour relied upon s 22(1)(a) of the Acts Interpretation Act 1901 (Cth) which provides that "expressions used to denote persons generally ... include a body politic or corporate as well as an individual".
[19] Section 33C(1)(a) "requires every applicant and represented party to have a claim against the one respondent or, if there is more than one, against all respondents . ... It follows that s 33C(1)(a) is not satisfied if some applicants and group members have claims against one respondent (or group of respondents) while other applicants and group members have claims against another respondent (or group of respondents)": Philip Morris (Australia)Ltd v Nixon [2000] FCA 229; (2000) 170 ALR 487 at paras 126-127 (per Sackville J). This requirement should be contrasted with the traditional representative procedure governed by O 6 r 13(1) of the Federal Court Rules: "there is no explicit requirement under that rule ... that all applicants claim against all respondents" (SZ v Minister for Immigration & MulticulturalAffairs [2000] FCA 458 at para 7 (per Lehane J)).
[20] It is interesting to note that Victoria's Order 18A, in addition to these three prerequisites, provides that "where a person has commenced a proceeding under this Order, the proceeding shall be taken to have been commenced and, subject to any order of the Court, shall be continued by the plaintiff for and on behalf of all group members for the time being": Rule 18A.03(3). Unfortunately, this Victorian provision does not appear to shed any light in relation to the issue which will be canvassed in this article, namely, whether an individual proceeding may subsequently be reconstituted as a class suit.
[21] For a discussion of the relevance of this provision to taxpayers, see Morabito, op cit n 1, at 387-388. The equivalent Victorian provision is Rule 18A.04(1).
[22] It has been held that the class representative "must himself or herself have standing to sue the particular respondent and, where there is more than one respondent, each of them. It is not enough that the applicant has standing to sue one respondent and other people have claims against some other respondent which arise out of similar or related circumstances and give rise to a substantial common issue of law or fact": Symington v Hoechst Schering Agrevo Pty Ltd (1997) 78 FCR 164 at 168 (per Wilcox J). See also Ryan v Great Lakes Council (1997) 149 ALR 45. For more details, see V Morabito, "Ideological Plaintiffs and Class Actions - An Australian Perspective" (2000) 34(2) University of British Columbia Law Review (forthcoming issue).
[23] Section 33B. This restriction was justified by the then Attorney-General on the following grounds: "these are the possible insurance implications of enabling increased recovery of claims in respect of past premium years and the possible impact on the Federal Court if past claims could be brought" (Parliamentary Debates, House of Representatives (Cth), 14 November 1991, 3175). This line of reasoning was persuasively rejected by Senator Spindler who pointed out that s 33B was "contrary to the policy objective of [Pt IVA as it made] it impossible for people who have suffered at the hands of organisations, government departments or businesses, ... to use a better procedure which is now available" (Parliamentary Debates, Senate, 13 November 1991, 3024). Fortunately, as was already indicated in Pt I above, the new Victorian Order 18A has a retrospective operation.
[24] "Accordingly, the question of jurisdiction in ... a representative proceeding is not affected by the recent decision of the High Court in Re Wakim; Ex parte McNally [1999] VSC 227; (1999) 163 ALR 270, in which it was held that the jurisdiction conferred upon the [Federal] Court under cross-vesting legislation in respect of matters in which it did not otherwise have jurisdiction, was beyond legislative power and therefore invalid": Johnson Tiles Pty Ltd v Esso AustraliaPty Ltd [1999] FCA 1645 at para 35 (per Merkel J).
[25] Section 33G. The purpose of this provision is to "ensure that purely State law claims are not brought in the Federal Court merely to obtain the benefit of the new procedure": Explanatory Memorandum to the Federal Court of Australia (Amendment) Bill 1991 (Cth), para 16.
