View from the CASL – The Start of the Class Action and Litigation Funding Journey
A Review by Te Aka Matua o te Ture | New Zealand Law Commission
Aotearoa New Zealand does not presently have a class action regime. Instead, it has a representative actions rule in High Court Rule (HCR) 4.24. HCR 4.24 which allows a plaintiff to sue “on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding”.
Commission President Amokura Kawharu summed up the purpose of the current review well when he said, “[o]ur preliminary view is that Aotearoa New Zealand needs a statutory class actions regime. Aotearoa New Zealand’s representative actions rule dates back to 1882 and we don’t think it is sufficient for modern group litigation”.
Further, Aotearoa New Zealand does not presently have any specific regulation of litigation funding in New Zealand. The courts have been cautious in their approach to permitting litigation funding, partly because of the torts of champerty and maintenance.
With that backdrop, the NZ Law Commission set about conducting a comprehensive review of class actions and litigation funding. This review commenced in December 2020, and, after two issues papers, a large number of written and oral submissions and a series of workshops, it is presently expected that the Law Commission will report to the Minister of Justice in May 2022.
The Association of Litigation Funders of Australia (ALFA), of which CASL is a Member, has been instrumental in the review being conducted by the NZ Law Commission. ALFA has made written and oral submissions and has been an active participant in the process, both on issues of the most appropriate class action regime and all things legal finance.
CASL fully supports the statement by ALFA in its submissions that “[e]xtensive, thorough and detailed consultation with diverse stakeholders is critical to the integrity of the process being undertaken by the NZ Law Commission, and to the recommendations expected to be made to the Minister of Justice in May 2022. In recent times in Australia, we have seen an ad hoc, rushed, and unhelpful political focus on changes to class actions and litigation funding, resulting in regulation that is not fit for purpose and has unintended or unfavourable consequences for access to justice. ALFA is supportive of the review being undertaken by the NZ Law Commission, the time frame within which this review is being conducted, and the extensive consultation process being undertaken. This comprehensive review will enable considered and careful changes to be made in New Zealand and ones that will be fit for purpose.”
So, what has the review focused on, where are we now and what is next?
REVIEW FOCUS AND INITIAL RESPONSE
In December 2020, the NZ Law Commission published Issues Paper 45: Class Actions and Litigation Funding (Issues Paper), in which it sought feedback on:
- Whether a statutory class actions regime was desirable;
- The appropriate objectives of class actions;
- Principles for a class actions regime including its scope and key design features; and
- Whether litigation funding is desirable in principle and, if so, whether and how it should be regulated.
The NZ Law Commission received 51 submissions from the NZ Law Society, law firms, funders, barristers, insurers, individuals, and government agencies in response to the Issues Paper. ALFA’s key submissions, supported by CASL, were as follows:
Submission 1 – There are key advantages to implementing a class action regime, with the disadvantages being overstated.
Submission 2 – A bespoke New Zealand class action regime is needed, and many of the disadvantages of class actions can be mitigated by the design of the regime.
Submission 3 – Australia’s quasi-certification and threshold test, together with other mechanisms used to challenge whether a class action has been properly constituted or should be brought before the courts, work well. The position in Australia ensures adequate access to justice. It ensures that claims are carefully reviewed and managed by the courts and that appropriate challenges can be brought by defendants at different stages of the proceeding.
Submission 4 – Class actions should not be initiated as either open or closed class action because it assumes a ‘one size fits all’ approach to class actions, which is inappropriate. ALFA supports the maintenance of the opt-out structure (open classes) coupled with court oversight within a properly drafted statutory class action regime to suit the individual needs of each class action.
Submission 5 – There are advantages to the adverse costs rule in class actions, but where this rule is in place, there must be the ability for plaintiffs to access litigation funding and/or after-the-event (ATE) insurance.
Submission 6 – That Litigation Funding provides and promotes access to justice and that the NZ Law Commission should be slow to make any recommendations that could have the potential to hamper access to justice. In short, the NZ Law Commission should permit and encourage litigation funding in New Zealand class actions, including abolishing the torts of champerty and maintenance.
