Home | Databases | WorldLII | Search | Feedback New Zealand Law Commission - Issues Papers

Class Actions and Litigation Funding [2020] NZLCIP 45; Class Actions and Litigation Funding [2020] NZLCIP 45; Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa

Last Updated: 7 December 2020

jesseApter aM,

December 2020 Wellington, New Zealand

Issues Paper | He Puka Kaupapa 45

Class Actions and Litigation Funding

Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa

Te Aka Matua o te Ture | Law Commission is an independent Crown Entity operating under the Law Commission Act 1985. The Commission was established to deliver the purpose set out in the Act, which is to “promote the systematic review, reform and development of the law of New Zealand”.

The Commissioners are:

Amokura Kawharu – Tumu Whakarae | President

Helen McQueen – Tumu Whakarae Tuarua | Deputy President Donna Buckingham – Kaikōmihana | Commissioner

Te Aka Matua o te Ture | Law Commission is located at: Level 9, Solnet House, 70 The Terrace

Wellington 6011

Postal address: PO Box 2590, Wellington 6140, Aotearoa New Zealand

Document Exchange Number: SP 23534 Telephone: 04 473 3453

Email: com@lawcom.govt.nz Internet: www.lawcom.govt.nz

The Māori language version of this Issues Paper’s title was developed for Te Aka Matua o te Ture | Law Commission by Kiwa Hammond.

Kei te pātengi raraunga o Te Puna Mātauranga o Aotearoa te whakarārangi o tēnei pukapuka. A catalogue record for this title is available from the National Library of New Zealand.

ISBN 978-1-877569-98-2 (Online)

ISSN 1177-7877 (Online)

This title may be cited as NZLC IP45. This title is available on the internet at the website of Te Aka Matua o te Ture | Law Commission: www.lawcom.govt.nz

Copyright © 2020 Te Aka Matua o te Ture | Law Commission.

This work is licensed under the Creative Commons Attribution 4.0 International licence. In essence, you are free to copy, distribute and adapt the work, as long as you attribute the work to Te Aka Matua o te Ture | Law Commission and abide by other licence terms. To view a copy of this licence, visit https://creativecommons.org/licenses/by/4.0

Foreword

Democratic society is defined not only by the existence and stability of its legal institutions but by their accessibility to citizens. In Aotearoa New Zealand, addressing procedural, financial and other barriers to accessing civil justice is a pressing contemporary policy challenge.
Te Aka Matua o te Ture | Law Commission is undertaking a first principles review of class actions and litigation funding. Our review forms part of wider and ongoing efforts to improve the affordability and efficiency of litigation. As a mechanism for collective redress, class actions offer the prospect that claimants with a factual or legal issue in common can group their claims together into a single proceeding. Litigation funding provided by a commercial funder may facilitate access to civil justice by covering some or all of a claimant’s legal costs in exchange for an agreed percentage of any compensation awarded.
At the same time, class actions and litigation funding have attracted some public notoriety in comparable jurisdictions overseas, where media attention has focussed on issues such as the wider impacts of class actions on the business environment and litigation funders’ commissions. The crucial question is whether the potential benefits of class actions and litigation funding in terms of promoting access to civil justice can be realised in a way that manages the risks and outweighs any disadvantages they may give rise to.
This Issues Paper summarises the various issues that arise and explores some of the options for addressing them. We seek submissions and comment from interested parties. The Commission is committed to taking into account te ao Māori across all of its law reform work. The class action, as a mechanism for facilitating collective redress, may be particularly amenable to analysis from Māori perspectives and we welcome submissions and comment in that regard.
The Commission will take into account the feedback we receive in response to this Issues Paper as we develop our recommendations. If the weight of submissions and our further analysis favours proceeding with class actions and/or litigation funding, we expect to publish a further paper with more detailed proposals for regulation in these areas.

Amokura Kawharu

Tumu Whakarae | President

iv HAVE YOUR SAY

Have your say

This Issues Paper sets out issues we have identified in relation to class actions and litigation funding. It is available online at www.lawcom.govt.nz.
We want to know what you think about the issues covered in this paper. Do you agree or disagree with the way the issues have been articulated? Are there additional issues you think should be considered? Please also explain the reasons for your views.
Submissions or comments (formal or informal) on our Issues Paper should be received by 11 March 2021.
You can email your submission to cal@lawcom.govt.nz.
You can post your submission to
Review of Class Actions and Litigation Funding Law Commission
PO Box 2590
Wellington 6140

WHAT HAPPENS TO YOUR SUBMISSION?

Te Aka Matua o te Ture | Law Commission will use your submission to inform our review and we may refer to your submission in our publications. We may publish all or part of your submission on our website. We will also keep all submissions as part of our official records.
Information supplied to the Commission is subject to the Official Information Act 1982. If someone requests a copy of your submission, the Commission must consider whether we are required to release it.
Only your name or your organisation’s name is required on a submission. You may wish to keep your contact details separate, as if they are included on the submission they will become publicly available if the submission is published on our website. If you do not want us to release identifying information within your submission (or any other part of your submission), or do not want your submission to be referred to in our publications, please explain in your submission which parts should be withheld and the reasons. We will take your views into account in deciding:

• whether to withhold or release any information requested under the Official Information Act;
• if and how to make your submission publicly available on our website; and
• if and how to refer to your submission in our publications.

Te Aka Matua o te Ture | Law Commission complies with the Privacy Act 2020, which governs how it collects, holds, uses and discloses personal information you provide. You have the right to access and correct your personal information.

Contents

Glossary

Executive summary

THE REVIEW PROCESS AND THIS ISSUES PAPER

1. Te Aka Matua o te Ture | Law Commission is undertaking a first principles review of class actions and litigation funding. Our terms of reference ask us to consider whether and to what extent the law should allow class actions, and whether and to what extent the law should allow litigation funding having regard to the torts of maintenance and champerty.
2. In preparing this Issues Paper, the Commission has held preliminary conversations with key stakeholders from the legal profession, with relevant government agencies, and with commercial litigation funders based in Aotearoa New Zealand and overseas. We established an independent expert advisory group comprising of lawyers and academics, representing a diverse range of perspectives and experiences. We met with the group in August 2020. We have liaised with the judiciary and received comments from judges on several of the issues we address in this paper. We discussed our plans for the review with the Commission’s Māori Liaison Committee. We also commissioned Capital Strategic Advisors (CSA) to provide expert high level analysis on the economics of class actions and litigation funding within a theorised base case of civil litigation.
3. It is evident from our initial conversations and research that there is no broad consensus on the desirability of a class actions regime or litigation funding, nor on the extent to which, or how, they should be regulated. It is primarily for this reason that a first principles review is needed. We note that a lack of consensus is a common feature of discussions on these topics elsewhere. In Australia for example, a recent Federal Parliamentary inquiry into class actions and litigation funding was prompted by concerns over issues such as the level of funders’ commissions.¹ In relation to class actions, the policy challenge is neatly summarised by Jasminka Kalajdzic: “There is no doubt that class actions enable litigation that would otherwise not be brought. The much more difficult question is whether such litigation is socially useful”.²
4. The purpose of this Issues Paper is to facilitate consultation and feedback on whether the potential benefits of class actions and litigation funding can be realised in a way that outweighs any risks and concerns. We are calling for submissions or comments until 11 March 2021. We will take into account the feedback we receive as we develop our recommendations. We expect to consult further on those recommendations, before delivering our final report to the Minister of Justice in the first half of May 2022.

1. Attorney-General for Australia and Minister for Industrial Relations “Committee to examine impact of litigation funding on justice outcomes” (press release, 5 March 2020).
2. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 6. See also Arthur R Miller “Of Frankenstein Monsters and Shining Knights: Myth, Reality, and the ‘Class Action Problem’” (1979) 92 Harv L Rev 664.

Chapter 1 – Introduction

5. The Commission’s review is taking place within a wider context of ongoing work across legal and policy environments to address barriers to accessing civil justice in Aotearoa New Zealand. One of the principal barriers is the high cost associated with civil litigation, which significantly impedes access to the courts. Other constraints include social barriers and the psychological stress that often accompanies the prospect of being a party to litigation.

PART A – CLASS ACTIONS

Chapter 2 – Introduction to class actions

6. A class action is characterised by the act of grouping claimants with a common factual or legal issue into a single proceeding so that their claims can be resolved together. This is normally achieved through the selection of one class member to act as a representative plaintiff on behalf of the class. All class members will be bound by the outcome.
7. The United States was the first jurisdiction to establish a class actions regime and Australia and Canada then followed. Class actions procedures have since spread globally. The precursor to class actions was the representative actions rule, which was developed in the Courts of Chancery in the late 17th and early 18th centuries. Many jurisdictions, including Aotearoa New Zealand, incorporated a representative actions rule in their civil procedure rules. Overseas, limitations in the representative actions rule provided impetus for the development of class actions regimes.

Chapter 3 – Group litigation in Aotearoa New Zealand

8. Aotearoa New Zealand does not have a class actions regime as exists in some overseas jurisdictions. Instead, proceedings that might be taken as a class action in comparable jurisdictions may be able to be pursued as a representative action under High Court Rule

4.24 (HCR 4.24). There has been a noticeable increase in the number of representative actions being brought in recent years. Reasons for this increase include the arrival of litigation funding in Aotearoa New Zealand.

9. In addition to representative actions under HCR 4.24, other methods of group litigation for seeking collective redress include civil procedure techniques (such as joinder and consolidation), statutory procedures under legislation such as the Companies Act 1993 and Human Rights Act 1993, proceedings brought by regulators, and avenues such as judicial review and test cases.

Chapter 4 – Problems with using the representative actions rule for group litigation

10. In the absence of a class actions regime, the representative actions rule in HCR 4.24 has been developed to include many of the features of a typical class actions. These features include preliminary court approval for a case to proceed as a representative action, the requirement for a common issue, opt-in and opt-out mechanisms for determining the represented group, active court supervision of proceedings, court approval of settlement, split trials for common issues and damages and the use of litigation funding.
11. Nonetheless, there are a number of problems with using HCR 4.24 to bring claims that are very similar to class actions. These include the lack of a public policy process to analyse the best way for delivering collective redress, and the lack of clear rules which specify when

cases should be allowed to proceed and how they should be managed. We think it is likely that the inadequacies in the current framework are preventing or limiting group litigation on some issues, including consumer issues and compensation claims following regulatory action.

Chapter 5 – Advantages of class actions

12. As noted, our review is taking place within a wider context of ongoing work to address barriers to accessing civil justice. We have identified three primary advantages of class actions regimes, the first of which is improving access to justice. Access to justice in this context includes access to the courts, a fair and transparent process, meaningful participation rights for class members and a substantively just result.
13. In addition, a class action is likely to improve efficiency and economy of litigation, particularly in respect of cases that would be economically viable to litigate separately. Class actions may also be able to play a role in strengthening incentives (for would-be wrongdoers) to comply with the law, although the extent to which class actions can have this effect is difficult to measure.

Chapter 6 – Disadvantages of class actions

14. One of the concerns about class actions regimes is that an increase in group litigation will increase the workload of the courts. The data shows that in overseas jurisdictions, class actions make up a small proportion of all cases filed. The number of cases filed may not accurately represent the additional workload, because class actions can require more intensive case management. That said, objecting to a class actions regime because it may increase litigation misses the point that class actions aim to increase access to justice.
15. Other concerns about class actions regimes include negative impacts for defendants in terms of the cost of defending the actions, and the consequential impact on the wider business and regulatory environment – particularly the availability and cost of directors and officers liability insurance (D&O insurance). Another concern is that class members’ interests may be insufficiently protected, as they do not have the status of parties and may have limited opportunities to participate in the litigation.

Chapter 7 – A statutory class actions regime for Aotearoa New Zealand

16. We have formed the preliminary view that it would be desirable to have a statutory class actions regime in Aotearoa New Zealand. The key reasons for this view are:

(a) Group litigation has a number of benefits and there is a demand for group litigation in Aotearoa New Zealand, but the current mechanisms (including HCR 4.24) are inadequate.

(b) Alternatives to class actions such as alternative dispute resolution mechanisms would not provide the same level of access to justice as a class actions regime, and they might best be considered as supplements to such a regime.

(c) Class actions improve access to justice, facilitate efficiency and economy of litigation and strengthen incentives to comply with the law.

(d) Many of the disadvantages of class actions can be mitigated by the design of the regime.

(e) A statutory regime can provide greater certainty, predictability and transparency of the law.

Chapter 8 – Scope of a statutory class actions regime

17. There are several matters that would need to be addressed in the creation of any class actions regime for Aotearoa New Zealand. These include the scope of such a regime and the broad principles that would underpin it. Class actions regimes typically also have a number of core features. We discuss, present options for, and invite feedback on these matters.
18. In relation to scope, an initial issue is whether the regime should cover all areas of law or just some. Many class actions regimes are broadly applicable across all areas of the law, although some are subject to specific exclusions on issues such as immigration and environmental law. The United Kingdom has taken a different approach, and limits its class actions regime to competition law claims. Our preliminary view is that a general regime would be preferable and more likely to address the issues with the status quo. Other initial scope issues include which courts the regime should apply to, whether defendant class actions should be permitted, and whether HCR 4.24 should be retained.

Chapter 9 – Principles for a statutory class actions regime

19. On the basis of our research and preliminary consultations to date, we have identified a number of principles which we think should guide the development of a class actions regime. It is particularly important that any regime have clear objectives for the class action procedure, as these will drive the design of the legislation and the detailed drafting decisions. As noted, the key advantages of class actions are improving access to justice, promoting efficiency and economy of litigation, and improving incentives to comply with the law. Our preliminary view is that access to justice is the clearest advantage and should be the main objective of a statutory class actions regime.
20. Other principles we have identified include balancing the interests of plaintiffs and defendants; protecting the interests of class members, proportionality, reflecting and responding to the needs of contemporary Aotearoa New Zealand, recognising and providing for tikanga Māori, ensuring no adverse impact on other methods of group litigation, and providing clarity on issues arising in funded class actions.

Chapter 10 – Certification and threshold legal test

21. A key design question for any class actions regime is whether the court must first approve or certify the case proceeding in a class action form. Almost all jurisdictions with a class actions regime require a class action to be certified before it can proceed. A notable exception is Australia.
22. In jurisdictions where there is a certification requirement, an intending representative plaintiff will need to meet requirements such as: numerosity (there is a sufficient number of people within the class); commonality (there must be a nexus of factual or legal issues between the individual claims); and preferability or superiority (a class action must be preferable or superior to other possible methods of resolving the dispute). Some jurisdictions also undertake a preliminary assessment of the merits or cost-benefit analysis, require a litigation plan, and/or review any litigation funding arrangements, as part of the certification process.

23. Different jurisdictions apply different criteria to these requirements. None of the Australian class actions regimes have a certification requirement. The Australian regimes do, however, provide mechanisms for defendants to challenge the use of a class action on certain grounds.

Chapter 11 – The representative plaintiff

24. Another important design question concerns who can be the representative plaintiff. In some jurisdictions, assessing the suitability of the representative plaintiff is part of the certification process. In Australia, where there is no certification requirement, the inadequacy of a representative plaintiff may be grounds to discontinue a proceeding or substitute the plaintiff. Questions include whether a representative plaintiff must be a class member, and whether any class actions regime should allow government entities to be representative plaintiffs.
25. A particular issue arising in the context of Aotearoa New Zealand concerns the potential role of tikanga Māori in a class action involving a Māori collective where class members identify with the claim through a common issue, as well as with the collective through kinship. A person who can meet the general requirements for appointment as a representative plaintiff may not have a mandate, in terms of tikanga, to represent the people they purport to represent. Or, a person who does not meet the requirements for a representative plaintiff may have a mandate, in terms of tikanga, to represent those people.
26. In this context it may be appropriate to consider the role of tikanga in evaluating the representativeness of an intended plaintiff and whether tikanga considerations such as whakapapa, whanaungatanga and mana should apply in addition to, or instead of, any of the other requirements for representative plaintiffs.

Chapter 12 – Membership of the class

27. There are many different ways that class membership can be determined. Early representative action cases in Aotearoa New Zealand were brought on a universal basis, meaning everyone who came within the defined represented group would be bound by the decision. Subsequently, cases were brought on an opt-in basis, whereby members must choose to join the group. As recently interpreted by the courts, HCR 4.24 also permits representative actions to be brought on an opt-out basis, which requires potential members to positively opt out of the case by a certain date. It is possible for a class actions regime to provide for opt-in as well as opt-out procedures, depending on the case.

Chapter 13 – Adverse costs

28. A general principle of civil litigation in Aotearoa New Zealand is that the unsuccessful party must pay costs to the successful party. Whether an adverse costs rule should apply to a class actions regime is an important design question. This is because liability for adverse costs can affect the efficacy and utility of class actions. Given the potential for adverse costs to negatively affect the ability to bring a class action, we discuss several alternatives or variations to the usual rule. We also consider overseas examples of public class proceedings funds which have been established to indemnify representative plaintiffs against adverse costs orders. We do not, however, consider changes to civil legal aid, as this is outside the scope of our terms of reference.

PART B – LITIGATION FUNDING

Chapter 14 – Introduction to litigation funding

29. Litigation funding involves a person who is not a party to and has no interest in the litigation agreeing to fund some or all of a plaintiff’s costs in exchange for a share of any sum recovered (the funder’s commission). It is usually non-recourse, meaning that if the case is unsuccessful, the funder will be paid nothing. If the case is successful, the funder will be reimbursed for the costs of the litigation and will be compensated for bearing the financial risk of the case through payment of the commission.
30. The market for litigation funding in Aotearoa New Zealand is relatively small compared to jurisdictions like Australia and England and Wales. We have identified 40 cases in Aotearoa New Zealand in which the plaintiff received litigation funding. This number includes ten representative actions under HCR 4.24, comprising five consumer claims, three shareholder claims, one investor claim and one claim against the Government.

Chapter 15 – Regulation of litigation funding

31. Litigation funding is not specifically regulated in Aotearoa New Zealand. Instead, litigation funding is regulated to a limited extent by the torts of maintenance and champerty and principles that have developed by the courts in the exercise of powers to stay proceedings for abuse of process, order the provision of security for costs and order non-party costs. Some statutes such as the Fair Trading Act 1986 may also apply to the provision of litigation funding. In contrast, in some overseas jurisdictions, litigation funding is regulated as a financial service, through industry self-regulation, or through a combination of legislation and civil procedure rules that specify conditions that must be satisfied in order for funding arrangements to be enforceable.

Chapter 16 – Problems with the lack of regulatory certainty

32. The lack of specific regulation of litigation funding in Aotearoa is problematic. To date, the courts have adopted a cautiously permissive approach to litigation funding. However, the absence of regulation means that the parameters within which litigation funders should operate are unclear. In turn, this uncertainty may impact on the pricing and availability of litigation funding and, more broadly, raise rule of law concerns in the sense that predictability and transparency of laws are currently lacking.

Chapter 17 – Advantages and disadvantages of litigation funding

33. Litigation funders are profit-driven entities that invest in litigation in return for a commission. Litigation funding may therefore have limited application to public interest litigation, or litigation where non-monetary relief is sought. It does nevertheless have a role in improving access to justice by alleviating the costs and risks of litigation. The need for litigation funding to address financial barriers to accessing civil justice is increasingly being acknowledged, including by the courts. In particular, some representative actions and insolvency proceedings may be unable to proceed without it. Litigation funding may also allow plaintiffs to stay focussed on their business-as-usual activities and expand their litigation financing options.
34. The potential disadvantages of litigation funding we have identified are that it may increase litigation and thus the workload of the courts, it may encourage meritless litigation, and it

may impact on the availability and pricing of D&O insurance. However, an increase in litigation is not itself a reason to object to litigation funding and the courts have developed a range of mechanisms to prevent meritless cases from proceeding. We have not yet seen robust evidence that the increase in funded litigation across Australasia has caused a hardening of the D&O insurance market.

35. Our preliminary view is that litigation funding is desirable in principle and should be expressly permitted, provided that certain concerns can be adequately managed. These concerns relate to:

(a) Funder control of litigation.

(b) Conflicts of interest.

(c) Funder profits.

(d) Capital adequacy of funders.

Chapter 18 – Reforming maintenance and champerty

36. There is some uncertainty about whether litigation funding is contrary to the torts of maintenance and champerty, and whether the policy behind the torts is still relevant or is outweighed by access to justice considerations. To date the torts have not been relied on in Aotearoa New Zealand. It may be necessary to reform the torts if the policy behind them is no longer relevant or if the torts are having a chilling effect on the pricing and availability of litigation funding. Our preliminary discussions on this issue elicited mixed views.
37. If litigation funding is to be expressly permitted, then the tension between the torts of maintenance and champerty and litigation funding needs to be resolved. This could be achieved by leaving it to the courts to clarify and develop the law, retaining the torts but carving out a statutory exception for litigation funding, abolishing the torts or abolishing the torts but retaining the courts’ ability to find a funding agreement unenforceable on grounds of public policy.

Chapter 19 – Funder control of litigation

38. Control of litigation by a third-party is one of the key rationales underlying maintenance and champerty. The concern is that a third-party who maintains litigation will attempt to control the litigation for their own ends. At the same time, litigation funders have a legitimate commercial interest in protecting their interest. Existing mechanisms for addressing funder control include the courts exercising their general powers to manage their proceedings, the torts of maintenance and champerty, and tax law. As a law reform option, parties could be encouraged or required to include minimum contract terms in their litigation funding agreements.

Chapter 20 – Conflicts of interest

39. In funded litigation, there is a tripartite relationship between the funder, the funded plaintiff, and the lawyer. In many instances, the interests of all three will align. However, in some instances, interests between a funder and the plaintiff, and between the lawyer and the plaintiff, may diverge and conflict. For example, misaligned interests between a funder and plaintiff may arise and create problems when one party wishes to settle but the other does not. Conflicts of interest may arise between a lawyer and plaintiff if the lawyer relies on the

funder for the continuation of the litigation, has been retained by the funder, or has some other commercial relationship with the funder.

40. Mechanisms for managing funder-plaintiff conflicts of interest include encouraging or requiring funders to include minimum contract terms that specify how any conflicts should be resolved, requiring funders to maintain conflicts management policies and regulating funder control. To some extent the existing rules that regulate professional conduct by lawyers will mitigate the risks of lawyer-plaintiff conflicts of interest. However, the rules were not designed to account for the particular types of conflicts that might arise in funded litigation. Options for reform include creating new professional rules or guidelines for lawyers, and prohibiting lawyers from holding commercial interests in funders.

Chapter 21 – Funder profits

41. Profiting from funding another party’s litigation is one of the primary concerns underpinning the torts of maintenance and champerty. Excessive profits may risk diminished substantive justice for plaintiffs, and the misuse of the proper functions of the courts. Most litigation funding is conducted on a non-recourse basis, meaning the funder will only recover their costs and commission from the funded party if the claim is successful. As such, it is a relatively high-risk investment for funders. In return for assuming this risk, funders seek high returns. Litigation funding is therefore a relatively expensive product for consumers and it is not easy to draw the line between what is a reasonable profit and what is an excessive one. Options for managing the concern include facilitating increased competition in the litigation funding market, court supervision of funder commissions and direct regulation of the amount of permissible funder commissions.

Chapter 22 – Capital adequacy of litigation funders

42. When a case is funded by a litigation funder, the funder assumes responsibility to pay the plaintiff’s legal costs. The funder will often also agree to meet any security for costs or adverse costs which are ordered against the plaintiff. If however the funder does not maintain access to adequate capital, then the case may be discontinued, the plaintiff may be left with significant unexpected liabilities, and plaintiff’s lawyer may not be paid for their services. The defendant may be left with significant unpaid costs.
43. There are several possible options for reform to manage capital adequacy concerns. These include strengthening the security for costs mechanism to make it clear that a litigation funder will be expected to provide security, and that the security needs to be in a form which is enforceable in Aotearoa New Zealand. Regulations could also be introduced to require litigation funders to maintain a certain minimum level of capital. This approach will require determining what the minimum level should be, and whether the capital must be held within Aotearoa New Zealand.