[26] P Lynch, "Representative Actions in the Federal Court of Australia" (1994) 12 Australian Bar Review 159 at 159. It is interesting to note that under the new Victorian regime a representative proceeding may be initiated in the same way as individual proceedings, that is, by writ indorsed in accordance with Rule 5.04(2)(b): Rule 18A.07(1). However, Rule 18A.07(2) then requires that the indorsement on the writ include the same matters set out in s 33H(1).
[27] The role played by s 33H(1) was described as follows by Hely J in Harrison v Lidoform Pty Ltd (Receiver & Manager Appointed) (unreported, Federal Court, Hely J, No NG 649 of 1998, 24 November 1998), at 8: "the statement of claim needs to identify what the rights of those represented are claimed to be, and how they are said to arise. In my view this is necessary in order to give definition to the proceedings, and to expose the issues for determination in the proceedings. It is also necessary that class members know with some precision the nature of the case which the applicant seeks to bring on their behalf so that they can decide ... whether to opt out of a claim formulated in that way". See also Cameron v Qantas Airways Ltd [1993] FCA 328; (1993) ATPR 41-251; Connell v Nevada Financial Group (1996) 139 ALR 723; and Murphy v Overton Investments Pty Ltd [1999] FCA 1123.
[28] This term is meant to indicate compliance with the threshold requirements in s 33C(1).
[29] "The other main feature of the Bill [which introduced Pt IVA] is the comprehensive powers given to the Court to ensure that the proceedings are not abused": Parliamentary Debates, House of Representatives (Cth), 14 November 1991, 3175 (Mr Michael Duffy).
[30] The equivalent Victorian provision is Rule 18A.11.
[31] This provision has been cogently attacked on the basis that it "has the effect of allowing unlawful behaviour to continue without penalty simply because a large number of people are affected in a way that requires only a small amount of compensation": Public Interest Advocacy Centre, Representative Proceedings in New South Wales - A review of the law and a proposal for reform (1995, Report prepared for the Coalition for Class Actions (NSW)), p 21. The corresponding Victorian provision is Rule 18A.12.
[32] This provision is evaluated in Pt VI below. 33 Dinning 99 ATC 4621 at 4622.
[34] The basis for this argument was that s 218 is predicated on "money" being or becoming due and being paid to the Commissioner: ibid at 4629.
[35] Some reliance was placed by the applicant on DFC of T v Conley (1998) 158 ALR 229 where the Full Federal Court held that s 218 was not available to require payments to the commissioner from accounts denominated in United States currency in the Sydney and New York branches of a bank.
[36] Both propositions were rejected by the Court. On s 218, see generally RH Woellner, S Barkoczy and S Murphy, 2000 Australian Taxation Law ( CCH, Sydney, 10th ed, 2000),pp 1589-1593.
[37] Dinning 99 ATC 4621 at 4627.
[38] As it is explained in Pt IV below, this apparently insignificant development was given some prominence in Ryan J's judgment.
[39] Dinning 99 ATC 4621 at 4628.
[40] Ibid.
[41] [1998] FCA 1488; (1998) 159 ALR 329.
[42] In his dissenting judgment, Foster J explained that "the word 'substantial' indicates no more than that the common issue should not be a merely trivial one but should be of weight and significance. It need not be a 'major' issue. Once its existence is demonstrated then the representative party, having otherwise complied with s 33C, is entitled to commence the representative proceedings. The fact that they may later be terminated by order of the Court is not to the point": ibid at 333-334.
[43] Ibid at 343-344.
[44] Ibid.
[45] Ibid at 345. Before Silkfield, a narrow construction of s 33C(1)(c) had been rejected by a number of Federal Court judges: see, for instance, Wong v Silkfield Pty Ltd [1998] ATPR 41- 613 (per Spender J); Terence John Milfull v Terranora Lakes Country Club Ltd & Ors [1998] ATPR 41-642 (per Kiefel J); Peter Schanka & Ors v Employment National (Administration) Pty Ltd (1998) 86 IR 283 (per Moore J); and Justice Wilcox, "Representative Proceedings in the Federal Court of Australia - a Progress Report" (1997) 15 Australian Bar Review 91 at 93.
