Defendants beware – class actions are gathering momentum

Class actions are on the rise in New Zealand.

This increase in class actions, as well as the availability of litigation funding to assist with these types of claims, will concern likely defendants – large, resourced entities including insurers, local and central government and large companies.

At the moment, there are class actions in progress in New Zealand on allegedly defective cladding (James Hardie; Carter Holt Harvey), Christchurch earthquake settlements (Southern Response; Claims Resolution Service / Grant Shand Barristers & Solicitors), allegedly misleading prospectus (Feltex), and the PSA incursion (Kiwifruit claim).  The majority of these claims are supported by litigation funders, who will presumably be taking a share of the proceeds if the claims are successful.

Further class actions appear to be in the early stages, including actions by:

  • Owners alleging damage to their homes by roadworks on Auckland’s Southern motorway;
  • Owners of defective buildings, alleging claims against councils;
  • Telecommunications workers alleging financial losses from subcontracting arrangements;
  • Owners of properties built with steel reinforcing mesh, alleging claims against manufacturers;
  • Residents affected by the Edgecumbe floods, alleging claims against the regional council.

Why defendants should be concerned

The Supreme Court has an encouraging attitude towards class actions, calling them a “flexible tool of convenience in the administration of justice”. [1]   This is important because in order to proceed, lead plaintiffs need to show that the proposed class have the “same interest in the subject matter” of the proceeding.[2]  The Courts have taken a liberal approach to the “same interest” requirement and the grant of orders allowing class actions to proceed.  The key arguments in favour of class actions proceeding – including efficiency, and avoiding duplication and inconsistent findings – can be difficult to counter.

Also of concern for defendants is that filing a representative statement of claim, even before class action orders are made, stops the clock for limitation for all potential class members.  That means that all potential members of the class, even those who haven’t signed up to or even heard about a proposed class action, benefit from the filing of the representative statement of claim.  They can later join the class action (subject to any opt in orders made by the Court) without the risk of any limitation periods that expired in the meantime barring their claims.

Scepticism about litigation funders

But there is a glimmer of hope for defendants, at least in funded actions.  Elias J in her dissenting decision in PWC v Walker[3] perhaps signalled a willingness to interrogate litigation funding agreements if they give the funder significant control over the proceeding.  This may feed down to the lower Courts in considering whether to grant leave for class actions where litigation funders are involved.  At the very least where a litigation funder is involved the Courts are willing to require reasonably significant security for costs, generally staged over the course of the proceeding.

Changes could be coming

The Law Commission is looking at both class actions and litigation funding.  More regulatory structure around class action would likely facilitate and may even reduce costs involved with bringing a class action, to the advantage of consumers and other prospective plaintiffs, and the detriment of likely defendants  The Australian Law Reform Commission has recently reviewed class actions and litigation funding in Australia, recommending that litigation funders be more closely supervised.  It remains to be seen whether New Zealand will follow suit.

 

[1] Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37.  This is a claim by a group of investors against the directors of a failed company, and the auditors of its prospectus.

[2] Rule 4.24, High Court rules 2016.

[3] PWC v Walker [2017] NZSC 151 [6 October 2017].

Share your thoughts