Chapter 23 – Regulation and oversight

44. The lack of regulation of litigation funders and funding arrangements, and the tension between litigation funding and the torts of maintenance and champerty, means there is some uncertainty about the permissibility and parameters of litigation funding in Aotearoa New Zealand. Our preliminary view is that the current lack of certainty in the law, and the need for better transparency and accountability of litigation funder operations in relation to the above concerns, warrant a regulatory response. The need for regulation (or the

extent of regulation needed) may depend on the nature of the funded proceeding or the funded plaintiff. For instance, recent reforms in Australia have focussed on litigation funding of class actions. However, some concerns will be common across all kinds of funded proceedings.

45. Regulation of litigation funding may take different forms, and a combination of different forms of regulation may also be appropriate. Options for regulation include industry self- regulation (a model which operates in England and Wales), and regulation of funded litigation as managed investment schemes (whereby litigation funders would be required to hold a market services licence, similar to the position in Australia in relation to funded class actions). A new tailored licensing system for litigation funders could be created, or indeed a new statutory regime could be established with oversight by a new statutory body. A further option is that courts could be tasked with approving funding arrangements.

List of questions

CHAPTER 4: PROBLEMS WITH USING THE REPRESENTATIVE ACTIONS RULE FOR GROUP LITIGATION

CHAPTER 5: ADVANTAGES OF CLASS ACTIONS

What do you see as the advantages of class actions? In particular, to what extent

do you think class actions are likely to:

1. improve access to justice?
   2. improve efficiency and economy of litigation?

100. strengthen incentives to comply with the law. Is this an appropriate role for a class actions regime?

Q3

CHAPTER 6: DISADVANTAGES OF CLASS ACTIONS

Do you have any concerns about class actions? In particular, do you have concerns

about:

1. the impact on the court system?
   2. the impact on defendants?
   100. the impact on the business and regulatory environment?
   4. how class members’ interests will be affected?

Q4

CHAPTER 7: A STATUTORY CLASS ACTIONS REGIME FOR AOTEAROA NEW ZEALAND

Should Aotearoa New Zealand have a statutory class actions regime? Why or why
not?

Q5

CHAPTER 8: SCOPE OF A STATUTORY CLASS ACTIONS REGIME

CHAPTER 9: PRINCIPLES FOR A STATUTORY CLASS ACTIONS REGIME

CHAPTER 10: CERTIFICATION AND THRESHOLD LEGAL TEST

CHAPTER 11: THE REPRESENTATIVE PLAINTIFF

CHAPTER 12: MEMBERSHIP OF THE CLASS

CHAPTER 13: DISADVANTAGES OF CLASS ACTIONS

CHAPTER 17: ADVANTAGES AND DISADVANTAGES OF LITIGATION FUNDING

CHAPTER 18: REFORMING MAINTENANCE AND CHAMPERTY

CHAPTER 19: FUNDER CONTROL OF LITIGATION

CHAPTER 20: CONFLICTS OF INTEREST

If not, which option for managing the concerns about lawyer-client conflicts of

interest do you prefer, and why? For example:

1. Should funders be encouraged or required to include minimum terms in their litigation funding agreements? If so, what minimum terms would be appropriate?
   2. Should professional rules or guidelines be developed for lawyers acting in funded proceedings? If so, what rules or guidelines would be appropriate?
   100. Should activities that are likely to give rise to lawyer-plaintiff conflicts of interest be prohibited? If so, which activities should be prohibited?

Q50

CHAPTER 21: FUNDER PROFITS

CHAPTER 22: CAPITAL ADEQUACY

CHAPTER 23: REGULATION AND OVERSIGHT

CHAPTER 1

Introduction

WHY THIS REVIEW?

• 1.1 Te Aka Matua o te Ture | Law Commission is undertaking a first principles review of class actions and litigation funding. Terms of reference were published on 18 December 2019 and are set out in Appendix 1. The terms of reference provide that the Commission will consider whether and to what extent the law should allow class actions and litigation funding. Our objective is to ensure that the law in these areas can support an efficient economy and a just society, and is understandable, clear and practicable.
• 1.2 A class action enables a group or class of people with similar claims to have those claims determined in a single proceeding. This is normally achieved through the selection of one class member to act as a representative plaintiff on behalf of the class. All class members will be bound by the outcome. As with other forms of group litigation (where legal claims involving multiple plaintiffs or defendants are grouped together), the benefits of class actions include improved access to civil justice, procedural efficiency and consistency of outcomes.
• 1.3 Litigation funding involves a person who is not a party to and has no interest in the litigation agreeing to fund some or all of a party’s costs. The funder will usually receive an agreed percentage of any amount awarded to the litigant if the claim is successful, but will be paid nothing if the claim is lost. Litigation funding is not limited to class actions, but many class actions would be unable to proceed without it.
• 1.4 There are risks and costs associated with both class actions and litigation funding. For example, a class action is likely to take longer and require more case management than ordinary or individual litigation. Prolonged proceedings can impose significant burdens on defendants and delay justice for the claimants. Litigation funding can give rise to conflicts of interest between a funder and plaintiff over material issues, such as whether to settle a claim and for how much.
• 1.5 Aotearoa New Zealand does not have a class actions regime. The High Court Rules (HCR) simply provide for a person to sue (or be sued) on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding. These are referred to as ‘representative actions’. The number of representative actions being initiated is steadily increasing, and the nature of the claims being brought is also changing. They now include, for example, insurance, shareholder and product liability claims. The representative action procedure was not designed for claims of the scale or complexity of many of these cases.

• 1.6 Aotearoa New Zealand also has no specific regulation of litigation funding. Litigation funding established itself as a funding model for litigation in Australia in the 1990s and then developed and expanded elsewhere, including to the United Kingdom and the United States. A relatively small number of litigation funders now operate in Aotearoa New Zealand, and some overseas based funders also fund litigation in this country.

INTERSECTIONS BETWEEN CLASS ACTIONS AND LITIGATION FUNDING

• 1.7 Although distinct activities, class actions and litigation funding are being considered together in this review because the intersections between them in practice raise a number of overlapping issues. Litigation funding currently plays an important role in representative actions in Aotearoa New Zealand and in many class actions overseas. The complex and costly nature of group litigation means plaintiffs are often unable to afford to bring an action without recourse to external funding. Given lawyers cannot charge contingency fees in Aotearoa New Zealand, obtaining litigation funding from a commercial funder may be the only funding option available. This is particularly true in consumer actions where the small value of the individual claims means claimants are unlikely to be able or willing to contribute to litigation costs.¹ In Aotearoa New Zealand, costs generally follow the event, so an unsuccessful litigant may have to pay a proportion of the other party’s legal costs under an adverse costs order. With the risk of such adverse costs orders, the need for litigation funding in low value claims may sometimes be acute.
• 1.8 An increase in the availability of litigation funding can increase the number of representative or class action proceedings.² In Australia for example, the percentage of funded class actions filed in the Federal Court has increased appreciably over the past 30 years.³ The nature of class actions also raises additional issues for litigation funding. In particular, the involvement of a represented but potentially passive class may require greater court oversight of funding arrangements.⁴

ACCESS TO JUSTICE

• 1.9 Our review of class actions and litigation funding is taking place within a wider context of ongoing work across legal and policy environments to address barriers to accessing civil justice.⁵ Access to justice as a general concept concerns the ability of people to have their

¹ Nikki Chamberlain “Class Actions in New Zealand: An Empirical Study” (2018) 24 NZBLQ 132 at 151–152.

² See Nikki Chamberlain “Class Actions in New Zealand: An Empirical Study” (2018) 24 NZBLQ 132 at 151–152.

3. Vince Morabito “Empirical Perspectives on 25 Years of Class Actions” in Damian Grave and Helen Mould (eds) 25 Years of Class Actions in Australia: 1992–2017 (Ross Parsons Centre of Commercial, Corporate and Taxation Law, Sydney, 2017) 43. From March 1992–March 2013 15 per cent of cases in the Federal Court were funded; from March 2013–March 2018 64 per cent of cases were funded; and from March 2017–March 2018 78 per cent of cases were funded. See Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [3.19].
4. See Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312 at [77].
5. See for example The Rules Committee Improving Access to Civil Justice: Initial Consultation with the New Zealand Community (Discussion Paper); The Rules Committee Improving Access to Civil Justice: Initial Consultation with the Legal Profession (Discussion Paper, 16 December 2019); Helen Winkelmann, Chief Justice of New Zealand “Speech of

legal rights determined and upheld through a process which is fair, efficient and transparent for all parties involved. Access to civil justice concerns the ability of people to vindicate their civil law rights. Access to justice implicates central rule of law values. Jeremy Waldron, for example, has argued that both legal certainty as well as opportunities for people to participate in legal institutions are necessary to fulfil the rule of law’s regard for the freedom and dignity of people.⁶ The right to a fair and public hearing in the determination of legal rights and obligations is recognised internationally as a fundamental human right.⁷

• 1.10 Although central to democracy, there are widely acknowledged problems in realising the ideal of access to civil justice in practice. The high costs associated with litigation are well beyond the means of most New Zealanders and significantly impede access to courts and the vindication of rights in civil cases. In February 2020, the Minister of Justice, Andrew Little, said it is uneconomic to seek justice from the courts for civil claims of less than $100,000 because of the high costs of lawyers’ fees, High Court filing fees, and the extraordinarily long waits for a hearing.⁸ Other estimates suggest that the figure may be much higher.⁹ Meanwhile, the jurisdiction of the Disputes Tribunal, a low cost forum for resolving small claims, is capped at $30,000.¹⁰ There is a significant gap in the system for resolving claims that are valued above this amount but fall below the threshold for economic viability of litigation in the courts.

The Rt Hon Dame Helen Winkelmann at her swearing in as Chief Justice of New Zealand” (Te Kōti Mana Nui | Supreme Court, Wellington, 14 March 2019); New Zealand Bar Association Working Group into Access to Justice Access to Justice

| Āhei ki te Ture (2018); Bridgette Toy-Cronin and others The Wheels of Justice: Understanding the Pace of Civil High Court Cases (Te Whare Wānanga o Ōtākou | University of Otago, 2017); Stephen Kós, Judge of the Court of Appeal of New Zealand “Civil Justice: Haves, Have-nots and What to Do About Them” (speech to the Arbitrators’ and Mediators’ Institute of New Zealand and International Academy of Mediators Conference, Queenstown, March 2016); Geoffrey Venning, Chief Judge of the High Court of New Zealand “Access to Justice – A Constant Quest” (speech to New Zealand Bar Association Conference, Napier, 7 August 2015); Helen Winkelmann, Chief High Court Judge “Access to Justice – Who Needs Lawyers?” (speech to the Annual New Zealand Law Foundation Ethel Benjamin Commemorative Address, Dunedin, 7 November 2014); Rob Stock “Many Kiwis just can’t afford to fight rip-offs and sue companies, Justice Minister says” (2 February 2020) Stuff <www.stuff.co.nz>; Pokapū Ratonga Ture I Legal Services Agency Report on the 2006 National Survey of Unmet Legal Needs and Access to Services (November 2006); Colmar Brunton Legal needs among low income New Zealanders: Research report (5 March 2018); and Colmar Brunton Legal needs among New Zealanders: A general population survey – which includes comparisons with a previous survey of the low income population (13 April 2018).

6. Jeremy Waldron “The Concept and the Rule of Law” (2008) 43 Ga L Rev 1 at 59. See also Andrew Little, Minister of Justice “Speech to Law Foundation Awards Dinner” (Wellington, 8 December 2017).

⁷ See for example Universal Declaration of Human Rights GA Res 217A (1948).

8. Rob Stock “Many Kiwis just can’t afford to fight rip-offs and sue companies, Justice Minister says” (2 February 2020) Stuff <www.stuff.co.nz>. See also The Rules Committee Improving Access to Civil Justice: Initial Consultation with the Legal Profession (Discussion Paper, 16 December 2019) at 7; and Stephen Kós, President of the Court of Appeal “Better Justice” (speech to the Legal Research Foundation Annual General Meeting, Auckland, 20 August 2018).
9. In 2008, the Rules Committee suggested that civil claims for $150,000 to $200,000 are “quite possibly uneconomic”: Rules Committee Class Actions for New Zealand: A Second Consultation Paper (October 2008) at 7. Others have suggested claims as high as $500,000 may not be economic to bring in the High Court: Letter from Philip Skelton and Tom McKenzie to Rules Committee regarding the “Improving Access to Civil Justice” discussion paper (10 September 2020) at [2].

¹⁰ Disputes Tribunal Act 1988, s 10(3).

• 1.11 In addition to the direct costs of taking a claim to court, the risk of an adverse costs order may also deter people from seeking redress through litigation. Adverse costs orders do not cover the successful party’s actual costs, only a proportion of what it was reasonable for them to spend. Nonetheless, what amounts to reasonable is calculated by reference to what lawyers charge clients in the private market.¹¹
• 1.12 The risk of an adverse costs order is mitigated for legally aided litigants because their liability for costs is limited by legislation.¹² However, access to civil legal aid is itself limited. The maximum income threshold for eligibility for legal aid is very low — $23,820 per annum for someone with no dependents.¹³ Moreover, a shortage of registered civil legal aid lawyers in Aotearoa New Zealand can make civil legal aid difficult to obtain.¹⁴ Even if a person qualifies for legal aid and finds a registered lawyer willing to take their case, civil legal aid is provided as a loan which the recipient may need to repay with interest.¹⁵
• 1.13 For civil claims that do proceed to court, there may still be an access to justice problem if there is an imbalance of resources between the disputing parties. The cost of litigation favours deep-pocketed individuals or entities. ¹⁶ There are significant challenges for individuals trying to vindicate their rights against well-resourced defendants, especially in proceedings with numerous interlocutory steps and/or successive appeals.¹⁷
• 1.14 In addition to financial burdens, social barriers and the significant psychological stress that often accompanies the prospect of being involved as a party to litigation can also deter people from participating in civil proceedings. As we discuss in this Issues Paper, class actions and litigation funding have the potential to ameliorate these issues and promote a more inclusive and accessible civil justice system. The risk of litigation in response to wrongdoing can also deter wrongdoing and consequently have a positive influence on behaviour. In this respect, class actions and litigation funding can help protect the interests of vulnerable individuals and groups.
• 1.15 At the same time, it is important to note two key limitations of these mechanisms. First, by definition, a class action can only proceed if there is a class of people with a factual or

11. See High Court Rules 2016, schs 2 and 3; and Bridgette Toy-Cronin “I fought the law and the lawyers won” (22 July 2020) Newsroom <www.newsroom.co.nz>.

¹² Legal Services Act 2011, s 45.

¹³ Legal Services Act 2011, s 10(2); and Legal Services Regulations 2011, reg 5(1)(a)(iii).

14. See Andrew Ashton “Lawyer shortage biting Hawke’s Bay practices; one offers $25K cash incentive” The New Zealand Herald (online ed, Auckland, 5 February 2018); Kayla Stewart and Bridgette Toy-Cronin The New Zealand Legal Services Mapping Project: Finding Free and Low-Cost Legal Services – Auckland and Otago Pilot Report (University of Otago Legal Issues Centre, May 2018); Samantha Gee “Missing out on civil legal aid a justice issue, lawyers say” (12 August 2018) Stuff <www.stuff.co.nz>; and Te Kāhui Ture o Aotearoa | New Zealand Law Society “Legal aid: the problems and issues” (2018) 923 LawTalk 77. Lawyers are reportedly frustrated by the low level of fees for civil legal aid work. For further discussion, see Steven Zindel “The parlous state of civil access to justice in New Zealand” (2018) 920 LawTalk 54.
15. See Legal Services Act 2011, ss 18–21 and 40; and Tāhū o te Ture | Ministry of Justice “Do you need to pay back your legal aid?” Justice.govt.nz <www.justice.govt.nz>.
16. Rob Stock “Many Kiwis just can’t afford to fight rip-offs and sue companies, Justice Minister says” (2 February 2020) Stuff <www.stuff.co.nz>; and Nick Rowles-Davies Third Party Litigation Funding (Oxford University Press, Oxford, 2014) at [1.81].

¹⁷ Bill Wilson “Insights from a litigation funder” (2016) 888 LawTalk 27 at 29.

legal issue in common, and at least one of them has the capacity and motivation to commence litigation. Second, litigation funding is only likely to be available in cases which appeal to the commercial priorities of litigation funders. This may pose a significant obstacle to the viability of any class action or other litigation seeking a non-monetary remedy.¹⁸

OTHER STUDIES AND OVERSEAS COMPARISONS

• 1.16 Class actions and litigation funding have been the subjects of several law reform exercises over the past four decades: to some extent in Aotearoa New Zealand, and more widely in other jurisdictions. In this Issues Paper, we draw on relevant findings and take account of overseas experiences.

Aotearoa New Zealand

• 1.17 In Aotearoa New Zealand, the Rules Committee¹⁹ has previously carried out work on class actions, including the preparation of a draft Class Actions Bill and related amendments to the HCR. The Class Actions Bill did not progress due to other government priorities.²⁰
• 1.18 The Commission reviewed the torts of maintenance and champerty and recommended their retention in a 2001 Report.²¹ Historically, litigation funding agreements have been regarded as champertous. Given the role that litigation funding now has in facilitating access to the courts, it is timely to revisit the Commission’s earlier view.

Comparable jurisdictions

Class actions

• 1.19 It is estimated that around 40 jurisdictions now have some form of class actions regime.²² We primarily refer to approaches taken in the United States, Australia (federal and state jurisdictions) and Canada (particularly in the federal and common law jurisdictions) . We consider these jurisdictions to be relevant comparators for our review of class actions because each of them began with a rule on representative actions in a form similar to that provided by the High Court Rules. The limitations in representative actions then prompted the development of class actions regimes.
• 1.20 We also discuss provisions of class actions regimes from other jurisdictions in relation to specific issues of interest, and the United Kingdom Competition Appeal Tribunal as an example of a sector-specific class actions regime.

18. We note some entities may fund cases for philanthropic or strategic reasons: see Kaja Zaleska-Korziuk “When the Good Samaritan Pays: The Phenomenon of Strategic Third-Party Funding” (2018) 18 Asper Rev Int’l Bus & Trade L 160.
19. The statutory body established by s 51B of the Judicature Act 1908 and continued by s 105 of the Senior Courts Act 2016 to develop rules of procedure for the District Court, High Court, Court of Appeal and Supreme Court.
20. The Rules Committee has continued to undertake work in this area, including the preparation of draft amendment rules for representative actions.

²¹ Te Aka Matua o te Ture | Law Commission Subsidising Litigation (NZLC R72, 2001) at 10.

22. Deborah R Hensler “From Sea to Shining Sea: How and Why Class Actions Are Spreading Globally” (2017) 65 U Kan L Rev 965 at 966.

Litigation funding

• 1.21 There is a relative lack of targeted regulation of litigation funding internationally. That said, there is some statutory regulation of litigation funding in Australia, and some principles can also be ascertained from relevant Canadian case law and from industry self-regulation through the London-based Association of Litigation Funders. We also expand our focus to consider other precedents. The United Arab Emirates’ two independent financial free zones, the Dubai International Financial Centre and the Abu Dhabi Global Market, have established common law courts. These courts have developed innovative rules and codes of practice for litigation funding. Hong Kong and Singapore have likewise promulgated regulations and developed guidelines for the provision and use of third-party funding in the mediation and arbitration contexts.
• 1.22 In addition to examining experiences within these jurisdictions, we also draw on academic literature which takes a broader view. In particular, we reference the work of Rachael Mulheron, an internationally recognised expert on class actions whose comparative studies we cite across Part A of this Issues Paper.

PURPOSE AND SCOPE OF THIS ISSUES PAPER

• 1.23 The purpose of this Issues Paper is to facilitate consultation and feedback on whether the potential benefits of class actions and litigation funding can be realised in a way that outweighs any risks and concerns.
• 1.24 While we anticipate this paper will be of particular interest to lawyers who work in civil litigation, we welcome hearing from anyone with interest in these issues. This might include the business community, government agencies, insurers, litigation funders, litigants (particularly those with experience of representative actions and cases involving commercial litigation funding), and people with academic or other knowledge of access to justice issues.
• 1.25 We are calling for submissions or comments until 11 March 2021. These can address any topic concerning class actions and litigation funding, but we have included focussed questions in this paper to give submitters an indication of the areas we think need close attention. A full list of questions is set out at the beginning of the paper. We would welcome feedback on any of these questions.
• 1.26 If the weight of submissions or comments and our further analysis favours proceeding with the regulation of class actions and/or litigation funding, we will prepare more detailed proposals for regulation in these areas, and may consult further on those proposals. We intend to deliver our final report to the Minister of Justice during the first half of 2022.
• 1.27 We note that class actions regimes in all their variations are inherently procedural devices. We are not reviewing substantive rights and obligations that often give rise to class litigation, such as consumer laws and directors’ duties. We also recognise that differences in procedural and substantive law across comparable jurisdictions may affect how and when class actions and funded litigation may arise. We have taken these differences into consideration when making comparisons with those other jurisdictions. In addition, in accordance with our terms of reference, civil legal aid falls outside the scope of this review.

• 1.28 During the research phase for this Issues Paper, we became aware of several related issues that fall outside our terms of reference. These include limitations in other forms of group litigation and lawyers’ contingency fees. We note the anomaly of asking whether funders should be able to charge percentage-based success fees but not also asking whether lawyers should be allowed to charge on this basis. However, the terms of reference for this review are concerned with litigation funding whereas contingency fees concern how lawyers may charge for their services in wider circumstances. Additional considerations would arise with respect to the regulation of lawyers’ fees that would require different and extensive consultation with the legal profession.

STRUCTURE OF THIS ISSUES PAPER

• 1.29 We address class actions in Part A of this Issues Paper, and litigation funding in Part B.
• 1.30 Part A is structured as follows:

(a) In Chapters 2 to 4, we introduce class actions, discuss current mechanisms for group litigation in Aotearoa New Zealand, and identify problems with using the representative actions rule for claims that would be brought as a class action in other jurisdictions.

(b) In Chapters 5 to 7, we then ask whether Aotearoa New Zealand should have a class actions regime. We consider the advantages and disadvantages of class actions and reach the preliminary view that it would be preferable to have a class actions regime rather than maintain the status quo. We are interested to hear views on the desirability of class actions, and the ongoing role of representative actions.

(c) In Chapters 8 to 13, and on the basis of our preliminary view, we then examine what the scope and broad principles for any statutory class actions regime should be. We also invite views on key design principles, such as the threshold requirement legal test for the representative plaintiff, how class membership is determined and the adverse costs rule.

• 1.31 Part B is structured as follows:

(a) In Chapters 14 to 15, we introduce litigation funding and provide an overview of the litigation funding market and the regulation of litigation funding in Aotearoa New Zealand. We also discuss approaches to regulation in some overseas jurisdictions.

(b) In Chapter 16, we explain that the current regulatory uncertainty is problematic, and discuss the potential impact of uncertainty on the litigation funding market.

(c) In Chapter 17, we discuss advantages and disadvantages of litigation funding. We express the preliminary view that litigation funding is desirable in principle.

(d) In Chapter 18, we consider and seek views on whether and, if so how, the law of maintenance and champerty should be reformed.

(e) In Chapters 19 to 22, we consider specific concerns with litigation funding in terms of funder control, conflicts of interest, funder profits, and capital adequacy, and how these concerns can best be managed.

(f) In Chapter 23, we ask whether and to what extent the concerns with litigation funding warrant a regulatory response. We consider potential options for the form of regulation and oversight of litigation funding.

Part A

Class Actions

CHAPTER 2

Introduction to class actions

INTRODUCTION

• 2.1 In this chapter we:

(a) Define, and summarise the key features of, class actions regimes.

