Late 2021 , in Ross v Southern Response Earthquake Services Ltd,1 the High Court set the test that applies to determine whether a class action settlement will be approved, and the factors that the Court will take into account. In reaching its decision, the Court considered New Zealand, Australian, and Canadian case law, as well as the Law Commission’s Issues Paper on Class Actions2.
The High Court adopted a similar, though less detailed, approach a week later in approving a settlement in Re Strahl,3 which involved a claim in relation to the Ross Asset Management collapse.
We discuss the background to the High Court decision in Ross and the Court’s analysis below.
The case concerned claims arising out earthquake insurance claims by Southern Response (formerly AMI Insurance Ltd). The plaintiff alleged that Southern Response made misrepresentations that led the class members to accept smaller insurance payments than they otherwise would have.
A claim on similar facts was also made against Southern Response in a different proceeding, and the plaintiffs in that case were awarded compensation. As a result of that judgment (which was upheld on appeal), Southern Response offered a settlement package (the Package) to class members and certain others who had already settled claims with Southern Response.
Southern Response also entered into a settlement deed with the representative plaintiffs and their litigation funder, Claims Funding Australia (CFA), to end the class action. Under the settlement, Southern Response agreed to seek to settle with all eligible class members in accordance with the Package, and make a lump sum payment to CFA. That settlement had to be approved by the Court, as this was a condition of the orders allowing the representative plaintiffs to bring the claim on behalf of the class members.
The test for approving settlements
The High Court said that the test for whether a settlement of a class action should be approved is whether it “will be a fair and reasonable resolution of the plaintiffs’ claims in the interests of the members as a whole, both as between claimants and the defendant, and as between claimants themselves”. This test drew on New Zealand, Australian, and Canadian case law, as well as the Law Commission’s latest report on class actions and litigation funding in New Zealand.
The Court also set out a non-exhaustive list of 12 factors that were relevant to considering whether the test was met, which were drawn from Canadian law:
- likelihood of recovery or likelihood of success;
- amount and nature of discovery, evidence or investigation;
- settlement terms and conditions;
- recommendation and experience of counsel;
- future expense and likely duration of litigation and risk;
- recommendation of neutral parties, if any;
- number of objectors and nature of objections;
- the presence of good faith, arms-length bargaining and the absence of collusion;
- the degree and nature of communications by counsel and the representative plaintiffs with class members during the litigation;
- information conveying to the court the dynamics of and the positions taken by the parties during the negotiation;
- whether counsel fees were negotiated in the settlement, and if so, how big a factor they are; and
- whether class members were given timely notice of the essential elements of this settlement.
The Court also noted that the Law Commission has adopted a shorter, but broadly consistent list in its draft legislative provisions for its recommended statutory regime.
Applying the factors set out above, the Court approved the settlement as fair and reasonable. The Court observed that the recommendation to settle made by experienced counsel on both sides was an important factor in this case, as was the fact that the class members would keep 100% of the compensation they received by way of settlement – the litigation funder did not receive a fee out of the amounts payable to the class members.
As a condition of its judgement, the Court required certain protections to be put in place for class members during the settlement process with Southern Response, including that three-monthly progress updates be provided to the Court.
This is likely to be an important judgement for future settlements in opt out class actions, at least until the introduction of a statutory regime. A week later in Re Strahl, the Court applied essentially the same test, in reliance on broadly the same sources of law. The Court in that case highlighted that the Law Commission’s work is ongoing and the final shape of any recommendations and the outcome from such recommendations is unknown at this stage It remains to be seen whether these cases will influence the Law Commission’s recommended draft legislation for that regime, which we expect will be included in its report scheduled for May 2022.
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2 See here for our comments on the Law Commission’s review.
3 Re Strahl  NZHC 3608.