[46] Silkfield [1998] FCA 1488; (1998) 159 ALR 329 at 346.
[47] (1996) 139 ALR 723 at 731-732.
[48] Grouped Proceedings, op cit n 8 at 157.
[49] "The use of an ambiguous requirement such as 'substantial' adds uncertainty, as it confers upon courts excessive discretion, and it is not necessary as the requirement that there be a 'common issue of law or fact' is more than adequate to prevent disparate matters from being brought together. The reason for the amendment can only be surmised, as it was not debated in Parliament nor explained in the explanatory memorandum": V Morabito, "Class Actions - the Right to Opt Out Under Part IVA of the Federal Court of Australia Act 1976 (Cth)" [1994] MelbULawRw 5; (1994) 19 Melbourne University Law Review 615 at 623.
[50] It should be noted, however, that in the Second Reading Speech on Pt IVA, the description of the elements of s 33C(1) omitted the word "substantial": Parliamentary Debates, House of Representatives (Cth), 14 November 1991, 3174 (Mr Michael Duffy).
[51] Wong v Silkfield Pty Ltd [1999] HCA 48; (1999) 165 ALR 373 at 381. It is interesting to note that the day after the High Court delivered this judgment, the Full Federal Court indicated that it saw no "justification for limiting the word 'substantial' in s 33C(1)(c) by the use of non-statutory terms like 'major impact on the litigation' and 'core of the dispute' ... However, for present purposes, we are content to proceed on the basis that the Silkfield majority view [of O'Loughlin and Drummond JJ] is correct": Finance Sector Union of Australia v Commonwealth Bank of Australia [1999] FCA 1250; (1999) 166 ALR 141 at 144-145 (per Wilcox, Ryan and Madgwick JJ).
[52] "Part IVA is a major advance in achieving real, rather than illusory, access to justice by many who would otherwise have no realistic prospect of such access. It would be unfortunate if the general requirement of 'a' substantial common issue led the Court to adopt an overly legalistic approach to Pt IVA": Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [1999] FCA 56 at para 49 (per Merkel J).
[53] "It is difficult to see why it is necessary, or legitimate, to compare the substantiality of a common issue with the substantiality of any non-common issues. The words of the paragraph do not invite such a comparison; to take this course is to encourage respondents to raise artificial non-common issues": Wilcox, op cit n 45 at 93.
[54] The flawed reasoning of O'Loughlin and Drummond JJ has some broad similarity to the reasoning of Montgomery J in Abdool v Anahein Management Ltd (1993) 15 OR (3d) 39 in relation to Ontario's Class Proceedings Act 1992. Justice Montgomery declined to certify a class action because the individual issues predominated over the issues common to the proposed class. This judicial conclusion was arrived at despite the fact that the Ontario Act, unlike Rule 23(3) of the US Federal Rules of Civil Procedure, does not require "that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members". For more details see G Watson, "Initial Interpretations of Ontario's Class Proceedings Act: the Anaheim and the Breast Implant Actions" (1993) 18 CPC (3d) 344. In order to avoid judicial rulings similar to the Abdool ruling s 4(1)(c) of British Columbia's Class Proceedings Act 1996 and s 4(c) of the Uniform Class Proceedings Act adopted by the Uniform Law Conference of Canada at its 1996 meeting expressly provide that a class proceeding may be certified "whether or not the common issue predominates over issues affecting only individual members".
[55] "The fact that a representative proceeding once properly commenced under s 33C can be terminated by order of the Court under s 33N ... does not, in my opinion, require that any restrictive view be taken of the word 'substantial'. Section 33N only comes into play after the gateway has been passed and the proceedings commenced": Silkfield Pty Ltd v Wong [1998] FCA 1488; (1998) 159 ALR 329 at 333-334 (per Foster J).
[56] [1993] FCA 489; (1993) 118 ALR 165.
