26.11.2021

Class Actions Update

Class actions and litigation funding continue to grow in prominence in New Zealand, despite the lack of a regulatory framework for the same.

Currently claims that would be brought as a class action in other jurisdictions are brought as representative actions under HCR 4.24.  This rule allows a claim to be brought “on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding”.  While this may be a class action by another name, unlike their overseas counterparts, the New Zealand rules do not spell out any framework for how such actions are to be conducted.  Similarly, there is no specific litigation funding regime in New Zealand.  Generally, the funder agrees to pay litigation costs in return for a share in the sum of money recovered.

This article discusses the current status of the Te Aka Matua o te Ture | Law Commission’s review in this area, as well as recent class action litigation – in particular, the proceedings involving James Hardie and its Harditex cladding product. 

Law Commission review

The lack of a regulatory framework for class actions and litigation funding is something the Law Commission is currently investigating.  The Commission’s preliminary view, as per their issues paper released in December 2020, was that class actions and litigation funding improve access to justice and are, in principle, beneficial, and that a legislative regime for the was desirable. 

However the Commission sought feedback on whether the potential benefits of class actions and litigation funding can be realised in a way that outweighs risks and concerns, including increased court workloads, negative impacts for defendants in terms of the cost of defending the actions insufficient protection of class members’ interests, potential conflicts of interest between funders and class members, and the capital adequacy of funders.

In late September 2021 the Law Commission released a supplementary issues paper, which reported that feedback from submitters was overwhelmingly in favour of New Zealand adopting a statutory class actions regime, confirming the Commission’s view that such a regime is desirable.  This supplementary paper seeks feedback on detailed aspects of what such a regime would look like, including draft legislative provisions prepared by the Parliamentary Counsel Office.  Some of the key proposals made by the Commission include the following:

  • A class actions regime should have a certification stage (which is part of most overseas regimes, with a notable exception being Australia) – the draft legislation requires that class members claims “all raise a common issue of fact or law of significance to the resolution of each claim”, and sets out a number of factors for a court to consider when assessing whether a class action is appropriate.
  • There should be a wide definition of competing class actions, in order to minimise the burden on the courts and confusion for class members. In addition, any competing class actions should be filed within 90 days of the first class action being commenced, to enable a court to consider the same at the certification stage.
  • Settlement of class action proceedings must be approved by a court – the draft legislation sets out factors for a court to take into account when determining whether the settlement is “fair, reasonable, and in the interests of the class as a whole”.

Submissions on the supplementary issues paper close on 12 November 2021 and the Law Commission intends to release a final report on class actions and litigation funding in the first half of 2022.

Class action litigation

In the interim, the Courts have found themselves grappling with how to regulate class action litigation.  One example of this is that in late 2020 the Supreme Court confirmed that class actions can proceed on an opt out basis in New Zealand, meaning anyone falling within the defined class will be represented unless they actively exclude themselves.  Accordingly, we can expect that class action proceedings will involve larger classes going forward, resulting in increased quantum amounts and, in turn, incentivising class action litigation and litigation funding in New Zealand.

Following on from the Supreme Court’s decision, the High Court in the same proceeding has recently issued a judgment setting out the Court’s requirements for the notice that the plaintiffs must provide to all class members about their rights to opt out, in relation to matters of form, content, timing and distribution.  Although specific to the particular proceedings, this judgment provides useful guidance on what such notices should look like.  (Three other judgments in this proceeding were released by the High Court on the same day, and included decisions on how the defendant could communicate with class members with regard to settlement).

The Courts have also substantively heard various matters involving class actions.  Earlier this year the Supreme Court dismissed an application for leave to appeal in the Feltex class action, which effectively brought an end to proceedings filed in 2008 on behalf of more than 3,600 shareholders who were seeking compensation from the directors of the collapsed carpet company. 

