New Zealand

This briefing has been prepared by Chapman Tripp, which has agreed to Simmons & Simmons making it available on elexica. Please contact Michael Arthur and John McKay if you have any questions regarding this briefing.

Introduction

New Zealand has seen a significant increase in class actions in the last five years, in conjunction with a rapid growth in activity by litigation funders. That growth is expected to continue, despite recent class actions having a reasonably poor success rate on the substantive merits. Most of the activity has been around five high profile cases or groups of cases.

The first case is a shareholder claim. Much of New Zealand’s class action framework has been provided by a series of judgments relating to a shareholder class action brought by former shareholders who lost money when the well-known carpet manufacturer Feltex failed two years after its 2004 float.

The second group of cases are product liability class actions, actual or proposed. In particular, New Zealand experienced a leaky building crisis in the early 2000s where many residential home owners discovered their properties had weathertightness issues owing to defective building work. Homeowners have filed several a class actions against a prominent cladding manufacturer alleging various defects in some cladding products or systems.

The third case involved, a class action against an insurer, Southern Response, arising from claims made by Christchurch residents after the 2011 earthquakes. Southern Response is a crown-owned Claims Management Company responsible for settling claims by AMI policyholders for Canterbury earthquake damage which occurred before 05 April 2012 (the date AMI was sold to IAG). The company was created following capital support to AMI Insurance from the New Zealand Government.

The fourth case was a form of test case against ANZ Bank relating to various bank fees for unarranged overdrafts, late and over limit credit cards and similar fees.

Finally, judgment is awaited following completion of a lengthy trial of a claim on behalf of kiwifruit producers against the Crown for alleged negligence over the introduction of the Psa-V bacterium to New Zealand.

Almost all of the cases noted above involved litigation funders.

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General features
    • There is no specific class action procedural regime in New Zealand.
    • Class actions are brought in New Zealand by way of representative action, pursuant to Rule 4.24 of the High Court Rules. Representative actions involve a named representative plaintiff bringing a claim on behalf of and for the benefit for those represented, either by their consent (opt-in) or by order of the court (opt-out). There are a number of requirements which will be discussed in turn.
    • Representative proceedings are available in any civil matter. That is, any action that an individual may bring may be brought as a representative action subject to the “same interest” test being met. Specific statutory representation is available by the Commerce Commission, the Financial Markets Authority, the Health and Disability Commissioner and the Human Rights Commission.
    • All civil remedies otherwise available are available in representative proceedings.
    • There is no minimum number of claims required for a representative action.

     

    This liberal approach is consistent the High Court rules’ objective of securing the just, speedy and inexpensive determination of the proceeding and the policy underlying rule 4.1 (which limits the number of persons named or joined as parties to those whose presence is necessary or who ought to be bound by the judgment). Practically, that means members of the class represented need not all have the same cause of action, and claims for damages (which can require individual proof of elements such as causation, reliance and quantification of loss) can still be brought and can be managed through the representative procedure.

    New Zealand does not have a class certification regime. However, the class of claimants will be defined by a “same interest” test and the scope of the representative order; the Court may make an order under rule 4.24(b) to define the extent of the class of claimants that are eligible. This order could set the proceeding up as an “opt-in” proceeding or it could create an opt-out proceeding and set a final date for opting-in or out.

    • There is High Court authority that representative orders may only be made on an opt-in basis and that, in the absence of a specific regime for class actions, the opt-out mechanism is too great a departure from the High Court Rules. At the moment, the Rules only contemplate opt-in representative proceedings. There are no cases that have been “opt-out” proceedings.
    • Given the absence of specific rules governing management of class actions in New Zealand, representative proceedings are managed in the same way as ordinary cases. Most complex proceedings brought in the High Court will be assigned to a High Court judge for case management, and, where possible, that judge will manage the proceeding through to determination.
    • Civil proceedings in New Zealand are usually heard before a judge alone. Although there is a right to trial by a judge with a jury for some civil proceedings, the exercise of this right is rare in practice.
    • The prescribed time limits under the Limitation Act 2010 cease to run for class actions on the date the representative action is brought.
    • Time stops for the class, as defined in the representative order, at the filing of the statement of claim. If a plaintiff opts-in in accordance with the direction of the court, the date on which they brought proceedings is back-dated to the date on which the statement of claim was filed.
Types of collective redress
  • Class actions are brought in New Zealand by way of representative action. Representative actions can be brought pursuant to Rule 4.24 of the High Court Rules, which state that:

    • One or more persons may sue or be sued on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding:

    (a) with the consent of the other persons who have the same interest

    (b) as directed by the court on an application made by a party or intending party to the proceeding.