[57] See also Marks v GIO Australia Holdings Ltd (1996) 63 FCR 304; Gui Sen Huang v Minister for Immigration and Multicultural Affairs (1997) 50 ALD 134; and Finance Sector Union of Australia v Commonwealth Bank of Australia [1999] FCA 1250; (1999) 166 ALR 141.
[58] Dinning 99 ATC 4621 at 4628.
[59] In fact, the grounds contained in ss 33L, 33M and 33N, pursuant to which the Federal Court may terminate a properly commenced class suit, do not encompass the inability of the class representative to demonstrate the superiority of the Pt IVA procedure.
[60] Section 5(1)(d) of Ontario's Class Proceedings Act 1992 requires the representative plaintiff to satisfy the Court that "a class proceeding would be the preferable procedure for the resolution of the common issues". Similarly, s 4(1) of British Columbia's Class Proceedings Act 1996 imposes the requirement that the "class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues". Rule 23(a)(1) of the US Federal Rules of Civil Procedure does not enable the employment of the class action device unless "the class is so numerous that joinder of all members is impracticable".
[61] Dinning 99 ATC 4621 at 4628. Ryan J's order, by consent, was that each of the 7 pilots be added as applicants to the proceeding.
[62] Order 6 Rule 2 of the Federal Court Rules provides for the joinder of parties where there are common questions of law or fact and where all rights to relief claimed in the proceedings are "in respect of or arise out of the same transaction or series of transactions".
[63] Section 33ZB provides that a judgment given in a representative proceeding binds all persons other than those who have opted out and requires that the class members affected by it be described or identified. The Full Federal Court has recently noted that as a result of s 33ZB, "Part IVA goes further than the old representative procedure. But in Carnie
[Carnie v Esanda Finance Corporation Ltd [1995] HCA 9; (1995) 182 CLR 398] Toohey and Gaudron JJ specifically accepted (at 423-424) that the principle of res judicata applies to a representative proceeding under Part 8 r 13(1) of the Supreme Court Rules (NSW) and equivalent provisions. Their Honours saw no prejudice to members of the represented group in being included, other than in the 'obvious sense that they would be bound by a judgment acceding to or rejecting the claim for relief'": Femcare Ltd v Bright [2000] FCA 512 at para 64 (per Black CJ, Sackville and Emmett JJ).
[64] It is, therefore, not surprising that class members are sometimes described as free riders: Ontario Law Reform Commission, Report on Class Actions (1982), p 657.
[65] Morabito and Epstein, op cit n 5 at para 6.5. See also Duke of Bedford v Ellis [1900] UKLawRpAC 56; [1901] AC 1 at 8 (per Lord Macnaghten).
[66] In Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd [1998] FCA 819; (1998) 156 ALR 273 at 276, Lindgren J indicated that "the representative party is necessarily one of the group of seven or more persons 'on whose behalf a representative proceeding is commenced'". This means that class representatives are only required to demonstrate that they are acting on behalf of six other persons. The Australian Law Reform Commission, on the other hand, was of the view that the proposed Federal Court regime "should be available so long as there are at least seven group members plus the principal applicant, making eight in all": Grouped Proceedings, op cit n 8, at para 140.
[67] See, for instance, Queen's Bench Rules, Manitoba Reg 553/88, as amended, R. 12.01.
[68] The Australian Law Reform Commission was of the view that "establishing a minimum number would promote the efficiency of the procedure and ensure that cases are not grouped where joinder or consolidation is more appropriate": Grouped Proceedings, op cit n 8 at para 140.
[69] An opt out model permits a class suit to be commenced by the representative plaintiff without the express consent of the class members (see s 33E). However, an opportunity is offered to the class members to exclude themselves from the class action; that is, to opt out (see s 33J): see, generally, Morabito, op cit n 49. See, however, N Francey, "Class Actions" (paper presented in Sydney on 9 February 1998 at the NSW Bar Association Continuing Legal Education Program), pp 18-19 where it is pointed out that in Gold Coast City Council v Pioneer Concrete (Qld) Pty Ltd (unreported, Federal Court, Drummond J, No QG 190 of 1996, 9 July 1997) "in effect, Drummond J required the Applicant to show that there were 7 or more persons actively interested in the outcome of the litigation thereby reversing, for all practical purposes, the legislative policy of Part IVA".