(b) Introduce the class actions regimes of comparable jurisdictions.

(c) Explain the importance of the context of a particular class actions regime.

DEFINITION AND KEY FEATURES OF CLASS ACTIONS

• 2.2 A class action is characterised by the act of grouping claimants with a common factual or legal issue into a single legal proceeding so that their claims can be resolved together. This is normally achieved through the selection of one class member to act as a representative plaintiff on behalf of the class, although all class members will be bound by the outcome.
• 2.3 Drawing on the work of a number of law reform bodies, Rachael Mulheron proposes the following high level definition of a class action:¹

A class action is a legal procedure which enables the claims (or part of the claims) of a number of persons against the same defendant to be determined in the one suit. In a class action, one or more persons (‘representative plaintiff’) may sue on his or her own behalf and on behalf of a number of other persons (‘the class’) who have a claim to a remedy for the same or a similar alleged wrong to that alleged by the representative plaintiff, and who have claims that share questions of law or fact in common with those of the representative plaintiff (‘common issues’). Only the representative plaintiff is a party to the action. The class members are not usually identified as individual parties but are merely described. The class members are bound by the outcome of the litigation on the common issues, whether favourable or adverse to the class, although they do not, for the most part, take any active part in that litigation.

1. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 3 drawing on reports by the Australian Law Reform Commission, the South African Law Reform Commission, the Ontario Law Reform Commission and the Alberta Law Reform Commission.

• 2.4 Overseas class actions regimes have detailed procedural provisions in either legislation or civil procedure rules. These include rules for how a class action is commenced, managed and concluded.² Capital Strategic Advisors has noted the “striking” parallels with company arrangements, with their membership rules (shareholder registers and rules for buying and selling shares), management rules (where shareholders have no general right to participate in management), and rules about the distribution of company funds.³ Through this analogy we can see that a class action may facilitate collective action in litigation where economically efficient, “just as the company legal form does for business”.⁴
• 2.5 Key features of class actions include:

(a) Preliminary court approval is often required before the case can proceed as a class action.

(b) The requirement for a common issue.

(c) The existence of a representative plaintiff or defendant.

(d) The existence of a class of represented persons.

(e) A mechanism to determine membership of the class, typically ‘opt-out’.

(f) The decision on the common issues binds the class.

(g) A method of determining individual issues.

(h) Active court supervision of proceedings.

(i) The court must approve settlement.

(j) Class actions are typically funded by a lawyer or litigation funder.

• 2.6 We briefly discuss these features below (and examine them in more detail later in our Issues Paper).

Preliminary court approval to proceed as a class action

• 2.7 Most class actions regimes have a preliminary stage where the court determines whether the case should be allowed to proceed as a class action. The rationale for this is that:⁵

...class actions are sufficiently different from individual proceedings to require a special judicial filter to weed out class actions that are contrary to the interests of the class members, the defendant, or the public.

• 2.8 This preliminary stage is usually known as certification and we discuss this in more detail in Chapter 10. Australia has chosen not to have a certification stage for its class actions

² Rachael Mulheron has identified 100 points of class action design: see Rachael Mulheron Class Actions and Government

(Cambridge University Press, Cambridge, 2020) at 82–93.

³ Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 33.

4. Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 33. Capital Strategic Advisors further notes the lack of detail needed for a class actions regime (under this analogy) in r 4.24 of the High Court Rules 2016. In particular, r 4.24 says very little about membership, and nothing about management or the allocation of funds.

⁵ Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 281.

regimes, although courts may order that a proceeding no longer continue as a class action where it is not suitable to proceed in this form.

• 2.9 At the certification stage, a court must apply specified criteria to determine whether a case may proceed as a class action. A key aspect of the certification test across jurisdictions is determining whether there is sufficient commonality among individual claims. Other common features of certification tests include whether the class is a sufficient size, whether a class action is the preferable way of resolving the claim and whether the proposed representative plaintiff will fairly and adequately represent the class.

Common issue

• 2.10 Class actions regimes generally require a plaintiff to establish a common issue of fact or law among all class members, which is known as a commonality requirement. Where there are common issues not shared by all class members, it may be possible to create sub- classes to enable these issues to be considered. ⁶ Jurisdictions have taken different approaches to how significant the common issues must be. For example, in some jurisdictions, the common issues must predominate over individual issues. We discuss the issue of commonality further in Chapter 10.

Representative plaintiff or defendant

• 2.11 A class action must have a litigant who acts on a representative basis. In the vast majority of cases, this will be a representative plaintiff. Some jurisdictions allow defendant class actions, where a plaintiff brings a claim against a representative defendant, although such cases are rare. We discuss defendant class actions in Chapter 8. However, our analysis otherwise focuses on plaintiff class actions.
• 2.12 For a plaintiff class action, the case is filed in the name of a representative plaintiff, who has been described as “the face” of the litigation.⁷ The representative plaintiff has the important role of representing the other class members and in some jurisdictions has been held to have a fiduciary responsibility to class members.⁸ One of the representative plaintiff’s key tasks is to provide a link between class members and the lawyer acting for the class.⁹ Unlike class members, the representative plaintiff is a party to the litigation, and they will be liable for any adverse costs order unless other arrangements have been made.¹⁰

6. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 184.
7. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 275.
8. Dyczynski v Gibson [2020] FCAFC 120, (2020) 381 ALR 1 at [209] per Murphy and Colvin JJ; and Joseph M McLaughlin McLaughlin on Class Actions (online ed, Thomson Reuters) at [§4:27] (citing several United States authorities). See also Poulin v Ford Motor Co of Canada Ltd (2008) 301 DLR (4th) 610 (ONSC) at [62] where the responsibilities of the lead

plaintiff to class members were said to be “akin to that of a fiduciary”.

9. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 291.
10. For example, there may be an agreement between class members to contribute to any adverse costs award or an indemnity may be provided by a litigation funder or a law firm. We discuss the issue of a representative plaintiff’s costs liability in Chapter 13.

• 2.13 Jurisdictions with class actions regimes have developed means of ensuring that the representative plaintiff properly represents the class and that no conflict of interest arises. Class actions regimes have taken differing approaches on whether a representative plaintiff must have their own claim or whether ideological plaintiffs (such as organisations) should be permitted. We discuss issues associated with the representative plaintiff in Chapter 11.

Class of represented persons

• 2.14 The presence of class members is a defining characteristic of a class action. Although class members do not usually play an active role in the litigation, they will be bound by a judgment on the common issues in the proceeding.
• 2.15 Many features of class actions regimes are designed to ensure that class members’ interests are adequately protected, including: requirements for notice to potential class members, providing class members with sufficient opportunity to opt in or opt out of the claim, providing an opportunity for a class member to be heard by the court and requiring court approval of any settlement.

Mechanism for determining class membership, typically ‘opt-out’

• 2.16 Another defining feature of a class actions regime is the mechanism that is used to determine class membership. In common law jurisdictions, the usual approach is to have a class formed on an ‘opt-out’ basis, where those who fall within the class definition become part of the class unless they take specific steps to remove themselves from the proceeding. Another approach is ‘opt-in’, where individuals must actively join the proceeding to become part of the class. For certain types of case, particularly those involving an injunction or declaration, it may be necessary to have a compulsory or universal class, where there is no opportunity to opt in or out. We discuss the issue of determining class membership in Chapter 12.

Decision on common issues binds the class

• 2.17 A decision on the common issues in a class action will generally be binding on all class members and will prevent individual class members from relitigating the issues. This feature of class actions litigation means that providing notice of a proceeding is particularly important in opt-out proceedings, because a class member who fails to remove themselves from the litigation will be bound by the decision.

Methods for determining individual issues

• 2.18 In many class actions, it will still be necessary to resolve individual issues once the common issues have been determined. For example, after a finding that a defendant breached a legal obligation, it may be necessary to determine whether that caused loss to individual class members and what remedies should be awarded. Class actions regimes generally provide courts with a range of powers for managing how individual issues are determined. One technique is to have a split trial, with the ‘stage one’ hearing considering the common issues and the ‘stage two’ hearing considering individual issues such as damages.

Active court supervision

• 2.19 Judges may need to play an “unusually active role” in the control, supervision and disposition of class action proceedings.¹¹ A key reason is to ensure that the interests of class members are adequately protected. This becomes particularly important in the settlement context where an “adversarial void” can arise because both the representative plaintiff and defendant are advocating for the settlement to be approved.¹²

Settlement approval

• 2.20 As we discuss in Chapter 6, it is very common for class action cases to settle. In comparable jurisdictions, court approval of a class action settlement is required and this generally involves a settlement hearing. When considering a proposed settlement, a key consideration for a court will be whether a settlement is fair and reasonable and in the best interests of the class. A court may also have a role in supervising the way that a class action settlement is distributed to class members.

Typically funded by a lawyer or litigation funder

• 2.21 The costs of running a class action are often significant. There are the legal fees for what may be protracted litigation, as well as disbursements such as expert witness reports and court fees. The representative plaintiff must also be able to meet any adverse costs order. While the costs of bringing a class action are significant, a successful class action may result in a substantial damages award or settlement. Class actions have been described as “unquestionably entrepreneurial in nature” ¹³ and they have provided a business opportunity for both litigation funders and law firms.
• 2.22 In some overseas jurisdictions, class actions are funded by lawyers working on a contingency basis, with the fee typically calculated as the percentage of a settlement or damages award. In Canada, for example, contingency fees have been described as “the engine that drives class actions”.¹⁴ Contingency fees are also the predominant method of funding class actions in the United States.¹⁵
• 2.23 In other jurisdictions, notably Australia, litigation funding is a key method of funding class actions.¹⁶ We discuss litigation funding in detail in Part B of our Issues Paper.

11. Australian Law Reform Commission Access to the Courts — II Class Actions (ALRC Discussion Paper 11, 1979) at [65]. See also Ontario Law Reform Commission Report on Class Actions (Volume II, 1982) at 446 noting the “activist role” played by class action judges.
12. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 93; and Michael Legg and Ross McInnes Australian Annotated Class Actions Legislation (2nd ed, LexisNexis Butterworths, Chatswood (NSW), 2018) at [22.3].
13. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 6.
14. ^{See Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver,} 2018) at 127.
15. See Kenneth M Kliebard and others “Class/collective actions in the United States: overview” (1 September 2020) Thomson Reuters Practical Law <http://uk.p r acticallaw.thomsonreuters.com> .
16. In Australia, only Victoria allows contingency fees. Lawyers in Victoria have been permitted to charge contingency fees since 30 June 2020: Justice Legislation Miscellaneous Amendments Act 2020 (Vic), s 5. This followed a

• 2.24 Another option is to have a non-profit class action fund which indemnifies a representative plaintiff for adverse legal costs and may also provide some funding for legal fees and disbursements. This may enable funding for cases that address important legal issues but are unlikely to attract litigation funding. A class action fund typically sustains itself by taking a small percentage share of any recoveries in class action proceedings. We discuss class action funds as a means of mitigating an adverse costs rule in Chapter 13.

CLASS ACTIONS REGIMES IN COMPARABLE JURISDICTIONS

• 2.25 The United States was the first jurisdiction to establish a class actions regime and Australia and Canada then followed. Class actions procedures spread globally in the 2000s and there are now around 40 jurisdictions with a class actions regime.¹⁷ As we explain in Chapter 1, we have focused our comparative analysis on the United States, Australian and Canadian class actions regimes, as well as the competition law-specific regime in the United Kingdom.
• 2.26 The precursor to class actions was the representative actions rule, which was developed in the Courts of Chancery in the late 17th and early 18th centuries.¹⁸ The rule was designed to avoid the disadvantages of the “complete joinder rule” which required all persons with an interest in the case to be joined to the proceedings. ¹⁹ The representative action allowed a representative plaintiff or defendant to pursue litigation on behalf of a group in respect of a common dispute, if the relief sought would benefit the represented group.²⁰
• 2.27 Many jurisdictions incorporated a representative actions rule in their civil procedure rules that was closely modelled upon the English rule. ²¹ These jurisdictions were heavily influenced by the early English jurisprudence that took a restrictive approach to which

recommendation made by the Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Report (March 2018) at Recommendation 7.

17. Deborah R Hensler “From Sea to Shining Sea: How and Why Class Actions Are Spreading Globally” (2017) 65 U Kan L Rev 965 at 966.
18. For discussion of the early history of representative actions see John Sorabji “The hidden class action in English civil procedure” (2009) 28 CJQ 498; and Western Canadian Shopping Centres Inc v Dutton 2001 SCC 46, [2001] 2 SCR 534 at [19]–[24].
19. John Sorabji “The hidden class action in English civil procedure” (2009) 28 CJQ 498 at 501. Disadvantages of the complete joinder rule included: providing a formidable barrier to a complainant by requiring them to bring every interested party before the court, increasing the time and expense of litigation by joining a large number of passive parties and making it impractical to bring disputes to court where there were too many interested parties to join: Western Canadian Shopping Centres Inc v Dutton 2001 SCC 46, [2001] 2 SCR 534 at [19]–[21].

²⁰ In Duke of Bedford v Ellis [1900] UKLawRpAC 56; [1901] AC 1 (HL) at 8, Lord Macnaghten explained:

Under the old practice the Court required the presence of all parties interested in the matter in suit, in order that a final end might be made of the controversy. But when the parties were so numerous that you never could “come at justice,” to use an expression in one of the older cases, if everybody interested was made a party, the rule was not allowed to stand in the way. It was originally a rule of convenience: for the sake of convenience it was relaxed. Given a common interest and a common grievance, a representative suit was in order if the relief sought was in its nature beneficial to all whom the plaintiff proposed to represent.

21. With the merger of the common law and equity courts in England, the representative actions rule became codified in r 10 of the Rules of Procedure. These Rules were contained in the schedule to the Supreme Court of Judicature Act 1873 (UK) 36 & 37 Vict c 66.

claims could proceed as representative actions. ²² This resulted in the representative actions rule being rarely used and provided impetus for the development of class actions regimes.²³

The United States

• 2.28 The representative actions rule was among the English legal traditions imported to the United States. ²⁴ However, the rule was rarely used, which has been attributed to uncertainty about its nature and effect. ²⁵ The 1938 Federal Rules of Civil Procedure created a single code of civil procedure for actions under both the common law and equity, including a ‘class actions’ rule in Rule 23 (FRCP 23). This was primarily intended to be a restatement of the earlier equitable rules,²⁶ but it also included some innovations. In particular, it required the courts to categorise a class action as one of three types based on the relationship between the class members, which became known as ‘true’, ‘hybrid’ and ‘spurious’ class actions.²⁷ The most novel of these was the spurious action, which constituted a type of opt-in class action.²⁸ FRCP 23 in its early form was both rarely used and remained legally uncertain on key issues,²⁹ including the boundaries between the three types of class action.³⁰
• 2.29 FRCP 23 was amended in 1966 following a review by the Advisory Committee on Civil Rules. The three-part classification system was abandoned in favour of a mechanism for

22. In particular, the decision in Markt & Co Ltd v Knight Steamship Co Ltd [1910] UKLawRpKQB 126; [1910] 2 KB 1021 (CA) took a restrictive approach and required class members to show that issues of fact and law were identical between them. Following this case, a plaintiff had to show (a) a common interest arising under a common document; (b) a common grievance; and (c) a remedy beneficial to all the class but not damages: see John Sorabji “The hidden class action in English civil procedure” (2009) 28 CJQ 498 at 508. The influence of this decision on representative action rules in other jurisdictions is referred to in Carnie v Esanda Finance Corp Ltd (1996) 38 NSWLR 465 (NSWSC); and Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 80.

²³ Rachael Mulheron Class Actions and Government (Cambridge University Press, Cambridge, 2020) at 42–43.

²⁴ It was codified in the Federal Equity Rules of 1842 and 1912. For the 1912 rule, see Equity R 38, 226 US 659 (1912).

²⁵ Arthur R Miller “Keynote Address: The American Class Action – From Birth to Maturity” (2018) 19 Theo Inq L 1 at 2.

26. Graham C Lilly “Modeling Class Actions: The Representative Suit as an Analytic Tool” (2003) 81 Neb L Rev 1008 at 1015; and Tom Ford “The History and Development of Old Rule 23 and the Development of Amended Rule 23” (1966) 32 Antitrust L J 254 at 255.
27. The true category was defined as involving joint, common or secondary rights; the hybrid category, as involving several rights related to specific property; and the spurious category, as involving several rights affected by a common question and related to common relief: see Tom Ford “The History and Development of Old Rule 23 and the Development of Amended Rule 23” (1966) 32 Antitrust L J 254 at 255–256.
28. A true class action resembled a traditional representative action in binding all persons with respect to a narrow common issue, while a hybrid class action bound class members to the extent that the action concerned a common property interest, and the spurious class action bound those who intervened. Under a spurious class action, a claim could be brought on behalf of a class by a representative, but members would only be bound if they chose to opt into the procedure, and class members could still seek their own redress if the representative’s claim was unsuccessful: see Mark C Weber “Preclusion and Procedural Due Process in Rule 23(b)(2) Class Actions” (1988) 21 U Mich J L Reform 347 at 348.
29. Key issues included what constituted a ‘class’, whether members had to be given notice and when absent members would be bound: see Arthur R Miller “Keynote Address: The American Class Action – From Birth to Maturity” (2018) 19 Theo Inq L 1 at 3.
30. Tom Ford “The History and Development of Old Rule 23 and the Development of Amended Rule 23” (1966) 32 Antitrust L J 254 at 257–258.

binding class members on common issues. The 1966 version of FRCP 23 was drafted in a manner which leaves room for judicial discretion and encourages judicial oversight and control of class actions.³¹ Amendments to the Rule also made it much easier to pursue a class action seeking damages.³² FRCP 23 now sets out four categories of class action:

(a) Cases where bringing individual actions would create a risk of inconsistent or varying adjudications that would establish incompatible standards of conduct for the adverse party.³³ This category is often referred to as an ‘incompatible standards’ class action and is said to be rarely used.³⁴

(b) Cases where an individual judgment would be likely to dispose of the interests of the class or would substantially impair or impede their ability to protect their interests.³⁵ This is often referred to as a ‘limited fund’ class action, as this category typically involves a situation where many plaintiffs are otherwise likely to individually sue a single defendant with limited funds.³⁶

(c) Cases where the defendant has acted or refused to act on grounds that apply generally to the class so an injunction or declaration is appropriate with respect to the class as a whole.³⁷ This is referred to as an ‘injunctive’ class action and is the category often used in civil rights class actions.³⁸

(d) Cases where questions of fact and law common to class members predominate over individual matters and where a class action is superior to other methods of fairly and effectively adjudicating the matter.³⁹ This is the most common category for class actions seeking monetary damages and so this category is often called ‘money damages’ class actions.⁴⁰

• 2.30 Some members of the Advisory Committee on Civil Rules were opposed to this final category of class actions, regarding it inappropriate to aggregate a group of people with no prior connection or to bind people to a proceeding they were unaware of. As a compromise, certain procedural safeguards were also added to this category. ⁴¹ As well

31. Arthur R Miller “Keynote Address: The American Class Action – From Birth to Maturity” (2018) 19 Theo Inq L 1 at 7. Note also that the class actions regime contained in Rule 23 is less detailed than subsequent class actions regimes in Canada and Australia.
32. There were virtually no class actions seeking damages prior to the 1966 reforms: see Linda S Mullenix “Ending Class Actions as We Know Them: Rethinking the American Class Action” (2014) 64 Emory LJ 399.

³³ United States Federal Rules of Civil Procedure, r 23(b)(1)(A).

³⁴ William B Rubenstein Newberg on Class Actions (online ed, Thomson Reuters) at [§4:1].

³⁵ United States Federal Rules of Civil Procedure, r 23(b)(1)(B).

³⁶ William B Rubenstein Newberg on Class Actions (online ed, Thomson Reuters) at [§4:1].

³⁷ United States Federal Rules of Civil Procedure, r 23(b)(2).

³⁸ William B Rubenstein Newberg on Class Actions (online ed, Thomson Reuters) at [§4:1].

³⁹ United States Federal Rules of Civil Procedure, r 23(b)(3).

⁴⁰ William B Rubenstein Newberg on Class Actions (online ed, Thomson Reuters) at [§4:1].

41. Some committee members thought a new liberalised procedure could be useful for attaining statutory remedies for large groups in competition law and securities cases and pursuing small claims in aggregate. Other members opposed liberalisation because of the risk that lawyers would take advantage of class members, while subjecting companies and public bodies to an excessive amount of litigation. See Arthur R Miller “Keynote Address: The American Class Action – From Birth to Maturity” (2018) 19 Theo Inq L 1 at 5–6.

as the predominance and superiority requirements, class members were required to be given individual notice and the right to opt out of the proceedings.⁴² These safeguards were not added to the other categories of class actions as they were thought to be “natural” class actions that did not require special safeguards.⁴³

• 2.31 Although the earlier 1938 version provided for what was called a class action, the 1966 amendments are seen as marking the arrival of the modern class action in the United States.⁴⁴ All but two states have class actions rules with most of these modelled on FRCP 23.⁴⁵

Australia

• 2.32 Australia has long had a representative actions procedure but, following the restrictive English approach, Australian courts took the view that damages could not be recovered in a representative action.⁴⁶ In 1977, the Commonwealth Attorney-General requested that the Australian Law Reform Commission (ALRC) consider whether class actions procedures should be introduced. A key question for the ALRC to consider was whether representative actions should be extended to allow recovery of damages.⁴⁷
• 2.33 In its 1988 report, the ALRC recommended that a “grouped proceedings” procedure be introduced where each group member would be a party to proceedings before the court.⁴⁸ Following the ALRC’s report, Part IVA of the Federal Court of Australia Act 1976 was enacted to allow class actions in the Federal Court.⁴⁹ The regime came into effect in March 1992.⁵⁰ The legislature did not precisely follow the ALRC’s recommendations. In particular, under Part IVA, class members are not parties to the proceedings.⁵¹
• 2.34 New South Wales, Victoria, Queensland and Tasmania have introduced regimes closely modelled on the federal regime,⁵² and Western Australia is currently in the process of introducing a similar regime.⁵³

⁴² Arthur R Miller “Keynote Address: The American Class Action – From Birth to Maturity” (2018) 19 Theo Inq L 1 at 6.

⁴³ Arthur R Miller “Keynote Address: The American Class Action – From Birth to Maturity” (2018) 19 Theo Inq L 1 at 6.

⁴⁴ See Rachael Mulheron Class Actions and Government (Cambridge University Press, Cambridge, 2020) at 14.

45. Rachael Mulheron Class Actions and Government (Cambridge University Press, Cambridge, 2020) at 17. Virginia and Mississippi do not have state level class actions regimes. However, claimants can still file federal class actions in both states. See Kenneth M Kliebard and others “Class/collective actions in the United States: overview” (1 September 2020) Thomson Reuters Practical Law <http://uk.p r acticallaw.thomsonreuters.com> .
46. Australian Law Reform Commission Access to the Courts — II Class Actions (ALRC Discussion Paper 11, 1979) at 7–8; and Australian Law Reform Commission Grouped Proceedings in the Federal Court (ALRC R46, 1988) at 3.

⁴⁷ See Australian Law Reform Commission Access to the Courts — II Class Actions (ALRC Discussion Paper 11, 1979) at 9.

⁴⁸ Australian Law Reform Commission Grouped Proceedings in the Federal Court (ALRC R46, 1988) at 34 and 46.

49. Some matters are also contained in Court Rules and Practice Notes: see Federal Court Rules 2011 (Cth), rr 9.31–9.35; and Federal Court of Australia, Practice Note GPN-CA — Class Actions Practice Note, 20 December 2019.

⁵⁰ Federal Court of Australia Amendment Act 1991 (Cth).

