The possible advent of a class actions regime has been perhaps the hottest topic in the New Zealand civil litigation landscape in recent years. Group litigation has been increasingly utilised to enable plaintiffs with common interests to prosecute claims they otherwise would not be able to. As a corollary, large companies, together with their directors and insurers, are increasingly exposed to litigation risk that is different in kind and potential magnitude.
Responding in part to the growth in representative actions, and recognising the imperfections in the current procedural regime, the Law Commission undertook an extensive review with its final report released in June 2022.
In this article, we summarise the report’s findings and, drawing on local and overseas trends, forecast what that might portend for the future of group litigation and its impact on the New Zealand insurance market.
Law Commission report
The Law Commission’s headline recommendation is the creation of a class actions regime principally governed by a new “Class Actions Act”.
The key features of that regime are proposed to be:
- The conduct of a claim would be led by a representative plaintiff, acting in the best interests of the class.
- Class actions could be commenced in relation to all types of claim in the High Court, with the potential for an equivalent regime in the employment jurisdiction.
- Class actions would need to be certified. This would require the Court to be satisfied that the proceeding discloses reasonable cause of action and the manner in which it is being brought is appropriate (e.g. the class’ interests are sufficiently aligned and the representative plaintiff is suitable).
- Class actions could be certified on an “opt-in” or “opt-out” basis. Certain persons could only join on an opt-in basis (e.g. those based overseas, government departments etc).
- Proceedings carried on as class actions would need to be case managed actively to ensure they are conducted efficiently. This includes allowing for the creation of sub-issues and staged hearings to deal with discrete matters.
- Any agreement to settle a proceeding brought by class action would require Court approval. Individual members of the class would have some (but curtailed) right to opt out of settlement.
- Litigation funding would be expressly permitted, including by abolishing the torts of maintenance and champerty, but regulated by the Act and overseen by the Court in individual cases. Key points include: disclosure of funding agreements (broader than as already required), a rebuttable presumption that funded representative plaintiffs provide security for costs, and jurisdiction to make costs awards directly against funders.
The Law Commission report provides nothing more than recommendations. The report could well gather dust for some time given the government’s current priorities. However, given the keen interest in the area and the comprehensiveness of the report, we expect at least some of its recommendations to be adopted in statute.
The future of class actions
We expect the creation of a class actions regime to lead to a rise in such claims. Litigants, lawyers and funders will all be more comfortable bringing claims without the uncertainty imposed by the existing, more limited, representative action framework. Evidence for this prediction is available in jurisdictions with established class action regimes, that, unsurprisingly, also see greater volumes of class actions and more mature litigation funding industries. For example, the number of class actions in Australia has increased significantly over the last decade.
As for the nature of those claims, we can seek guidance from the types of representative actions we have observed in New Zealand, most if not all, of which (one assumes) would be brought as class actions if the regime existed. Notable examples arise in banking (claim against ANZ by former investors in Ross Asset Management), insolvency (proceedings arising from the collapse of CBL) and construction (product defect claims brought against James Hardie). In Australia, four categories dominate the list of class actions currently before the Federal Court (in roughly equal number): insolvency, consumer (including product liability), banking/financial services (including insurance), and employment. We would expect to see a similar split in New Zealand, with the caveat that employment class actions would depend on the creation of a separate employment jurisdiction (the Law Commission having limited its recommendations to the High Court).
Impact on insurers
The growth in representative actions and the looming prospect of a class actions regime is significant for insurers in two respects. First, insurers are a potential target. As deep-pocketed companies with large numbers of customers possessing identical claims, they are vulnerable to the exact kind of claim that the proposed class action regime is intended to facilitate. Indeed, we have already seen in the claim against Southern Response relating to settlement agreements entered into to repair Canterbury Earthquakes damage an instructive example of the risk faced by insurers. That emerging risk – potentially enhanced by a class actions regime and an increase in natural disasters – accentuates the need for insurers to be careful in making decisions that affect all, or a significant portion of, their customers.
Second, many insurers underwrite the exact kind of risks that are likely to be the subject of class actions (e.g. D&O, product liability). A class actions regime will likely increase the quantum associated with that risk and the chances of it coming to pass (through a proceeding being brought). Insurers already appear to be responding – at least to the some of the significant representative actions we have seen in recent years. In previous editions of Cover to Cover, we have noted, for example, recent premium increases in the D&O market. We would expect this trend to continue, if not spread, as the insurance market continues to grapple with what appears to be an ever-increasing aspect of civil litigation in New Zealand.
"The emerging risk – potentially enhanced by a class actions regime and an increase in natural disasters – accentuates the need for insurers to be careful in making decisions that affect all, or a significant portion of, their customers.“
This article was co-authored by Thomas Leggat, a Senior Solicitor in our Litigation and Dispute Resolution team.
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