Class action litigation: a new frontier
Despite some obstacles, a class action regime is emerging in New Zealand. This is an important development for individuals’ access to justice and their ability to effect social change.
The litigation filed by Feltex investors went to trial in March, investors commenced proceedings in relation to the LDC Finance collapse in 2013 and “Fair Play on Fees” have filed proceedings in relation to penalty fees charged by banks.
There have also been media reports of owners of earthquake damaged homes in Christchurch considering a class action against insurers, investors in the Ross Asset Management Ponzi scheme considering a class action against the IRD, a potential wage discrimination claim by the Service and Food Workers Union on behalf of 25,000 caregivers and a claim by 80 small businesses for loss suffered from the grounding of the Rena off the coast of Tauranga. There are now at least five litigation funders operating in New Zealand.
What’s happening elsewhere?
Class action litigation has been a significant feature of the legal scene in the United States, dating back to the 1960s. An article on the American Bar Association Website estimates that over 6,000 class actions were filed per year in federal court between 2010 and 2012.1
Class action litigation has flourished in the United States for a number of reasons, including the possibility of large damages awards by juries, the fact that parties bear their own costs irrespective of outcome, the “opt-out” form of class action under which all members of the class are bound by the outcome unless they choose to opt out, an established plaintiffs’ litigation bar and contingency fees.
The class action phenomenon may also reflect an aspect of US culture, in which the courts play an important role in social change and, in particular, in striking the balance between powerful corporations and citizens.
Multiple Canadian jurisdictions have adopted class action legislation, most since 1992. It is commonly accepted that class action proceedings are now much more prevalent, with over 100 class action proceedings filed annually.2
The largest class action trial in Canadian history commenced in March 2012, 14 years after the initial plaintiffs filed proceedings. It involves Quebec’s 1.8 million smokers and the three biggest cigarette companies. The trial is ongoing.
In Australia class action litigation took off when the Federal Court of Australia Act was amended in 1992 to introduce “representative proceedings”. Victoria and New South Wales adopted the same procedure in 2000 and 2010.
Initially class action litigation focused on product liability and mass torts. But by 2009, shareholder class actions had overtaken these claims as the most common type of class action.
In March 2012, it was reported that an average of 14 class actions were filed each year in the 20 years after the regime was introduced.3 In February Herbert Smith Freehills reported that in the last two years there have been close to AUD$900 million of class action settlements in Australia and that the largest class action funder, Bentham IMF, is on track to achieve a funded litigation portfolio of AUD$2 billion.4
On 7 February 2014 the Victorian Supreme Court signed off on an AUD$89 million settlement of a class action taken by people who suffered birth defects after their mothers took thalidomide.
Law firms and litigation funders bringing class actions continue to expand. Australia, where class actions are also conducted on an “opt out” basis, is now seen by some as an even more attractive forum for class action litigation than the US. There is no class certification requirement or requirement that common issues predominate over individual issues in Australia. The Australian rules allow for the determination of sub-group or individual issues as part of a class action.
There are also cautious moves afoot to facilitate this type of litigation in other jurisdictions. For example, the United Kingdom Government introduced a Consumer Rights Bill in January which would create an “opt-out” collective action for competition law claims on behalf of consumers and businesses in the Competition Appeal Tribunal.
On 11 June 2013 the European Commission published a non-binding commission recommendation that within two years member states should adopt collective redress mechanisms at the national level for breaches of EU law rights following a set of basic principles. It recommends an “opt-in” system with any exceptions justified by reasons of administration of justice, contingency fees and punitive damages not be permitted and entities representing claimants be of non-profit character.
In Japan a bill was enacted in December 2013 which provides for approved consumer organisations to bring certain class action claims against businesses but damages for personal injury and death are excluded.
Class action litigation in NZ
There are a number of reasons why class actions have been slow to emerge as a feature of the New Zealand landscape.
One is the absence of clear rules for such litigation. The Rules Committee released a draft Class Actions Bill and Rules for consultation in 2008. A final draft was sent to the Secretary for Justice in 2009. In 2012, in its report on its inquiry into the finance company failures, the Commerce Committee recommended that the Government give priority to the introduction of a class actions regime. It appears that no further progress has been made.
In New Zealand, however, a group can bring litigation by way of representative action under the High Court Rules. High Court Rule 4.24 provides that one or more persons may sue on behalf of, or for the benefit of, all persons “with the same interest in the subject matter of a proceeding” either with the consent of the represented parties or with court approval. The courts have permitted plaintiffs to use this mechanism to commence class actions.
Another factor in New Zealand has been the absence of personal injury litigation which provided much of the first wave of class action litigation in other jurisdictions. Other deterrents are the continued existence of the torts of maintenance and champerty, restrictions on contingency fees and the very modest level of awards of exemplary or punitive damages. It may also be that New Zealanders simply do not have the same appetite as Americans or Australians for litigation.
Looking to the future
These factors will have deterred some class actions and hampered others. But it has by no means prevented their emergence. The growth of class action litigation in New Zealand now seems inevitable.
Most of the features responsible for the expansion of this type of litigation in Australia are also present in New Zealand.
The New Zealand courts have shown themselves to be open to class actions, facilitating them as far as possible. There is a relatively low threshold for obtaining a representative order under High Court Rule 4.24, and the courts are prepared to determine common issues using this procedure, leaving individual issues such as causation, reliance and loss to be dealt with at a later stage.
Most of the features that the 2008 draft Class Action Bill had sought to provide are now available under the representative procedure as it has been developed by the courts, most notably in the Houghton v Saunders litigation which arose out of the collapse of Feltex.5 The presence and expansion of litigation funders suggests that the small New Zealand economy is able to generate sufficient returns to support the funding industry. Their activities can be expected to increase since the Supreme Court clarified the rules applying to their involvement, at least in cases other than class actions, in Waterhouse v Contractors Bonding  NZSC 89.
These developments should be embraced. Class action litigation gives individuals access to the courts by pooling a large number of claims which may not be viable on their own, and raises public awareness of important issues. It holds the promise of a more level playing field on which powerful defendants can be held to account.
Liesle Theron is a barrister at Thorndon Chambers. She has a wide-ranging civil and commercial litigation practice, and advises clients on all aspects of commercial and public law.
- Robert J. Herrington The Numbers Game: Dukes and Concepcion, 20 November 2012 (available at http://apps.americanbar.org/litigation/committees/classactions/articles/fall2012-1112-numbers-game-dukes-concepcion.html).
- Sean P. Wajert, Dechert LLP Class Actions in Canada, Bloomberg Law Reports, Class Actions 1(1) (available at www.dechert.com/files/Publication/18a613b0-35d9-441a-ae9b-b030022c5802/Presentation/PublicationAttachment/62f4d2ff-1a87-4c71-92df-b4ba9838aa87/Wajert.pdf); L Millan, Class actions: Their day in court, March 2013 (available at www.nationalmagazine.ca/Articles/March_2013/Their_day_in_court.aspx).
- Australia Has Few Class Actions, Scale of Cases Concern, Mallesons Says, 2 March 2012 (available at www.bloomberg.com/news/2012-03-02/australia-has-few-class-actions-scale-of-cases-concern-mallesons-says.html).
- Herbert Smith Freehills Class actions 2013/2014 Developments and Trends, February 2014 (available at www.herbertsmithfreehills.com/insights/legal-briefings/class-actions-2013-2014-developments-and-trends).
- See Saunders v Houghton  3 NZLR 331 and Credit Suisse Private Equity LLC v Houghton  NZSC 37 in particular.
Last updated on the 17th March 2016