[70] (1993) 118 ALR 510 at 514. Cf Falfire Pty Ltd v Roger David Stores (unreported, Federal Court, Kiefel J, No QG 201 of 1995, 25 September 1996); and Lynch, op cit n 26 at 168
n 28.
[71] Tropical Shine Holdings Pty Ltd v Lake Gesture Pty Ltd (1993) 118 ALR 510 at 514 (per Wilcox J). See also Marks v GIO Australia Holdings Ltd (1996) 63 FCR 304 at 315 (per Einfeld J); and Symington v Hoechst Schering Agrevo Pty Ltd (1997) 78 FCR 164.
[72] [1998] FCA 598; (1998) 83 FCR 424.
[73] Unreported, Federal Court, O'Connor J, No NG 823 of 1998, 4 February 1999.
[74] [1998] FCA 598; (1998) 83 FCR 424 at 428.
[75] Section 178(1) provides that "where an organisation or person bound by an award, an order of the Commission or a certified agreement breaches a term of the award, order or agreement, a penalty may be imposed by the Court or, except in the case of a breach of a bans clause, by a court of competent jurisdiction".
[76] This section provides that the Federal Court "has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate".
[77] Finance Sector,
[78] Ibid at para 8.
[79] Ibid at para 18.
[80] Ibid at para 6. op cit n 73, at para 4.
[81] The Manitoba Law Reform Commission has recently indicated that "the existing class proceedings regimes in Ontario, Quebec, British Columbia, and the United States, as well as those recommended in Scotland, England, and South Africa, all require certification of a class proceeding. Only in Australia have legislators and law reformers seen fit to dispense with mandatory certification": Manitoba Law Reform Commission, Class Proceedings (Report, January 1999), p 42. Reference should also be made to the South Australian regime which provides that "the representative parties must within twenty- eight days after the day upon which the defendant filed the appearance ... apply to the Court for: (a) an order authorising the action to be maintained as a representative action; and (b) directions as to the conduct of the action": Supreme Court Rules 1987 (SA), Rule 34.02.
[82] Grouped Proceedings, op cit n 8, at para 147. "In Quebec a representative plaintiff 'cannot institute a class action except with the prior approval of the court obtained on motion'. ... The US Federal Rule requires that certification motions be brought 'as soon as practicable after commencement' of the proceedings. Ontario and British Columbia, and the Uniform Act, require that the certification motion be brought, generally, within 90 days after a defence has been filed": Manitoba Law Reform Commission, op cit n 81, at 44-45.
[83] "In my opinion, s 33C provides a very wide gateway for the commencement of representative proceedings. The representative party becomes entitled to commence a representative proceeding once the requirements of subs (1)(a), (b) and (c) are fulfilled": Silkfield Pty Ltd v Wong [1998] FCA 1488; (1998) 159 ALR 329 at 333-334 (per Foster J). See also Femcare Ltd v Bright [2000] FCA 512 at para 92 (per Black CJ, Sackville and Emmett JJ); and Wong v Silkfield Pty Ltd [1999] HCA 48; (1999) 165 ALR 373 at 380 (per Gleeson CJ, McHugh, Gummow, Kirby and Callinan JJ).
[84] "A proceeding is not properly commenced unless it satisfies each of the three threshold requirements specified in s 33C(1). If the proceeding does not comply with these requirements ... the proceeding is liable to be dismissed or the applicants' pleading struck out. (An alternative procedure was adopted in Silkfield v Wong, where the Full Federal Court made a declaration that the proceedings continue as proceedings brought by their respondents on their own behalf, to give effect to the majority holding that s 33C(1)(c) had not been complied with ...)": Philip Morris (Australia) Ltd v Nixon [2000] FCA 229; (2000) 170 ALR 487 at para 125 (per Sackville J).
