Law Commission Report on Class Actions and Litigation Funding

Attention will now turn to the government to see whether it will accept the Law Commission’s recommendations and, if so, what priority will be given to any class action legislation before the next general election.

The final report follows two rounds of previous consultations in 2021 (see our previous updates and copies of Bell Gully’s submissions here).

Class actions

The Commission made a number of key recommendations regarding class actions, many of which have already been flagged in its Supplemental Issues Paper:

  • A new class action law, which will become the primary source of class action law. This follows the Commission’s view that the current regulation of class actions (mainly through High Court Rule 4.24) is insufficient. More precise rules of procedure will be contained in the Rules of the High Court.
  • Class actions will not be limited to certain areas of law or certain types of claims. However, the Commission concluded that class actions should be limited to the High Court (and should not be available in the District Court, Environmental Court or Maori Land Court). The Commission also recommended that the government consider class action rules for employment jurisdiction.
  • Class actions must go through a “certification” stage before being authorized (as per submissions made by Bell Gully). This recognizes what the Commission describes as a “significant burden” that class actions place on defendants and the court system. At the certification stage, the court will consider such matters as whether the proceeding discloses a reasonably arguable cause of action, whether the representative plaintiff agrees, and whether a class action is the appropriate proceeding for the claim.
  • Opt-in and opt-out class actions should be permitted in New Zealand.1 The court will consider at the certification stage which approach is appropriate for this particular class action.
  • The court will be more involved in the control of class actions. This will include court approval of any class action settlement or discontinuance.
Litigation Funding

The Commission proposed further regulation of the litigation funding industry while expressing its view that a “statutory class action regime…would have limited practical utility without litigation funding”. The Commission was mindful of the need to balance the interests of access to justice with the integrity of the justice system and the concerns of the accused. The Commission’s proposals for litigation funding include:

  • A litigation funding agreement should only be enforceable by a funder if it has been approved by the court. Court approval will only be given if the court is satisfied that the settlement is fair and reasonable and that the representative plaintiff has received independent legal advice.
  • Plaintiffs should be required to disclose their funding agreement to the court and to the defendant (with appropriate redactions).
  • The court should have the express power to make pooled fund orders (or “cost-sharing orders”).2 In our submissions, we have opposed such orders because we do not consider it the court’s responsibility to make the economics of a claim work for a funder. The previous Australian government had proposed reforms to severely restrict pooled fund orders, although these reforms were not pursued by their newly elected government.
  • There is a rebuttable presumption that security for costs must be provided in all funded proceedings and that the court has the power to order costs (or security for costs) directly against the funder of the litigation. This reflects the fact that the current cost guarantee regime does not provide defendants in funded proceedings with sufficient certainty that funds will be available to cover their costs if they are successful.
  • That there be a public taxpayer-funded class action fund to fund class action lawsuits that may not be profitable enough for commercial funders.

Depending on the government’s response, there will likely be other opportunities to comment on specific proposals, including through the parliamentary process. Bell Gully will closely monitor the next steps.

If you have any questions about class action reform, or class actions more generally, please contact the contacts listed or your Advisor to Bell Gully.

1 In an opt-out class action, anyone who falls within the class definition is bound by the court’s judgment (and is entitled to any damages awarded), unless they actively opt out by giving notice. to the plaintiff’s representative. In an opt-in class action, only people who actively enroll (choose to be part of the class action) are bound.

2 A pooled fund order allows a litigation funder to collect a percentage of the amounts awarded to all class members, even if those class members have not agreed to the litigation funding arrangement. This is seen as a way to make “opt-out” class actions economically viable for a funder.

Amanda J. Marsh