51. Michael Legg and Ross McInnes Australian Annotated Class Actions Legislation (2nd ed, LexisNexis Butterworths, Chatswood (NSW), 2018) at [2.9]–[2.18].
52. Civil Procedure Act 2005 (NSW), pt 10; Supreme Court Act 1986 (Vic), pt 4A; Civil Proceedings Act 2011 (Qld), pt 13A; and Civil Proceedings Act 1932 (Tas), pt VII.

⁵³ See Civil Procedure (Representative Proceedings) Bill 2019 (WA).

• 2.35 We note that in Australia, class actions are referred to as representative proceedings and class members are referred to as group members. However, we refer to them as class actions in our Issues Paper to avoid confusion with representative actions.

Canada

• 2.36 The representative action was also exported from England to the common law provinces of Canada, as well as to the Canadian Federal Court.⁵⁴ The Canadian courts initially took a restrictive approach to representative actions, following the early English authorities.⁵⁵ While some cases began to relax these strict requirements during the 1970s,⁵⁶ other cases, most notably the 1983 Naken decision of the Supreme Court of Canada, continued to take a restrictive approach.⁵⁷
• 2.37 In 1978, the civil law province of Québec became the first Canadian jurisdiction to introduce a class actions regime.⁵⁸ In 1982, the Ontario Law Reform Commission published a three volume report which recommended the establishment of a class actions regime.⁵⁹ That report has been described as essentially the underpinning of all Canadian class actions legislation (with the exception of Québec).⁶⁰ In 1983, the Supreme Court lent further support to legislative reform when it declared that the representative actions rule was “totally inadequate” to the task of resolving claims involving numerous similarly situated parties.⁶¹ In 1989, an Advisory Committee on Class Action Reform was established in Ontario to progress class actions legislation. The Committee’s report contained a Draft Bill which formed the basis of the Class Proceedings Act 1992.⁶²
• 2.38 In 1996, the Uniform Law Conference of Canada passed a model class actions statute, which influenced subsequent class actions regimes.⁶³ Over the next 10 years, class actions

⁵⁴ Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 44.

⁵⁵ Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 18, 22–24 and 46.

56. Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 23–24. See at 46–47 for discussion of other provinces.

⁵⁷ General Motors of Canada Ltd v Naken [1983] 1 SCR 72.

58. Class Proceedings Act SO 1992 c 6. Québec’s class actions regime was enacted in 1978 under the Code of Civil Procedure. The Québec regime is substantially different to the other class actions regimes in Canada: see Janet Walker (ed) Class Actions in Canada: Cases, Notes, and Materials (2nd ed, Emond Publishing, Toronto, 2018) at 21.
59. See Ontario Law Reform Commission Report on Class Actions (Volume I, 1982); Ontario Law Reform Commission Report on Class Actions (Volume II, 1982); and Ontario Law Reform Commission Report on Class Actions (Volume III, 1982). The request for the Law Commission to conduct a detailed study of class actions followed a Parliamentary committee determining that the representative action regime was “in a very serious state of disarray”: Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 8.
60. Janet Walker (ed) Class Actions in Canada: Cases, Notes, and Materials (2nd ed, Emond Publishing, Toronto, 2018) at 21.
61. The Canadian Supreme Court commented that “the rule, consisting as it does of one sentence of some thirty words, is totally inadequate for employment as the base from which to launch an action of the complexity and uncertainty of this one”: General Motors of Canada Ltd v Naken [1983] 1 SCR 72 at 105.
62. Report of the Attorney General’s Advisory Committee on Class Action Reform (Ministry of the Attorney General, February 1990); and Class Proceedings Act SO 1992 c 6 (this came into effect on 1 January 1993).

⁶³ Ruth Rodgers Civil Section Documents: A Uniform Class Actions Statute (Uniform Law Conference of Canada, 1995).

regimes were enacted throughout Canada, including at the federal level.⁶⁴ With two notable exceptions, Canadian class actions regimes are relatively uniform across the common law jurisdictions.⁶⁵

• 2.39 In 2019 the Law Commission of Ontario published a review of Ontario’s class actions regime.⁶⁶ Some of the recommendations made in that report were adopted in 2020 amendments to the legislation.⁶⁷

England and Wales

• 2.40 England and Wales have not adopted a general class actions regime applying to all areas of the law. A representative actions rule remains in force,⁶⁸ however, the courts’ restrictive interpretation of the requirements of this rule means it has “languished little used”.⁶⁹
• 2.41 A new procedure for managing group litigation was introduced in 2000: the Group Litigation Order (GLO). The court can make a GLO for the “case management of claims which give rise to common or related issues of fact or law”. ⁷⁰ Under a GLO, individual claims are managed collectively, rather than as a single claim being brought on behalf of a class or group.⁷¹ Therefore, it is not a form of representative action.⁷² A judgment made on the ‘GLO issues’ in one of the claims will be binding on the other claims (unless the court orders otherwise).⁷³ Rachael Mulheron has observed that the decision to adopt a GLO device rather than a class actions regime was due to the perception that class

64. Namely, Ontario, British Columbia, Saskatchewan, Newfoundland and Labrador, Manitoba, Albert, New Brunswick, and Nova Scotia. See Class Proceedings Act SO 1992 c 6; Class Proceedings Act RSBC 1996 c 50; The Class Actions Act SS 2001 c C-12.01; Class Actions Act SNL 2001 c C-18.1; The Class Proceedings Act CCSM 2002 c C-130; Class Proceedings Act SA 2003 c C-16.5; Class Proceedings Act RSNB 2011 c 125; and Class Proceedings Act SNS 2007 c 28. The federal regime is contained in the Federal Courts Rules SOR/98-106, pt 5.1. There is no class actions regime in Prince Edward Island, or the three territories of Nunavut, Yukon, and the Northwest Territories.
65. There are two key areas of divergence across the different class actions regimes in Canada (excluding Québec). One area concerns adverse costs. Some jurisdictions, such as Ontario, apply a two-way costs shifting rule while others (including British Columbia) apply a no costs rule. The other area concerns whether non-residents can be bound as class members, or whether class members outside of the jurisdiction will need to opt-in to the class action: see Janet Walker (ed) Class Actions in Canada: Cases, Notes, and Materials (2nd ed, Emond Publishing, Toronto, 2018) at 22.

⁶⁶ Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019).

67. The amending legislation was the Smarter and Stronger Justice Act SO 2020 c 11. As well as implementing some of the Law Commission of Ontario’s recommendations, the Act also amended the certification requirements for class actions. We discuss this in Chapter 10.

⁶⁸ The Civil Procedure Rules 1998 (UK), r 19.6.

69. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 68.

⁷⁰ The Civil Procedure Rules 1998 (UK), r 19.10.

71. Under a Group Litigation Order the court establishes a group register into which individuals’ claims are entered: see The Civil Procedure Rules 1998 (UK), rr 19.10–19.11. Claims entered into the group register may then be managed collectively by the court: rr 19.12 and 19.13.
72. Damian Grave, Maura McIntosh and Gregg Rowan (eds) Class Actions in England and Wales (Sweet & Maxwell, London, 2018) at [1-018].

⁷³ The Civil Procedure Rules 1998 (UK), r 19.12.

actions regimes lacked utility and flexibility, and criticisms of the United States class actions regime such as claims of excessive legal fees and limited recovery for individuals.⁷⁴

• 2.42 In 2008, the Civil Justice Council published a report which recommended that a generic collective action should be introduced in England and Wales to enable actions to be brought by a representative plaintiff in relation to any type of civil claim in which multiple parties have an interest.⁷⁵ The Government rejected this recommendation in favour of a sectoral approach to collective redress.⁷⁶ It considered that a collective right of action should only be introduced in a sector where there was evidence of need and that other regulatory options should be considered before introducing generic collective actions.⁷⁷
• 2.43 In 2015 a class actions procedure for competition law claims (known as collective proceedings) was introduced in the Competition Appeal Tribunal. ⁷⁸ The Tribunal’s jurisdiction extends to the whole of the United Kingdom.⁷⁹

CONTEXT OF OVERSEAS CLASS ACTIONS REGIMES IS IMPORTANT

• 2.44 When comparing class actions regimes, it is important to be aware of the broader legal context of each regime as this will affect which claims can proceed, how a case will be managed and the issues that might arise.
• 2.45 Class actions are a procedural device which are said to “provide the substantive law with teeth”.⁸⁰ The types of claim that can be brought will therefore depend on the underlying substantive law in a jurisdiction. For example, while personal injury litigation is a key area for class actions in other jurisdictions, most damages claims for personal injury have been barred and replaced by the statutory Accident Compensation scheme since 1974.⁸¹
• 2.46 One factor which affects the substantive outcome of a class action proceeding is the remedies available in a jurisdiction and how they are determined. For example, in the United States, the availability of punitive and triple damages, as well as the role of juries

74. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 68–69.
75. Civil Justice Council “Improving Access to Justice through Collective Actions”: Developing a More Efficient and Effective Procedure for Collective Actions (Final Report, November 2008).
76. Ministry of Justice The Government's Response to the Civil Justice Council's Report: ‘Improving Access to Justice through Collective Actions’ (July 2009).
77. Ministry of Justice The Government's Response to the Civil Justice Council's Report: ‘Improving Access to Justice through Collective Actions’ (July 2009) at 3. See further discussion of this in Chapter 8.
78. These actions are governed by the Competition Act 1998 (UK) and The Competition Appeal Tribunal Rules 2015 (UK). A competition law specific procedure for collective redress had existed since 2003 under an earlier version of the Competition Act 1998 (UK), s 47B. However, the earlier procedure only allowed for designated organisations to bring claims on behalf of consumers, and only on an opt-in basis. Only one case was ever brought, and only one per cent of affected parties opted into the case: Damian Grave, Maura McIntosh and Gregg Rowan (eds) Class Actions in England and Wales (Sweet & Maxwell, London, 2018) at [11-002].

⁷⁹ See “Competition Appeal Tribunal” <www.catribunal.org.uk>.

80. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 53.
81. Stephen Todd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at [2.1]. See also the Accident Compensation Act 2001, s 317.

in awarding damages, has contributed to substantial damages awards and settlements in some cases.⁸²

• 2.47 A jurisdiction’s general procedural rules will affect the conduct of class actions. A class actions regime is unlikely to cover every single procedural point that might arise in a case and so it may sometimes be necessary to rely on general rules of procedure.⁸³
• 2.48 A key difference between jurisdictions relates to whether class action regimes have an adverse costs rule. In Aotearoa New Zealand, the losing party is generally liable for a portion of the other party’s legal costs.⁸⁴ Some jurisdictions take this same approach, while other jurisdictions apply a ‘no costs’ rule. Possible liability for costs is a strong disincentive to litigation generally and similarly can affect both whether, and how, class action proceedings are managed.⁸⁵ We discuss the issue of costs in Chapter 13.
• 2.49 Jurisdictions have also taken different approaches to funding class actions. As we mentioned earlier in this chapter, in Canada and the United States, it is common for the lawyer to work on a ‘contingency’ basis, where their fees are calculated as a proportion of any damages award or settlement. Some Canadian jurisdictions also have a class actions fund which can provide an indemnity against adverse costs.⁸⁶ In Australia, class actions are often funded by a litigation funder. A jurisdiction’s method of funding a class action will have implications for the kinds of cases that can be brought, how these cases will be run and what issues might arise. We discuss litigation funding in Part B of our Issues Paper.
• 2.50 Rather than focusing on individual elements of a particular class actions regime, it is important to be aware of how different requirements of a regime interact to ensure the needs of plaintiffs and defendants are balanced. For example, the United States class actions regime has demanding predominance and superiority requirements in its certification test; however, this is coupled with a ‘no costs’ rule as well as substantial damages awards. The adverse costs rule in Ontario has been mitigated with a Class Proceedings Fund which can provide an indemnity against adverse costs.⁸⁷
• 2.51 We also note that in many overseas jurisdictions, class actions have become deeply polarising.⁸⁸ While proponents see class actions as a “panacea for a myriad of social ills”,

⁸² Craig Jones Theory of Class Actions (Irwin Law, Toronto, 2003) at 57–58.

83. For example, Ontario’s class actions regime provides that the rules of civil procedure apply: Class Proceedings Act SO 1992 c 6, s 35.

⁸⁴ See High Court Rules 2016, r 14.2.

85. See Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 437. Note the fact the risk of adverse costs will fall on the representative plaintiff rather than the class as a whole may also create a significant financial disincentive to taking on that role: see Tom Hallett-Hook “Class Actions Under New Zealand’s Representative Rule: Ingenious Solution or Inadequate to the Task?” (LLM Dissertation, University of Toronto, 2015) at 56–57.

⁸⁶ We discuss these in Chapter 13.

87. Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 38 and 47.
88. For instance, Christian Porter QC MP, announcing the Parliamentary Joint Committee into Litigation Funding and Class Actions in Australia said “there is growing concern that the lack of regulation governing the funding industry is leading to poor justice outcomes for those who join class actions”. An opposition spokesperson, Mark Dreyfus QC MP described the inquiry as “a shameless move towards denying justice and fair compensation for ordinary Australians” adding the

critics see it as a “Frankenstein monster”. ⁸⁹ One factor that may have led to this polarisation is the development of a separate plaintiff bar and defendant bar. In Aotearoa New Zealand, we are aware of some legal firms which act exclusively for either plaintiffs or defendants in representative actions. However, we are aware of other firms which have acted for both plaintiffs and defendants in representative actions. Given the small size of Aotearoa New Zealand, this might continue to be the case if a class actions regime was introduced. We hope this, coupled with the collegial nature of the legal community in Aotearoa New Zealand, might prevent the extreme polarisation that has occurred with class actions in other jurisdictions.

government was more interested in protecting its “big business mates”: Ben Rigby “Regulatory net tightens over litigation funders as Australian parliament launches class action inquiry” The Global Legal Post (online ed, London, 22 May 2020).

89. Arthur R Miller “Of Frankenstein Monsters and Shining Knights: Myth, Reality, and the ‘Class Action Problem’” (1979) 92 Harv L Rev 664 at 665. See also Linda S Mullenix “Ending Class Actions as We Know Them: Rethinking the American Class Action” (2014) 64 Emory LJ 399 at 406–417.

CHAPTER 3

Group litigation in Aotearoa New Zealand

INTRODUCTION

• 3.1 Aotearoa New Zealand does not have a class actions regime as exists in other jurisdictions. When considering whether Aotearoa New Zealand should have such a regime, it is important to consider the different ways that proceedings may already be brought by or on behalf of a group.
• 3.2 In this chapter, we examine current means of seeking collective redress:

(a) Representative actions under High Court Rule 4.24 (HCR 4.24).

(b) Civil procedure techniques such as joinder of plaintiffs, consolidation and test cases.

(c) Statutory procedures such as the representation procedure in the Companies Act 1993, claims on behalf of a class in the Human Rights Review Tribunal and procedures in the Employment Relations Act 2000.

(d) Proceedings brought by regulators.

(e) Broader techniques such as public law proceedings.

REPRESENTATIVE ACTIONS UNDER HCR 4.24

• 3.3 Proceedings that might be taken as a class action in comparable jurisdictions may be able to be pursued as a representative action in Aotearoa New Zealand under HCR 4.24.¹ A representative action permits a person to sue (or be sued) on behalf of other people who share the same interest in the subject matter of a legal proceeding. As discussed in Chapter 2, the representative action was developed in the Courts of Chancery in the late 17th and early 18th century to avoid the disadvantages of the complete joinder rule.

1. We note that the term representative action or representative claim is sometimes used in a broad sense, to include any claim brought in a representative capacity. In this section we focus on representative actions brought under r 4.24 of the High Court Rules 2016 (and earlier provisions). Later in this chapter, we discuss representative litigation in the broader sense, including Māori collective litigation and judicial review claims.

• 3.4 A representative actions rule has been in place in Aotearoa New Zealand since 1882. Rule 79 of the Code of Civil Procedure in the Supreme Court provided that:²

When there are numerous parties having the same interest in an action, one or more of such parties may sue or be sued, or may be authorized by the Court to defend in such action on behalf of or for the benefit of all parties so interested.

• 3.5 The rule was modelled on an English equivalent.³ It was subsequently replaced in 1908 by Rule 79 of the Code of Civil Procedure,⁴ which was in turn replaced in 1986 by Rule 78 of the High Court Rules.⁵ The current provision is HCR 4.24, which states:

One or more persons may sue or be sued on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding—

(a) with the consent of the other persons who have the same interest; or

(b) as directed by the court on an application made by a party or intending party to the proceeding.

• 3.6 As the wording of HCR 4.24 indicates, there are two ways of bringing a representative action. First, a person may sue or be sued on a representative basis with the consent of the other persons who have the same interest in the subject matter of the proceeding (HCR 4.24(a)). If consent has been given, then a person may be appointed as a representative plaintiff or defendant as of right and it is not necessary to obtain the approval of the court. However, the proceeding may not be allowed to continue as a representative action if a court later considers that those consenting do not have the necessary common interest.⁶ It is possible for consent to be given after the proceeding has been filed.⁷ We have found few claims that have proceeded on this basis.⁸ One possible reason is that in cases affecting large numbers of people, it would be difficult for a plaintiff to ascertain and contact all of those with the same interest in the subject matter.⁹

² The Code of Civil Procedure in the Supreme Court, r 79 included in sch 2 of the Supreme Court Act 1882.

³ See r 10 of the English Rules of Procedure, in the Supreme Court of Judicature Act 1873 (UK) 36 & 37 Vict c 66.

⁴ Rule 79 of the Code of Civil Procedure in the Supreme Court (in sch 2 of the Judicature Act 1908) read:

Where there are numerous persons having the same interest in an action, one or more of them may sue or be sued, or may be authorised by the Court to defend, in such action on behalf of or for the benefit of all persons so interested.

⁵ Rule 78 of the High Court Rules read:

Where two or more persons have the same interest in the subject-matter of a proceeding, one or more of them may, with the consent of the other or others, or by direction of the Court on the application of any party or intending party to the proceeding, sue or be sued in such proceeding on behalf of or for the benefit of all persons so interested.

6. Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [66]–[67]. See also Saxmere Co Ltd v The Wool Board Disestablishment Co Ltd HC Wellington CIV-2003-485-2724, 6 December 2005 at [183].

⁷ Visini v Cadman [2012] NZCA 122, (2012) 21 PRNZ 70 at [20].

8. Not all claims indicate whether the case proceeded on the basis of r 4.24(a) or (b) of the High Court Rules 2016. Examples of cases proceeding on the basis of consent are: Lin v Registrar of Companies [2016] NZHC 395; Minister of Education v James Hardie Ltd [2018] NZHC 1481; Saxmere Co Ltd v The Wool Board Disestablishment Co Ltd HC Wellington CIV-2003-485-2724, 6 December 2005; and Visini v Cadman [2012] NZCA 122, (2012) 21 PRNZ 70.
9. See Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431, (2019) 25 PRNZ 33 at [28] where the Court noted the following:

Plainly it was not feasible ... to obtain the consent of every member of the class to a representative claim ... the sheer number would make that impractical in any event.

• 3.7 The second way a representative action may proceed is pursuant to a court order (HCR 4.24(b)). Most HCR 4.24 cases have proceeded on this basis. Some cases have held that once a court determines that the requisite commonality of interest exists, it does not have discretion to refuse the application for a representative order.¹⁰ In Proprietors of Wakatū v Attorney-General, Glazebrook J made obiter comments that where it is clear that a claim is a representative one (and particularly where representation is contested), the court should consider of its own motion whether a representation order should be made, even where there is no application before the court.¹¹
• 3.8 The earliest representative action in Aotearoa New Zealand was the 1902 case of Nireaha Tamaki v Baker, a case under the Native Land Claims Adjustment and Laws Amendment Act 1901.¹² However, representative actions were slow to gain popularity, with only two other cases allowed to proceed on a representative basis prior to 1980 and only four cases in the 1980s.¹³
• 3.9 Reasons for this slow uptake may include Aotearoa New Zealand’s small population size, its history of conservative damages awards, the common law torts of maintenance and champerty (which have historically restricted litigation funding) and, since 1974, the inability to bring personal injury claims.¹⁴ The lack of procedural rules for representative actions and the availability of other methods of bringing group proceedings may also have contributed. There has, however, been a noticeable increase in representative actions in recent decades, as shown in the table below.

Numbers of representative actions in the High Court

• 3.10 We are aware of 44 cases in which the High Court has allowed a case to proceed under HCR 4.24 (or its predecessor rules), with the majority of these filed after 2000.¹⁵ This is shown in the table below, as well as cases where leave to bring a representative action has been declined. We have only included cases in this table which have clearly been brought under HCR 4.24 (or its predecessor rules). We have come across a number of

¹⁰ Registered Securities Ltd (in liq) v Westpac Banking Corp (2000) 14 PRNZ 348 (HC) at [27]; and Houghton v Saunders

[2008] NZHC 1569; (2008) 19 PRNZ 173 (HC) at [100(vii)].

¹¹ Proprietors of Wakatū v Attorney-General [2017] NZSC 17, [2017] 1 NZLR 423 at [661].

12. Nireaha Tamaki v Baker (1902) 22 NZLR 97 (SC). In that case, the plaintiff had sought to restrain the Commissioner of Crown lands from disposing of land which was claimed to be the property of the Rangitāne iwi. The Court accepted that the plaintiff sued in a representative capacity. The plaintiff subsequently applied to discontinue the proceedings against the wishes of some members of the group. The Court set aside the discontinuance, although its decision was largely based on the 1901 Act rather than general principles applicable to representative actions.
13. In RJ Flowers Ltd v Burns [1986] NZHC 243; [1987] 1 NZLR 260 (HC) at 266, the Court commented that “[t]here is surprisingly little New Zealand authority as to the correct approach to interpretation” of the representative actions rule.

¹⁴ Nikki Chamberlain “Class Actions in New Zealand: An Empirical Study” (2018) 24 NZBLQ 132 at 151.

15. We wish to acknowledge Nikki Chamberlain’s research on this topic, which was the first empirical study of representative actions in New Zealand: Nikki Chamberlain “Class Actions in New Zealand: An Empirical Study” (2018) 24 NZBLQ 132 (updated in Nikki Chamberlain and Susan Watson “The Emergence and Reform of the New Zealand Class Action” in Brian T Fitzpatrick and Randall S Thomas (eds) The Cambridge Handbook of Class Actions: An International Survey (Cambridge, Cambridge University Press, 2021) (forthcoming)). Our research has found the same cases, as well as three cases which were subsequent to Chamberlain’s research. Note that our table also includes Stirling v Attorney-General HC Wellington CP161/96, 27 May 1998, which Chamberlain’s research categorises under the Māori Land Court (the citation in her study is: Mansell – Haparangi A4 (2005) 288 Rotorua MB 9 (288 ROT 9)).

cases which refer to having been brought “on a representative basis” or “in a representative capacity”, but without referring to this rule.¹⁶ As the basis for these is unclear, we have not included them in this table.

