December 2014

Class action regime finally clarified

The Federal Court has now resolved almost 15 years of debate over multiple respondents in class actions.

The Federal Full Court has clarified the meaning of section 33C of the Federal Court of Australia Act, often referred to in class actions.

Federal Court Justices Peter Jacobson, John Middleton and Michelle Gordon’s decision establishes each member of a class action does not need to have a claim against each respondent.

Two proceedings were brought against various Cash Converters (CC) subsidiaries and franchisees by Sydney pensioner Julie Gray and six other parties who had entered into contracts for personal loans and cash advances with CC in NSW.

The action was also brought against Ja-Ke Holdings Pty Ltd, a franchisee operating a CC store in Penrith, NSW.

Law firm Maurice Blackburn (MB) is leading the action, representing Ms Gray.

Ben Slade, MB NSW managing principal, said the claimants were seeking $40 million in compensation for about 50,000 people affected by CC’s loan system.

CC described loans for less than $1,000 and repaid in about a month as cash advances. Personal loans were for $500 to $2,000 and repaid in about seven months.

Ms Gray claimed lenders of those products – CC-related companies or franchisees – entered into loans that breached the NSW Credit (Commonwealth Powers) Act 2010, whichcapped the maximum annual interest rate on consumer credit contracts at 48%.

The law applied from July 1, 2010, to June 30, 2013. It required fees and charges known at the time of entering into a contract to be included in calculating the annual interest rate applicable to consumer loans.

Ms Gray claimed fees should have been included in the interest rate calculation. She said fees made the effective interest rate on a typical cash advance about 633% and 145% for a personal loan.

She alleged CC International Ltd (CCIL), the company at the head of the CC franchise, knew and required CC NSW franchisees to offer and administer loans in a way that involved debiting “deferred establishment” and “administration” fees to borrowers’ accounts.

Consequently Ms Gray claimed CCIL was involved in “unconscionable conduct” in connection with financial services, breaching s12CB(1) of the Australian Securities and Investments Commission Act 2001.

Ms Gray sought compensation from CCIL for affected group members. CC applied to strike out the proceedings, arguing each group member was required to have a claim against each respondent.

At trial, Federal Court Justice Kathleen Farrell rejected CC’s application, finding Ms Gray was not bound by the interpretation of s33C(1)(a) in Philip Morris v Nixon, which found the section required every applicant and represented party to have a claim against the respondent or, if there was more than one, against all respondents.

Justice Farrell said the interpretation in Bray v F Hoffman-La Roche was more consistent with the policy and the “overarching purpose of civil practice and procedure”.

In Bray, Justice Raymond Finkelstein said: “There is nothing in the language of s33C(1) [that] requires it is necessary for every applicant and every represented party to have a claim against all respondents if there is more than one respondent.”

Federal Court Justices Jacobson, Middleton and Gordon unanimously rejected CC’s appeal against Justice Farrell’s decision.

They said: “The fact the other franchisees and CC Cash Advance (which made cash advances to some group members) are not respondents to the proceeding cannot and does not alter the conclusion the proceeding is properly constituted.”

Clayton Utz partner Ross McInnes said the decision clarified the meaning of “claims against the same person” in s33C (1)(a) after almost 15 years of debate.

He said the clarity was a “welcome development in Australia’s class action law.

“It ought to avoid some interlocutory skirmishes in class actions in the Federal Court, so parties can focus on resolving the real issues in dispute between them more quickly.”

The decision provided “welcome clarity for applicants and respondents alike”, he said.

Carter Newell special counsel Michael Bath said the requirement group members need not have claims against all respondents avoided the need to launch separate proceedings or re-structure a representative proceeding. 

“It means multiple class actions arising from the same substratum of facts should no longer be required,” he said. 

(Cash Converters International Ltd v Gray [2014], FCAFC 111, 01/09/2014; Gray v Cash Converters International Ltd [2014], FCA 420, 02/05/2014; Philip Morris v Nixon (2000), FCA 229, 13/03/2000; Bray v F Hoffman-La Roche (2003), FCAFC 153, 15/07/2003)