[85] The respondent sought leave to appeal from the order of O'Connor J that the applicant could reconstitute the suit as a class action. In response, the applicant commenced a second proceeding, as a class suit under Pt IVA. This second action involved the same parties and subject matter as the first action. The respondent, instead of proceeding with the appeal in relation to the first action, sought, among other things, to persuade the Court that the second proceeding did not comply with s 33C(1). O'Connor J held that the second proceeding satisfied the threshold requirements of s 33C(1): Finance Sector Union of Australia v Commonwealth Bank of Australia [1999] FCA 824. O'Connor J's ruling was upheld, on appeal, by the Full Federal Court: Finance Sector Union of Australia v Commonwealth Bank of Australia [1999] FCA 1250; (1999) 166 ALR 141 (per Wilcox, Ryan and Madgwick JJ).
[86] "A representative proceeding can be issued without leave of the Court, although the Court can order that a proceeding no longer continue as a representative proceeding under Pt IVA (see ss 33L, 33M and 33N) or that individual issues or issues that are not common issues be determined separately (see ss 33Q, 33R and 33S). Also, the Court has ample power under the inherent jurisdiction, the Rules of Court and the Act (see for example s 33N(1)(d)) to direct which representative proceeding is to continue as a proceeding under Pt IVA where more than one is issued": Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [1999] FCA 56 at para 13 (per Merkel J).
[87] It is interesting to note that Victoria's equivalent provision, Rule 18A.13, does not include the phrase "of its own motion".
[88] This provision requires the Court "to hypothesise that each Group Member conducts a separate proceeding": Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd [1998] FCA 819; (1998) 156 ALR 273 at 278 (per Lindgren J). See also Gold Coast City Council v Pioneer Concrete (Qld) Pty Ltd (unreported, Federal Court, Drummond J, No QG 190 of 1996, 9 July 1997).
[89] The Explanatory Memorandum reveals that the purpose of s 33N is to "ensure that the Court is able to prevent abuse" of the class action procedure: Explanatory Memorandum to the Federal Court of Australia (Amendment) Bill 1991 (Cth), para 23. The following examples are then provided of the intended operation of s 33N(b): "[where] a separate proceeding [could be] brought by the representative party whether singly or in conjunction with one or more other persons as applicants" (ibid). These examples are disconcerting as they would preclude the attainment of one of the major goals of class actions, namely, promoting efficiency in the use of court resources. But, fortunately, the following observations of Emmett J in Murphy v Overton Investments Pty Ltd [1999] FCA 1123 at para 112 tend to indicate that the Federal Court is likely to approach the operation of s 33N(b) in a manner that is more in line with the policy objectives of class action procedures than what is advocated in the Explanatory Memorandum: "it is clear that each group member could obtain relief in his or her own separate proceedings. However, there is no other single proceeding under which all of the relief sought could be obtained. As indicated above, such a procedure is not available in the Supreme Court".
[90] "Paragraph (d) is unnecessary, creates uncertainty and its frequent use may impede the achievement of the access to justice goal": Morabito and Epstein, op cit n 5 at para 6.19. See also Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd [1998] FCA 819; (1998) 156 ALR 273 at 281 (per Lindgren J): "the words 'otherwise inappropriate' are words of wide import"; and Murphy v Overton Investments Pty Ltd [1999] FCA 1123 at para 115 (per Emmett J): "the legislature has not given much assistance as to the criteria for determining the appropriateness or inappropriateness of pursuing claims by means of a representative procedure".
