Class action update

​​​In this update, we look at two recent decisions concerning class actions and litigation funding, as well as the recent class action review announced by the Law Commission.

Law Commission review 

The Law Commission announced last month that it will be reviewing the law relating to class actions and litigation funding, and has requested feedback on its terms of reference by 15 December 2017. The Commission is likely to consider:

• whether the current High Court Rules adequately deal with class actions and litigation funding, and
• whether a new regime should be introduced to address class actions and litigation funding.

Southern Response class action allowed

Last month, the Court of Appeal delivered its decision as to whether The Southern Response Unresolved Claims Group could bring a class action against Southern Response Earthquake Services Limited in relation to unresolved insurance claims arising out of the Canterbury earthquakes.¹  

The Court of Appeal allowed the Group's claims to proceed as a class action under the High Court Rules. However, the Court required the Group to amend its pleadings to create sub-groups of insureds affected by each allegation, and to identify a representative for each sub-group.

The Court also considered the extent to which the courts should review and approve litigation funding arrangements in a class action context, an issue that had been left open by the Supreme Court's decision in Waterhouse v Contractors Bonding Ltd.²​ The Court ruled that it was not the courts' role to regulate or approve class action litigation funding arrangements, but observed that the courts should exercise "an increased degree of vigilance" in relation to funding agreements when an application is made to bring a class action.^3​

The Court also found the advertising of the class action was misleading in respect of some insureds. The promoters of the class action had told potential class members that they would be "no worse off" by joining the class action. The Court found that this was misleading for some insureds. As a result, the Court of Appeal required the funder to satisfy the High Court that these insureds will in fact be no worse off after joining the class action.

Chief Justice questions funding arrangement

Since the Supreme Court's decision in Waterhouse v Contractors Bonding Ltd, it has been well established that it is not the courts' role to regulate litigation funding arrangements in non-class action proceedings.

However, the Chief Justice recently delivered a judgment in PricewaterhouseCoopers v Walker that creates some uncertainty as to whether the courts should review litigation funding arrangements.^4​

While the parties settled the substantive proceedings before the Supreme Court delivered its judgment, the Court still proceeded to issue its decision. In a separate judgment, the Chief Justice commented that it was "well-arguable" that the funding agreement was contrary to law because of the extent of control over the litigation that the agreement gave to the litigation funder. 

In response, the funders in the case have filed a complaint with the Judicial Conduct Commissioner, arguing that the Chief Justice's comments were prejudicial to litigation funders. 

It remains to be seen whether the Chief Justice's comments in the Walker case will be adopted by the courts, but at the very least we expect that the Law Commission will be considering those comments as part of its upcoming review of class actions and litigation funding.

^1 ​​​Southern Response Earthquake Services Ltd v The Southern Response Unresolved Claims Group [2017] NZCA 489. Bell Gully acts for Southern Response in this proceeding.

² [2013] NZSC 89, [2014] 1 NZLR 91.

³ At [76] to [82].

⁴ [2017] NZSC 151.