Law Commission releases final report on class actions and litigation funding

1 July 2022

The Law Commission has now released its final report following its review of class actions and litigation funding. The Commission has recommended a new Class Actions Act which it says will improve access to civil justice as well as providing for greater efficiency in the class action process. The Commission has also proposed greater regulation of the litigation funding industry and, in an unanticipated development, the development of a public class action fund.

The focus will now turn to the government to see whether it will accept the Law Commission’s recommendations, and if so, what priority any class actions bill will be given in advance of the next general election.

The final report follows two earlier rounds of consultation in 2021 (see our previous updates and copies of Bell Gully’s submissions here).

Class actions

The Commission has made a number of key recommendations in relation to class actions, many of which have been previously signalled in its Supplementary Issues Paper:

  • A new Class Actions Act, which will become the principal source of law on class actions. This follows the Commission’s view that the current regulation of class actions (primarily through High Court Rule 4.24) is insufficient. More specific procedural rules will be contained in the High Court Rules.
  • Class actions will not be restricted to certain areas of the law or types of claim. However, the Commission has concluded that class actions should be limited to the High Court (and should not be available in the District Court, Environment Court or Māori Land Court). The Commission has also recommended that the government considers class action rules for the employment jurisdiction.
  • Class actions must go through a ‘certification’ stage before they are allowed to proceed (consistent with submissions which Bell Gully made). This recognises what the Commission describes as a ‘significant burden’ that class actions impose on defendants and the court system. At the certification stage, the court will consider issues such as whether the proceeding discloses a reasonably arguable cause of action, whether the representative plaintiff is suitable, and whether a class action proceeding is the appropriate procedure for the claim.
  • Both opt-in and opt-out class actions should be permitted in New Zealand.1 The court will consider at the certification stage which approach is appropriate for that particular class action.
  • The court will be more involved in the oversight of class actions. This will include court approval of any settlement or discontinuance of a class action.
Litigation funding

The Commission has proposed further regulation of the litigation funding sector while expressing its view that a “statutory class actions regime … would have limited practical utility without litigation funding”. The Commission was conscious of the need to balance the interests of access to justice with the integrity of the court system and defendants’ concerns. The Commission’s proposals for litigation funding include:

  • A litigation funding agreement should only be enforceable by a funder if it has been approved by the court. Court approval will only be given if the court is satisfied that the agreement is fair and reasonable and that the representative plaintiff has received independent legal advice.
  • Plaintiffs should be required to disclose their funding agreement to the court and the defendant (with appropriate redactions).
  • The court should have the express power to make common fund orders (or ‘costs sharing orders’).2 In our submissions, we opposed such orders as we do not consider it to be the court’s role to make the economics of a claim work for a funder. The previous Australian Government had proposed reforms to heavily restrict common fund orders, although these reforms will not be pursued by their newly elected government.
  • There be a rebuttable presumption that security for costs be given in all funded proceedings and that the court have the power to order costs (or security for costs) directly against the litigation funder. This reflects the fact that the existing security for costs regime does not give defendants in funded proceedings sufficient certainty that funds will be available to cover their costs if they are successful.
  • That there be a taxpayer-funded public class action fund in order to provide funding for class actions that may not be sufficiently profitable for commercial funders.

Depending on the government’s response, there will likely be further opportunities to comment on specific proposals including as part of the parliamentary process. Bell Gully will be closely monitoring the next steps.

If you have any questions about the class actions reforms, or about class actions more generally, 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. 

2    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. This is seen as a way of making ‘opt out’ class actions economically viable for a funder.

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.