Submission 7 – On the perceived problems with litigation funding/funders, ALFA made the following submissions:
- Risks: Where specific risks are identified and supported by evidence, those risks should be dealt with on a bespoke and tailored basis (like ASIC Guide 248 – Managing Conflicts of Interest) rather than introducing a breadth of regulation that will inevitably create unintended consequences.
- Funder Control: Litigation Funders should not have ultimate control over all decision-making in the proceeding, and that relationship between the plaintiff and its lawyer is paramount.
- Conflicts of Interest: It is essential to good business practice to have in place adequate arrangements for managing conflicts of interest.
- Funder Profits: The return on capital enjoyed by Litigation Funders is commensurate with the risk attached to investing in litigation.
- Capital Adequacy: Capital adequacy concerns are unfounded and are not based on any evidence of real cases of concern. Courts should be given extensive powers to case manage each class action, including making orders for security for costs.
Submission 8 – Only sensible and measured regulatory changes that balance improving consumer outcomes to ensure a properly functioning market for Litigation Funding should be considered. The Australian Government’s approach to imposing the existing AFSL and MIS regulatory structures is unsuitable for Litigation Funding. It is inappropriate for Litigation Funders (and Class Actions) to be subject to these regulations.
WHERE ARE WE NOW?
In September 2021, the NZ Law Commission published Supplementary Issues Paper 48: Class Actions and Litigation Funding (Supplementary Issues Paper). In the Media Release for the publication of the Supplementary Issues Paper, The Commission President Amokura Kawharu reported that “[w]e have considered all the feedback we received on our first Issues Paper and confirm our view that Aotearoa New Zealand should have a statutory class actions regime. We think class actions can be an efficient way of managing multiple claims and a means of improving access to justice. We are now inviting feedback on some detailed class action issues to assist us in developing a class actions regime for Aotearoa New Zealand.”
On the topic of litigation funding, the NZ Law Commission stated that “[a]s the 2020 Issues Paper contained a comprehensive discussion of litigation funding issues, it has not been necessary to seek further feedback on litigation funding. We are continuing to develop our proposals in this area.” Despite making this statement in its Media Release, the New Zealand Law Commission did highlight two areas of litigation funding in the Supplementary Issues Paper for comment as follows:
- Whether the Court should consider the litigation funding arrangements when assessing competing class action proposals; and
- Whether common fund orders and/or funding equalisation orders should be allowed and, if they are, when such orders could or should be granted.
The key overarching conclusions of the NZ Law Commission in the Supplementary Issues Paper are:
- There should be a statutory class actions regime;
- The two equal objectives of class actions should be to improve access to justice and manage multiple claims in an efficient way;
- The regime should consider the interests of both plaintiffs and defendants, safeguard the interests of class members, be proportionate in terms of the time and cost of litigation, strike a balance between certainty and flexibility, be appropriate for contemporary Aotearoa New Zealand, recognise and reflect tikanga Māori, not adversely impact on other methods of group litigation and provide clarity on issues arising in funded litigation;
- The existing rule providing for representative actions should be retained and sit alongside the new regime; and
- The regime should not provide for “defendant class actions” (that is, claims against a representative defendant representing a class of defendants.
Further, on the question of the design of the class action regime, the NZ Law Commission provided details of its preliminary conclusions as follows:
Commencement and certification of a class action:
- There must be two or more persons represented by a representative plaintiff, the representative plaintiff should ordinarily be a class member, although a Government entity may be a representative plaintiff in some cases and for every defendant, there must be a representative plaintiff with a claim against it.
- Class actions will need to be certified by the Court to proceed with the following issues to be met as part of the certification process:
- Each class member’s claim should raise a common issue of fact or law that is significant to the resolution of the claims;
- That the class action regime is an appropriate procedure for the efficient resolution of class members’ claims;
- Class actions may be brought as opt-in or opt-out to avoid the “one size fits all” approach with the Court deciding at certification which approach best suits the needs of a specific case;
- The statement of claim discloses a reasonably arguable cause of action and that the time and expense of a class action is proportionate to the remedies sought; and
- That the representative plaintiff is suitable for the role and that they can fairly and adequately represent the class including from a cultural perspective;
- Limitation periods should be suspended for all class actions that are commenced, not just those which are ultimately certified.
