Australian High Court rules against common fund orders in class actions

The Takata class action

At issue was a class action against a number of carmakers over faulty Takata airbags. The plaintiffs had brought the action on an “opt-out" basis, which meant that they could sue on behalf of all affected consumers, even if those consumers did not specifically sign up to the litigation. The potential class was said to include up to 2 million consumers in Australia.

The action was funded by a litigation funder. If a member of a class enters into an agreement with a funder, that agreement will typically require a share of any settlement or judgment to be paid to the funder. However, in an opt-out class action, many members of the class will not enter into a funding agreement, and therefore cannot be required to pay a share of their winnings to the funder under an agreement.

Funders in Australia had therefore sought “common fund orders" from the courts, under which all members of the class are required to pay a share of their settlement or judgment to the funder, whether or not they agreed to do so under a funding agreement. A number of lower courts have made such orders.

In the Takata case, however, the High Court of Australia has overruled the lower courts, and ruled that the courts do not have the power under the Australian class action regime to make such orders. As a result, funders will only be able to claim a share of a settlement or judgment from a class member if that member has signed up to a funding agreement.

Implications for New Zealand

Unlike Australia, New Zealand does not have class action legislation. However, the Courts have been prepared to interpret the High Court Rules liberally in order to allow such actions to proceed in New Zealand. Most recently, the Court of Appeal overturned earlier High Court authority and ruled that “opt-out" class actions can be brought in New Zealand. Leave has subsequently been sought to appeal that decision to the Supreme Court.²

The question as to whether a common fund order can be made in New Zealand has not yet been considered by a New Zealand court. However, given the High Court of Australia's decision, the prospect of making out the basis for such an order in New Zealand now appears to be considerably more remote, particularly given that (unlike Australia) New Zealand does not even have a legislative regime that could be said to provide a basis for such a claim.

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Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.