16. See for example Mawson v Auckland Area Health Board [1991] NZHC 2266; [1991] 3 NZLR 599 (HC); Wellington City Council v Woolworths New Zealand Ltd (No 2) [1996] 2 NZLR 537 (CA); and Bounty Oil & Gas NL v Attorney-General [2010] NZAR 120 (HC).
17. Nireaha Tamaki v Baker (1902) 22 NZLR 97 (SC); Mundy v Cunningham [1973] 1 NZLR 555 (SC); and Hill v The Wellington Co-operative Taxi Owner-Drivers’ Society Ltd HC Wellington A4/75, 3 February 1988.
18. Hohepa v Abbott [1909] NZGazLawRp 81; (1909) 29 NZLR 213 (SC); Take Kerekere v Cameron [1920] NZLR 302 (SC); Morgan v Taranaki Farmers’ Meat Co Ltd [1925] NZLR 513 (SC); and Derby v Pukeikura [1935] NZGazLawRp 19; [1935] 35 GLR 205 (SC).
19. RJ Flowers Ltd v Burns [1986] NZHC 243; [1987] 1 NZLR 260 (HC); Overseas Containers Ltd v Geo H Scales Ltd HC Wellington CP395/86, 22 September 1986; The New Zealand Meat Industry Assoc v The Accident Compensation Corporation HC Wellington CP275/87, 19 October 1987; and Taspac Oysters Ltd v James Hardie & Co Pty Ltd [1990] 1 NZLR 442 (HC).
20. Clarke v Clarke HC Auckland M354/86, 2 December 1987; Poverty Bay Electric Power Board v Attorney-General HC Wellington CP552/87, 5 November 1987; Hawke’s Bay Bulk Gas Users Group v Commerce Commission [1987] NZHC 272; (1988) 4 NZCLC 64,147 (HC); and Dakin v Goldcorp Exchange Ltd (in rec) [1988] NZHC 1124; (1988) 4 NZCLC 64,675 (HC).
21. Howick Engineering Ltd v Manukau City Council HC Auckland CP2021/91, 11 August 1992; Talley’s Fisheries Ltd v Minister of Immigration [1994] NZHC 1689; (1994) 7 PRNZ 469 (HC); Ankers v Attorney-General [1995] NZHC 125; (1995) 8 PRNZ 455 (HC); Purdue v Boyd Knight (1998) 8 NZCLC 261,720 (HC); Wanganui District Council v Tangaroa [1995] 2 NZLR 706 (HC); Stirling v Attorney-General HC Wellington CP161/96, 27 May 1998 (note that although the judgment does not refer to HCR 78, this appears to have been the basis for the representative orders); Devcich v Cowley Stanich & Co (1997) 11 PRNZ 47 (HC); Registered Securities Ltd (in liq) v Westpac Banking Corp (2000) 14 PRNZ 348 (HC); and Hedley v Kiwi Co-Operative Dairies Ltd (2000) 15 PRNZ 210 (HC).
22. Thomas v Bolger (No 1) [2002] NZAR 945 (HC); Lawson v Housing New Zealand [1996] NZHC 1528; [1997] 2 NZLR 474 (HC); and Ryder v Treaty of Waitangi Fisheries Commission [1998] 1 NZLR 761 (HC).
23. Whakatane District Council v Keepa HC Rotorua M7/00, 27 June 2000; ‘Akau’Ola v The President of the Conference of the Methodist Church of New Zealand HC Auckland CP183/SW01, 5 December 2001; Erris Promotions Ltd v Commissioner of Inland Revenue [2004] 1 NZLR 811 (HC); Jones v Attorney-General HC Wellington CP175/02, 8 July 2003; Saxmere Co Ltd v The Wool Board Disestablishment Co Ltd HC Wellington CIV-2003-485-2724, 6 December 2005; Paki v Attorney-General [2008] NZHC 2435; [2009] 1 NZLR 72 (HC); Stickland v Drummond HC Auckland CIV-2006-404-3078, 13 May 2008; Healthcare Providers New Zealand Inc v Northland District Health Board HC Wellington CIV-2007-485-1814, 7 December 2007; Houghton v Saunders [2008] NZHC 1569; (2008) 19 PRNZ 173 (HC); Harding v LDC Finance Ltd (in rec) HC Christchurch

CIV-2008-409-1140, 19 November 2009; Accent Management Ltd v Commissioner of Inland Revenue [2010] NZHC 305; (2010) 24 NZTC 24,126 (HC); Blue Star Taxis (Christchurch) Society Ltd v Gold Band Taxis (Christchurch) Society Ltd HC Christchurch CIV-2009-409-2921, 19 November 2010; and Wu v Body Corporate 366611 [2011] NZHC 561; [2011] 2 NZLR 837 (HC).

24. Beggs v Attorney-General [2006] NZHC 871; (2006) 18 PRNZ 214 (HC); and Maranatha Ltd v Tourism Transport Ltd HC Auckland CIV-2006-404-6431, 3 April 2007.

• 3.11 The Houghton v Saunders litigation (a claim filed in 2008 on behalf of over 3,600 shareholders in the failed Feltex Carpet Company) might be regarded as the advent of the modern representative action.²⁷ The proceedings have given rise to a number of significant judgments and may also have increased interest in representative actions under HCR 4.24.²⁸ Since this case was filed, a number of other complex representative actions have been brought on behalf of large groups of claimants.
• 3.12 Part of the reason for the growth in representative actions is the arrival of litigation funding in Aotearoa New Zealand. We are aware of ten representative actions filed since 2008 which have been funded by a litigation funder.²⁹ Nikki Chamberlain observes that, prior to the arrival of litigation funding, it was often not economically feasible to bring a “low stakes” representative action, particularly given the risk of adverse costs orders.³⁰ Litigation funding typically covers some or all of the legal costs of bringing the representative action as well as any adverse costs if the case is unsuccessful. If the case is successful, the funder will be reimbursed for the costs of the litigation and will also

25. Cadman v Visini (2011) 3 NZTR 21-011 (HC); Cooper v ANZ Bank New Zealand Ltd [2013] NZHC 2827; LDC Finance Ltd (in rec and in liq) v Miller [2013] NZHC 2993; Strathboss Kiwifruit Ltd v Attorney-General [2015] NZHC 1596, (2015) 23 PRNZ 69; Cridge v Studorp Ltd [2016] NZHC 2451, (2016) 23 PRNZ 281; Vlaar v van der Lubbe [2016] NZHC 2398, (2016) 4 NZTR 26-022; Lin v Registrar of Companies [2016] NZHC 395; The Southern Response Unresolved Claims Group v Southern Response Earthquake Services Ltd [2016] NZHC 3105; Minister of Education v James Hardie Ltd [2018] NZHC 1481; Ross v Southern Response Earthquake Services Ltd [2018] NZHC 3288; Smith v Claims Resolution Service Ltd [2019] NZHC 127; Paine v Carter Holt Harvey Ltd [2019] NZHC 478; Scott v ANZ Bank New Zealand Ltd [2020] NZHC

906; Livingstone v CBL Corp Ltd CIV-2019-404-2727 (ongoing proceedings); and TEA Custodians Ltd v Wells CIV-2019- 485-642 (ongoing proceedings). We are also aware of a representative action which was filed in 2020 (a shareholder representative action relating to Intueri Education Group) but we understand the court has not yet decided whether this can proceed under r 4.24 of the High Court Rules 2016: see Reweti Kohere “Let Intueri class action go to trial, defendants argue” The National Business Review (New Zealand, 24 November 2020).

26. Matthews v Memelink [2012] NZHC 2284; Kapiti High Voltage Coalition Inc v Kapiti Coast District Council [2012] NZHC 2058; About Image Ltd v Advaro Ltd [2017] NZHC 3264; Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZHC 936; and Tahi Enterprises Ltd v Taua [2018] NZHC 516.

²⁷ Houghton v Saunders [2008] NZHC 1569; (2008) 19 PRNZ 173 (HC).

²⁸ Anthony Wicks “Class Actions in New Zealand: Is Legislation Still Necessary?” [2015] NZ L Rev 73 at 74.

29. Houghton v Saunders [2008] NZHC 1569; (2008) 19 PRNZ 173 (HC); Cooper v ANZ Bank New Zealand Ltd [2013] NZHC 2827; Strathboss Kiwifruit Ltd v Attorney-General [2015] NZHC 1596, (2015) 23 PRNZ 69; Cridge v Studorp Ltd [2016] NZHC 2451, (2016) 23 PRNZ 281; The Southern Response Unresolved Claims Group v Southern Response Earthquake Services Ltd [2016] NZHC 3105; Ross v Southern Response Earthquake Services Ltd [2018] NZHC 3288; Paine v Carter Holt Harvey Ltd [2019] NZHC 478; Scott v ANZ Bank New Zealand Ltd [2020] NZHC 906; Livingstone v CBL Corp Ltd CIV-2019-404- 2727 (ongoing proceedings); and TEA Custodians Ltd v Wells CIV-2019-485-642 (ongoing proceedings). The claim against Intueri Education (referred to at n 25 above) is also supported by a litigation funder.

³⁰ Nikki Chamberlain “Class Actions in New Zealand: An Empirical Study” (2018) 24 NZBLQ 132 at 151.

receive a share of any compensation achieved. The arrival of litigation funders has been said to facilitate consumer representative actions in particular.³¹

• 3.13 The development of the law on HCR 4.24 is likely to be another factor contributing to the increase in representative actions. As we discuss in Chapter 4, the courts have developed HCR 4.24 so the procedure has many of the features of class actions. Chamberlain cites “the willingness of the judiciary to allow HCR 4.24 to be used to create class actions” as another reason for the increase in cases.³² In Ross v Southern Response, the Court of Appeal commented that the substantial increase in representative actions “has undoubtedly been stimulated by the rapid spread of the class action procedure in other common law jurisdictions”.³³
• 3.14 While the increasing number of representative actions is significant, they still make up a very small percentage of all civil claims. For example, the 15 representative actions filed in the 2010s can be contrasted with the 2,176 civil proceedings filed in the High Court in 2019 alone.³⁴ However, those 15 cases are significant, given that, together, they represent the legal claims of many thousands of people.³⁵

Type of legal claim

• 3.15 The 44 cases allowed to proceed as representative actions under HCR 4.24 (or its predecessor rules) can be broadly grouped into the following categories of cases: government (13), investor (7), shareholder (4), general commercial (8), consumer (6), trusts and estates (4) and environmental (2).³⁶
• 3.16 The ‘government’ cases category involves representative actions where the Government has been either a plaintiff or a defendant and, broadly speaking, the proceeding involved public law issues.³⁷ Some include judicial review claims.³⁸ The cases span the period from 1984 to 2015, with the issues involved including:

³¹ Nikki Chamberlain “Class Actions in New Zealand: An Empirical Study” (2018) 24 NZBLQ 132 at 152.

³² Nikki Chamberlain “Class Actions in New Zealand: An Empirical Study” (2018) 24 NZBLQ 132 at 151.

³³ Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431, (2019) 25 PRNZ 33 at [51].

³⁴ Ngā Kōti o Aotearoa | Courts of New Zealand “Annual Statistics for the High Court 31 December 2019”

<www.courtsofnz.govt.nz>.

35. For example in one case, 13,500 bank customers registered to participate in the claim: Cooper v ANZ Bank New Zealand Ltd [2013] NZHC 2827 at [1]. Another case involved a group of 800 investors: LDC Finance Ltd v Miller [2016] NZHC 567 at [1].
36. This largely replicates the categories used by Nikki Chamberlain in her empirical study: Nikki Chamberlain “Class Actions in New Zealand: An Empirical Study” (2018) 24 NZBLQ 132. We note this categorisation is somewhat broad brush and some cases could fit into more than one category. For example, Saxmere Co Ltd v The Wool Board Disestablishment Co Ltd HC Wellington CIV-2003-485-2724, 6 December 2005 is in the general commercial category. The causes of action were judicial review, breach of statutory duty and negligence.
37. Note there are also some cases involving a Government party in the ‘consumer’ category, namely: The Southern Response Unresolved Claims Group v Southern Response Earthquake Services Ltd [2016] NZHC 3105; Minister of Education v James Hardie Ltd [2018] NZHC 1481; and Ross v Southern Response Earthquake Services Ltd [2018] NZHC 3288.
38. Howick Engineering Ltd v Manukau City Council HC Auckland CP2021/91, 11 August 1992; Talley’s Fisheries Ltd v Minister of Immigration [1994] NZHC 1689; (1994) 7 PRNZ 469 (HC); Ankers v Attorney-General [1995] NZHC 125; (1995) 8 PRNZ 455 (HC); Jones v Attorney-General HC Wellington CP175/02, 8 July 2003; Healthcare Providers New Zealand Inc v Northland District Health Board HC Wellington CIV-2007-485-1814, 7 December 2007; and Accent Management Ltd v Commissioner of Inland Revenue

(a) Māori land claims.³⁹

(b) Taxation, rates and ACC levies.⁴⁰

(c) Social security.⁴¹

(d) Immigration.⁴²

(e) Negligence.⁴³

(f) Contractual issues.⁴⁴

• 3.17 There have been seven representative actions brought by ‘investors’ since 1993.⁴⁵ The defendants have included auditors, accountants, company directors, a company and banks. There have been four representative actions brought by shareholders, one in 1999, one in 2008 and the other two in 2019.⁴⁶
• 3.18 The eight ‘general commercial’ cases include claims in equity, contract, tort and restitution as well as statutory claims (including under the Fair Trading Act 1986 and Companies Act 1993).⁴⁷ These cases span the period 1986 to 2018.

[2010] NZHC 305; (2010) 24 NZTC 24,126 (HC). In addition, one of the claims in the ‘general commercial’ category included a judicial review claim: Saxmere Co Ltd v The Wool Board Disestablishment Co Ltd HC Wellington CIV-2003-485-2724, 6 December 2005. We note that judicial review claims are often brought on a representative basis without seeking a formal order under r 4.24 of the High Court Rules 2016. We discuss this later in this chapter.

39. Nireaha Tamaki v Baker (1902) 22 NZLR 97 (SC); Wanganui District Council v Tangaroa [1995] 2 NZLR 706 (HC); Stirling v Attorney-General HC Wellington CP161/96, 27 May 1998; and Paki v Attorney-General [2008] NZHC 2435; [2009] 1 NZLR 72 (HC). As well as these cases brought under earlier versions of HCR 78, there are many cases where a Māori chief has represented a group of claimants without obtaining a formal representation order. We discuss this later in this chapter.
40. Erris Promotions Ltd v Commissioner of Inland Revenue [2004] 1 NZLR 811 (HC); Accent Management Ltd v Commissioner of Inland Revenue [2010] NZHC 305; (2010) 24 NZTC 24,126 (HC); The New Zealand Meat Industry Assoc v The Accident Compensation Corporation HC Wellington CP275/87, 19 October 1987; and Howick Engineering Ltd v Manukau City Council HC Auckland CP2021/91, 11 August 1992.
41. Ankers v Attorney-General [1995] NZHC 125; (1995) 8 PRNZ 455 (HC); and Jones v Attorney-General HC Wellington CP175/02, 8 July 2003.

⁴² Talley’s Fisheries Ltd v Minister of Immigration [1994] NZHC 1689; (1994) 7 PRNZ 469 (HC).

⁴³ Strathboss Kiwifruit Ltd v Attorney-General [2015] NZHC 1596, (2015) 23 PRNZ 69.

44. Healthcare Providers New Zealand Inc v Northland District Health Board HC Wellington CIV-2007-485-1814, 7 December 2007.
45. Purdue v Boyd Knight (1998) 8 NZCLC 261,720 (HC); Devcich v Cowley Stanich & Co (1997) 11 PRNZ 47 (HC); Registered Securities Ltd (in liq) v Westpac Banking Corp (2000) 14 PRNZ 348 (HC); Stickland v Drummond HC Auckland CIV- 2006-404-3078, 13 May 2008; Harding v LDC Finance Ltd (in rec) HC Christchurch CIV-2008-409-1140, 19 November

2009; LDC Finance Ltd (in rec and in liq) v Miller [2013] NZHC 2993; and Scott v ANZ Bank New Zealand Ltd [2020] NZHC 906.

⁴⁶ Hedley v Kiwi Co-Operative Dairies Ltd (2000) 15 PRNZ 210 (HC); Houghton v Saunders [2008] NZHC 1569; (2008) 19 PRNZ 173 (HC);

Livingstone v CBL Corp Ltd CIV-2019-404-2727 (ongoing proceedings); and TEA Custodians Ltd v Wells CIV-2019-485- 642 (ongoing proceedings).

47. RJ Flowers Ltd v Burns [1986] NZHC 243; [1987] 1 NZLR 260 (HC); Overseas Containers Ltd v Geo H Scales Ltd HC Wellington CP395/86, 22 September 1986; Taspac Oysters Ltd v James Hardie & Co Pty Ltd [1990] 1 NZLR 442 (HC); Lin v Registrar of Companies [2016] NZHC 395; Saxmere Co Ltd v The Wool Board Disestablishment Co Ltd HC Wellington CIV-2003- 485-2724, 6 December 2005; Blue Star Taxis (Christchurch) Society Ltd v Gold Band Taxis (Christchurch) Society Ltd HC Christchurch CIV-2009-409-2921, 19 November 2010; Wu v Body Corporate 366611 [2011] NZHC 561; [2011] 2 NZLR 837 (HC); and Smith v Claims Resolution Service Ltd [2019] NZHC 127.

• 3.19 The six ‘consumer’ cases were filed between 2013 and 2018. There have been three product liability cases relating to building materials,⁴⁸ two cases relating to resolution of insurance claims arising out of the Christchurch earthquakes,⁴⁹ and one case relating to bank fees.⁵⁰
• 3.20 The four ‘trusts and estates’ cases span the period 1975 to 2016 and have involved small groups of represented persons, ranging from 3 to 17 people. ⁵¹
• 3.21 The final category is ‘environmental’, with only two cases: one in 1972 and another in 2000.⁵²

Outcome of representative actions

• 3.22 Some representative actions have proceeded to judgment, others appear to have settled and some are ongoing. Of the cases where a representation order has been granted:

(a) In 12 cases, the plaintiff obtained a successful judgment in its favour.⁵³ In most cases, the remedy was a declaration, although there are two cases where the court awarded damages.⁵⁴

(b) In eight cases, the defendant successfully defended the action.⁵⁵

48. Minister of Education v James Hardie Ltd [2018] NZHC 1481; Cridge v Studorp Ltd [2016] NZHC 2451, (2016) 23 PRNZ 281; and Paine v Carter Holt Harvey Ltd [2019] NZHC 478.
49. The Southern Response Unresolved Claims Group v Southern Response Earthquake Services Ltd [2016] NZHC 3105; and Ross v Southern Response Earthquake Services Ltd [2018] NZHC 3288.

⁵⁰ Cooper v ANZ Bank New Zealand Ltd [2013] NZHC 2827.

51. Hill v The Wellington Co-operative Taxi Owner-Drivers’ Society Ltd HC Wellington A4/75, 3 February 1988; ‘Akau’Ola v The President of the Conference of the Methodist Church of New Zealand HC Auckland CP183/SW01, 26 June 2001; Cadman v Visini (2011) 3 NZTR 21-011 (HC); and Vlaar v van der Lubbe [2016] NZHC 2398, (2016) 4 NZTR 26-022.
52. Mundy v Cunningham [1973] 1 NZLR 555 (SC); and Whakatane District Council v Keepa HC Rotorua M7/00, 27 June 2000. As discussed below, there has also been one representative action in the Environment Court: Norton v Marlborough District Council EnvC Christchurch C017/09, 30 March 2009.
53. Mundy v Cunningham [1973] 1 NZLR 555 (SC); Howick Engineering Ltd v Manukau City Council HC Auckland CP2021/91, 11 August 1992; Talley’s Fisheries Ltd v Minister of Immigration HC Wellington CP201/93, 10 October 1995; Ankers v Attorney-General [1995] NZHC 125; (1995) 8 PRNZ 455 (HC); Wanganui District Council v Tangaroa [1995] 2 NZLR 706 (HC); Whakatane District Council v Keepa [2002] BCL 174 (HC); Healthcare Providers New Zealand Inc v Northland District Health Board HC Wellington CIV-2007-485-1814, 7 December 2007; Eaton v LDC Finance Ltd (in rec) [2012] NZHC 1105 (an appeal was subsequently filed and then the matter was settled: see Eaton v LDC Finance Ltd [2013] NZHC 728); Wu v Body Corporate 366611 [2011] NZHC 561; [2011] 2 NZLR 837 (HC); aff’d [2014] NZSC 137, [2015] 1 NZLR 215; Vlaar v van der Lubbe [2016] NZHC 2398, (2016) 4 NZTR 26-022; Lin v Registrar of Companies [2016] NZHC 395; and Houghton v Saunders [2018] NZSC 74, [2019] 1 NZLR 1 (note that this case was set down for a ‘stage two’ hearing to determine damages, however, the

case was struck out due to the failure to meet a security for costs order. The High Court’s decision to strike out the case has been appealed to the Court of Appeal and a decision is pending).

54. Eaton v LDC Finance Ltd (in rec) [2012] NZHC 1105 (as noted above, the defendant appealed this case and it was subsequently settled); and Wu v Body Corporate 366611 [2011] NZHC 561; [2011] 2 NZLR 837 (HC).
55. Accident Compensation Corporation v New Zealand Meat Industry Assoc [1987] NZCA 107; [1988] 1 NZLR 1 (CA); Boyd Knight v Purdue [1999] NZCA 347; [1999] 2 NZLR 278 (CA); Hedley v Kiwi Co-operative Dairies Ltd HC Palmerston North CP24/99, 21 December 2001; aff’d CA104/02, 18 December 2002; Palu v Conference of the Methodist Church of New Zealand (2003) 1 NZTR 13-008 (HC); Erris Promotions Ltd v Commissioner of Inland Revenue [2004] 1 NZLR 811 (HC); Wool Board Disestablishment Co Ltd v Saxmere Co Ltd [2010] NZCA 513, [2011] 2 NZLR 442; Paki v Attorney-General [2012] NZSC 50, [2012] 3 NZLR 277; and Accent Management Ltd v Commissioner of Inland Revenue [2010] NZHC 305; (2010) 24 NZTC 24,126 (HC).

(c) There are 15 cases where there is no substantive judgment and it is likely that the matter was settled.⁵⁶

(d) There are nine cases still proceeding through the courts.⁵⁷

How representative actions have been funded

• 3.23 As noted above, we are aware of 10 representative actions which have been funded by a litigation funder. We discuss litigation funding of representative actions in Part B of our Issues Paper.
• 3.24 There are several other ways that representative actions may have been funded to date. First, the representative plaintiff and/or the represented individuals may have paid for the costs of running the case themselves. In such a case, the representative plaintiff would be liable for adverse costs unless an alternative arrangement has been made, such as the group agreeing to contribute to any adverse costs order.
• 3.25 Second, a lawyer may have agreed to bring the representative action on a no win, no fee basis. This arrangement is a form of conditional fee. Conditional fees are permitted in Aotearoa New Zealand provided that any premium paid to the lawyer in case of success is not calculated as a percentage of a damages award or settlement.⁵⁸
• 3.26 Third, a lawyer may have agreed to act pro bono, and we are aware of this occurring in at least one representative action to date. However, although pro bono legal representation removes the substantial cost of legal fees, there will still be disbursements to cover and the risk of an adverse costs order.

56. RJ Flowers Ltd v Burns [1986] NZHC 243; [1987] 1 NZLR 260 (HC); Taspac Oysters Ltd v James Hardie & Co Pty Ltd HC Auckland CL104/88, 23 May 1990 (this refers to the matter being resolved with a payment into court); Overseas Containers Ltd v Geo H Scales Ltd HC Wellington CP395/86, 22 September 1986; Hill v The Wellington Co-operative Taxi Owner-Drivers’ Society Ltd HC Wellington A4/75, 3 February 1988; Stirling v Attorney-General HC Wellington CP161/96, 29 September 2004 (sealed judgment of Miller J); Devcich v Cowley Stanich & Co (1997) 11 PRNZ 47 (HC); Registered Securities Ltd (in liq) v Westpac Banking Corp (2000) 14 PRNZ 348 (HC); Jones v Attorney-General HC Wellington CP175/02, 8 July 2003; Stickland v Drummond HC Auckland CIV-2006-404-3078, 13 May 2008; Blue Star Taxis (Christchurch) Society Ltd v Gold Band Taxis (Christchurch) Society Ltd HC Christchurch CIV-2009-409-2921, 19 November 2010; Cadman v Visini (2011) 3 NZTR 21-011 (HC); Cooper v ANZ Bank New Zealand Ltd [2013] NZHC 2827; LDC Finance Ltd (in rec and in liq)

v Miller [2013] NZHC 2993; The Southern Response Unresolved Claims Group v Southern Response Earthquake Services Ltd [2016] NZHC 3105 (in this case, the parties agreed to a mediation process led by Sir Graham Panckhurst: see Liz MacDonald “Southern Response quake claimants withdraw class action” (15 May 2018) Stuff <www.stuff.co.nz>); and Minister of Education v James Hardie Ltd [2018] NZHC 1481 (the settlement is discussed in Victoria Young “Education Ministry, Carter Holt cut deal over leaky schools” (9 October 2020) BusinessDesk <http://businessdesk.co.nz> ).

