Group (“class action”) litigation

2018 Litigation Forecast

Group litigation is gradually becoming an established part of the New Zealand litigation landscape despite the lack, to date, of a developed legal framework to cater for true ‘class actions’.  It has been left to the courts to develop principles on a case-by-case basis via “representative actions” brought pursuant to Rule 4.24 of the High Court Rules.

The objectives of group litigation are to foster access to the courts, make litigation less expensive and encourage efficiency by resolving legal issues in relation to multiple claims at the same time. In pursuit of those objectives, the courts have continued to take a “liberal and flexible approach”.[1] This permissive approach has led to so-named ‘class actions’ (technically these are representative actions) being pursued for a variety of claims and in a diverse range of industries. These include insurance claims, claims against banks regarding bank fees, defective building cladding claims (see our article on construction litigation trends) and claims regarding diseased kiwifruit crops.

For 2018, the Law Commission has announced that it will conduct a review of the ‘class action’ regime.  As a result, we may see a shift to a more formalised regime in the not too distant future.

What is clear is that group litigation is here to stay. Any business, in any industry, can be subject to a ‘class’-type claim which quickly could become a significant issue. Class actions can turn smaller claims, which may not in themselves be financially viable for claimants to pursue, into much larger and more complex claims. It requires careful legal and strategic management: (a) to manage issues to lessen the risk of class actions forming; and (b) to manage the litigation process, if your business is subject to such a claim.

Group litigation is here to stay. Any business, in any industry, can be subject to a ‘class’-type claim which quickly could become a significant issue.

Key themes for 2018

We are likely to see a fairly active period in 2018 for group litigation with the judgment on the first stage of the ‘Kiwifruit class action’ expected – in which the High Court will rule on whether the Ministry for Primary Industries owed a duty of care to kiwifruit growers to prevent the Psa-V disease from entering New Zealand. Further steps in the ‘Southern Response class action’ and defective cladding cases are also expected.

Our projection of the key themes for 2018 are:

1. Facilitation: The courts are continuing to adopt a “liberal and flexible” approach to representative actions. This means that group litigation is relatively easy to commence and is likely to become more common. To obtain an order permitting a group action, the courts merely require group claimants to show that there is an arguable case and that there are common legal or factual issues between the members of the group. A number of orders permitting group actions have been challenged on appeal on the basis that there are no, or insufficient, truly common issues, but those challenges have been unsuccessful.[2] There is also no requirement that the common issues should predominate over individual issues as there is, for example, in the United States.

In addition, the senior courts have signalled little apparent appetite to engage in the substantive legal arguments of the case, or lack thereof, at the preliminary stage of approving group litigation.[3] The Court of Appeal has said that it is “highly undesirable” that a mini trial be conducted at a stage when leave is being sought to permit group litigation.[4] All that is required is that the Court undertake a “provisional appraisal of the merits of the proposed claim” and this cannot be “an opportunity for a wide-ranging attack on the merits”.[5] This means that the merits of the claims will not undergo detailed testing at the outset and obtaining leave to commence group litigation can be expected to be relatively straight-forward.

2. Creative case management: Courts are also showing creativity in managing some of the practical obstacles to group claims. Recently in the Southern Response proceeding, the group claimants sought to gather from the insurer the contact details of individuals with unresolved claims with Southern Response who had not yet joined the class action.[6] The insurer refused to disclose this information due to privacy concerns. The Court of Appeal decided that in the absence of a detailed group litigation regime, the High Court has the power to order Southern Response to provide information about the proceedings to the potential claimants. This would avoid privacy concerns (as no contact details would be disclosed) and would also ensure that potential group members are made aware of the group action. The Court of Appeal therefore stated that in the absence of orders from the High Court, the parties should work together to resolve the form of the communication to be provided by Southern Response to policy holders with information about the group claim.

In addition, the courts are showing themselves willing to create sub-classes to deal with issues that are not common to all members of a class.[7]  In the James Hardie class action, it was argued by James Hardie that the claims would require a “house by house investigation” and that there were insufficient common issues for group litigation to be permitted.[8]  The Court of Appeal rejected this stating that the court’s powers of case management and ability to be creative should not be underestimated.[9]  Claims which had different features (e.g. where cladding was installed at different times and under different versions of the James Hardie “technical literature”) could be dealt with via the use of sub-classes.[10]

We are also seeing a continuing trend for complex group litigation involving split trials. A split trial is a first stage hearing to determine common issues that will bind the class, and a further stage hearing to resolve individual matters such as individual causation, loss and damage. A good example of this is the Kiwifruit class action where the first stage trial will decide whether the Ministry for Primary Industries owes a duty of care to the Kiwifruit growers.

Courts are willing to create sub-classes to deal with issues not common to all members.

3. No established track record for success yet: The group litigation claims in New Zealand to date do not appear to have resulted in any significant judgments or settlements.  That is unlikely to be lost on the commercial litigation funders who are often asked to finance class actions.  In the next few years, litigation funders will be looking for a return on their investment. See our article on third party litigation funding.

Trends for the future

Australia has now had its 25th anniversary of the introduction of a class actions regime in Australia. This more mature group litigation market demonstrates some likely trends for New Zealand including:

  • An increase in financial services group litigation and shareholder group actions.
  • A focus on follow on group litigation from regulators’ prosecutions: This is where a regulator brings a proceeding and obtains a determination of liability which groups of claimants then seek to rely on for individual damages claims.
  • The increased influence of law firms focussing on plaintiff/claimant-side matters, and the growing influence of commercial litigation funders.

Australia, unlike New Zealand, has a detailed class action regime including rules about the court’s supervisory function over class actions and litigation funders.  In contrast, New Zealand’s group litigation regime has largely been created by the courts.  Given the Law Commission’s imminent review of the group litigation regime, a formalised procedure may not be far off.

Case study: Regulators’ rights to bring class actions

Under the Financial Markets Conduct Act 2013, the FMA has the right to bring class action proceedings on behalf of a number of investors if it is in the public interest.  The FMA used this power for the first time in the proceeding against Prince & Partners Trustee Company Limited (Prince & Partners).  Prince & Partners was the former trustee for debt securities issued by Viaduct Capital Limited which went into receivership in May 2010 owing secured depositors approximately $7.8 million. The FMA alleged that Prince & Partners had failed to carry out its functions with the care, diligence and skill expected of a reasonably competent and prudent trustee and brought a claim on behalf of investors.  It recently settled the proceeding for $4.5m.

Footnotes

[1] Houghton v Saunders (2008) 19 PRNZ 173 at [100] (HC).

[2] For instance, the James Hardie and Southern Response class actions.  See also the End of 2017 Class action update. [3] For instance, Southern Response Earthquake Services Limited v The Southern Response Unresolved Claims Group [2017] NZCA 489 at [16].  See our update on this case [4] Ibid at [16]. [5] Ibid at [16]. [6] Southern Response Earthquake Services Limited v The Southern Response Unresolved Claims Group [2017] NZCA 489. More here and here

[7] James Hardie class action – Cridge v Studorp [2017] NZCA 376. [8] Cridge v Studorp at [15]. [9] Cridge v Studorp at [25]. [10] Cridge v Studorp at [25].

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