    As is typical for class actions, Rule 4.24 requires that the parties have the “same interest” to bring an action together. The Courts have adopted a reasonably low threshold for this requirement, citing the need for a flexible and facilitative approach that enables as many parties as possible access to justice at minimal cost. The Supreme Court has stated that1: what constitutes “the same interest in the subject matter of a proceeding” under rule 4.24 is assessed purposively to allow the representative proceeding to be “a flexible tool of convenience in the administration of justice”. It is sufficient if the party and those represented “have a community of interest in the determination of some substantial issue of law or fact”.

    • The Court, citing the facilitative approach, determines all issues for the named representative plaintiff or plaintiffs, and all the common issues for members of the representative class. The represented plaintiffs can then cite the judgment as res judicata for the relevant common issues. Any plaintiff-specific issues or defences are then adjudicated separately.
    • This approach has now superseded the traditional prohibition on representative actions where reliance is an element of the cause of action2. Now, reliance simply joins the list of matters to be determined individually; the collective elements of the action can still be determined together.
    • Despite this process of separate adjudication of individual issues, separate proceedings for each member are not required.
    • The Court may make an order under rule 4.24(b) to define the extent of the class of claimants that are eligible. This order could set the proceeding up as an “opt-in” proceeding or it could create an opt-out proceeding and set a final date for opting-in or out. This date is a subject of the on-going case management process.
    • The application for the order should contain:
      • an interlocutory application under High Court Rule 4.24(b)
      • an affidavit in support:

    (i)  stating who the lead plaintiff is and why they are suitable to be granted the representative order

    (ii)  describing possible claimants and any strong support or objections

    (iii) describing the method proposed to ensure potential claimants have notice of the representative proceeding (eg an advertising plan)

    (iv) describing the common circumstances, and common issue of law or fact that comprises the “same interest”

    (v)  describing the claim and relief sort

    (vi)  general information about insurance, costs and funding, and

    (vii)  a draft of the proposed opt-in or opt-out notice.

      • a draft representative order
      • a certificate under High Court rule 8.4(2) that it is impractical to comply with initial disclosure obligations, and

      • the statement of claim.

    The plaintiffs’ book-build process usually occurs subsequent to the representative order until the close-off date set by the Court.

    The Court may approve of advertising, opt-in or opt-out standard forms and their associated timeframes as part of the case management process.


    1Credit Suisse Private Equity Llc v Houghton [2014] NZSC 37 at [2].

    2Boyd Knight v Purdue & Matthew [1999] 2 NZLR 278 (CA) at [62].

Funding and costs
    • Cost awards are at the discretion of the Court. The unsuccessful party will be liable for the costs of the successful party, as calculated by a “scale”.  Scale costs are not intended to fully compensate the successful litigant for the cost of litigation. A representative plaintiff is liable for any adverse costs awarded by the Court and usually an agreement will exist between either the represented parties or the funder as to costs.  If no such agreement applies, then the representative plaintiff talks on the risk of a costs award if they are the unsuccessful party.
    • The Court may increase the costs award if the nature of the proceeding or the conduct of a party justified it.  These are usually increased in accordance with the applicable scales.
    • Third party litigation funders have only been present in New Zealand since about 2008 but are rapidly growing in influence.  The interaction of maintenance and champerty with litigation funders was extensively canvassed in the Feltex litigation, and in Waterhouse v Contractors Bonding3. Despite the shift in policy by common law courts, maintenance and champerty remain torts in New Zealand. The torts traditionally barred third parties from taking assignment of rights to litigate; however, their modern iterations are more nuanced.
    • The leading case on whether assignments are void by reason of maintenance and champerty is Trendtex Trading Corporation v Credit Suisse4. Trendtex defines the current standard for judging maintenance and champerty by examining whether the assignee had “a genuine commercial interest in taking the assignment and in enforcing it for his own benefit”.
    • From these cases the following principles can be drawn:
      • a key theme is the need to safeguard the position of the defendants.  As the Court points out, a commercially-funded representative action involving very large numbers of claimants substantially alters the balance between plaintiffs and defendants and is potentially oppressive
      • the fact there is a litigation funder, the funder’s identity, and whether it is subject to New Zealand’s jurisdiction should be disclosed when litigation is commenced
      • a stay for abuse of process should only be granted if a funding arrangement effectively amounts to an assignment of a cause of action to a third party funder. In assessing whether litigation funding arrangements effectively amount to an assignment, the court should have regard to:
        • the funding arrangement as a whole, including the level of control able to be exercised by the funder, and their profit share, and
        • the role of the lawyers acting.
      • it is not the role of the Court to act as general regulators of litigation funding arrangements
      • it is not the role of the Court to approve litigation funding agreements. Funding agreements will be disclosed (at least in part) where there is:
        • an application for a stay on abuse of process grounds
        • an application for security of costs
        • an application for costs against non-parties, or
        • other applications to which the terms of the agreement are relevant.
      • it is not the role of the Court to assess the fairness of the bargain between funder and plaintiff
      • there should be a direct solicitor-client relationship between the members of the represented group and the lawyer acting in the litigation
      • the lawyer acting in the litigation should be responsible for advising the named plaintiffs and members of the represented group about the merits of the case and all material developments in the case. That advice should be prepared and provided without interference by the litigation funder
      • any communications between the litigation funder and members of the represented group, or potential members of the represented group, should be balanced, accurate, and should not include misleading or deceptive statements. Any material breach of this requirement could lead to disqualification of the litigation funder from continuing to fund the litigation, but should not preclude the plaintiffs or represented group from pursuing the claim (including with a different litigation funder), and
      • the litigation funder, including the directors and employees of the litigation funder, should not provide expert evidence in the litigation. Expert witnesses should be instructed directly by the lawyers acting in the litigation and the litigation funder should have no direct involvement in that process.