[91] The s 33N power has been exercised in the following cases: Soverina Pty Ltd v Natwest Australia Bank Ltd [1993] FCA 65; (1993) 40 FCR 452; Connell v Nevada Financial Group (1996) 139 ALR 723; Gold Coast City Council v Pioneer Concrete (Qld) Pty Ltd (unreported, Federal Court, Drummond J, No QG 190 of 1996, 9 July 1997); Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd [1998] FCA 819; (1998) 156 ALR 273; Australian Competition and Consumer Commission v Internic Technology Pty Ltd (unreported, Federal Court, Lindgren J, No NG 395 of 1998, 14 July 1998); Giraffe World Australia Pty Ltd v Australian Competition and Consumer Commission [1998] FCA 1560; and Murphyv Overton Investments Pty Ltd [1999] FCA 1123.
[92] Wong v Silkfield Pty Ltd [1999] HCA 48; (1999) 165 ALR 373 at 380 (per Gleeson CJ, McHugh, Gummow, Kirby and Callinan JJ).
[93] Ibid at 381. See also Wilcox, op cit n 45 at 93-94; and Finance Sector Union of Australia v Commonwealth Bank of Australia [1999] FCA 1250; (1999) 166 ALR 141 at 144-145 (per Wilcox, Ryan and Madgwick JJ): "we do not see the justification for limiting the word 'substantial' in s 33C(1)(c) by the use of non-statutory terms like 'major impact on the litigation' and 'core of the dispute'. These considerations may be relevant to a question whether the proceeding ought to be allowed to continue as a representative proceeding: see s 33N of the Federal Court Act. They will certainly affect the appropriate case management directions. But we do not think they affect the question whether the proceeding was well-commenced".
[94] Finance Sector, op cit n 73 at para 13.
[95] Parliamentary Debates, House of Representatives (Cth), 14 November 1991, 3174 (Mr Michael Duffy). These observations have been quoted numerous times by the Federal Court and constituted an integral part of the reasoning of the High Court in Silkfield.
[96] [1999] FCA 1161; (1999) 166 ALR 74.
[97] Ibid 122. His Honour also indicated that even if he had power to make the order sought he would not, as a matter of discretion, have made such an order. [2000] FCA 229; (2000) 170 ALR 487 at para 124.
[99] Wong v Silkfield Pty Ltd [1999] HCA 48; (1999) 165 ALR 373 at 375 (per Gleeson CJ, McHugh, Gummow, Kirby and Callinan JJ). Sackville J himself acknowledged the procedural nature of the criteria specified in s 33H: "unlike the threshold requirements for a representative proceeding specified in s 33C(1) inadequacies in the pleadings do not necessarily mean that the proceedings cannot continue as a representative action. Whether that is the consequence of pleaded deficiencies will depend on the nature of the deficiencies and whether they are curable by amendment" ((2000) [2000] FCA 229; 170 ALR 487 at para 130).
[100] Another possible explanation for the lack of tax-related class suits is the existence of significant financial disincentives to the assumption of the role of class representative. "In a nutshell, the problem is that a representative party is exposed to the risk of an order to pay the costs of a respondent or respondents (the amount of which will usually be increased by the very fact that the proceeding is a representative one), without gaining any personal benefit from the representative role": Woodlands v Permanent Trustee Co Ltd [1995] FCA 1388; (1995) 58 FCR 139 at 145 (per Wilcox J). However, it is difficult to see why these costs barriers would have such a drastic impact upon taxpayers vis-a-vis other groups with legal grievances such as, for instance, consumers. The Australian Law Reform Commission has recently indicated that "representative actions have been utilised in three main areas - consumer matters and small business matters under the Trade Practices Act, and judicial review involving Migration Act matters": Australian Law Reform Commission, Review of the Federal Civil Justice System (Discussion Paper No 62; 1999), para 10.9. See also Public Interest Advocacy Centre, Representative Proceedings: Supplement (1997, Report prepared for the Coalition for Class Actions (NSW)), p12.
[101] For a discussion of the general advantages and disadvantages associated with the use of the class action procedure, see Morabito, op cit n 1 at 378-387. For an extremely critical assessment of class actions, see FG Hawke, "Class Actions: the Negative View" (1998) 6 Torts Law Journal 70.
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