A lesson for the class … but where is the principal?
Class action process considered by the Supreme Court as legislation remains out-of-sight
The Supreme Court has used the appeal in Southern Response Earthquake Services Limited v Ross  NZSC 126 to fill the void of legislation dealing with representative claims (commonly known as class actions). The Court considers there is sufficient flexibility in the High Court Rules to manage and further develop procedures to respond to these increasingly complex claims.
Mr and Mrs Ross own a home that was damaged in the Christchurch earthquakes. They settled their insurance claim for their home with Southern Response but now say that they settled on a less favourable basis than they would otherwise have done, because Southern Response withheld information about the cost of remedying damage. Mr and Mrs Ross also say that a considerable number of other insurance policyholders settled their insurance claims with Southern Response in similar circumstances. They therefore applied to the High Court to bring a proceeding as a representative claim (commonly known as a “class action”) for the class of approximately 3,000 policyholders.
Southern Response did not oppose the proceeding being brought as a representative claim, but there was disagreement as to whether it should be brought on an “opt-out” or “opt-in” basis. An opt-out claim means that the court proceeding would be brought on behalf of every member of the group of policyholders, apart from those members who expressly choose to opt out. In contrast, an opt-in claim would require a member of the group to specifically elect to opt in to a proceeding and confirm that to the High Court by a fixed date in order to be included in the proceeding.
The New Zealand class action framework
There has been a noticeable increase in representative actions in New Zealand, particularly during the past decade since the global financial crisis. We have also seen the development and maturity of litigation funders in New Zealand, which often provide the funding for these claims. Some of the more high-profile claims demonstrate the breadth of issues that are being brought before the courts on a representative basis: Houghton v Saunders (claim by shareholders following the collapse of Feltex), Strathboss Kiwifruit v Attorney-General (kiwifruit orchard owners seeking redress from the Ministry of Agriculture and Forestry regarding the Psa outbreak), Cridge v Studorp (weathertightness claim by homeowners against James Hardie regarding Hardietex cladding), and Ross.
However, one of the issues the courts in New Zealand face is that we do not have formal class action legislation that succinctly sets out the procedural steps for bringing and then progressing a claim on behalf of a group of people with a common interest. Other jurisdictions, for example most of the provinces in Canada, have had specific, standalone class action legislation for some time. Their statutes provide a framework for parties to bring a class action, including the criteria a party must satisfy to be certified as a class action, and how the courts then manage a class action from commencement through to the time of settlement or other resolution.
The existing framework in New Zealand is one relatively short rule in the High Court Rules, which has changed little since the 19th century. Because we do not have a comprehensive statutory framework, it has therefore been a case of “feel your way” for the parties who are bringing or defending a representative action, and “what do courts do elsewhere?” for the courts in trying to interpret and apply how a representative action should proceed.
Both the Rules Committee (which develops and updates the High Court Rules) and the New Zealand Law Commission have been reviewing class actions in recent years, but so far without any urgency or progress.
The Supreme Court’s decision
The Supreme Court ultimately decided in Ross that an “opt-out” framework is suited to the circumstances in this case, including because there are a large number of potential claimants who have a particular common interest. Since the alternative “opt-in” framework has been adopted in other representative actions, claims can be brought using either method, depending on the circumstances.
We do not consider that the judgment in Ross has fundamentally changed the landscape for representative claims in New Zealand. Instead, the Supreme Court has sought to provide clarification on two matters:
- The manner in which these types of claims can be commenced on behalf of others; and
- How the courts then manage such claims.
At the end of the judgment, the Supreme Court considered whether it could give guidelines as to which types of proceedings would be opt-in or opt-out. It ultimately declined to do so, and left this to the discretion of the High Court. However, the Supreme Court said that, in general:
- It will be up to the applicant seeking to represent others to propose whether members of a class should opt in or opt out;
- An opt-in approach may be preferable where the class is small and there is specific, existing connection between the class members; and
- The remedy sought could also be a factor: an opt out approach may be more appropriate if the claim seeks a declaration or an injunction, or where there is an error of law, rather than damages.
The future of class actions in New Zealand
The underlying rationale of a class action regime is to promote access to justice to the courts and greater efficiency in court proceedings. But these objectives are difficult to achieve if there is no clear roadmap. On one view, the current framework in New Zealand (or lack of it) is disadvantaging those who most need to use this procedure. Class actions, by their nature, often pit inexperienced and under-resourced litigants against very large entities, and the lack of a well-defined and clear framework creates barriers before a claim is even brought. This can be seen in Ross, where the arguments over the process for bringing the claim have now taken over two years, have gone all the way to the Supreme Court, and the substantive dispute is still to be dealt with.
In our legal system, the courts are relatively conservative in breaking new ground and we have a tradition instead of deferring to Parliament where change may be necessary. In Ross, however, the Supreme Court appears to have decided that until Parliament enacts a comprehensive class action framework, the courts need to fill the void, because these claims are not going away. On one interpretation, the judgment can be seen as a “call” to the High Court to be proactive in managing representative actions and be creative and adaptive to the distinct characteristics each case presents. In particular, the Supreme Court discusses proactive management of:
- How potential members of a class will be notified of a proceeding and their right to opt in or out as the case may be; and
- How proceedings are settled and discontinued.
The Law Commission has had several “false starts” in the past five years reviewing the law relating to class actions in New Zealand (and litigation funding), but appears to have renewed impetus this year and says it will release a consultation paper by the end of 2020. The Supreme Court’s decision is a good roadmap for the Commission of issues that need to be considered as part of its review.
If you have any questions about this decision, or representative claims generally, please contact a member of our litigation and dispute resolution team.
Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.