4.12.2020

Class Actions – Supreme Court rules it’s “opt-out”, Law Commission Issues Paper imminent

Following the Supreme Court decision in Southern Response v Ross [2020] NZSC 126 the Law Commission is now set to release its Issues Paper on Class Actions and Litigation Funding on 4 December 2020.  This article considers key aspects of the Supreme Court’s decision. 

The case concerns a claim by Mr and Mrs Ross against Southern Response for losses suffered as a result of settling their insurance claim for earthquake damage based on incomplete information given to them by Southern Response.  Mr and Mrs Ross applied to the High Court for leave to bring their proceeding as a representative claim of the class of policyholders who settled their claims with Southern Response in the same circumstances.  They sought an opt out order – meaning the claim would be brought on behalf of every member of the group of affected policyholders unless any member expressly chose to opt out.  The High Court allowed the representative claim to proceed on an opt in basis which required class members to elect to opt into the proceeding by completing an opt-in election form.  That decision was overturned by the Court of Appeal. 

Access to justice trumps lack of regulatory framework for class actions

It is no surprise that the Supreme Court has dismissed the appeal by Southern Response and agreed with the Court of Appeal that an opt out order is appropriate.  Both the Supreme Court and Court of Appeal judgments recognise that improving access to justice is a key rationale for granting an opt out order. 

An opt out order means that Mr and Mrs Ross will advance the claim on behalf of the approximately 3,000 policyholders who settled their claims for earthquake damage with Southern Response without knowing the full cost of remedying damage to their homes.  While individual policyholders have the freedom to opt out of the proceeding, it is unlikely they will do so – at least in any significant numbers.[1]  

The proceeding will be determined in two stages.  The first stage will deal with issues which are common to all policyholders.  The parties now need to seek an order from the High Court setting out the issues which need to be determined at the first stage.  If and when the proceeding reaches stage two, it will be necessary for each class member to take active steps to establish their individual claims.  Effectively at stage two each class member will need to opt in.

Representative actions in New Zealand

Unlike other jurisdictions New Zealand does not have a comprehensive regime to regulate class actions.  The New Zealand Law Commission is actively considering whether there should be reform of this area.  It is due to release an Issues Paper on Friday, 4 December 2020.  The key issue in Southern Response was whether the use of an opt out procedure for representative actions should await any reform which may follow after the Law Commission’s review is completed. 

The existing provision for representative proceedings is rule 4.24 of the High Court rules.  That rule allows one or more persons to sue or be sued on behalf of, or for the benefit of, all persons with the same interest in the subject matter of the proceeding.  However, the rule is silent about the procedure to be used.

The Supreme Court acknowledged that there will inevitably be some uncertainty about how the court will exercise its supervisory powers of representative actions in the absence of a comprehensive regime.  However, it observed the court could rely on rule 1.6(2) of the High Court rules to conduct proceedings in a way calculated to secure the just, speedy and inexpensive determination of the proceeding.  It also noted that rule 4.24 should continue to be interpreted to meet modern requirements.

Leave required for settlement of the proceeding

The Supreme Court considered that as a general rule the court will need to approve a settlement or discontinuance in order for leave to be given to bring proceedings on an opt out basis.  This means that if the Southern Response proceeding is settled before stage two, the plaintiffs will need to seek the court’s leave to settle the claim or discontinue it.  This requirement is to ensure that any settlement does not affect absent plaintiffs unfairly.  It does not necessarily mean the Court will review the entire settlement agreement, but at a practical level this may need to occur in order to satisfy the Court that leave should be granted.  

Comment on litigation funding agreements

The Court did not agree that the any litigation funding agreement should routinely be provided to the Court as part of an application under rule 4.24(b), but it remains unclear how the Court will exercise its role in ensuring arrangements with the litigation funder do not amount to an abuse of process.  The Law Commission’s terms of reference include considering the role of the courts, if any, in overseeing litigation funding arrangements and whether and to what extent litigation funders and/or funding arrangements should be regulated.  We can expect that the Law Commission will make clear recommendations to address the criticisms of the current lack of regulation following its consideration of submissions on the Issues Paper.

If you have any questions about class actions or the Law Commission’s Issues Paper, please get in touch with our Disputes Team or your usual contact at Hesketh Henry.

 

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

 

[1] Although the High Court judgment referred to some Canadian research suggesting that typically around 8 percent of class members might opt out when the claim is brought on an opt out basis.

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