On 31 May 2018, the Australian Law Reform Commission (ALRC) released a discussion paper as part of its inquiry into class action proceedings and third-party litigation funders. Australia has over 25 years’ experience with the operation of a developed class actions regime. In contrast, New Zealand’s class action regime is in its infancy and there is no tailored set of procedural rules for class actions. A review by the New Zealand Law Commission is set to consider whether a formal procedural regime is required in New Zealand. Given the timing, any developments to Australia’s class actions framework are likely to be carefully considered by the New Zealand Law Commission as part of its review.

The discussion paper sets out a number of proposed changes to the existing class action regime in Australia. Submissions on the ALRC proposals close on 30 July 2018 and the ALRC is expected to provide its final report to the Attorney-General by 21 December 2018.

Proposed changes to the regime

Regulating litigation funding

The ALRC proposes that litigation funders should be required to obtain and maintain a litigation funding license to operate in Australia. The licensing regime would require litigation funders to:

• do all things necessary to ensure that their services are provided efficiently, honestly and fairly;
• ensure all communications with class members and potential class members are clear, honest and accurate;
• have adequate arrangements for managing conflicts of interest;
• have sufficient resources (including financial, technological and human resources);
• have adequate risk management systems;
• have a dispute resolution system; and
• be audited annually.

The ALRC is envisaging comparable obligations to those required for the Australian Financial Services Licence. The report notes that although there is currently limited evidence of failures by litigation funders, the ALRC considers it crucial that there is a statutory framework to ensure legal compliance by litigation funders and proper adherence to good governance going forward.

Single class action policy

Competing class actions have been a feature of litigation in Australia and have been increasing. In 2015-16, 25% of class action proceedings were related actions. In recognition of the delays and additional costs that competing class actions cause, the ALRC proposes a number of changes to address competing class actions including:

• amending the Federal Court of Australia Act to clarify that all class actions are to be initiated as “open” class actions – which means plaintiffs are not required to opt in to be caught by the class action; and
• that where there are competing class actions the courts will determine which proceeding should progress, and stay all other proceedings.

The existing Australian class action regime is intended to be an “open” class action model. However, the Australian Courts have allowed a class to be defined in such a way that only those claimants who have retained a particular law firm and/or entered into an agreement with a litigation funder are able to members of a class, effectively allowing ‘closed’ class actions to be brought. This can be contrasted with the current regime in New Zealand which to date has required plaintiffs to opt-in.

The preference for “closed” class proceedings (meaning classes where only plaintiffs who have retained a particular law firm and have entered into an agreement with a litigation funder are members of the class) is cited by the ALRC as a reason for the number of competing class actions in Australia. The ALRC’s view is also that mandating open class actions will increase fairness as it will allow finality for the defendant of a class action as all members of the class are bound by the judgment.

Settlement approval and distribution

In Australia, settlement agreements must be approved by the Federal Court. It is common for the Court to be asked to approve the plaintiff’s legal costs to be paid out of the settlement sum prior to distribution to the class.

The ALRC has proposed an amendment to the Federal Class Action Practice Note to allow the Court to appoint a referee to assess the reasonableness of costs charged in a class action prior to approving the settlement. The ALRC is also considering the process by which settlement payments are currently distributed to class members but has not formed a view on what changes should be made.

Possible implications for New Zealand

The ALRC inquiry is likely to be closely monitored by the New Zealand Law Commission and will provide some useful assistance on the potential features New Zealand should adopt. In particular, we expect the proposed licensing regime for litigation funders in Australia will be of interest in New Zealand. In addition, although we have not seen competing class actions in New Zealand to date, the Australian proposals may prevent competing class actions from becoming an emerging problem in New Zealand.