Law Commission says it will recommend a new class action regime for New Zealand

That confirmation is outlined in a further issues paper released as part of the Commission’s review of litigation funding and class actions, and is consistent with the Commission’s initial position on the desirability of a statutory regime. The latest paper sets out the Commission’s conclusions following feedback on its previous issues paper, outlines its preliminary view on some of the key design features of the regime, and seeks further feedback.

Our previous article on the review can be found here.

Conclusions on class actions

The Commission received feedback from a wide range of submitters, including Bell Gully. Our submission can be found here.

After reviewing submissions, the Commission’s view is that:

There should be a statutory class actions regime.
The two, equal objectives of class actions should be to improve access to justice and manage multiple claims in an efficient way.
The regime should consider the interests of both plaintiffs and defendants, safeguard the interests of the class members, strike a balance between certainty and flexibility, be proportionate in terms of the time and cost of litigation, and recognise and reflect tikanga Māori.
The existing rule providing for representative actions should be retained and sit alongside the new regime.¹
The regime should not provide for “defendant class actions” (that is, claims against a representative defendant who represents a class of defendants).

Further feedback

The Commission has reached a number of preliminary conclusions on the design of the class action regime, and sought feedback on draft provisions to be included in a class action statute. The Commission’s preliminary conclusions include:

Class actions should be able to be brought on an opt-out or opt-in basis² (as is the case under the current rule for representative actions).
Class actions will need to be certified by the Court in order to proceed. The proposed class representative will need to satisfy the Court that, among other things, their claim is reasonably arguable, and they are a suitable representative (including by reference to tikanga on representation where the representative seeks to represent their hapū or iwi). The class representative should ordinarily be a member of the class.
Decisions on certification should be able to be appealed by either party as of right.
Class members will not need to have exactly the same cause of action provided there is sufficient commonality between the claims.
There will not be any requirement for the class to be over a certain threshold size (the minimum size is three people, including the class representative), though size may be relevant to whether the claim should be opt-in or opt-out.
Limitation periods should be suspended for all class actions when they are filed, even if they are not ultimately certified to proceed, but would start running again for individual class members when and if (for example) the Court declines to certify the class action.
There should be provision for dealing with how to manage competing class actions, and the defendant(s) should be able to participate in a hearing to determine which competing class action should proceed.
The normal rules relating to discovery will continue to apply.
Aggregate damages awards could be available without the need for individual proof of loss, but only where loss would not ordinarily need to be proved and where a reasonably accurate assessment of the total amount can be made.
Any settlement or discontinuance of the class action must be approved by the Court. The test for settlement should be whether it is fair, reasonable, and in the interests of the class as a whole.

Litigation funding

Notably, there are two issues with funding on which the Commission has not yet reached a preliminary view.

The first is whether the Court should consider the litigation funding arrangements when a class action is commenced.
The second is whether common fund orders and/or funding equalisation orders should be allowed and, if they are, when such orders could or should be granted.³

The Law Commission’s views are interesting to note in the context of moves by the Australian Federal Government to curtail some of the profits flowing to litigation funders. This move followed the Australian Parliamentary Joint Committee report on litigation funding and the regulation of the class action industry (December 2020) which concluded “litigation funders appear to be making windfall profits from Australia's class action system at the expense of class members and defendants”, and that “settlement sums going to litigation funders [are] often disproportionate to the costs incurred and risk undertaken”. The report recommended that caps be placed on the amounts recoverable by litigation funders, and that legislation be introduced to address the availability of common fund orders.

The Australian Government has now released draft legislation in response to the report. That legislation would, among other things, remove the Courts’ ability to grant common fund orders, and establish a rebuttable presumption that funders cannot recover more than 30% of the proceeds from a class action. In describing the motivation for the legislation, the Australian Attorney-General is reported as saying the current funding regime in Australia has created a “feeding frenzy” for lawyers and litigation funders, which the legislation seeks to address.

Submissions

The deadline for feedback to the Law Commission is 12 November 2021. The Commission intends to deliver its final report to the Minister of Justice in May 2022. Bell Gully will be making another submission, and welcomes feedback from clients and other interested parties on the issues covered.

If you have any questions about the matters raised in this article, please get in touch with the contacts listed, or your usual Bell Gully adviser.

¹The existing rule allowing for representative actions has been used to effectively allow class actions to be brought in New Zealand. However, the existing rule does not contain any details as to the requirements for bringing such an action, with those details having been developed by the Courts through case law.

²In an opt-out class action, anyone who falls within the definition of the class is bound by the Court’s judgment, unless they actively “opt out” by giving notice to the representative plaintiff. In an opt-in class action, only people who actively “opt in” are bound.

³A common fund order means that the funder takes a percentage of the amounts awarded to all members of the class, even if those members have not agreed to that arrangement. A fund equalisation order results in class members who have not agreed to the arrangement receiving less compensation relative to those who have.

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.