Class actions likely to be more widely used

20 November 2020

Expect class actions to become more common after the Supreme Court decision in Ross v Southern Response.

The Court found that the “opt out” class action – where all potential claimants are automatically included unless they take a positive step to remove themselves – is available under New Zealand law and is likely to become the default position, as it is in Australia.


Mr and Mrs Ross sought to bring an “opt out” claim on behalf of approximately 3000 policyholders against Southern Response Earthquake Services Limited – the Crown-owned company responsible for former AMI customers’ claims arising from the Canterbury earthquakes.

The Court of Appeal had allowed the case to proceed and Southern Response, which has a lot of money riding on the outcome, appealed to the Supreme Court, which has confirmed the Court of Appeal ruling. 

The Supreme Court’s view has been keenly awaited, with the New Zealand Law Society, the New Zealand Bar Association and New Zealand’s largest litigation funder, LPF Group, all making submissions at the hearing.

The Ross’ claim was that they, and others, had been misled by Southern Response into settling their insurance claims on worse terms because Southern Response had provided incomplete information about remedial costs.

“Opt out” process improves access to justice

The Supreme Court found that “opt out” representative actions can be available under New Zealand law without a comprehensive legislative regime like that which exists in several other jurisdictions. 

This is because an “opt out” procedure can achieve the overarching objective of our justice system, namely the just, speedy and inexpensive determination of claims, while promoting access to justice. To the extent that any particular case raises difficult procedural issues, they could be addressed through existing High Court Rules. 

The Court also confirmed that the New Zealand courts can supervise any settlements reached in an “opt out” claim and protect the interests of claimants who are covered by the class but have taken no steps in the proceeding (so called “absent plaintiffs”).

This process is similar to the courts’ oversight of negotiated pecuniary penalties with regulators and is common overseas.

Importantly, the Court gave guidance that the “opt out” process is likely to be appropriate:

  • when it is the preferred approach of the lead claimants (unless there are good reasons otherwise)
  • in larger classes of claimants which may not have a natural community (although this will not be determinative), and
  • in situations where the relief sought is declaratory or injunctive, and all class members are affected equally.

It would generally not be appropriate where there was a real risk that some members of the class would be adversely affected by the proceeding (for instance, if there was a counterclaim against the plaintiffs).

More large funded claims likely

This will increase the appetite for litigation funded class actions – an outcome that the Court of Appeal considered would be beneficial in encouraging organisations dealing with the public to comply with the law.

Many funders will only fund claims based on a potential return multiple of their legal costs. By avoiding the need to gather potential “opt in” claimants together through an advertising campaign, funders can now have greater certainty over the potential returns.

Procedure still a work in progress

These incentives will in turn encourage competition between litigation funders to establish the representative class. The Supreme Court noted that this will raise further procedural issues that will need to be resolved in each case, but the Court was confident they could be dealt with under the Rules.

Likely issues include establishing the scope of the class, the form of notices to potential members of the class and the continued oversight of potential funding agreements. The Australian experience has shown how the courts can also:

  • manage potentially competing class actions, and
  • ensure equity between class members regarding “common fund” or “funding equalisation” orders (ensuring class members pay their fair share of costs).

The NSW Supreme Court, Victorian Supreme Court and Federal Court have agreed protocols for managing these claims through consolidation, joint case management and “selection hearings”. 

The key principles for choosing between competing class actions are likely to include:

  • the funding model for each competing claim
  • the extent of resourcing and support for the claim (to ensure there is a “level playing field” between the claimants and defendants), and
  • the scope of the pleading of each claim.

The courts will ultimately be driven by what is in the best interests of the claimants and will be keen to avoid a “rush to the courtroom door” or race to the bottom on fees.

Further regulation to follow?

As anticipated in our Litigation & Dispute Resolution – Trends and Insights publication earlier this year, further regulation of the litigation funding industry and class actions is likely to follow. We expect the New Zealand Law Commission to publish a detailed consultation document before the end of the year, with submissions to follow early next year. 

There are certainly lessons to be learned from the Australian experience as:

  • the Morrison Government has taken steps to license litigation funders
  • the High Court of Australia has confirmed that “common fund orders” 1 are not available under Federal and New South Wales statutes, and
  • the Australian Law Reform Commission has recommended statutory amendments to address rising issues with competing class actions.

There is plenty of room for “opt out” class actions to develop to improve access to justice for claims that would otherwise struggle to proceed.

Thank you to Daniel Street for drafting this Brief Counsel 

1 Common fund orders are a court order that allows a litigation funder to recover its cost from the total pool of damages (even from those damages payable to “opt out” plaintiffs who have not signed up to the litigation funding agreement).  These orders have been used to remove “free riding”.

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