57. These cases are: Strathboss Kiwifruit Ltd v Attorney-General; Cridge v Studorp Ltd; Ross v Southern Response Earthquake Services Ltd; Smith v Claims Resolution Service Ltd; Paine v Carter Holt Harvey Ltd; Scott v ANZ Bank New Zealand Ltd; Livingstone v CBL Corp Ltd CIV-2019-404-2727 (ongoing proceedings); TEA Custodians Ltd v Wells CIV- 2019-485-642 (ongoing proceedings); and Houghton v Saunders (this case was struck out by the High Court on 14 July 2020 although this decision has been appealed to the Court of Appeal: see Houghton v Saunders [2020] NZHC 1088 at [92]; and Houghton v Saunders [2020] NZHC 2030 at [3]).
58. Lawyers and Conveyancers Act 2006, ss 333 and 334. See also Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, rr 9.8–10.

• 3.27 Finally, we are aware of at least one representative party being funded by legal aid.⁵⁹ We note, however, that the availability of legal aid for representative parties is currently restricted.⁶⁰

Representative actions in other courts

• 3.28 Representative actions may be brought in the Employment Court relying on HCR 4.24.⁶¹ Between 1992 and 2002, the Employment Court has allowed seven cases to proceed on a representative basis relying on High Court Rule 78 (HCR 78, the predecessor to HCR 4.24).⁶² In two of these cases, HCR 78 was used on a standalone basis,⁶³ with the other five cases citing HCR 78 in conjunction with other Employment Court procedural provisions.⁶⁴
• 3.29 We are not aware of any Employment Court cases since 2002 that have been allowed to proceed as representative actions relying on HCR 4.24.⁶⁵ Nikki Chamberlain suggests this may be due to litigants using other procedures such as test cases or provisions in the Employment Relations Act 2000.⁶⁶ Later in this chapter we outline other methods of bringing group litigation in the Employment Court.

59. See Whakatane District Council v Keepa HC Rotorua M7/00, 27 June 2000 at [10] (in that case, legal aid was granted to a representative defendant). We are also aware of one case in which an applicant who unsuccessfully sought a representation order under HCR 78 sought legal aid (Ryder v Treaty of Waitangi Fisheries Commission [1998] 1 NZLR 761 (HC)). In Glancy v Legal Services Agency [2003] NZCA 298; (2003) 17 PRNZ 168 (CA), the Court of Appeal held that s 10(4) of the Legal Services Act 2000 (the equivalent of s 12(4) of the Legal Services Act 2011) did not apply to the case because of the lack of jurisdiction to make a representation order: at [37].
60. Section 12(4) of the Legal Services Act 2011 requires an application for civil legal aid to be refused in relation to litigation in which several people have the same interest if this would not seriously prejudice the interests of the applicant or it would be proper for other persons having that interest to pay for the proceedings.

⁶¹ Employment Court Regulations 2000, reg 6(2)(a)(ii). In a recent case, the Court said it was common ground that HCR

4.24 applied in the Employment Court by virtue of this regulation: McCook v Chief Executive of the Inland Revenue Department [2020] NZEmpC 109 at [109]. See also Employment Relations Act 2000, s 212 (and its predecessor, Employment Contracts Act 1991, s 130). In Chapman v Waitemata Stevedoring Services Ltd (No 2) [1992] NZEmpC 219; [1992] 3 ERNZ 756, the plaintiff relied on HCR 78 and both parties accepted that the High Court Rules applied by virtue of s 130(2) of the Employment Contracts Act 1991. In that case, the Employment Court declined the application for a representation order on the basis that the union did not have the same interest in the subject matter as those it sought to represent.

62. Fire Service Commission v Duncan [1995] NZEmpC 36; [1995] 1 ERNZ 169 (EmpC); Andersen v Capital Coast Health Ltd [2000] NZEmpC 74; [2000] 1 ERNZ 256 (EmpC); Hyndman v Air New Zealand Ltd [1991] NZEmpC 27; [1992] 1 ERNZ 820 (EmpC); New Zealand Air Line Pilots Assoc IUOW v Mount Cook Group Ltd [1992] 3 ERNZ 355 (EmpC); Dwyer v Air New Zealand Ltd (No 2) [1996] 2 ERNZ 435 (EmpC); New Zealand Seafarers’ Union Inc v Silver Fern Shipping Ltd [1998] NZEmpC 186; [1998] 3 ERNZ 768 (EmpC); and Ranchhod v Auckland Healthcare Services Ltd EmpC Auckland AEC161/99, 16 December 1999.
63. Fire Service Commission v Duncan [1995] NZEmpC 36; [1995] 1 ERNZ 169 (EmpC); and Andersen v Capital Coast Health Ltd [2000] NZEmpC 74; [2000] 1 ERNZ 256 (EmpC).
64. New Zealand Air Line Pilots Assoc IUOW v Mount Cook Group Ltd [1992] 3 ERNZ 355 (EmpC); Dwyer v Air New Zealand Ltd (No 2) [1996] 2 ERNZ 435 (EmpC); Ranchhod v Auckland Healthcare Services Ltd EmpC Auckland AEC161/99, 16 December 1999; Hyndman v Air New Zealand Ltd [1991] NZEmpC 27; [1992] 1 ERNZ 820 (EmpC); and New Zealand Seafarers’ Union Inc v Silver Fern Shipping Ltd [1998] NZEmpC 186; [1998] 3 ERNZ 768 (EmpC). Note that in the first three of these cases, HCR 78 is said to apply by analogy.
65. We note that in one recent case, the Employment Court declined to allow a case to proceed as a representative action pursuant to r 4.24 of the High Court Rules 2016 on the basis that there was insufficient commonality of interest between the plaintiffs and those they wished to represent and it would not be in the interests of justice: McCook v Chief Executive of the Inland Revenue Department [2020] NZEmpC 109 at [141].

⁶⁶ Nikki Chamberlain “Class Actions in New Zealand: An Empirical Study” (2018) 24 NZBLQ 132 at 151.

• 3.30 Representative actions are also possible in the District Court. The District Court Rules 2014 contain a provision identical to HCR 4.24 (currently District Court Rule 4.24). However, we are not aware of it ever being used to bring a representative action in the District Court.⁶⁷ We are aware of one case in which the rule was used to bring a representative action in the Environment Court.⁶⁸ We understand this case was funded by the Environmental Legal Assistance Fund which is administered by the Ministry for the Environment.⁶⁹

Development of the law on HCR 4.24

• 3.31 Because the language of HCR 4.24 is sparse, courts have had to develop rules for when a representative action should be allowed and how cases should be managed. Some particular issues that have been developed through the case law, which we briefly discuss below, are:

(a) The threshold test for allowing a case to proceed as a representative action, including the same interest test.

(b) Whether claims for damages should be allowed.

(c) The effect of a representative action on limitation periods.

(d) Whether an opt-in or opt-out approach should be used to determine membership of the represented group.

(e) The court’s role when a litigation funder is funding a representative action.

Threshold legal test for allowing a claim to proceed as a representative action

• 3.32 The Court of Appeal has observed that what constitutes “the same interest in the subject matter of a proceeding” is usually the critical issue in applications to bring a representative action under HCR 4.24.⁷⁰ In England, the requirement that group members have the ‘same interest’ in a claim has been described as the most problematic and least workable aspect of the representative actions rule.⁷¹
• 3.33 Aotearoa New Zealand has been described as taking a modern facilitative approach to representative actions, where the courts are encouraged to consider how individual issues can be incorporated within a representative action rather than taking a “hard line”

67. Previous rules are District Court Rules 2009, r 3.33.5 (which simply imported r 4.24 of the High Court Rules 2016); and District Court Rules 1992, r 80.
68. Norton v Marlborough District Council EnvC Christchurch C017/09, 30 March 2009. Resource Management Act 1991, s 278 provides that the Environment Court and Environment Judges have the same powers that the District Court has in the exercise of its civil jurisdiction.
69. For details of grants made under the Environmental Legal Assistance Fund, see Manatū Mō Te Taiao I Ministry for the Environment “Previous Environmental Legal Assistance Fund applications” (9 December 2019) <www.mfe.govt.nz>.
70. Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312 at [14].
71. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 78. As we noted in chapter 2, in Markt & Co Ltd v Knight Steamship Co Ltd [1910] UKLawRpKQB 126; [1910] 2 KB 1021 (CA), the English Court of Appeal took a very restrictive approach to this question, requiring class members to show that issues of fact and law were identical between them. This case is said to have set back the development and application of the representative action through the 20th century: John Sorabji “The hidden class action in English civil procedure” (2009) 28 CJQ 498.

interpretation of the same interest requirement.⁷² This approach can be traced back to the 1987 decision of RJ Flowers v Burns, where the High Court proposed that a liberal approach to representative actions would best align with the objectives of the HCR:⁷³

...if injustice can be avoided, the rule can and should be applied to serve the interests of expedition and economy, both indeed the underlying reason for its existence... The traditional concern to ensure that representative actions are not to be allowed to work injustice must be kept constantly in mind. Subject to those restraints however the rule should be applied and developed to meet modern requirements.

• 3.34 In Saunders v Houghton (No 1), the Court of Appeal noted there were different lines of authority as to how “persons with the same interest” should be interpreted. The Court endorsed a generous approach to representation applications with a relatively low threshold.⁷⁴ It also endorsed a number of earlier statements of the High Court about the availability of representative actions where each member of the group is alleged to have a separate cause of action.⁷⁵ The Court concluded that:⁷⁶

“The same interest” must mean that, subject to other considerations, the more the parties have in common, the more the strength of that facet of the application. Greater precision is unattainable.

• 3.35 In 2014 in Credit Suisse Private Equity v Houghton, the Supreme Court considered the same interest requirement in the context of a dispute over the application of limitation periods to representative actions.⁷⁷ While the judges took differing views on the limitation point, both majority and minority judgments emphasised the need to take a flexible approach to HCR 4.24. The majority judgment endorsed the approach taken in RJ Flowers, commenting that it is legitimate for the scope of HCR 4.24 to continue to adapt in order to achieve the overall objective of the High Court Rules.⁷⁸ The minority stated that the question of what constitutes the same interest in the subject matter of a proceeding was to be “assessed purposively to allow the representative action to be a flexible tool of convenience in the administration of justice”,⁷⁹ and that the representative plaintiff and those represented must have “a community of interest in the determination

72. See Tom Hallett-Hook “Class Actions Under New Zealand’s Representative Rule: Ingenious Solution or Inadequate to the Task?” (LLM Dissertation, University of Toronto, 2015) at 10–11.

⁷³ RJ Flowers Ltd v Burns [1986] NZHC 243; [1987] 1 NZLR 260 (HC) at 271.

⁷⁴ Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [10]–[12].

75. Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [13] citing RJ Flowers Ltd v Burns [1986] NZHC 243; [1987] 1 NZLR 260 (HC) and Taspac Oysters Ltd v James Hardie & Co Pty Ltd [1990] 1 NZLR 442 (HC). The Court of Appeal endorsed the availability of the representative action in such cases provided that: (a) it did not confer a right of action on a class member who could not have asserted that right in separate proceedings or prevent a defence a defendant may have had available in a separate proceeding; (b) there was an interest shared in common with all members of the group; and

(c) permitting the plaintiff to sue in a representative capacity was for the benefit of the other members of the class.

⁷⁶ Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [19].

⁷⁷ Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541.

78. Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [129]–[130] per McGrath, Glazebrook and Arnold JJ citing RJ Flowers Ltd v Burns [1986] NZHC 243; [1987] 1 NZLR 260 (HC) and High Court Rules 2016, r 1.2.

⁷⁹ Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [2] per Elias CJ and Anderson J citing

John v Rees [1970] Ch 345 (Ch) at 370.

of some substantial issue of law or fact”.⁸⁰ The minority judgment also commented that it was sufficient if the party and those represented have the same interest in the subject matter of the proceeding and there is no requirement for identical claims or even the same cause of action.⁸¹

• 3.36 The Court of Appeal observed in its 2017 decision in Cridge v Studorp that the principles governing the application of HCR 4.24 were “well-established” and summarised them as follows:⁸²

(a) The rule should be applied to serve the interests of expedition and judicial economy, a key underlying reason for its existence being efficiency. A single determination of issues that are common to members of a class of claimants reduces costs, eliminates duplication of effort and avoids the risk of inconsistent findings.

(b) Access to justice is also an important consideration. Representative actions make affordable otherwise unaffordable claims that would be beyond the means of any individual claimant. Further, they deter potential wrongdoers by disabusing them of the assumption that minor but widespread harm will not result in litigation.

(c) Under the rule, the test is whether the parties to be represented have the same interest in the proceeding as the named parties.

(d) The words ‘same interest’ extend to a significant common interest in the resolution of any question of law or fact arising in the proceeding.

(e) A representative order can be made notwithstanding that it relates only to some of the issues in the claim. It is not necessary that the common question make a complete resolution of the case, or even liability, possible.

(f) It must be for the benefit of the other members of the class that the plaintiff is able to sue in a representative capacity.

(g) The court should take a liberal and flexible approach in determining whether there is a common interest.

(h) The requisite commonality of interest is not a high threshold and the court should be wary of looking for impediments to the representative action rather than being facilitative of it.

(i) A representative action should not be allowed in circumstances that would deprive a defendant of a defence it could have relied on in a separate proceeding against one or more members of the class, or conversely allow a member of the class to succeed where they would not have succeeded had they brought an individual claim.

• 3.37 In Southern Response Earthquake Services v Southern Response Unresolved Claims Group, the Court of Appeal cited these principles and added that a preliminary

80. Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [2] per Elias CJ and Anderson J citing Carnie v Esanda Finance Corp Ltd [1995] HCA 9; (1995) 182 CLR 398 at 408 per Brennan J. See also the judgment of Mason CJ, Deane and Dawson JJ at 404 and the judgment of McHugh J at 427.

⁸¹ Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [55] per Elias CJ and Anderson J.

82. Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [11] (references omitted). The Court of Appeal also cited these principles in Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431, (2019) 25 PRNZ 33 at [51].

assessment of the merits of the claim was also required.⁸³ We discuss this further in Chapter 10.

Claims for damages

• 3.38 The 1910 English case of Markt v Knight Steamship was initially regarded as precluding any representative action for damages.⁸⁴ In Take Kerekere v Cameron, an early Aotearoa New Zealand case, Markt was cited as authority for the proposition that a representative action was inappropriate for determining numerous claims of damages.⁸⁵
• 3.39 The High Court adopted a less strict approach subsequently. In RJ Flowers, the Court considered that a liberal approach should be taken to the law on representative actions, even in the area of damages. A representative action for damages was possible where the represented group included all or virtually all potential plaintiffs and they all consented to damages being paid on a global basis to the representative plaintiff.⁸⁶ Several years later in Taspac Oysters v James Hardie the Court discussed, with apparent approval, dicta in the English case of Prudential Assurance Co v Newman Industries, that a representative action could be brought seeking a declaration of liability. If successful, individual group members could then pursue separate claims for damages.⁸⁷ In Saxmere v The Wool Board Disestablishment Co, the Court accepted that global damages may be appropriate in the circumstances described in RJ Flowers.⁸⁸ In cases where the claims of each plaintiff may require individual assessment or arise under different contracts or duties, the representative plaintiff may be required to prove breach of a duty owed to the group and loss flowing from the breach. However, any general requirement to establish damages in separate and individual proceedings was said to be “a severe procedural constraint on a rule that was designed to ensure a large group of litigants could come at justice”.⁸⁹
• 3.40 In Saunders v Houghton (No 1), the Court of Appeal restated that representative proceedings for damages were not foreclosed.⁹⁰
• 3.41 The issue of damages in representative actions was briefly mentioned by the Supreme Court in Credit Suisse. Both the minority and majority judgments concluded that the prior view that damages claims are unsuitable for representative actions is no longer held in

83. Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312 at [15]–[16].

⁸⁴ Markt & Co Ltd v Knight Steamship Co Ltd [1910] UKLawRpKQB 126; [1910] 2 KB 1021 (CA).

⁸⁵ Take Kerekere v Cameron [1920] NZLR 302 (SC).

⁸⁶ RJ Flowers Ltd v Burns [1986] NZHC 243; [1987] 1 NZLR 260 (HC) at 271.

87. Taspac Oysters Ltd v James Hardie & Co Pty Ltd [1990] 1 NZLR 442 (HC) at 446–447 citing Prudential Assurance Co Ltd v Newman Industries Ltd [1981] Ch 229 (Ch). Taspac has since been cited as authority for the possibility of separate proceedings for damages on the basis of the declaration of liability in the representative action: for example, see Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [14].
88. Saxmere Co Ltd v The Wool Board Disestablishment Co Ltd HC Wellington CIV-2003-485-2724, 6 December 2005 at [179].
89. Saxmere Co Ltd v The Wool Board Disestablishment Co Ltd HC Wellington CIV-2003-485-2724, 6 December 2005 at [182].
90. Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [14] citing Taspac Oysters Ltd v James Hardie & Co Pty Ltd [1990] 1 NZLR 442 (HC) at 446.

Aotearoa New Zealand.⁹¹ The appellants had argued that representative proceedings for damages were “exceptional” and were only appropriate where total liability could be readily established as a global sum and the amount due to individuals was uncontested. This argument was unanimously rejected by the Court as being a narrow approach which was unsupported by the authorities.⁹² Both the majority and minority judgments held that a representative action is not restricted to dealing with common issues, and that group members are not required to file separate proceedings to determine individual issues such as damages. Requiring the filing of separate proceedings or applications for joinder to the representative proceedings would negate the advantages of a representative action. ⁹³

• 3.42 In recent representative actions, courts have adopted the approach of having staged hearings, with common issues determined at the first hearing (‘stage one’) and individual issues such as damages left for subsequent determination (‘stage two’).

Limitation periods

• 3.43 In Credit Suisse, one of the issues before the Supreme Court was when an action had been ‘brought’ on behalf of a represented person for statutory limitation purposes. Was it when the representative plaintiff had filed a claim in representative form or was it when group members had joined the proceeding in accordance with the court’s direction (in this case, by opting in)? The Court was divided on this issue. The majority held that a representative action is ‘brought’ for both the representative plaintiff and all group members when the statement of claim is filed and therefore prior to group members having an opportunity to opt into in the proceedings. This may necessitate a representative order being backdated if it is not made at the time of filing.⁹⁴ Although the case used an opt-in mechanism, the majority commented that it was inappropriate to allow the existence of either an opt-in or opt-out mechanism to influence when limitation periods start to run in a representative action.⁹⁵ The minority considered that an action was not brought on behalf of a represented person until they joined the proceeding in accordance with the court’s orders.⁹⁶
• 3.44 In Cridge v Studorp, the Court of Appeal said that the majority’s conclusion in Credit Suisse that proceedings are brought for limitation purposes when the statement of claim is filed must logically apply whenever a proceeding is commenced as a representative action,

91. Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [8] per Elias CJ and Anderson J and at [129] and [146] per McGrath, Glazebrook and Arnold JJ.
92. Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [122]–[123] and [129] per McGrath, Glazebrook and Arnold JJ and at [57]–[60] per Elias CJ and Anderson J.
93. Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [8], [56] and [59] per Elias CJ and Anderson J and at [147] and [158] per McGrath, Glazebrook and Arnold JJ.

⁹⁴ Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [128] and [168].

⁹⁵ Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [168].

⁹⁶ Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [10], [65]–[68] and [83].

regardless of whether the court allows it to continue on that basis or not.⁹⁷ The Court held that:⁹⁸

... when time stopped running under the Limitation Act for the representative owners, it stopped for everyone else on whose behalf they purported to sue and that remained the case regardless of whether a representative order was later made or not.

Opt-in and opt-out proceedings

• 3.45 All of the early representative actions were brought on a “universal basis”, which means they were brought on behalf of a defined group without first obtaining the consent of its members or providing any opportunity for them to remove themselves from the litigation.⁹⁹ This included a number of cases which involved a large group.¹⁰⁰
• 3.46 In Houghton v Saunders, the plaintiff successfully brought a without notice application for a representative order based on an opt-out procedure. This meant that Feltex shareholders who were within a defined group would be represented by the named plaintiffs unless they elected to opt out of the proceedings by a specified date.¹⁰¹ The defendants successfully applied to review the opt-out order. In the High Court’s view, an opt-out procedure departed too radically from the existing Rules. Without legislative change, the Court had to work within HCR 78, which only contemplated opt-in proceedings.¹⁰² Subsequent to this decision, representative actions proceeded on an opt- in basis and the issue of whether opt-out proceedings should be available did not come squarely before the courts for another decade.¹⁰³
• 3.47 In Ross v Southern Response, the plaintiff unsuccessfully sought an order that the representative action be brought on an opt-out basis.¹⁰⁴ On appeal, the Court of Appeal held that there was no jurisdictional barrier to making an opt-out order under HCR 4.24.¹⁰⁵ The Supreme Court agreed with the Court of Appeal that opt-out orders should be made in appropriate cases.¹⁰⁶ It also set out guidance to assist courts in determining whether an opt-in, opt-out or universal approach is likely to be appropriate in a particular case.¹⁰⁷ We discuss this further in Chapter 12.

⁹⁷ Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [82]–[83].

⁹⁸ Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [86].

⁹⁹ Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431, (2019) 25 PRNZ 33 at [82].

100. For example in Ankers v Attorney-General [1995] NZHC 125; (1995) 8 PRNZ 455 (HC), the plaintiff was granted an order allowing her to act on behalf of herself and 65,000 other applicants for a Special Benefit. In Talley’s Fisheries Ltd v Minister of Immigration [1994] NZHC 1689; (1994) 7 PRNZ 469 (HC), Sealord was appointed as a representative defendant to represent 4,500 foreign crew members.

¹⁰¹ See Houghton v Saunders [2008] NZHC 1569; (2008) 19 PRNZ 173 (HC) at [21], [23] and [26].

¹⁰² Houghton v Saunders [2008] NZHC 1569; (2008) 19 PRNZ 173 (HC) at [165].

103. Note that in Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541, the majority appeared to accept that both opt-in and opt-out orders were available, but this was not an issue the Court needed to decide: see

[163] and [168].

¹⁰⁴ Ross v Southern Response Earthquake Services Ltd [2018] NZHC 3288.

¹⁰⁵ Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431, (2019) 25 PRNZ 33 at [81] and [111].

¹⁰⁶ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [89].

¹⁰⁷ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [90]–[101].

Court approval of settlement

• 3.48 In Southern Response v Ross, the Supreme Court considered that courts have the power to approve settlements in representative actions.¹⁰⁸ It said that, as a general rule, court approval to settle or discontinue a proceeding should be a condition of granting leave to bring a representative action on an opt-out basis. The court should also consider whether this should be a requirement of granting leave to bring an opt-in proceeding.¹⁰⁹ The Court said that when approving a settlement, courts could consider the extent to which a settlement prejudiced individual class members and could draw on the assistance of independent experts.¹¹⁰
• 3.49 There are several examples of the High Court having approved settlements of representative actions, although courts have not yet developed general guiding principles for approval of such settlements.¹¹¹

Court’s role in cases involving litigation funding

• 3.50 In several cases, the courts have discussed their role with respect to representative actions which are funded by a litigation funder. When considering whether to grant leave under HCR 4.24, it is not the role of the courts to approve litigation funding agreements, and any decision to grant leave should not be taken as an endorsement of those agreements.¹¹² Nevertheless, the courts have acknowledged they may need to have a greater role in overseeing litigation funding of representative actions, and that they will ensure agreements with a litigation funder do not amount to an abuse of process.¹¹³ We discuss this issue in more detail in Chapter 15.

