Proposed class action and litigation funding regime

28 June 2022

The Law Commission has released its final recommendations to create a statutory class action regime and to regulate litigation funding in New Zealand. Decisions on whether to legislate, and when, now sit with the Government.

We consider that the Commission’s proposals represent an important step in the right direction which may improve access to justice while balancing the interests of plaintiffs, defendants, funders and the courts in a fair and efficient process.

Key recommendations

The class action regime will be available to all civil claims in the High Court involving a representative plaintiff and at least two other persons with a common issue of fact or law. The Commission has also advised the Government to explore a separate class action regime for employment claims.

Litigation funders will not be bound by a bespoke licensing regime, but will be subject to greater judicial oversight and strengthened security for costs and adverse costs. The proposed reforms will only apply to funded class actions with other funded claims (for example, by liquidators) continuing under the existing common law.

There will also be ancillary changes to the professional obligations of lawyers acting in funded proceedings in order to mitigate any potential conflicts between lawyers, funders, representative plaintiffs and class members.

Certification of class actions

All class actions will need to be certified by the High Court in order to proceed. The applicant must satisfy the Court that:

  • they have a reasonably arguable cause of action
  • there is a common issue of fact or law in the claim of each class member
  • the representative plaintiff is suitable and will fairly and adequately represent the class
  • a class action proceeding is an appropriate procedure for the efficient resolution of the claims of class members, and
  • the opt-in or opt-out mechanism proposed for the proceeding is an appropriate means of determining class membership.

If the court is satisfied that the proposed proceeding has met the test, it will then be certified as a class action and a certification order published.

Any judgment in the proceeding will then be binding on all members of the class for the common issues set out in the certification order.

Competing class actions

Once a proposed class action is filed and notice published, any similar class actions covering the same, or substantially, the same issues, and at least one of the same defendants, must be filed within 90 days.

The court will then consider all concurrent class actions for certification simultaneously and will also determine which proposed class action will best allow member claims to be resolved in a just and efficient way.

This assessment will consider how the cases are framed, the preferences of class members, the respective litigation funding arrangements and the legal representation. If a court certifies more than one class action to proceed, then it will also make orders for how the concurrent class actions are to be case-managed together.

Disclosure and court-approval of funding arrangements

Funded class action plaintiffs will need to seek the court’s approval of any litigation funding agreement (and also disclose it, with some limited redactions, to the defendants).

The court has to be satisfied that the representative plaintiff has received independent legal advice on the agreement and that the agreement as a whole is fair and reasonable. This will include an assessment of:

  • when the funder can terminate the agreement
  • whether the agreement diminishes the representative plaintiff’s control of the litigation
  • any dispute resolution process between the funder, the representative plaintiff and the class members
  • the terms and extent of any adverse costs indemnity, and
  • the fairness and reasonableness of the funding commission (in the context of the total relief claimed, the estimated costs of the litigation, the complexity of the claim and the estimated returns to the funder).

In an opt-in class action, the court will retain the power to vary the funding commission that is to be deducted from any damages award to the extent that the funding commission is materially in excess of the estimated returns provided to the court as part of the court's approval of the litigation funding agreement.

Cost sharing orders

In respect of opt-out class actions, the court would be able to order that the costs of a class action be equitably spread among all class members, even if they have not opted-in, in the form of a “costs sharing order”.

The Court can set a provisional funding commission (or range of commissions) and vary that amount at a later date to ensure it is fair and reasonable in light of the actual costs and circumstances of the case.  

Presumption of security of costs

Given the significant costs of defending funding class actions, the Commission proposes a rebuttable presumption that:

  • funded representative plaintiffs will provide security for costs in class actions, and
  • the security will be in a form enforceable in New Zealand (so defendants don’t have to chase overseas funders).

The Court will also be empowered to order security for costs and adverse costs awards directly against the litigation funder.

Supervised settlements

All settlements of class actions will be subject to court approval as to whether they are fair, reasonable and in the interests of the class. The court would be required to consider:

  • the terms and conditions of the proposed settlement
  • any legal fees and litigation funding commission that will be deducted from relief paid to class members
  • any information that is readily available to the court about the potential risks, costs and benefits of continuing with the proceeding
  • any views of class members, and
  • any steps taken to manage potential conflicts of interest.

Disgruntled class members will be able to file written objections to any settlement entered on their behalf.

Where a settlement has been approved, class members will not be able to opt out of the settlement unless it is permitted by the settlement agreement or where the court considers that the interests of justice require it.

Public class action funds

The cost of litigation is a significant barrier to justice for many class members and in many instances, litigation funders will only fund proceedings which are “sufficiently profitable”.

In recognition of these realities, the Commission is recommending the establishment of a “public class action fund” which would be available for class actions based on issues of public interest, based on a Canadian model. The fund would be available to cover adverse costs or other fees and be administered by an independent board.

Our comment

We provided detailed submissions to the Commission during the consultations and are pleased to see several of these reflected in the final report. See our previous insights below.

Over recent years, the growing number of funded representative actions in New Zealand have resulted in numerous court skirmishes over procedural issues adding to the cost and delay of already challenging proceedings. We expect these to reduce significantly once the new regime beds in.

While the proposed regime will not solve every issue, it will make an appreciable difference. The proposals provide significant and meaningful scrutiny for litigation funding agreements in the interests of class members, including assessing the fairness and reasonableness of the funder’s commission and the extent of any control over the conduct of the claims.

Our previous insights

Chasing design perfection in class action regime – 15 November 2021

Class action and litigation funding regime welcomed, if the right balance is struck – 18 March 2021

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