11 Nov 2021

Greenfield opportunity for statutory class action regime in New Zealand: Law Commission consults on proposal

By Greg Williams, Gabrielle Scott-Jones

A Supplementary Consultation Paper released 30 September 2021, with submissions due 12 November 2021, is the final part of the consultation process for the New Zealand Law Commission contemplating whether a statutory class actions regime should be introduced and if so, in what form.

There is currently no specific class actions regime in New Zealand. "Representative proceedings" can be brought under High Court Rule 4.24 which allows claims “on behalf of, or for the benefit of, all persons with the same interest in the subject matter of the proceeding.”

The rule is inadequate to deal with the procedural challenges of group litigation which makes representative actions in New Zealand inefficient, unpredictable and expensive as parties grapple with novel procedural issues through the appellate courts. With the arrival of litigation funding, New Zealand has seen an increase in the number of representative actions.

The New Zealand Law Commission commenced a consultation process in December 2020 on its review of whether and to what extent the law should allow class actions and litigation funding and if so, what rules should apply. Following an initial consultation, on 30 September 2021 the Commission published Issues Paper 48: Class Actions Litigation Funding: Supplementary Issues Paper. Submissions are due on 12 November 2021 in respect of the 54 questions asked across six broad topics:

  • commencement and certification of a class action;
  • competing class actions;
  • relationships with class members;
  • during a class action;
  • judgments, damages and appeals; and
  • settlement.

Appendix 2 of the Paper provides suggested provisions for a Class Actions Bill.

Are class actions the answer?

It will not escape the reader that, having bemoaned the inefficiency and expense of "representative proceedings", the class action is not a mechanism that could be described in every case as necessarily efficient or cost-effective.

The challenge faced is how to meet public demand for group litigation with all of its accompanying procedural complexities. The Commission has confirmed it will recommend in its final report that a statutory class actions regime is desirable. Even with the limitations of a statutory regime, there is still likely to be greater efficiency and lesser cost using class actions compared with the current reliance on common law and limited statutory guidance.

Notable features of the proposed New Zealand class actions regime

The Paper and its predecessor traverse a raft of procedural options for the proposed statutory regime. We touch on a couple of points of interest here.

Commencement with three or more persons

Commencement will require a representative plaintiff and at least two other persons. The size of the class will be considered during the certification process as part of the court’s consideration of whether a class action is an appropriate procedure for resolving the claims.

The representative plaintiff must ordinarily be a class member, with an exception for Government entities where another statute empowers the entity to bring a proceeding on behalf of two or more people.

For every defendant, there must be a representative plaintiff with a claim against it. However, it is not necessary to have a representative plaintiff with a claim against all defendants.

Certification regime

Unlike Australia, the class actions regime will have a certification stage. The Paper acknowledges the potential unwarranted cost and delay of certification against the benefits of allowing the court's supervisory jurisdiction to be exercised early to protect class members' interests and prevent vexatious claims.

The court would be asked to determine:

  • Do the proceedings disclose a reasonably arguable cause of action? Modelled on the Canadian regime this would not be a preliminary review of the merits. The question would be assessed on the same standard of proof as a motion to dismiss (strike out application).
  • Is there commonality? Each class member’s claim should raise a common issue of fact or law which is of significance to the resolution of each claim.
  • Will the class be opt-in or opt-out and is the proposed mechanism appropriate? The regime will allow both opt-in and opt-out mechanisms for forming a class. It will not provide for universal or compulsory class actions.
  • Is the representative plaintiff suitable and will they fairly and adequately represent the class?
  • Is a class action an appropriate procedure for the efficient resolution of class members’ claims? Consideration is likely to include whether the time and expense of a class action is proportionate to the remedies sought.

Competing class actions

In Australia the courts must rely on their case management powers to manage competing class actions, a position that has been criticised by the Australian Law Reform Commission. The Commission suggests that there be a legislative provision setting out a process to determine how competing class actions should be managed. The principles that will apply are under development and likely to draw upon experience in Australian courts.

No general power to manage class actions

Under section 33ZF of the Federal Court of Australia Act 1976, the court may, of its own motion or on application by a party or a group member, make any order the court thinks appropriate or necessary to ensure that justice is done in the proceeding. To provide certainty to the parties, the Commission would not include a general power to manage class actions in their proposal draft legislation. The provisions of the legislation will have to do the heavy lifting to provide sufficient procedural infrastructure for the court to follow.

Funding orders

The Commission are still considering whether common fund orders and/or funding equalisation orders should be allowed. It is their current view that one or both would be desirable and should be expressly provided for in the legislation.

Binding effect of judgments

In Australia, a class actions judgment is only binding with respect to the common issues raised. The Law Commission favour this approach and consider a class actions judgment on the common issues should only bind class members with respect to those common issues (including relief). A class member should not be precluded from bringing subsequent proceedings about issues which were not raised in the class action, even if they could have been. The Paper acknowledges the potential burden this places on defendants.

Cy-près damages

A cy-près damages order involves money being paid to an organisation or charity associated with the claim in a situation where distributing compensation to individual class members is impossible or impracticable. Generally, the objective of such orders is deterrence. There is no express power to award full cy-près damages in Australian class actions legislation. The Australian Law Reform Commission recommended against measures that redirect unclaimed aggregate damages in alternative ways (including cy-près), noting that the Australian class action procedure was not intended “to penalise ... or to deter behaviour to any greater extent than provided for under the existing law”. The Commission considers cy-près awards can provide indirect benefits to class members if there is a close nexus between the beneficiary of the funds and the class claims. The proposal legislation includes that the Court may make a cy-près award (or an “alternative distribution award”) where it is not practicable or possible for monetary relief to be distributed to individual class members.

The Commission has sought feedback on its crafting of the provisions that would give effect to these rules, amongst other matters.

Next key date: May 2022

The creation of a statutory regime for class actions, drawing upon the experience of other jurisdictions, presents an opportunity for the Commission to weigh different policy factors to craft a mechanism which it believes will adequately meet the demand for group litigation in New Zealand.

As would be expected where a key challenge of the current regime is a lack of statutory guidance, it appears that the Commission will err on the side of recommending the prescriptive in terms of legislative drafting, avoiding blanket powers such as s33ZF of the Federal Court of Australia Act 1976.

The Commission's final report in May 2022 will confirm their recommended approach in respect of both class actions and litigation funding.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.