¹⁰⁸ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [82].

¹⁰⁹ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [83] and [101].

¹¹⁰ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [82].

111. See Eaton v LDC Finance Ltd [2013] NZHC 728 and Stirling v Attorney-General HC Wellington CP161/96, 29 September 2004 (sealed judgment of Miller J). Another possible example is Mawson v Auckland Area Health Board HC Auckland CP2018/87, 8 July 1993 (as we have noted earlier in this chapter, this case is not included in our list of 44 cases as it is unclear whether HCR 78 was the basis for the representative claim). See also Ranchhod v Auckland Healthcare Services Ltd (No 2) [2001] NZEmpC 202; [2001] ERNZ 771 (EmpC) where the Employment Court approved the settlement of a representative action.
112. Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312 at [76(a)].
113. Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [85]. See also Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312 at [77]–[82].

Benefits of representative actions under HCR 4.24

• 3.51 The representative actions procedure in HCR 4.24 has enabled litigation in situations where it would be uneconomic for individual group members to bring their own claim.¹¹⁴ The Court of Appeal has observed:¹¹⁵

...it is when the individual claims are small that the r 4.24 procedure provides the clearest benefits. It enables the individual to seek vindication of his or her rights, even though it would be uneconomic to do so if it were forced to bring its own claim.

• 3.52 It is often said that it is not economic to bring a civil claim that is under $100,000 in the High Court. ¹¹⁶ Representative actions have enabled individuals with claims under this amount to group together to bring a proceeding — for example the Cooper v ANZ Bank claim which related to $15 bank fees.¹¹⁷ Although the access to justice benefit appears clearest when individual claims are modest, HCR 4.24 has also enabled claimants with more substantial claims to group together, which makes it easier to secure litigation funding.
• 3.53 Combining claims may also be important when the evidence of multiple claimants is needed to establish the claim. For example, in Smith v Claims Resolution Services, the claim alleges a pattern of behaviour by the defendant. Proving the allegation will require evidence from a large group of claimants. The High Court noted that if the claims were brought separately, this could mask the existence of any improper joint venture. ¹¹⁸ Similarly, in Southern Response Earthquake Services v Southern Response Unresolved Claims Group, the claimants alleged that Southern Response had adopted a strategy of delaying and misleading conduct and intended to rely on the experiences of multiple claimants to prove this strategy.¹¹⁹ The Court of Appeal accepted the submission that the claimants would not be able to prove or challenge the strategy unless they acted collectively.¹²⁰

114. See Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [11(b)]; Smith v Claims Resolution Service Ltd [2019] NZHC 127 at [38] (noting the evidence given by the representative plaintiff and other group members that they would be unable to afford to bring separate proceedings against the defendants). See also Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312 at [55] where the Court of Appeal commented: “We also weigh that the r 4.24 procedure will enable claimants to pursue the good faith claims which while otherwise uneconomic, are of importance to them”.
115. Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312 at [48].

¹¹⁶ See Chapter 1.

117. Cooper v ANZ Bank New Zealand Ltd [2013] NZHC 2827. The claim related to an average fee of $15 that customers were charged as an honour or dishonour fee, credit card late payment fee or credit card over limit fee. See Gareth Vaughan “Parties behind ‘largest class action in NZ’s history’, taken against major banks, stand to pocket up to NZ$250 mln” (11 March 2013) Interest <www.interest.co.nz>.

¹¹⁸ Smith v Claims Resolution Service Ltd [2019] NZHC 127 at [35].

119. Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312 at [3] and [44].
120. Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312 at [48].

• 3.54 Using HCR 4.24 may enable multiple claims to be resolved in an efficient and effective manner and avoid multiple proceedings being filed.¹²¹ In Cridge v Studorp, the Court of Appeal upheld the High Court’s decision to grant a representative order, commenting that requiring the same evidence to be given in respect of each individual claim “would clearly be a wasteful duplication”.¹²²
• 3.55 The representative action is not the only method of seeking redress for an issue that affects many people. When considering whether Aotearoa New Zealand needs a statutory class actions regime, it is important to consider other existing methods of group litigation which include:

(a) Civil procedure techniques such as joinder of plaintiffs, consolidation of proceedings and test cases.

(b) Specific statutory procedures for bringing group proceedings in different circumstances such as the representation procedure in the Companies Act 1993, claims on behalf of a class in the Human Rights Review Tribunal and procedures under the Employment Relations Act 2000.

(c) Proceedings by regulators including the Commerce Commission and the Financial Markets Authority.

(d) Broader techniques such as judicial review proceedings, Māori collective action procedures and non-court processes.

• 3.56 We discuss these different methods below.

CIVIL PROCEDURE TECHNIQUES FOR BRINGING GROUP CLAIMS

• 3.57 Civil procedure techniques which are available for bringing group litigation with respect to any kind of civil claim include joinder of plaintiffs, consolidation and test cases. In addition, High Court Rule 4.27 (HCR 4.27) enables a representative procedure in certain circumstances.

Joinder of plaintiffs

• 3.58 One method of bringing a group claim is to name all of the group members as plaintiffs. High Court Rule 4.2 (HCR 4.2) enables people to be joined as plaintiffs in a proceeding if:

(a) they are alleging a right to relief with respect to the same matter;¹²³ and (b) if each plaintiff brought a separate proceeding, a common question of law or fact would arise.¹²⁴ Commentary suggests that if plaintiffs are entitled to join as plaintiffs under HCR 4.2, they

121. See for example Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312 at [38] and [54]; Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [39]; and Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [12].
122. Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [32]. See also Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [158] per McGrath, Glazebrook and Arnold JJ.
123. Or the same transaction, event, instrument, document, series of documents, enactment, or bylaw: High Court Rules 2016, r 4.2(1)(a).
124. High Court Rules 2016, r 4.2(1)(b). Rules 4.1, 4.3 and 4.56 are also relevant. See Smith v Noble Investments Ltd [2017] NZHC 477 at [7], observing that when considering the procedural regime for joinder of parties, these rules must all be read together.

can simply list themselves as plaintiffs in the claim. If an intending plaintiff falls outside this rule or wishes to be added after the proceedings have commenced, then it will be necessary to make an application under High Court Rule 4.56.¹²⁵ The High Court has traditionally taken a liberal approach to joinder of plaintiffs.¹²⁶

• 3.59 This method of group litigation is being used in White v James Hardie, a claim alleging that building products and cladding systems are defective and not weathertight.¹²⁷ The plaintiffs are stated to be “Karen Louise White and the Persons Listed in Schedule 1”. At the time the proceedings were filed, there were 365 plaintiffs in this proceeding.¹²⁸ The approach taken in this case can be contrasted with Cridge v Studorp, which is based on essentially the same pleaded facts, but has been brought as a representative action under HCR 4.24.¹²⁹
• 3.60 An advantage of joinder is that it avoids the need to apply for a representative order under HCR 4.24, which may prevent delay and expense. If all group members have the status of plaintiffs, this may also avoid some of the issues that can arise with representative actions such as group members’ lack of right to appear before the court and potential conflicts of interest with the representative plaintiff. However, it also means that all group members will have joint and several liability for adverse costs orders.¹³⁰ This approach may also have the disadvantage of being unwieldy and difficult to manage, compared with a representative action. Further, it also requires the plaintiffs to be readily identifiable. Joinder may work best where the number of plaintiffs is relatively small.

Consolidation and other orders under HCR 10.12

• 3.61 High Court Rule 10.12 (HCR 10.12) enables the High Court to order that two or more proceedings be consolidated, tried simultaneously or successively, or that one or more proceedings be stayed until the determination of others. The Court must be satisfied that a common question of fact or law arises, or the rights to relief arise out of the same event or transaction (or series of events or transactions), or there is some other reason why an order is desirable. The rule may be invoked even where the proceedings do not claim the

125. Andrew Beck Civil Procedure – A to Z of New Zealand Law (online ed, Thomson Reuters) at [13.3.6.5]. See also Smith v Noble Investments Ltd [2017] NZHC 477 at [25]–[26], explaining that HCR 4.1–4.3 set out the principles or jurisdictional threshold for joinder. Once a claim has been commenced, any adjustment of parties must occur through HCR 4.56, which will require reference back to the jurisdictional basis of joinder set out in rules 4.1–4.3.
126. Andrew Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HR4.2.03] and [HR4.56.04]. See also Winton v Winton [2018] NZHC 1323 at [23]:

The approach to applications for joinder under r 4.56 is liberal. The Court must be in a position to do complete justice by deciding upon and settling the rights of all persons interested in the subject of the suit.

127. White v James Hardie New Zealand [2017] NZHC 2105 at [5]. This proceeding was filed together with Waitakere Group v James Hardie, which has five named plaintiffs: at [14].

¹²⁸ See White v James Hardie New Zealand [2017] NZHC 2105 at [10].

129. See White v James Hardie New Zealand [2018] NZHC 1627, (2018) 24 PRNZ 198 at [15]; and Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582.

¹³⁰ High Court Rules 2016, r 14.14.

same relief.¹³¹ The Court of Appeal has commented “[i]t is difficult to conceive of a wider procedural discretion”.¹³²

• 3.62 Relevant considerations when considering whether to make an order under HCR 10.12 include: ¹³³

(a) whether it would save time and cost;

(b) whether it would allow judicial resources to be used more efficiently;

(c) whether it would eliminate or reduce the risk of inconsistent findings;

(d) whether the size and complexity of a consolidated proceeding might cause confusion, prejudice or oppression to a party; and

(e) readiness for trial.

• 3.63 Because consolidation enables the status of the original parties to be retained, it may appeal to those who consider that class actions interfere with individual autonomy and procedural due process.¹³⁴ However, as consolidation only applies to cases which have already been filed, it generally only serves the purpose of enabling efficiency and economy of litigation rather than providing access to justice by aggregating claims which would not be individually viable.¹³⁵

Test cases

• 3.64 Courts may conduct test cases to resolve issues which are likely to arise in other proceedings. A test case is one which “raises a novel point or principle of law with ramifications going beyond the particular case”. ¹³⁶ Examples include some of the insurance test cases which arose from the Christchurch earthquakes in 2010 and 2011. Miller J, in his extrajudicial writing, commented of these cases that: “Although the decisions were not binding on other policyholders and insurers, it was practically unlikely that the same issues would be relitigated in other proceedings”.¹³⁷
• 3.65 This method of group litigation does not provide the same degree of certainty for group members who are not party to the proceeding being used as a test case. In Cridge v Studorp, the defendant opposed a representation order being made under HCR 4.24 and argued that a test case procedure should be used. The Court of Appeal considered that a representative action would better achieve the just, speedy and inexpensive determination of proceedings than a test case procedure, stating: “[a] test case would

¹³¹ High Court Rules 2016, r 10.13(a).

¹³² Regan v Gill [2011] NZCA 607 at [10] as cited in Fairway Holdings Ltd v McCullagh [2019] NZCA 353 at [6].

¹³³ Andrew Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HR10.12.03].

134. Vicki Waye “Advantages and Disadvantages of Class Action Litigation (and its Alternatives)” (2018) 24 NZBLQ 109 at 115.
135. Vicki Waye “Advantages and Disadvantages of Class Action Litigation (and its Alternatives)” (2018) 24 NZBLQ 109 at 115.

¹³⁶ Andrew Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HRPt14.17].

¹³⁷ Forrest Miller “Introduction” (2018) 24 NZBLQ 93 at 93.

involve the same work and judicial resources as a lead representative case, but without the tangible benefit of generating findings that are binding on all”.¹³⁸

Representation order under HCR 4.27

• 3.66 HCR 4.27 provides for representation by other persons in specific situations. This includes the High Court having the power to direct a “local authority, public body or other representative body” to represent “any class of person” (or the inhabitants of a locality).¹³⁹ However, there are very few instances of this rule being relied upon to bring proceedings on behalf of a class.¹⁴⁰

SPECIFIC STATUTORY PROCEDURES

• 3.67 In this section we discuss group litigation procedures provided by particular statutes.

Companies Act 1993

• 3.68 Section 173 of the Companies Act enables the High Court to appoint a shareholder to represent other shareholders who have “the same or substantially the same interest”. The Court may make orders as to the control and conduct of the proceedings, the distribution of any amounts paid by a defendant among shareholders and costs. Commentary notes that proceedings under this provision are similar to those under HCR 4.24, although the Court’s specific powers under section 173 are wider and more flexible than those under HCR 4.24. ¹⁴¹ It does not appear that this provision (or the earlier provision, section 209ZF of the Companies Act 1955) has ever been used to bring a representative action.¹⁴²

Health and Disability Commissioner Act 1994

• 3.69 Under the Health and Disability Commission Act 1994, the Director of Proceedings can commence proceedings in the Human Rights Review Tribunal with respect to conduct alleged to be in breach of the Code of Health and Disability Services Consumers’ Rights.¹⁴³

¹³⁸ Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [39].

139. High Court Rules 2016, r 4.27(g). See also r 4.27(h), which relates to representation where the local authority or other body may have interests adverse to those of the inhabitants of a locality or a class of persons.
140. We have only found four cases where r 4.27 of the High Court Rules 2016 (or its predecessor rule) has been used to bring a proceeding on behalf of a class: Titchener v Attorney-General (1990) 3 PRNZ 52 (HC); Contradictors v Attorney- General (No 2) [1999] 2 NZLR 519 (CA); ENZA Ltd v Apple and Pear Export Permits Committee (2001) 15 PRNZ 303 (HC); and New Zealand Association for Migration and Investment v Attorney-General [2003] BCL 327 (HC).

¹⁴¹ Andrew Brown and others Company Law (online ed, Thomson Reuters) at [CA173.01].

142. In Hedley v Kiwi Co-Operative Dairies Ltd (2000) 15 PRNZ 210 (HC), the plaintiff sought to bring a representative action under r 78 of the High Court Rules and s 173 of the Companies Act. The Court granted a representative under HCR 78 but held that s 173 could not apply (because the claim was not restricted to issues between shareholders and a company and its directors).

¹⁴³ Health and Disability Commissioner Act 1994, s 50.

This includes the power to bring proceedings on behalf of a class of persons.¹⁴⁴ However, this power has never been used.¹⁴⁵

Human Rights Act 1993

• 3.70 The Human Rights Commission has jurisdiction under the Human Rights Act 1993 to bring proceedings in the Human Rights Review Tribunal with respect to an alleged discriminatory practice which affects a “class of persons”.¹⁴⁶ However, it has never done so. The Act also provides that the Director of Human Rights Proceedings, a statutory officer who can provide free legal representation for proceedings under that Act, may provide representation to “a group of persons”.¹⁴⁷ An example is Atkinson v Ministry of Health where the Director represented a group of nine plaintiffs in their challenge to a policy that parents could not be paid to be caregivers for their disabled adult children.¹⁴⁸

Privacy Act 2020

• 3.71 The Privacy Act 2020 allows the Director of Human Rights Proceedings to bring proceedings in the Human Rights Review Tribunal on behalf of a “class of aggrieved individuals”.¹⁴⁹ The Privacy Act 1993 contained a similar power although, like the powers under the Health and Disability Commissioner Act and the Human Rights Act, this was never used.¹⁵⁰ The new legislation also allows “a representative lawfully acting on behalf of a class of aggrieved individuals” to bring proceedings (in certain circumstances).¹⁵¹

Employment Relations Act 2000

• 3.72 While representative actions can be brought in the Employment Court relying on HCR

4.24 (as discussed earlier in this chapter), there are also provisions in the Employment Relations Act 2000 that can be relied upon to bring employment claims on a representative basis. The Court will sometimes use a combination of provisions when considering whether to allow a case to proceed on a representative basis. Empirical research on the different types of representative claims in the Employment Court, Labour Court and Employment Relations Authority has found a total of 40 claims to date, with 33 of them being in the 1990s.¹⁵²

¹⁴⁴ Health and Disability Commissioner Act 1994, s 50(3).

145. Letter from Nicola Willis (Director of Proceedings) to Douglas White (past President of the Law Commission) regarding s 50 of the Health and Disability Commissioner Act (20 October 2017).

¹⁴⁶ Human Rights Act 1993, s 92B(2).

¹⁴⁷ Human Rights Act 1993, s 90(1)(c).

¹⁴⁸ See Ministry of Health v Atkinson [2012] NZCA 184, [2012] 3 NZLR 456.

¹⁴⁹ Privacy Act 2020, s 97(6).

¹⁵⁰ Privacy Act 1993, s 82(4). This Act was repealed as from 1 December 2020.

¹⁵¹ Privacy Act 2020, s 98.

152. Eilish Buckley “Accessing Collective Justice in New Zealand’s Employment Courts and Tribunals: A Study of Employment Class Actions” (LLB (Hons) Dissertation, University of Auckland, 2020) at 19. This dissertation was supervised by Nikki Chamberlain.

• 3.73 Ten of these cases relied on section 123 of the Employment Contracts Act 1993 as a basis for a representative action.¹⁵³ The comparable provision in the Employment Relations Act 2000 provides:¹⁵⁴

In any proceedings the court may allow to appear or to be represented any person who applies to the court for leave to appear or be represented and who, in the opinion of the court, is justly entitled to be heard; and the court may order any other person so to appear or be represented.

• 3.74 Courts have also relied on their power to “generally give such directions as are necessary or expedient in the circumstances” as the basis for allowing a case to proceed on a representative basis.¹⁵⁵
• 3.75 Another relevant provision is section 236 of the Employment Relations Act 2000 which is entitled “Representation”. It provides that where certain legislation gives an employee the right to do anything or to take action in respect of an employer or in the Authority or the Employment Court, the employee may choose any other person to represent them. This has been relied on in four Employment Court cases to bring a case on a representative basis.¹⁵⁶
• 3.76 It appears that representative cases are being brought without reference to statutory representation procedures in some instances. For example, one case records that the proceeding was run by agreement as “an informal representative action”.¹⁵⁷
• 3.77 There are also several provisions in the Employment Relations Act 2000 which enable unions to bring claims on behalf of members:

(a) Section 18(1) entitles a union to represent its members without further authorisation over any matter involving their collective interests as employees.

153. In seven of these cases, s 123 was relied upon as the sole provision for authorising a representative proceeding: Dwyer v Air New Zealand Ltd (No 2) [1996] 2 ERNZ 435 (EmpC); Ports of Auckland Ltd v New Zealand Waterfront Workers Union EmpC Auckland AEC52/93, 18 October 1993; Gray v Wellington City Mission [1995] NZEmpC 21; [1995] 2 ERNZ 126 (EmpC); Ford v Capital Trusts Ltd [1995] NZEmpC 204; [1995] 2 ERNZ 47 (EmpC); New Zealand Air Line Pilots’ Assoc v Airways Corp of New Zealand [1995] NZEmpC 308; [1995] 2 ERNZ 545 (EmpC); Manufacturing & Construction Workers Union Inc v Honda New Zealand Ltd [1996] 1 ERNZ 354 (EmpC); and McCulloch v New Zealand Fire Service Commission [1998] NZEmpC 227; [1998] 3 ERNZ 378 (EmpC). Three cases relied upon s 123 in combination with other provisions (including in some instances HCR 78): New Zealand Seafarers’ Union Inc v

Silver Fern Shipping Ltd [1998] NZEmpC 186; [1998] 3 ERNZ 768 (EmpC); Ranchhod v Auckland Healthcare Services Ltd EmpC Auckland AEC161/99, 16 December 1999; and Ivamy v New Zealand Fire Service Commission [1995] NZEmpC 190; [1995] 1 ERNZ 724 (EmpC).

¹⁵⁴ Employment Relations Act 2000, sch 3 cl 2.

155. Employment Relations Act 2000, s 221(d); and Employment Contracts Act 1991, s 140(d). In Law v Caterair New Zealand Ltd [1997] NZEmpC 308; [1998] 2 ERNZ 159 (EmpC), Colgan J considered that the discretion in s 140 was wide enough to allow the court to consider an application for a representative order: at 164). Section 140 was also relied upon in both Ranchhod v

Auckland Healthcare Services Ltd EmpC Auckland AEC161/99, 16 December 1999 (as well as ss 123 and 130(2)); and

New Zealand Seafarers’ Union Inc v Silver Fern Shipping Ltd [1998] NZEmpC 186; [1998] 3 ERNZ 768 (EmpC) at 770 (as well as s 123 and HCR 78).

156. Hyndman v Air New Zealand Ltd [1991] NZEmpC 27; [1992] 1 ERNZ 820 (EmpC); New Zealand Air Line Pilots Assoc IUOW v Mount Cook Group Ltd [1992] 3 ERNZ 355 (EmpC); Paul v New Zealand Society for the Intellectually Handicapped Inc [1992] NZEmpC 3; [1992] 1 ERNZ 65 (EmpC); and Northern Local Government Officers Union Inc v Auckland City [1991] NZEmpC 84; [1992] 1 ERNZ 1109 (EmpC). Note these

cases relied on its predecessor provision: Employment Contracts Act 1991, s 59.

¹⁵⁷ Irvine v Virgin Australia (NZ) Employment and Crewing Ltd [2019] NZERA 109 at [8].

(b) Section 56(1)(a) allows unions to enforce collective employment agreements they are party to.

(c) A union can represent an employee in matters concerning their individual rights if they have authority to do so under section 236.

(d) A union can bring proceedings seeking a compliance order if it is affected by non- observance or non-compliance under section 137(4).

• 3.78 Labour inspectors may bring proceedings on behalf of employees for the recovery of wages or benefits payable under the Minimum Wage Act 1983 or Holidays Act 2003.¹⁵⁸ They may also seek compensatory damages for employees when taking enforcement action against an employer for a breach of minimum employment standards.¹⁵⁹

PROCEEDINGS BROUGHT BY REGULATORS

• 3.79 Both the Commerce Commission (the Commission) and Financial Markets Authority (FMA) have powers which enable them to seek compensation on behalf of individuals.

Commerce Commission

• 3.80 The Commission is able to apply for a compensation order on behalf of consumers under section 43 of the Fair Trading Act 1986 when there has been a breach of the Act which has caused (or is likely to cause) consumers loss or damage.¹⁶⁰ This section does not explicitly refer to the Commission but allows “any person” to apply for orders, regardless of whether they have suffered the loss or damage themselves. The purpose of permitting “any person” to apply for orders is to facilitate consumer protection in circumstances where an individual’s loss may not warrant stand-alone proceedings.¹⁶¹ Orders that can be sought under section 43 include an order directing the defendant to refund money to consumers,¹⁶² or an order directing the defendant to pay consumers the amount of the loss or damage.¹⁶³
• 3.81 In Commerce Commission v Carter Holt Harvey, the High Court observed that section 43 was not a class actions provision and required claims for specific persons who had

¹⁵⁸ Employment Relations Act 2000, s 228.

¹⁵⁹ Employment Relations Act 2000, s 142J(3).

160. Under pt 1 (misleading or deceptive conduct), pt 2 (disclosure and consumer information), pt 3 (product safety), pt 4 (safety of services) or pt 4A (consumer transactions or auctions): see Fair Trading Act 1986, s 43(1)(a). Note that s 43 also applies in cases such as aiding, abetting or inducing contravention of provisions in these Parts of the Act: see ss 43(1)(b)–(e).
161. Commerce Commission v Carter Holt Harvey [2009] NZSC 120, [2010] 1 NZLR 379 at [5] per Elias CJ. See also the comment in Commerce Commission v Martini Ltd DC North Shore, 8 November 2005 at [33]:

The litigation reality is that customers are unlikely to bring proceedings merely seeking a refund of the purchase price. It would simply be uneconomic to do so. That is why s 43 was amended at the committee stage to allow the present form of application to enable, for instance, the Commerce Commission to seek orders in favour of other persons.

¹⁶² Fair Trading Act 1986, s 43(3)(e).

