The decision, Whyte v The a2 Milk Company Limited, provides useful guidance on the circumstances where a proceeding (particularly a class action) will be stayed in New Zealand due to a competing proceeding across the Tasman. This is a welcome development in the streamlining of litigation and effective management of class actions in the New Zealand courts. Importantly, the case also confirms that Australian courts can have jurisdiction to consider claims under New Zealand legislation. This may lead to such claims being bundled into larger Australian-based class actions.
The competing proceedings
a2 is registered in New Zealand under the Companies Act 1993 and listed on both the ASX and NZX. The cases relate to various statements made by a2 to the ASX and NZX in late 2020 and early 2021. The cases allege that statements made in a2’s FY21 earnings guidance, and subsequently to the stock exchanges, did not adequately take account of a number of factors which would impact the company’s financial performance and likelihood of achieving the forecasts.
In October and November 2021, plaintiff shareholders launched two class actions against a2 in the Victorian Supreme Court, Australia. Both claims alleged that a2’s statements were misleading and deceptive and that the company breached its continuous disclosure obligations by not withdrawing the representations or disclosing the matters that affected the achievement of the guidance. Both alleged breaches under Australian law with one claim also alleging breaches under New Zealand law. Ultimately, the two Australian class actions were consolidated into one proceeding. The Victorian Supreme Court subsequently ruled that it had jurisdiction to determine the New Zealand law claims, including to grant relief.
In May 2022, a New Zealand-based plaintiff, Mr Whyte, launched a similar class action against a2 in the New Zealand High Court. The claim was for the same alleged breaches of continuous disclosure obligations and misleading and deceptive conduct as in the Victorian actions, but was made only under New Zealand law. As at the date of the hearing, a number of investors had opted-in to the proceeding, including a financial institution representing 3907 beneficial owners (3812 of whom reside in New Zealand). Each participant in the New Zealand class action also agreed to opt-out of the Australian class action, such that there would be no overlap between the classes of plaintiffs.
Mr Whyte sought leave from the New Zealand High Court to commence the class action (which is a step required under the High Court Rules). In turn, a2 applied to stay the proceedings under the Trans-Tasman Proceedings Act. A stay of proceeding is an order by the Court halting further progress of the proceeding.
The decision of Justice Edwards on both issues was released last week.
Leave to commence the class action
The Court approved the application for leave to commence the class action without much difficulty. Justice Edwards concluded that there was a requisite commonality of interest between Mr Whyte and the class members, and the members of the proposed class all consented to representation. The Judge considered that any arguments about overlapping class actions were best dealt with by considering a stay under the Trans-Tasman Proceedings Act, rather than when determining whether to grant leave to commence the class action.
The Trans-Tasman Proceedings Act 2010
The Trans-Tasman Proceedings Act was enacted in 2010 with the stated objective of streamlining “the process for resolving civil proceedings with a trans-Tasman element in order to reduce costs and improve efficiency”. Under section 24 of the Act, a New Zealand court may stay a proceeding if satisfied that an Australian court both (a) has jurisdiction to determine the matter as between the parties and (b) “is the more appropriate court to determine those matters”. In determining whether the Australian court is the more appropriate court, the New Zealand court may consider a number of factors including the location of those involved in the proceeding and of the underlying facts, the law that would be most appropriate to apply, and whether a similar proceeding has already been commenced against the defendant in a court in Australia. If both of those limbs are satisfied, the New Zealand court has discretion as to whether to grant a stay.
In this case, the Court had little difficulty in concluding that the Victorian Supreme Court had potential jurisdiction to determine the matters between the parties. The real question for the Court was whether the Victorian Supreme Court was the more appropriate court to determine the issue.
Determining whether a stay should be granted
The Court gave little weight to the fact that the representative plaintiff (Mr Whyte) and a majority of the class reside in New Zealand and to the fact that a2 was incorporated in New Zealand and had its registered offices and manufacturing base in New Zealand. Instead, the High Court determined that the Victorian Supreme Court was the more appropriate court including because:
- The proceedings are substantially similar and the Australian proceedings were filed first in time. The Judge noted that the “first in time consideration” was “not determinative” but did carry weight.
- Both claims had the same defendant and affected shareholders.
- The relevant law at issue was similar in New Zealand and Australia. To the extent that the New Zealand law on continuous disclosure might be more plaintiff-friendly, that is not enough to suggest the New Zealand law is the most appropriate to apply. Such a question has to be considered from the perspective of both parties. In any event, New Zealand law is currently pleaded in the Australian proceeding so the plaintiffs could still get the advantage of any differences.
- a2 would face significant cost burdens defending multiple class actions in two jurisdictions (despite its size and resources).
- Allowing the proceedings to continue in one jurisdiction would promote the goals of efficiency and cost-saving in the Trans-Tasman Proceedings Act.
- The Judge noted that access to justice concerns were important but do not “confer an unfettered licence to litigate” and must be balanced against other interests such as proportionate use of public resources, public confidence in courts, predictability, certainty, and finality of litigation. The Judge considered that any intrusion on access to justice was “very low” as the class members had other options, including to participate in the Australian proceeding.
- The comparative benefits of the funding arrangements between the two class actions were said to be matters for the plaintiffs to assess and determine for themselves and were largely put aside in the Judge’s consideration.
Weighing those factors together, the Judge ordered a stay of proceedings with leave reserved for the plaintiffs to apply to lift the stay if there is a material change in circumstances.
The judgment is a welcome clarification of the way the New Zealand courts will manage a class action when there is a similar class action in Australia. That is particularly relevant given we expect to see more of these competing class actions in the future.
Bell Gully has extensive experience acting in class action proceedings, and has acted in a number of the significant class actions that have been before the New Zealand courts. For more information, please get in touch with the contacts listed, or your usual Bell Gully adviser.