Class action law reform starts to take shape

23 November 2021

The Law Commission continues to progress its review of class actions and litigation funding. It has made a number of decisions in principle, and it is now focused on the details of a proposed statutory regime. 

The Commission has issued a Supplementary Issues Paper for that purpose (see our summary here), following its earlier round of consultation (see our updates here and here).

Given our role representing clients in many of the leading class actions in New Zealand, Bell Gully has participated in both rounds of consultation.  A copy of our submission to the latest round of consultation is here.

In it, we support a number of the Commission’s preliminary conclusions, including the need for an initial certification stage for class actions to progress, and for any settlement or discontinuance to be approved by the court.  In our view, however, the proposed class action regime should be further refined in order to achieve a better balance between providing access to justice for plaintiffs and ensuring fairness to potential defendants.

The Law Commission’s view

The Commission published its further paper on 30 September 2021.  Of particular note, the Commission concluded that there should be a statutory class actions regime with two equal objectives of improving access to justice and managing multiple claims in an efficient way.

The Commission also expressed a number of preliminary conclusions including:

  • Class actions should be able to be brought on an opt-out or opt-in basis1.
  • Class actions will need to be certified by the court in order to proceed.
  • There should a process to manage competing class actions.
  • 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.
Bell Gully’s submission

The Commission then called for submissions on its most recent paper.  In our submission, we made the following key points:

  • Opt-out:  A proposed representative plaintiff should have to justify why a proceeding is brought on an opt-out basis, rather than just electing this as of right.  This is only fair, given that an opt-out proceeding includes class members who may not have chosen to be part of the litigation and may not even be aware it is happening. 
  • Competing actions:  Where there are competing class actions, there should be no ‘first to file’ presumption (that is, the first class action filed in relation to an issue is the proceeding that goes ahead).  This would just encourage plaintiffs to race to the court to file first, rather than properly considering whether to bring proceedings and what those proceedings look like.  In our view, the court should be required to select one class action and dismiss the other proceedings.  In deciding which class action should proceed, the court should determine what would allow class member claims to be resolved in a “just and efficient way”, including by considering how each case is formulated and the litigation funding arrangements in place.
  • Representatives:  Given their importance, the obligations on representative plaintiffs (such as to act in the best interests of the class and to be liable for any adverse costs) should be set out in the proposed statute.
  • Discovery: There should be a specific rule permitting discovery to be ordered from class members.
  • Common fund orders:  The court should not have the power to make common fund orders.  A common fund order allows a litigation funder to take a percentage of the amounts awarded to all members of the class, even if those members have not agreed to the litigation funding arrangement.  We are opposed to common fund orders because in our view, it is inappropriate for the court to be in a position where it has to make the economics of a claim work for a litigation funder.  We encourage the Commission to look at law reform currently proposed in Australia heavily restricting common fund orders (with the practical effect that they will likely not be used at all).
  • Settlement:  The court should be required to approve settlement or discontinuance of a class action as part of the court’s supervisory jurisdiction.
  • Litigation funding: The court should also have the power to amend litigation funding commissions at settlement, to ensure that litigation funders do not obtain “unreasonable and disproportionate profits” at the expense of class members (an issue identified by the Australian Parliamentary Joint Committee on Corporations and Financial Services).

The Commission has said that it will deliver its final report to the Minister of Justice in May 2022.  Depending on the government’s response, there will likely be a further opportunity to comment on specific proposals, including as part of any legislative reform.

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.

1 In an opt-out class action, anyone who falls within the definition of the class is bound by the court’s judgment (and entitled to any damages awarded), unless they actively “opt out” by giving notice to the representative plaintiff. In an opt-in class action, only people who actively “opt in” (elect to be part of the class action) are bound. 

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.