    3Saunders v Houghton [2010] 3 NZLR 331; Waterhouse v Contractors Bonding Ltd [2013] NZSC 89.

    4Trendtex Trading Corporation v Credit Suisse [1982] AC 679, [1981] 3 WLR 766; [1981] 3 All ER 520.

Recent developments, trends and predictions
    • For individuals, protracted litigation against large businesses, organisations and governments has never been simple. The imbalance of power that typically exists between the plaintiff and defendant in such cases - both in terms of legal buying power, the costs of litigation, and general tenacity - usually dissuades the enforcement of legal rights. In many of these cases the cost of an individual action would exceed the amount claimed.
    • Across most of the Western world, that imbalance has been addressed with a growth in class action suits. As companies have increasingly globalised and standardised their offerings, individuals have been ever-more equipped to challenge them. In most jurisdictions, this has led to the rapid development of statutes and case law dealing with class actions over the past forty years.
    • New Zealand, in contrast, has only recently seen a rise in the popularity of class actions. Traditionally, class actions have been hindered here by the size of the market, lack of access to capital and a largely underdeveloped class action regime. Even now, New Zealand’s approach to such suits remains ad hoc.
    • In spite of that, class actions are increasingly prevalent in New Zealand. In the absence of a statutory framework, New Zealand has been reliant on the courts to develop rules and procedures around representative actions. Before the Feltex litigation, individuals wishing to bring class actions faced uncertain procedure, with no clarity as to how the relationship between the class, named plaintiff, solicitor and funder would be regulated; and no developed law in key areas. However, litigants can now expect greater certainty as case law has started to settle.
    • Litigation funders are also now active in the New Zealand market. Much of the expected growth in class actions will likely be driven by these funders- particularly from Australia. A report on Australia prepared by IMF Bentham calculated that there were 169 funded cases between 19 October 2001 and 31 December 2014 generating AU$946,093,120 in awards or settlement. Given the level of market integration between New Zealand and Australian economy, it is unlikely that the stark contrast between New Zealand (where little litigation is funded by third party funders) and Australia (with a highly developed funding industry) will continue. New Zealand will likely “catch up”.
    • It should be noted that New Zealand’s Accident Compensation Act 2001 prevents individuals from taking legal action on personal injury. Therefore the absence of personal injury litigation, which provided much of the first wave of class action litigation in other jurisdictions, has never occurred in New Zealand.
    • New Zealand’s class action regime is an area of law that would be amenable to codification.
    • The Rules Committee has been working for some time on the development of class action procedure. It issued a Consultation Paper on 30 April 2007 and a second paper in October 20085. The second report attached a draft Class Actions Bill and draft High Court Amendment (Class Actions) Rules.
    • Class Actions Bill 2008:
      • The Bill would have codified many of the procedural rules governing representative actions now, and would have:
        • continued the broad scope of representative actions6. It would have allowed a class action to commence irrespective of the relief sought, and irrespective of whether there were different contracts, acts or omissions giving rise to the claim, so long as there were seven or more plaintiffs and the claims were “in respect of, or arise out of, the same or similar circumstances” and “gave rise to at least one substantial common issue of law or fact"
        • not required consent unless the Court directed that the proceeding was to be an opt-in proceeding. A person could have opted-out by written notice no later than the date fixed by the class actions order
        • stopped the running of the limitation period of all class members when the class action was filed. It would have begun to run again when a person opted out of an opt-out class action, and
        • enabled the Commerce Commission to be a lead plaintiff even though it suffered no loss or damage, but on the basis that it acted on behalf of people who had suffered loss or damage.

    The Class Actions Bill may resurface in modified form. A final draft was sent to the Secretary for Justice in 2009. In 2012, during its investigation into various finance company insolvencies the Commerce Select Committee of Parliament recommended that the Government give priority to the introduction of a class actions regime. However, no progress was made and the Bill is not on the Parliamentary Order Paper or on the Parliamentary website. However, the Law Commission is now in the early stages of scoping a fresh review of the law relating to class actions and litigation funding. That review will need to take into account the significant common law developments since 2008.


    5The Rules Committee is constituted under section 51B of the Judicature Act 1908 and is responsible for developing the procedural rules of the Courts of New Zealand.

    6Class Actions Bill 2008, cl 6.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.