The Law Commission releases issues paper seeking feedback on class actions and litigation funding

Aotearoa New Zealand does not have legislation that provides a framework for class actions or commercial litigation funding. In the absence of formal frameworks, the courts and opposing parties have sought to navigate these two issues and establish rules for much of the past decade. However, the Law Commission has now released an issues paper that asks whether we should have class actions and litigation funding and, if so, how these should be regulated.[1]

The paper immediately starts with the following observation:

“It is evident from our initial conversations and research that there is no broad consensus on the desirability of a class actions regime or litigation funding, nor on the extent to which, or how, they should be regulated. It is primarily for this reason that a first principles review is needed.”

The paper is therefore necessarily a consultation paper that summarises the various issues that arise, explores some of the options for addressing them, and seeks feedback. In particular, the Commission sets out the existing environment for class actions and litigation funding in New Zealand, reviews how both are formally provided for in comparable overseas jurisdictions, provides arguments for and against having formal regimes for both, and raises some specific matters that might need to be addressed if formal regimes are put in place.

Class actions

The constant themes throughout the issues paper are access to justice, efficiency in resolving civil disputes through the courts, and providing greater clarity to those involved in civil court proceedings.

These are themes we discussed in a recent article we published regarding the Supreme Court’s decision in Southern Response Earthquake Services Limited v Ross.[2] In that case, the Supreme Court considered some of the difficult matters the courts and parties face in managing “representative actions” in the absence of class action legislation. The Supreme Court specifically stated:[3]

The Court of Appeal in the present case saw a representative action as having the objectives of improving access to justice, facilitating efficient use of judicial resources and strengthening incentives for compliance with the law. The Court described access to justice as the main objective … we are content to adopt the Court of Appeal’s description of the three general objectives …

The existing framework in New Zealand is one relatively short rule in the High Court Rules, which has changed little since the 19^th century. Part of the Supreme Court’s discussion of that framework in Southern Response Earthquake Services Limited v Ross focused on issues such as:

• The need to balance the interests of plaintiffs and defendants.
• The need for a regime to seek a more just, speedy and inexpensive process.
• The suitability of the person put forward as the representative plaintiff.
• How to determine membership of the “class”, whether membership should be “opt-in” or “opt out”, and the courts’ role in overseeing settlements so as not to prejudice individual class members.
• How to deal with the ongoing cost of progressing a court proceeding once commenced, and then how costs on an ultimately unsuccessful proceeding should be met.

These are all matters the Commission raises in the issues paper for comment and feedback.

Litigation funding

Similarly, there is no specific regulation of litigation funding in New Zealand. Historically, the law has prohibited a person who is not a party to a civil proceeding, and has no direct interest in the outcome, providing financial assistance to a party in return for a share of any recovery. However, the New Zealand courts have adopted a “cautiously permissive approach” to litigation funding in recognition that such funding can have an important role in ensuring access to justice.

In the absence of any guidance from Parliament, the New Zealand courts have had to grapple with several issues confronting opposing parties in litigation that has been funded by litigation funders during the past decade. The Supreme Court’s decision in PwC v Walker in 2017, in which the Supreme Court reviewed litigation funding agreements, is a good example of the challenges the courts have faced.[4] The Commission raises several of these more difficult issues for discussion, including:

• The extent of control a funder has in managing a court proceeding.
• Whether litigation funding agreements should include minimum contractual terms.
• The profits a funder makes if the funded plaintiff is ultimately successful.
• How potential conflicts of interest between the funder, the funded plaintiff, and the lawyer who has been engaged are managed.
• Whether there should be some form of oversight of funders, including regarding licensing and capital adequacy, and (if so) by whom.

Next steps

As noted above, during its initial conversations and research the Law Commission has already encountered wide-ranging and diverging views on whether New Zealand should have formal regimes that regulate class actions and litigation funding. This is unsurprising, as the two issues have the potential to impact a large number of sectors, all of which will have differing interests, including directors, publicly listed companies, financial institutions, insurers, the public sector, and large manufacturers and service providers.

The Law Commission seeks submissions and comments by 11 March 2021, which it will then use to develop recommendations to the Minister of Justice, Hon Kris Faafoi, by mid-May 2021.

If you have any questions about the issues paper, including an interest in commenting on or submitting a response to the Law Commission, 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.