In those judgments, the Court carefully considered what plaintiffs and defendants can say to potentially affected class members, and the extent to which the Court can police those communications.
Key takeaways:
- The Court confirmed it has a supervisory role over both the plaintiffs' and funders' communications to potential class members, and observed that these communications should not contain “wooing or advocating content".
- The Court also ruled it has a supervisory role over a defendant's communications with potential class members, which must be “reasonably tempered" and not misleading, coercive or similarly unacceptable.
- The Court rejected the plaintiffs' request that Southern Response be restrained from communicating with potential class members while the plaintiffs sought to build their class by spending opt-out notices.
- The Court declined to make interim orders requiring Southern Response to set aside 15% of any settlement agreed with a class member until the Court determines the plaintiffs' application for a common fund order requiring all customers who receive a payment to contribute to the funder's costs.
Background
In May 2018, Mr and Mrs Ross commenced a funded class action on behalf of the 3,000 customers who settled with Southern Response following the Canterbury earthquakes (the Ross class action). The Rosses allege that Southern Response misrepresented information about the cost of remedying earthquake damage and, as a result, settlement had proceeded on a less favourable basis for customers than it would have otherwise.
In November 2020, the Supreme Court ruled that the Ross class action could be brought on an opt-out basis (see our update on that decision here). This means the Rosses can claim on behalf of all other customers without obtaining their consent, unless individual customers specifically say they do not wish to participate. Following the Supreme Court's decision, the next step in the class action is for class members notices to be issued, advising class members of the class action and how to opt out.
Meanwhile, in a separate claim brought against Southern Response by Mr and Mrs Dodds, the Court of Appeal ruled in September 2020 that Southern Response misled customers about their earthquake insurance entitlements, in the same way as that alleged in the Ross class action.1 This ruling therefore potentially affected the 3,000 customers who the Rosses sought to represent. In light of the Dodds decision, Southern Response and the Crown developed a compensation package to address the issues raised by the Court of Appeal, and Southern Response sought the Court's permission to communicate directly with affected customers about the compensation package.
Both the plaintiffs and Southern Response sought orders from the Court in relation to the other's proposed communications to potentially affected customers, as well as related issues. That resulted in the Court issuing four separate judgments (which can be accessed here).
The Court's review of the plaintiffs' communications
In one of its judgments, the Court confirmed that it has a supervisory role over the plaintiffs' proposed notices to class members. The Court explained that since the purpose of these notices is “to enable members of the class to make an informed decision" about their role in the class action, the notice should not contain “wooing or advocating content", should be clear, succinct and written in plain language, and “must not be apt to mislead".2
The Court canvassed the matters to be included in the notice, including the nature of the proceeding, the relief sought by the plaintiffs, the class description, the funding arrangement in place, the option to opt out or stay in and the consequences, the opt out date, and the opt out method.
It also considered whether and to what extent the notice should tell potential class members about Southern Response's compensation package. The Court ruled that it should, given that key purpose of the notice was to enable informed decision-making. The Court accepted that Southern Response's proposed wording about its package should be included in the notice, noting that this wording presented the package “accurately and fairly" and ensured that the “information does not assume exaggerated importance".3
The Court's supervisory role over Southern Response's communications
The unusual circumstances of Southern Response having a separate compensation package for customers meant that the plaintiffs also asked the Court to consider the ambit of its supervisory powers over communications between a defendant and class members.
In a further judgment, the Court ruled that its supervisory powers extended to scrutinising Southern Response's communications. The key reason was that two sets of communications would be going to class members about similar matters at similar times (the Rosses' class members' notice and Southern Response's communication about its compensation package), and the Court considered that this could give rise to potential confusion or misunderstanding.4
In reviewing Southern Response's communications, the Court considered whether the communications were misleading, coercive or similarly unacceptable. The Court adopted three “standards" from Australian case law as helpful (but non-exhaustive) considerations:
- whether the communication accurately explains the consequences of accepting and not accepting Southern Response's offer,
- whether the offer allows a period for acceptance that gives the class member a genuine opportunity to obtain legal advice, and
- whether the communication makes it clear that the class member is entitled to seek (and might benefit) from independent legal advice.5
The Court noted that Southern Response's ability to promote the package “must be reasonably tempered" to ensure a balance between its communications to policyholders and the Rosses' communications to class members.
Should Southern Response be prevented from communicating with customers?
The plaintiffs asked the Court to prevent Southern Response from communicating with potential class members during the period for opting out of the class action.
The Court rejected this, ruling that it would be “inappropriate" for the Court to require Southern Response to do so. Of paramount importance for the Court was class members' ability to make an informed decision about their membership of the class action. This required having information about the alternative pathways to settlement. Accordingly, the Court concluded that the communications should be provided to class members and policyholders around the same time.
Does Southern Response have to hold back 15% for the litigation funder?
A final issue was whether 15% of any settlement under Southern Response's settlement package should be set aside for the benefit of the litigation funder in the class action, to help satisfy any funding order in the class action.6 The plaintiffs sought interim orders requiring Southern Response to hold these funds back.
In its fourth judgment, the Court acknowledged that while there was a serious question to be tried as to whether such a funding order would be granted, the balance of convenience and overall justice of the case in this instance favoured Southern Response (and in particular the customers who decide to settle with Southern Response directly).
The Court observed that if a “set aside" order was granted, the only persons immediately affected would be the customers themselves.7 Further, the Court considered it debatable whether customers who chose to settle with Southern Response will have obtained any benefit from the Ross class action. Meanwhile, although experiencing some cost and inconvenience, the plaintiffs in that action must be taken to have accepted the risk there would not be a funding order in the class action that applies to customers who settle directly with Southern Response.
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 advisor.
* Bell Gully acted for Southern Response in the Dodds litigation.
1 Southern Response Earthquake Services v Dodds [2020] NZCA 395, [2020] 3 NZLR 383.
2 Ross v Southern Response Earthquake Services Ltd [2021] NZHC 2452 at [17] at [22], [26], [33], [34].
3 At [133].
4 Ross v Southern Response Earthquake Services Ltd [2021] NZHC 2451 at [175]-[176].
5 Ross v Southern Response Earthquake Services Ltd [2021] NZHC 2453 at [26], citing Courtney v Medtel Pty Ltd [2002] FCA 957, (2002) 122 FCR 168 at [52].
6 Ross v Southern Response Earthquake Services Ltd [2021] NZHC 2454 at [9].
7 At [86].
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.