Competing class actions: there should be a legislative provision setting out a process to determine how competing class actions should be managed, including:
- The inclusion of a wide definition of competing class actions such as, “[t]wo or more class actions with respect to the same or substantially similar issues filed against the same defendant by different representative plaintiffs”;
- A 90-day time limit for filing any competing class actions after the first class action is commenced;
- That the court should consider the issue of competing class actions at the same time as certification;
- That the court should have a broad range of powers available to it to decide how it should manage competing class actions on a case by case basis and that the court should, when deciding how competing claims should be managed, consider which approach would best allow class member claims to be resolved in a just and efficient way including what arrangements have been made for funding the claim; and
- That the defendant should be able to participate in a hearing to determine which competing claims should proceed.
Relationships with class members:
- That representative plaintiffs have obligations to act in the best interests of the group or class as a whole and that there should be detailed recommendations drafted on what those obligations should be, including acting in the best interest of class members, avoiding conflicts of interest, ensuring the case is properly prosecuted, being liable for adverse costs and making decisions on any settlement;
- That the representative plaintiff’s lawyer should be regarded as the lawyer for the class and should owe duties to the class as a whole as and from the time of certification regardless of whether class members opt-in or do not opt-out; and
- That communication between the defendant lawyers and class members should be regulated where it occurs after certification only.
During a class action:
- Providing class members with adequate notice of events in the class action is critical to ensuring their interests are protected. There should be a list of identified events that trigger a notice, but the court should also have a general power to order a notice in any other case and a general power to decide how that notice should be given.
- Class actions need close case management to ensure they proceed efficiently and so that the interests of the class members are protected. In these circumstances, the court has access to its inherent jurisdiction, but it should also have access to tailored case management provisions specific to class actions, including in relation to managing individual case issues and discovery in class actions.
- There should be provision for common fund orders or equalisation orders in class actions to prevent the unfairness of only some class members having to fund the costs of an opt-out class action beneficial to all. No final conclusions were reached as to when these orders should be made and the NZ Law Commission has asked further questions on this topic.
Judgements, damages and appeals:
- There should be some form of res judicata that applies to class members to uphold the principle that there should be finality in litigation. However, it was considered that a class action judgement on the common issues should only bind class members with respect to those common issues (including relief). A class member should not be precluded from bringing subsequent proceedings about issues not raised in the class action, even if they could have been.
- The class action regime should provide for damages to be awarded on an individual or aggregate basis and the court should ultimately decide what is appropriate in the individual case circumstances, including with respect to the most appropriate distribution method. In all circumstances, the court should oversee and supervise the distribution procedure.
- The usual appeal rights should apply in class actions, including for decisions on certification and settlement, but these should be limited to the representative plaintiff and not the class members.
Settlement of a class action:
- There should be court approval for settlement and discontinuance of all class actions, regardless of the stage of settlement, to ensure that the interests of the class members are protected at all times.
- The process for settlement and notice of settlement should be carefully spelled out and applied by the courts, so the process is clear, certain, and transparent.
- The court’s power should be limited to approving or declining to approve a class action settlement, with the judge being prevented from rewriting the terms of the settlement agreement. Where the court has concerns about a settlement that prevents it from providing approval, the judge should communicate those issues to the parties so they can decide whether to renegotiate the settlement to address the concerns. This renegotiation would necessarily focus on issues including amounts payable to the litigation funder by way of commissions.
- Class members should be able to opt-out of a class action settlement once it has been approved.
- The court should maintain oversight of the administration and implementation of the settlement, including appointing a settlement administrator if necessary.
Pip Murphy, Senior Investment Manager of CASL and CEO of ALFA, participated in the NZ Law Commission Class Actions Workshop on 26 October 2021. This was a fantastic opportunity to bring the class action and litigation funding topics to life in a lively discussion and make further submissions on the issues raised in the Supplementary Issues Paper.
Further, we expect to see a report in May 2022 which supports the implementation of a bespoke class action regime in New Zealand supported by the appropriate use of litigation funding. It is not yet clear what form litigation funding will take or what regulation, if any, might be applied. For this reason, CASL, through ALFA, maintains a consistent voice in the debate.