An Australian perspective on the judicial review of class action settlements

In several countries, including Australia, class action litigation most frequently has been resolved through settlement agreements executed by the formal parties to such litigation: the lead plaintiffs and the defendants. Class action settlements are legally effective only if approved by the court presiding over the litigation. This is because the outcome of class action litigation binds not only the formal parties to it, but also the claimants represented by the lead plaintiffs: the so-called class members. The New Zealand Law Commission currently is conducting a detailed study of whether, among other things, a comprehensive class action regime should be introduced for the High Court of New Zealand. This article reviews the major lessons that may be learned from the Australian experience with respect to the judicial review of class action settlements. The most important lesson is the need to encourage and facilitate a close judicial scrutiny of the fairness, reasonableness and adequacy of settlement agreements proposed by the parties to class action litigation to ensure maximum protection of the interests of all class members. This may be secured through a number of measures, including a greater use of court-appointed independent experts to assist in reviewing proposed settlement agreements; facilitating class members' ability to properly assess the likely impact of a proposed settlement agreement on their interests and to advise the court of any concerns; conferring onto courts extensive powers in relation to the remuneration that litigation funders receive pursuant to a class action settlement; empowering courts to increase the settlement proceeds that class members will receive; and providing clear guidance as to when it may be appropriate for courts to authorise additional payments to lead plaintiffs, sub-group representatives and class members who assume an active role in the conduct of the proceedings.