Can a plaintiff in NSW representative proceedings sue a defendant without having a personal claim against that defendant? 

In March 2019, in Fernandez & Anor v State of New South Wales & Ors [2019] NSWSC 255 (Fernandez), the Supreme Court of New South Wales (Garling J) held that s 158 of the Civil Procedure Act 2005 (NSW) (CPA) permitted a plaintiff to commence representative proceedings against a defendant, even though no plaintiff had a claim (cause of action) against the defendant, provided either a plaintiff or a group member has a claim against that defendant.

While that conclusion is clearly arguable, there also good, specific reasons to believe it may have been wrongly decided.

Background

Section 70 of  the Health Services Act 1997 (Cth) (HSA) provides that any person who receives any chargeable health service from a public hospital or other public health organisation is liable, according to their means, to pay the organisation a fixed scale fee.

NSW Health Policy Directives made pursuant to s 32(1) of the HSA (Policy Directives):

a) required that public hospitals under the control of NSW Local Health Districts (LHDs) ensure payment arrangements are made on admission to hospital of non-Australian permanent residents who were not eligible for Medicare benefits under the Health Insurance Act 1973 (Cth); and
  
 b)permitted LHDs to obtain assurances of payment through a personal guarantee from an Australian citizen before treatment is provided and, where an assurance of payment is not forthcoming, to inform the patient that only the minimum and necessary medical care will be provided to stabilise the patient's condition. 

In 2017, Mr Fernandez and Ms Fotu (Plaintiffs) separately provided personal guarantees to the Western Sydney LHD and the South Western Sydney LHD respectively in order to obtain hospital services for non-Australian resident family members who were ineligible for Medicare benefits.

Fernandez & Anor v State of New South Wales & Ors 

Later in 2017, the Plaintiffs (funded by NSW Legal Aid) commenced representative proceedings, pursuant to Part 10 of the CPA, against 16 defendants (Defendants), on behalf of persons who had guaranteed the payment of monies by a public hospital patient ineligible for Medicare benefits (Group Members), claiming, amongst other things:

a) that the Policy Directives requiring public hospitals to ensure payment arrangements for non-Australian permanent residents, and permitting LHDs to obtain assurances of payment through a personal guarantee from  third party Australian citizen, are both repugnant to s 70 of the HSA because only patients can be liable for their health service under s 70 and, then, only according to their means; and
  
b) declarations that both the Policy Directives, and the personal guarantees provided pursuant to the Policy Directives, are invalid for this reason. 

The 16 Defendants included 13 LHDs who, while also subject to the Policy Directives, had not had any dealings with either Plaintiff and were not, therefore, the subject of any personal claim by either of the Plaintiffs.

Defendants' motion to summarily dismiss

The Defendants filed a notice of motion seeking, amongst other things, an order summarily dismissing the claims against those 13 LHDs for that reason.

Decision 

In concluding that the Plaintiffs were entitled to pursue representative proceedings against the 13 LHDs despite neither Plaintiff having a personal claim against any of them, Garling J held that:

a) the "principal purpose" of s 158(1) of the CPA, which provides that a person has a sufficient interest to commence representative proceedings against another person if the person has standing to commence proceedings on the person's own behalf against that other person, is to provide the circumstances in which a plaintiff has standing to represent others;
  
b) the only limitation in s 158(1) of the CPA is that a plaintiff must have sufficient standing to make a claim against at least one defendant in the representative proceedings, that is, a plaintiff must be a "legitimate claimant" in their own right in the representative proceedings rather than merely an "officious bystander";
  
c) s 158(2) of the CPA, which provides that a person may commence representative proceedings on behalf of other persons against more than one defendant irrespective of whether or not the person and each of those persons have a claim against every defendant in the proceedings, was the "critical provision" which supported the conclusion that all that was necessary was that:

i) a plaintiff has a claim against at least one (rather than every) defendant, so as to not be a mere officious bystander to the proceedings; and

ii) every defendant was subject to a claim by either a plaintiff or a group member , without the same group members needing to have a claim against every defendant; and

d) this conclusion was also:

i) supported by s 158(3) of the CPA, which provides that a plaintiff retains standing to continue representative proceedings even though the plaintiff ceases to have any claim against any defendant;

ii) consistent with the aim of Part 10 of the CPA, which is to provide an effective and efficient means of determining a large number of claims which arise in the same, similar or related circumstances and which have substantially common questions of fact or law to be determined; and

iii) the course most calculated to give effect to the overriding purpose of the CPA, which is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.

Contrast with Part IVA FCA

At first glance at least, the conclusion that representative proceedings can be commenced against a defendant without any plaintiff having a personal claim against that defendant may seem surprising.

That conclusion, with respect to Part 10 of the CPA, can also be contrasted with the position in group proceedings commenced under Part IVA of the Federal of Australia Act 1976 (Cth) (FCA), where it has been held by the Federal Court in Grant Ryan v Great Lakes Council and Ors1. (cited, with approval, by the Full Court in Bray v F Hoffmann-La Roche Ltd2.) that:

a) s 33C(1) of the FCA (the cognate provision to s 158(1) of the CPA relied upon by Garling J to find it was not necessary that at least one plaintiff have a claim against a defendant) did not permit representative proceedings to be commenced against a respondent where no applicant had a personal claim against that respondent;3.

b) in order to utilise the Part IVA procedure against a given respondent, an applicant must have a personal claim against that respondent; and

c) s 33D of the FCA (the cognate provision to s 158(3) of the CPA which Garling J relied upon to support his interpretation of s 158(1) of the CPA) in fact supported the opposite conclusion that representative proceedings could not be commenced against a respondent where no applicant had a claim against that respondent because s 33D assumes that the representative party had a claim against the respondent in the first place ("one cannot cease to have something one never had)".

