2019 Litigation Forecast - Class actions – change coming, but slowly…

New Zealand’s class action regime is in its infancy and lacks a tailored set of procedural rules.

The New Zealand Law Commission announced a project to examine “class actions and litigation funding” early in 2018 only then, unexpectedly, to put the project on hold pending resource availability and due to the priority of other law reform projects. The Commission’s project will consider whether a formal procedural regime (and regulation of litigation funders) is required in New Zealand.

Looking ahead to 2019, we predict some progress. The High Court’s Rules Committee is consulting on proposed new rules intended to “clarify and formalise” the current procedure for representative proceedings, which will operate as the default in the absence of a properly developed class actions regime.

We expect the year ahead to bring:

  • continued dialogue over what a developed class actions regime for New Zealand ought to look like (with an eye to recent reviews and reforms in Australia);
  • further development of the case law as pending representative actions progress; and
  • several ‘watch-this-space’ group claims in the pipeline.

    Reform needed

    There is a compelling case for reform. Even with the status quo, the procedural rules and principles governing representative proceedings must be gleaned from a growing body of cases in which the courts, using the common law, have been filling the gap left by the absence of detailed class actions rules.

    The Rules Committee’s proposed new rules to codify the current position will be a useful and important step forward, and likely to improve certainty and accessibility for those bringing or – to a degree – defending group litigation.

    The Rules Committee is not, however, considering matters of policy or design (such as whether an opt-in or opt-out regime is more appropriate, or whether regulation governing litigation funders is needed).

    Change through legislation is still desirable, in our view, requiring thought, careful analysis and consultation – and so the status of the Law Commission’s review remains a key focus for future reform.

“Our laws are lagging behind other jurisdictions we usually compare ourselves with, such as Australia and the United Kingdom.”

An eye on Australian developments

Australia’s class actions regime is much more developed and mature than New Zealand's, however it is still evolving.

Developments across the Tasman signal potential areas for refinement when considering the design for a better class actions framework for New Zealand. In 2018, there were two reviews conducted of the Australian rules:

  • one by the Victorian Law Reform Commission of Victoria’s state-level rules, released in March 2018
  • one by the Australian Law Reform Commission (ALRC) of the Australian Federal rules to be reported to the Attorney General in December 2018, released on 24 January 2019.
Class Actions 

The Australian regime has permitted “closed class” class actions (where the class definition incorporates only those plaintiffs who have agreed to a litigation funding arrangement). This carries the potential for competing “closed class” class actions with the same or similar claims (potentially funded by different litigation funders and run by different law firms) running concurrently or consecutively. This can cause unnecessary expense and waste of court resources, and is unfair to defendants.

The ALRC consulted on rules requiring the Federal Court to either combine competing class actions or select one to proceed while the other is stayed.

Competing class actions have not so far been a significant issue in New Zealand, although there is scope within the current system for it to become an issue – there are two ongoing class actions against James Hardie in relation to its monolithic cladding, each with a different geographical focus and plaintiff group.

Contingency fees 

Australia is considering whether to permit lawyers to charge US-style contingency fees (i.e. a fee charged as a percentage of the total amount recovered if the claim is successful) – a practice that is currently not permitted in either New Zealand or Australia.

The argument in favour of contingency fees in the class action context is that it may mitigate some of the challenges posed by commercial litigation funding by providing an alternative funding avenue for plaintiffs. Specifically, it may extend the availability of funding options to more cases (e.g. those that are low-value or smaller scale), reduce costs to plaintiffs, and ensure client interests are not side-lined for funders’ interests.

The counter-argument is that this can impact the lawyers' incentives and potentially lead to conflicts of interest as between lawyer and client. This needs to balance with the access to justice rationale. The Victorian review recommended allowing contingency fees in some circumstances. The ALRC’s final recommendation is that percentage-based fee agreements should be permitted in class action proceedings in Australia provided leave is granted by the Federal Court and subject to some further safeguards such as solicitors being required to provide security for costs.  The ALRC considers that these changes may expand access to justice.

Regulation of litigation funders 

Litigation funders are currently lightly regulated in Australia and New Zealand. Litigation funders often sit behind class actions, and assessments of their involvement – such as the terms of a funding agreement – has been the purview of the courts, undertaken on a case-by-case basis. More so in Australia than New Zealand.

The ALRC consulted on a proposal that litigation funders be required to hold an Australian Financial Services Licence. Both reviews suggested that the relevant courts undertake increased oversight of litigation funders and funding arrangements in class actions.

This has relevance for New Zealand, as the Supreme Court has said that the courts do not have a general supervisory role over litigation funders, and saw this as a matter for legislation.

‘Watch this space” group claims

Plantiffs had some success in a few actions in 2018. The Kiwifruit growers successfully argued, at a “stage 1” hearing, for a novel duty of care owed and breached by MPI in allowing the PSA bacteria into New Zealand. This result could have a broad impact on the Crown’s operational activities – although the decision is under appeal to the Court of Appeal. Also, in the long-running Feltex case, the shareholders had a measure of success in the Supreme Court, with certain issues to be remitted to the High Court.

Kiwifruit growers' appeal 

In 2018, the High Court held that MPI owed a duty of care to Kiwifruit growers in relation to the incursion of PSA. Watch out for the appeal of the High Court's decision in the Court of Appeal.

Feltex shareholders “stage 2” hearing

In 2018 a Supreme Court judgment went the shareholders' way on certain issues. Watch out for the High Court “stage 2” hearing which will determine if the shareholders can sustain a claim to damages.

Southern Response

In 2018 a group claim alleging a deliberate policy and settlement was withdrawn; the parties agreed to mediation. A new claim was filed in September 2018 with new issues and a different group. A first procedural judgment came out in December on the class description and “option” mechanism.

Slow progress in cladding class actions

2018 saw a claim filed against Carter Holt Harvey as well as some minor procedural progress on the two cladding claims against James Hardie. A December 2018 judgment on appeal allowed claims against the JH Holding companies to go to trial.

Read the full Litigation Forecast

Who can help