More recently, we have seen two unsuccessful class actions taken against James Hardie in the Wellington and Auckland High Courts, which are known as the Cridge litigation and White litigation respectively.  The claims made were in respect of the Harditex sheet cladding material that was produced and marketed by James Hardie.  The claimants in these matters alleged that the composition of the Harditex cladding was inherently flawed, the system of installation was too difficult for builders to get right, and the information provided by James Hardie to assist with using its product was misleading and inadequate.

The High Court dismissed the plaintiffs’ claim in the Cridge litigation, holding that Harditex was fit for purpose, and could be installed safely by a reasonable, competent builder.  The Court considered that fundamental building errors and non-compliance with James Hardie’s instructions were the most likely cause of weathertightness problems.  In coming to this conclusion, Justice France was highly critical of the homeowners’ expert evidence. 

Justice France did hold that it was “reasonably plain that a duty of care is owed by James Hardie, the manufacturer of Harditex, to the plaintiffs being the owners of houses clad in Harditex”, making the following two points:

  • The decision of the Supreme Court in Carter Holt Harvey, which the Court considered to be very similar to the present case, held that there are no conceptual obstacles to such a duty.
  • There was nothing in the evidence submitted by James Hardie to distinguish it from Carter Holt Harvey (with Justice France commenting that “If anything, one would consider the purchasers of residential homes more vulnerable than a large state entity such as the Ministry of Education”).

The finding of Justice France that the manufacturer of Harditex owed a duty of care to the homeowners aligns with amendments recently made to the Building Act 2004, which strengthen disclosure obligations on building product manufacturers to allow better informed decision making and provide greater confidence in the industry.

However, the failure of the homeowners to establish any defect with the product, or any breach of the duty owed, meant the homeowners’ claims in negligence was unsuccessful.

Shortly before the judgment in the Cridge litigation was released, the White litigation was settled, part way through its own High Court hearing.  The settlement provided that James Hardie would make no admission of liability and Harbour Litigation Funding (Harbour), who were funding the homeowners’ claim, would pay James Hardie $1.25 million.  The homeowners did not receive any compensation from the settlement agreement.

The case was settled as Harbour was unwilling to continue funding the proceeding – presumably on the basis that the litigation funder no longer had confidence the homeowners’ claim would be successful.  A similar outcome occurred in a leaky home class action case against Carter Holt Harvey in respect of its Shadowclad product.  Harbour was also the litigation funder in those proceedings, and earlier this year pulled its funding – reportedly having to pay more than a half a million dollars in security for costs.

There were a number of press reports that indicate the claimants in the White litigation had very reluctantly approved the settlement on the basis that they could not afford to take the case on themselves.  This highlights one of the key issues the Law Commission has identified with litigation funding – the litigation funder has an overriding ability to withdraw from funding at any point, leaving the funded party in a position where it is unlikely they will be able to continue the claim.  To manage funder control, the Law Commission has suggested that litigation funders could be required to include minimum terms in their funding agreements.  Examples of minimum terms include those that set out the funder’s role in decisions about whether to settle proceedings and the circumstances in which the funder may terminate their funding.

We note that a third class action involving James Hardie and the Harditex cladding product (known as the Waitakere litigation) is set to be heard in 2023 (and no doubt the litigation funder will closely examine Justice France’s decision ahead of the hearing).  And it’s not all bad news for class action participants, with the Crown paying $40 million to settle a $450 million claim brought by 200 kiwifruit growers following the incursion of the kiwifruit vine disease Psa in the Bay of Plenty region from 2010.  The settlement was reached days before the Supreme Court was due to hear an appeal brought by the claimants, following a decision by the Court of Appeal that the Government could not be held liable for the damage caused by Psa.

Comment

Access to justice is a key concern for the justice system.  Often the cost of litigation makes it too expensive for many to have their day in court.  Class actions and litigation funding address this concern and are therefore here to stay.  To provide certainty for these regimes it is likely we will see a regulatory response, which will provide parties with a clear framework of how these actions will proceed and place checks and balances on the process.  However, reform of this area is not going to happen quickly and, in the interim, the Courts will continue to have a guiding role in how such litigation is to be regulated.

If you have any questions about Class actions, 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.

 

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Kerry
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

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