Commentary

It has been suggested that the result in Fernandez seems inconsistent with s 158(1) of the CPA, with the different result in Fernandez, when compared to the position under Part IVA of the FCA, only possibly being explained by the presence of s 158(2) of the CPA, which has no equivalent in Part IVA of the FCA.4

As noted above, s 158(2) of the CPA, which Garling J described as the "critical provision" for the determination of this issue, provides that a person may commence representative proceedings on behalf of other persons against more than one defendant irrespective of whether or not the person and each of those persons have a claim against every defendant in the proceedings.

The Defendants in Fernandez unsuccessfully submitted that s 158(2) of the CPA should simply be viewed as a legislative response to, and endorsement of, the conclusion of the Full Court in Bray v F Hoffman-Le Roche5., in respect of Part IVA of the FCA, that not all group members needed to have a claim against each respondent, while still requiring that an applicant (or, at least, applicants between them) have a claim against each respondent.

In rejecting that contention, Garling J instead preferred to give s 158(1) of the CPA  the broadest possible interpretation in recognition of the particular purpose of Part 10 of the CPA to provide an effective and efficient mechanism to determine a large number of claims and the overriding purpose of the CPA  to facilitate the just, quick and cheap resolution of the real issues in proceedings. 

His Honour also saw that approach which was most  consistent with  the remarks of the High Court of Australia in Wong v Silkfield Pty Ltd6. with respect to the cognate provision in s 33C of the FCA, where it was said that s 33C attempts to resolve issues which bedevilled representative procedures as they had been developed and the scope of s 33C is not confined by matters not required by its terms or context.7.

Doubts about correctness of decision

There are, however, at least two specific reasons to doubt the correctness of this decision in Fernandez, neither of which appear, from the judgment at least, to have been considered.

First, as to the supposed purpose of s 158(2) of the CPA:

a) the Explanatory Notes to the Courts and Crimes Legislation Further Amendment Bill 2010 (NSW), which introduced Part 10 to the CPA, specifically state that the purpose of s 158(2) is to "make it clear that representative proceedings may be taken against several defendants even if not all group members have a claim against all defendants" to "overcome the contrary view expressed in relation to the operation of Part IVA of the … [FCA] … in Philip Morris (Australia) Ltd v Nixon8.";

b) Philip Morris (2000) also decided that each defendant needs to be subject to an applicant's claim; ;

c) the Full Court in Bray (2003), which while it considered Phillip Morris was wrongly decided in finding that all group members needed to have a claim against each respondent9., nevertheless also held that it was necessary that each respondent be subject to a claim by an applicant; and

d) given those matters, it would seem reasonable to have expected the Explanatory Notes to have expressly stated that the introduction of s 158(2) was also intended to overcome the requirement that each respondent be subject to a claim by an applicant, if that was, in fact, Parliament's intention, at least by reference to Phillip Morris given the specific reference to that decision in the Explanatory Note.

Secondly, as to Garling J's reliance upon s 158(3) of the CPA (a plaintiff retains standing to continue representative proceedings even though the plaintiff ceases to have any claim against any defendant) to support his conclusion, we have the point made by the Federal Court in Grant Ryan in respect of s 33D of the FCA (the cognate provision to s 158(3) of the CPA) that the section assumes that the representative party had a claim against the respondent in the first place (again, "one cannot cease to have something one never had)", which not only does not appear to have been considered but, with respect, seems correct.

Conclusion

While the conclusion that the CPA permits representative proceedings against a defendant even though no plaintiff has a claim against that defendant is clearly arguable, it is far from free from doubt.

Unless overturned, this decision may see:

a) plaintiff firms institute proceedings, and litigation funders fund proceedings, where a sufficiently common issue is raised10., against a broad group of defendants without needing to source willing plaintiffs with claims against each of them provided only that at least a single plaintiff or group member has a claim against each defendant; and, in that event

b) a preference for commencing proceedings where the CPA (rather than the FCA) applies, particularly in the NSW Supreme Court where the stronger urgings of judicial comity from within the same Court can be expected to result in the same conclusion by other single judges unless they are prepared to find Garling J's decision is "plainly wrong" on this point.


1. (1997) 149 ALR 45
2. [2003] FCAFC 153
3. an impediment  that was eventually addressed in those proceedings by the joinder of additional applicants who could make a claim against at least one respondent so that, as between the various applicants, at least one applicant had a claim against every respondent
4. "Class actions in NSW Supreme Court do not require plaintiffs to have a claim against all defendants"  by Daniel Meyerowitz-Katz (Second Floor Wentworth Chambers, Sydney) Lawyerly 21 March 2019
5. [2003] FCAFC 153 per Carr J at [130] and per Finkelstein J at [243]
6. (1999) 199 CLR 255 at [11]-[13]
7. at [12]
8. [2000] FCA 229
9.  see also Cash Converters International Limited v Gray [2014] FCAFC 111, which, following Bray, held Phillip Morris was wrongly decided
10.for example, in relation to a claim that a common type of payment within an industry was a penalty or a common type of insurance policy within an industry was void or voidable

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