On 31 May 2018, the Australian Law Reform Commission (ALRC) released a
discussion paper as part of its inquiry into class action proceedings and third-party litigation funders.
The discussion paper is likely to draw the attention of New Zealand's Law Commission, which has been asked to undertake a review of the law concerning class actions and litigation funding in New Zealand.
The ALRC's discussion paper follows significant growth in Australian class actions over recent years, which the Australian Institute of Directors has described as "unsustainable". For example:
The cumulative value of securities class action settlements has skyrocketed from AU$112 million in 2003 to AU$1.5 billion last year;
The cost of D&O insurance has jumped by 200% in the last 18 months, with one insurer no longer writing cover in Australia;
Entrepreneurial law firms, without waiting for clients, are monitoring corporate filings in the hope of finding problems; and
Some class actions have resulted in settlements that have been almost entirely paid to the litigation funder and lawyers, rather than to claimants.1
The ALRC has raised a number of proposals for reform, including:
Requiring litigation funders to be licensed and to have adequate capital;
Ensuring that litigation funders make clear, honest and accurate disclosure to potential class members;
Giving the courts the power to review litigation funding fees, and capping fees at 49.9%;
Instituting voluntary collective redress schemes as an alternative to class actions;
Calling for a review of Australia's strict liability continuous disclosure rules; and
Allowing plaintiffs' law firms to charge contingency fees.
The New Zealand Law Commission has yet to announce the terms of reference for its review. However, we expect that it will look closely at the ALRC's proposals.
In our view, it is critical that any reform of class actions in New Zealand does not bring with it an excessively litigious environment and the associated harmful consequences that we have seen in the United States and more recently in Australia.
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.