Background
Strand Fitness Pty Ltd and other insured businesses pursued representative proceedings against QBE Insurance (Australia) Ltd and the underwriting members of Syndicate 2003 at Lloyd’s. They alleged entitlement to indemnity for business interruption or interference caused by the COVID-19 pandemic and related government measures. The proceedings covered numerous policy wordings and proposed questions concerning causation, government closure orders, rent relief, and disease and discovery clauses.
A Federal Court judge ordered that the proceedings cease to continue as class actions under s 33N of the Federal Court of Australia Act 1976 (Cth). The judge focused on questions identified as the applicants’ supposed “high watermark,” although the relevant concession had been made only by applicants in two related proceedings against other insurers. Strand Fitness and the other applicants sought leave to appeal the declassing orders concerning QBE and Lloyd’s.
The Court’s Holding
The Full Court granted leave to appeal and held that the primary judge’s exercise of discretion had miscarried because it proceeded by reference to a different set of questions from those relied upon by the QBE and Lloyd’s applicants. The Full Court therefore re-exercised the discretion under s 33N, examining the questions the applicants said justified keeping the proceedings as class actions.
Despite finding that error, the Full Court dismissed the appeals with costs and upheld declassing. The proposed questions were variously unlikely to arise at an initial trial, hypothetical, dependent on individual facts and policy language, substantially addressed in earlier COVID-19 insurance test cases, or of insufficient practical utility to group members. Given the small number of claims, the diversity of policy wordings, and the availability of insurers’ claims processes and complaints to the Australian Financial Complaints Authority, the representative proceedings were not an efficient and effective means of resolving group members’ claims.
Key Takeaways
- Once a class action satisfies the commencement requirements, its continuation does not depend on identifying an issue common to every group member or an independently “substantial” common issue.
- A court may nevertheless declass a proceeding where the proposed common determinations would provide little practical assistance in resolving group members’ claims, particularly when individual facts and policy terms predominate.
- An appellant may establish discretionary error yet still lose after the appellate court re-exercises the discretion and reaches the same result.
Why It Matters
The decision clarifies how Australian courts should distinguish the threshold requirements for commencing a representative proceeding from the interests-of-justice inquiry under s 33N. Issues shared by only some group members can support a class action, but their existence does not prevent declassing when an initial trial would yield little useful, binding framework for resolving the wider group’s claims.
For COVID-19 business-interruption disputes, the ruling also underscores the importance of earlier test-case decisions and claim-specific analysis. Where remaining disputes depend heavily on individual causation, policy wording, location, and loss assessment, insurer claims handling and AFCA review may be considered more efficient than continued representative litigation.