NZ has a blueprint for a world-leading class action regime
New Zealand has a rare opportunity. While other nations have arrived at class action regimes through decades of legislation, regulation and case law, NZ is in the privileged position of effectively building a system from scratch, learning from the trials and errors of others.
In June, the Aotearoa NZ Law Commission handed down its report on class actions and litigation funding, making 121 recommendations to guide the introduction of a statutory class actions regime that would formalise the important role of legal financiers in improving people’s (including corporates) access to justice.
The commission does not sugarcoat the need for a functioning class action system.
“Significant financial, social and other barriers currently undermine access to civil justice in Aotearoa New Zealand,” the commission said. “This is a risk to democracy as legal rights provide little protection without meaningful access to institutions that can uphold them … While class actions and litigation funding do not offer a panacea, they can both make important contributions.”
Collective civil action
The commission’s recommendations, if adopted, would give NZ a world-class system for collective civil action.
It has the potential to put the country one step ahead of Australia, whose 30-year-old class action regime – and the role of litigation funding with it – continues to evolve due to government and judicial decisions.
With offices on both sides of the Tasman, as well as in many other jurisdictions around the world, Omni Bridgeway is well-placed to assess the many strengths of the commission’s recommendations – and to suggest a couple of further refinements.
Firstly, while we support giving courts the power to manage concurrent class actions, largely to avoid the uncertainty associated with satellite litigation that has been seen in Australia in recent years, we believe the definition of ‘concurrent’ actions should be tightened.
Two class actions that do not have overlapping group membership are not in competition with each other in the same way – and there is no reason why both should not be allowed to proceed.
Only a situation where more than one representative plaintiff seeks to represent the same group of members should be defined as a competing class action.
We do not believe there is a need for a certification test – a preliminary stage in which the court decides whether a case can proceed in class action form. Put simply, the costs and delays caused by a certification test far outweigh any advantages.
Finally, there is the regulation of litigation funders and litigation funding agreements.
'Substantive justice'
We are pleased that the commission has not recommended mandated minimum returns to members.
As the commission has recognised, funding commissions should be determined based on the expected costs and risks of the particular litigation for the funder and “must offer the possibility of substantive justice to those who rely on it”.
“Access to justice is the main reason for permitting litigation funding in Aotearoa New Zealand, and our funding approval provision is designed to focus attention on the fairness and reasonableness of the funding commission in the circumstances of each funded class action,” the commission said.
The commission has rightly made a distinction between class actions and other funded commercial matters, in which, as the commission noted, “an individual plaintiff does not require protection to the same extent as representative plaintiffs and class members, and … should be free to contract with the funder on whatever terms are acceptable to them”.
This will continue to allow commercial parties in NZ to work flexibly with legal financiers to leverage their litigation and arbitration assets in a way now being adopted by leading businesses throughout the world.
The commission does not support licensing and has instead recommended creating a rebuttable presumption that a litigation funder will provide security for costs in funded proceedings.
We do not believe a rebuttable presumption is necessary, provided the courts retain their discretion to order security, weighing up the competing interests of the parties and the circumstances of the case, including the capacity of the claimant to meet an adverse costs order.
Preserving the courts’ broad discretion over the conduct of class actions should be at the heart of any class action regime.
As the commission has recognised, funding commissions should be determined based on the expected costs and risks of the particular litigation for the funder and “must offer the possibility of substantive justice to those who rely on it”.
“Access to justice is the main reason for permitting litigation funding in Aotearoa New Zealand, and our funding approval provision is designed to focus attention on the fairness and reasonableness of the funding commission in the circumstances of each funded class action,” the commission said.
The commission has rightly made a distinction between class actions and other funded commercial matters, in which, as the commission noted, “an individual plaintiff does not require protection to the same extent as representative plaintiffs and class members, and … should be free to contract with the funder on whatever terms are acceptable to them”.
This will continue to allow commercial parties in NZ to work flexibly with legal financiers to leverage their litigation and arbitration assets in a way now being adopted by leading businesses throughout the world.
The commission does not support licensing and has instead recommended creating a rebuttable presumption that a litigation funder will provide security for costs in funded proceedings.
We do not believe a rebuttable presumption is necessary, provided the courts retain their discretion to order security, weighing up the competing interests of the parties and the circumstances of the case, including the capacity of the claimant to meet an adverse costs order.
Preserving the courts’ broad discretion over the conduct of class actions should be at the heart of any class action regime.
This opinion article was originally published by BusinessDesk.