¹⁶³ Fair Trading Act 1986, s 43(3)(f).

suffered specific losses. ¹⁶⁴ It concluded that section 43 did not permit a claim to be brought on behalf of an indeterminate group of people identified only by class.¹⁶⁵

• 3.82 A compensation order under section 43 may be sought as part of criminal proceedings or through separate civil proceedings. ¹⁶⁶ In the Carter Holt Harvey litigation, the Commission brought civil proceedings seeking compensation following a guilty plea to charges of misleading and deceptive conduct in relation to the sale and marketing of timber. These proceedings were ultimately settled.¹⁶⁷ The Commission also sought section 43 compensation orders in a claim about alleged inflated home valuations.¹⁶⁸ It appears this case also settled.¹⁶⁹ Another example is Commerce Commission v Alpha Club, where the Commission successfully sought an order that the defendant refund those who joined their pyramid selling scheme.¹⁷⁰ There are also several criminal prosecutions in which the Commission has successfully obtained section 43 compensation orders.¹⁷¹
• 3.83 In some cases where the Commission has formed the view that there has been a breach of the Fair Trading Act, it reaches a settlement which includes compensation for consumers, without the need to bring proceedings. Some examples include: a settlement of around $20 million to bank customers relating to the marketing, promotion and sale of interest rate swaps;¹⁷² a $45 million settlement for investors in ING funds;¹⁷³ and a $60 million settlement to investors in relation to the failed investment product Credit SaILS.¹⁷⁴
• 3.84 The Commission can also bring civil proceedings under the Credit Contracts and Consumer Finance Act 2003. ¹⁷⁵ This legislation sets out rules that apply to credit contracts, consumer leases and buy-back transactions of land. Several provisions in the Act refer to the Commission’s power to act on behalf of a class:

¹⁶⁴ Commerce Commission v Carter Holt Harvey [2007] NZHC 1799; [2008] 1 NZLR 387 (HC) at [43]–[44].

¹⁶⁵ Commerce Commission v Carter Holt Harvey [2007] NZHC 1799; [2008] 1 NZLR 387 (HC) at [43]–[44].

¹⁶⁶ See Direen v Commerce Commission (1998) 8 TCLR 444 (HC) at 452.

167. Te Komihana Tauhokohoko I Commerce Commission “Commerce Commission settles timber claim against Carter Holt Harvey” (press release, 9 November 2011).

¹⁶⁸ Commerce Commission v Bennett & Associates Ltd (1995) 6 TCLR 691 (CA).

169. Te Komihana Tauhokohoko I Commerce Commission “Fletcher Homes, Residential Mortgages and Bennett and Associates offer compensation to home buyers” (press release, 29 May 1996).

¹⁷⁰ Commerce Commission v Alpha Club New Zealand Ltd (2002) 10 TCLR 569 (HC).

171. Commerce Commission v Ecoworld New Zealand Ltd [2005] DCR 921 (court ordered refunds of purchase of water treatment units); O’Neill v Commerce Commission (2006) 3 NZCCLR 898 (HC) (court upheld District Court order that the appellants refund the purchase price of Celluslim products); and Commerce Commission v Morton DC Napier CRN8041009621, 5 May 1999 (defendant ordered to pay a refund of $200,000, divided pro rata amongst 1,901 individuals).
172. Te Komihana Tauhokohoko I Commerce Commission “Settlement payments completed in interest rate swaps case” (press release, 7 October 2015).
173. Te Komihana Tauhokohoko I Commerce Commission “Commerce Commission directs payment of $45 million to ANZ/ING investors” (press release, 21 July 2010).
174. Te Komihana Tauhokohoko I Commerce Commission “Commerce Commission secures $60m for investors in failed Credit SaILS product” (press release, 18 December 2012).

¹⁷⁵ Credit Contracts and Consumer Finance Act 2003, s 111(2)(c).

(a) Section 88 makes creditors, lessors, transferees and buy-back promoters liable for statutory damages in certain circumstances. The Commission may make an application for statutory damages on behalf of a “person or class of persons”.¹⁷⁶

(b) The Commission may also make an application for an order under sections 93 (court’s general power to make orders) or 94A (court orders in relation to repossessions) on behalf of a “person or class of persons”.¹⁷⁷

(c) The Commission may apply for an injunction on behalf of a “person or class of persons” to restrain a person from engaging in conduct that would breach the Act.¹⁷⁸

• 3.85 There are, however, relatively few cases where the Commission has sought orders on behalf of consumers under these provisions.¹⁷⁹

Financial Markets Authority

• 3.86 The FMA has various powers to obtain compensation on behalf of individuals. Where the FMA brings proceedings under the Financial Markets Conduct Act 2013, it may seek a compensatory order to provide redress to an aggrieved person who has suffered loss or damage because of the contravention (or is likely to).¹⁸⁰ However, the FMA has not yet sought a compensatory order under these provisions.
• 3.87 Section 34 of the Financial Markets Authority Act 2011 also enables the FMA to exercise a person’s right of action against a financial markets participant, or to take over that person’s proceedings.¹⁸¹ This relates to proceedings under financial markets legislation (other than criminal proceedings) as well as proceedings for a contravention, fraud, negligence, breach of duty or other misconduct relating to an FMA inquiry or investigation.¹⁸² Subject to certain requirements,¹⁸³ the FMA may exercise this power if, as the result of its investigation or inquiry, it considers it is in the public interest to do so.¹⁸⁴
• 3.88 The primary objective of the section 34 power is to promote the public interest rather than obtain redress for investors, although redress may often follow if the FMA’s action is successful.¹⁸⁵ In deciding whether it is in the public interest to exercise the power, the

FMA must have regard to specified matters.¹⁸⁶ In its “enforcement policy”, the FMA states it is likely to use its section 34 power in priority areas, such as a case that involves serious risk of harm to the financial markets, risk of significant loss, large numbers of investors, high product risk, particular investor vulnerability, or a case involving predatory, prevalent or increasing patterns of misconduct.¹⁸⁷ The FMA has only used the section 34 power in one case to date.¹⁸⁸

• 3.89 Proceedings taken by the FMA using its section 34 power may be on a representative basis. If the FMA commences or takes over proceedings in respect of a particular person and there are other persons with the same or substantially the same interest, the High Court may appoint the FMA to represent some or all of those persons.¹⁸⁹ The court may also make orders as to the conduct and control of those proceedings, the costs of the proceedings and how any amounts paid by a defendant are to be distributed among those represented.¹⁹⁰ There have not yet been any instances of the FMA using this representative power.

OTHER AVENUES FOR ADDRESSING ISSUES AFFECTING A GROUP

• 3.90 Other legal procedures which may enable claims affecting a group to be resolved include judicial review and litigation on behalf of a Māori collective. Group claims may also be resolved outside of the courts.

Judicial review proceedings

• 3.91 Judicial review proceedings can involve litigation of an issue that may affect the rights of a wide group, even if brought by a single plaintiff.¹⁹¹ An example is Finnigan v New Zealand Rugby Football Union, which sought judicial review of the Rugby Union’s decision to allow an All Black team to tour South Africa.¹⁹² Cooke P observed “[t]his decision affects the New Zealand community as a whole”.¹⁹³ More recent examples include Seales v Attorney- General¹⁹⁴ and Borrowdale v Director-General of Health.¹⁹⁵
• 3.92 Judicial review claims may also be brought on behalf of organisations which represent others. Some notable examples include: the New Zealand Māori Council’s challenge to

¹⁸⁶ Financial Markets Authority Act 2011, s 34(5).

¹⁸⁷ Te Mana Tatai Hokohoko I Financial Markets Authority “Enforcement” (23 April 2019) <www.fma.govt.nz>.

¹⁸⁸ Financial Markets Authority v Prince & Partners Trustee Co Ltd [2017] NZHC 2059.

¹⁸⁹ Financial Markets Authority Act 2011, s 39(1).

¹⁹⁰ Financial Markets Authority Act 2011, s 39(2).

191. See Andrew Beck “Opt Out Is In: The New Class Action Regime” [2019] NZLJ 356 (noting that in the area of public law it is common for a single plaintiff to bring a claim challenging a decision).
192. Finnigan v New Zealand Rugby Football Union Inc [1985] NZHC 102; [1985] 2 NZLR 159 (HC and CA); Finnigan v New Zealand Rugby Football Union Inc (No 2) [1985] 2 NZLR 181 (HC); and Finnigan v New Zealand Rugby Football Union Inc (No 3) [1985] NZCA 111; [1985] 2 NZLR 190 (CA).

¹⁹³ Finnigan v New Zealand Rugby Football Union Inc [1985] NZHC 102; [1985] 2 NZLR 159 (HC and CA) at 179.

194. Seales v Attorney-General [2015] NZHC 1239, [2015] 3 NZLR 556 (this case sought declarations with respect to the lawfulness of assisted dying).
195. Borrowdale v Director-General of Health [2020] NZHC 2090 (this was a judicial review proceeding concerning the lawfulness of the restrictions imposed by the Government in response to COVID-19).

the implementation of the mixed ownership model proposals,¹⁹⁶ a case brought by a West Coast organisation about the impact of climate change on Resource Management Act processes, ¹⁹⁷ the Quake Outcasts challenge to the Crown’s approach to Red Zone compensation,¹⁹⁸ the Forest and Bird challenge to conservation land swaps,¹⁹⁹ and the challenge by New Health to fluoridisation.²⁰⁰

• 3.93 Courts have taken a relaxed approach to standing in judicial review proceedings given the constitutional significance of judicial review. ²⁰¹ The issue of the sufficiency of an applicant’s interest is assessed in the context of all the facts, rather than as a preliminary jurisdictional issue.²⁰² Relief can be granted without the impugned executive decision or action being challenged having a direct impact on the applicant’s rights, but where there is such an impact the case for relief will be stronger.²⁰³
• 3.94 Judicial review is designed to be a “simple, untechnical and prompt”²⁰⁴ procedure and has various features designed to achieve this.²⁰⁵ Consequently, it can be an efficient way to determine an issue that affects a wide group.

Procedures for collective action by Māori

• 3.95 Māori often initiate legal proceedings to establish or protect rights of a collective, such as an iwi or hapū. In Proprietors of Wakatū v Attorney-General, the Supreme Court held that a rangatira or kaumātua has customary authority to bring a collective claim on behalf of their people.²⁰⁶ Elias CJ observed that “[c]hiefs of high standing have long advanced such collective claims”, citing several examples.²⁰⁷ Similarly, the Supreme Court commented in

¹⁹⁶ New Zealand Maori Council v Attorney-General [2013] NZSC 6, [2013] 3 NZLR 31.

¹⁹⁷ West Coast ENT Inc v Buller Coal Ltd [2013] NZSC 87, [2014] 1 NZLR 32.

¹⁹⁸ Quake Outcasts v Minister for Canterbury Earthquake Recovery [2015] NZSC 27, [2016] 1 NZLR 1.

199. Hawke’s Bay Regional Investment Company Ltd v Royal Forest and Bird Protection Society of New Zealand Inc [2017] NZSC 106, [2017] 1 NZLR 1041.

²⁰⁰ New Health New Zealand Inc v South Taranaki District Council [2018] NZSC 59, [2018] 1 NZLR 948.

201. Ririnui v Landcorp Farming Ltd [2016] NZSC 62, [2016] 1 NZLR 1056 at [91(a)] per Elias CJ and Arnold J. See also Matthew Smith NZ Judicial Review Handbook (2nd ed, Thomson Reuters, Wellington, 2016) at [36.1.2]; and Andrew Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [JR8.02(2)].

²⁰² See for example Consumers Co-Operative Society (Manawatu) Ltd v Palmerston North City Council [1984] 1 NZLR 1 (CA) at 6 per McMillan J. See also Matthew Smith NZ Judicial Review Handbook (2nd ed, Thomson Reuters, Wellington, 2016) at [36.1.3]; and Andrew Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [JR8.02(2)].

²⁰³ Ririnui v Landcorp Farming Ltd [2016] NZSC 62, [2016] 1 NZLR 1056 at [91(a)] per Elias CJ and Arnold J.

²⁰⁴ Attorney-General v Dotcom [2013] NZCA 43, [2013] 2 NZLR 213 at [39]; Minister of Energy v Petrocorp Exploration Ltd [1989] NZCA 95; [1989] 1 NZLR 348 (CA) at 353; and Matthew Smith NZ Judicial Review Handbook (2nd ed, Thomson Reuters, Wellington, 2016) at [25.1.2].

²⁰⁵ These include only permitting cross-examination to occur with the leave of the Court (which is sparingly granted), limiting the availability of discovery (which is a matter of discretion for the judge) and lower court filing fees: see Matthew Smith NZ Judicial Review Handbook (2nd ed, Thomson Reuters, Wellington, 2016) at [72.1.1] and [71.5.1]; and High Court Fees Regulations 2013, sch.

²⁰⁶ Proprietors of Wakatū v Attorney-General [2017] NZSC 17, [2017] 1 NZLR 423 at [494] per Elias CJ, [673] per Glazebrook J and [807] per Arnold and O’Regan JJ.

²⁰⁷ Proprietors of Wakatū v Attorney-General [2017] NZSC 17, [2017] 1 NZLR 423 at [494] citing Te Heuheu Tukino v Aotea District Maori Land Board [1941] NZLR 590 (PC); Tamihana Korokai v Solicitor-General [1912] NZGazLawRp 230; (1912) 32 NZLR 321 (CA); and Wi Parata v Bishop of Wellington [1877] NZJurRp 183; (1877) 3 NZ Jur (NS) 72 (SC).

Southern Response v Ross “... proceedings which would now fall within r 4.24 have long been a feature of litigation in this country brought by Māori where a chief has represented the plaintiffs”.²⁰⁸

• 3.96 There is authority that an iwi or hapū cannot bring a proceeding in its own name.²⁰⁹ However, proceedings are frequently brought in the name of a whenua, hapū or iwi incorporation, rūnanga, trust or other entity. The New Zealand Māori Council has also been the plaintiff in some significant cases.²¹⁰ Specific mechanisms for Māori legal claims affecting a group include the Waitangi Tribunal claims process,²¹¹ the Māori Land Court,²¹² and the Marine and Coastal Area (Takutai Moana) Act 2011.²¹³

Alternative dispute resolution processes

• 3.97 There are examples of special Tribunals and processes being set up to respond to a particular issue that has caused widespread harm. Although these rely on individual adjudication or consideration, they are (theoretically) able to provide a more efficient and cost-effective way of dealing with widespread harm than individual litigation in the High Court. Some examples are the Weathertight Homes Tribunal, the Greater Christchurch Claims Resolution Service, the Canterbury Earthquakes Insurance Tribunal and the Ministry of Social Development’s historic abuse claims process.²¹⁴

²⁰⁸ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [27]. The Court refers to the examples cited in Proprietors of Wakatū v Attorney-General as well as proceedings brought by Nganeko Minhinnick, such as Minhinnick v The Historical Places Trust CA280/97, 18 December 1997.

²⁰⁹ Te Ara Rangatu o Te Iwi Ngāti Te Ata Waiohua Inc v Attorney-General [2018] NZHC 2886, [2018] NZHC 2886; [2019] NZAR 12 at [75].

²¹⁰ Most notably, New Zealand Maori Council v Attorney-General [1987] 1 NZLR 641 (CA).

²¹¹ A claim to the Tribunal may be made in respect of an individual or group of Māori: Treaty of Waitangi Act 1975, s 6(1).

212. The primary objective of the Māori Land Court is to promote and assist Māori to retain Māori land and General land owned by Māori and to assist Māori to effectively use, manage and develop that land: Te Ture Whenua Maori Land Act 1993, s 17.
213. Under this legislation, an iwi, hapū or whānau group seeking recognition of their protected customary rights or customary marine title may appoint a person (or a legal entity) as their representative: Marine and Coastal Area (Takutai Moana) Act 2011, s 9 definition of “applicant group”. For an example of this, see Re Tipene [2016] NZHC 3199, [2017] NZAR 559.

²¹⁴ See Weathertight Homes Resolution Services Act 2006; Greater Christchurch Claims Resolution Service “Home”

<www.gccrs.govt.nz>; Canterbury Earthquakes Insurance Tribunal Act 2019; and Te Manatū Whakahiato Ora I Ministry of Social Development “Historic Abuse – Make a Claim” <www.msd.govt.nz>. Royal Commissions and inquiries can also consider situations of widespread harm, although they have no power to determine the civil, criminal or disciplinary liability of any person: see Inquiries Act 2013, s 11(1).

CHAPTER 4

Problems with using the representative actions rule for group litigation

INTRODUCTION

• 4.1 In this chapter, we explain how the representative actions rule has been used to bring claims which might be brought as class actions in other jurisdictions. We then discuss the problems with this approach:

(a) The lack of public policy process to consider the issue of class actions.

(b) Issues caused by the lack of clear rules for representative actions, including delay and expense for litigants.

(c) Types of group litigation that might be inhibited by the current procedural framework.

USING THE REPRESENTATIVE ACTIONS RULE TO PURSUE CLASS ACTION-STYLE CLAIMS

• 4.2 In the absence of a class actions regime in Aotearoa New Zealand, the representative action rule has been incrementally developed to include many of the features of a class action, including:

(a) Preliminary court approval for a case to proceed as a representative action.¹

(b) The requirement for a common issue.

(c) Opt-in and opt-out mechanisms for determining membership of the represented group.

(d) Active court supervision of proceedings.

(e) The court must approve settlement.

(f) Methods for determining individual issues (in practice, split trials for common issues at stage one and damages at stage two).

1. In cases under r 4.24(b) of the High Court Rules 2016. As we explain in Chapter 3, a representative action can be brought without an order of the court if all those with the same interest consent, under r 4.24(a).

(g) Cases are often funded by a litigation funder.

• 4.3 Courts are likely to consider whether to allow other class action features in upcoming representative action cases, including the availability of a common fund order (where the group members all contribute to the costs of the litigation funder)² and how competing representative actions should be managed.³
• 4.4 Many recent representative actions involve sizeable claims and are brought on behalf of a large group of people who are mostly unknown to each other. These cases look very similar to those brought as class actions in other jurisdictions.
• 4.5 There are several examples of the High Court referring to representative actions as “class actions”.⁴ It has also been said that representative actions brought under High Court Rule

4.24 (HCR 4.24) “meet the markers of a class action in substance”.⁵ However, the term ‘class action’ is often used in Aotearoa New Zealand in a broader sense, to refer to any means of bringing group litigation.⁶

• 4.6 In Southern Response v Ross, the Supreme Court discussed whether procedures for representative actions should continue to develop in the absence of a more detailed legislative framework. It said that “so long as the concern not to work injustice is kept in mind, r 4.24 should continue to be interpreted to meet modern requirements”.⁷ In that case, it affirmed the Court of Appeal’s decision to allow opt-out claims to be brought under HCR 4.24. The Supreme Court also said that courts have the power to approve settlements in representative actions.⁸ This case provides a clear example of HCR 4.24 being used to bring a claim with many of the features of a class action.
• 4.7 Nonetheless, as we discuss below, there are a number of problems with using HCR 4.24 to bring claims that have similar features to class actions.

Lack of public policy process

• 4.8 While cases with similar features to class actions are proceeding through the courts in Aotearoa New Zealand, this has been the result of incremental evolution of the representative actions rule through case law. There has not been a comprehensive public policy process, with opportunities for stakeholder input, to consider whether a class

2. In Ross v Southern Response, the plaintiff has applied for a common fund order. See Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [62].

³ This issue has arisen as a result of the two representative actions filed with respect to CBL Corporation.

4. See Strathboss Kiwifruit Ltd v Attorney-General [2015] NZHC 2482, (2015) 23 PRNZ 64 at [22]; Houghton v Saunders [2012] NZHC 1828, [2012] NZCCLR 31 at [38]; Saxmere Co Ltd v The Wool Board Disestablishment Co Ltd HC Wellington CIV-2003-485-2724, 6 December 2005 at [182] and [184]; and Cridge v Studorp Ltd [2020] NZHC 1836 at [1]. See also the comment in Stephen Kós “Disaster & Resilience: The Canterbury earthquakes and their legal aftermath” (paper presented to Supreme and Federal Courts Judges Conference, Brisbane, 26 January 2016) at [33] that “[c]lass actions remain uncommon in New Zealand. The main reason is that the rules regarding such proceedings remain antediluvian”.

⁵ Nikki Chamberlain “Class Actions in New Zealand: An Empirical Study” (2018) 24 NZBLQ 132 at 138.

6. For instance, White v James Hardie New Zealand [2017] NZHC 2105 is often referred to as a class action, although it is being brought using the joinder rule rather than under HCR 4.24: see “Plaster Cladding Class Action”

<www.goodcladding.co.nz>.

⁷ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [89].

⁸ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [82].

actions regime is desirable for Aotearoa New Zealand and, if so, the design and scope of a regime.

• 4.9 We note that the Rules Committee looked at the issue of class actions between 2006 and 2009.⁹ The Committee developed two consultation papers, a draft Class Actions Bill and draft amendments to the High Court Rules. However, its work was limited in scope and it was not able to undertake extensive consultation at the time.¹⁰ The Government chose not to progress the draft Bill and Rules.
• 4.10 Having class action-style litigation in Aotearoa New Zealand as a result of the incremental development of HCR 4.24 rather than as the result of a public policy process raises several issues. First, the law has developed without analysis of the best way for delivering collective redress in Aotearoa New Zealand.¹¹
• 4.11 Second, there has been little opportunity to consider whether our representative actions mechanism appropriately balances the needs and interests of the different groups involved. ¹² Miller J, writing extra-judicially, has said that class actions are allowed in Aotearoa New Zealand (through HCR 4.24) and commented:

Class actions are intrinsically complex, time-consuming and expensive. They call for a process that balances the interests of claimants and defendants, offering procedural safeguards and ensuring that trial is viable for both. To fail in these objectives may be to force settlements that are unfair to one side or the other.¹³

• 4.12 Third, the representative action has developed without the benefit of the insights of a range of stakeholders. Engaging individuals and groups in policy design and development can improve policy quality by helping to better understand problems and risks and to craft solutions that are more likely to meet the needs of users. It may also improve the legitimacy and impact of policies. ¹⁴ The Legislation and Design Advisory Committee Guidelines note that a lack of consultation:¹⁵

... may result in valuable perspectives and information being overlooked and also risks unintended consequences. It may also result in a failure to identify alternative means of achieving the policy objective.

9. The Rules Committee is a statutory body originally established by s 51B of the Judicature Act 1908 and continued by s 155 of the Senior Courts Act 2016 to develop rules of procedure for the District Court, High Court, Court of Appeal and Supreme Court.
10. In 2018, the Rules Committee sought feedback on proposed High Court Rules for representative actions. The aim of the draft Rules was to codify the case law to provide clarity in anticipation of subsequent legislative developments. This work was suspended pending the Supreme Court’s decision in Southern Response Earthquake Services Ltd v Ross.
11. See Forrest Miller “Introduction” (2018) 24 NZBLQ 93 at 93; and Vicki Waye “Advantages and Disadvantages of Class Action Litigation (and its Alternatives)” (2018) 24 NZBLQ 109 at 113.

¹² See Anthony Wicks “Class Actions in New Zealand: Is Legislation Still Necessary?” [2015] NZ L Rev 73 at 109. See also

Nikki Chamberlain “Contracting-Out of Class Action Litigation: Lessons from the United States” [2018] NZ L Rev 371 at 397 who noted that “the legislature is in a better position to balance the needs of class action plaintiffs and defendants after consultation”.

¹³ Forrest Miller “Introduction” (2018) 24 NZBLQ 93 at 94.

14. See Te Tari o te Pirimia me te Komiti Matua I Department of the Prime Minister and Cabinet “Policy Methods Toolbox: Community Engagement” (3 November 2020) <www.dpmc.govt.nz>.

¹⁵ Legislation Design and Advisory Committee Legislation Guidelines (March 2018) at 16. See also 9–10.

• 4.13 Fourth, a number of significant issues have not yet been addressed because they have not arisen in cases to date. For instance, courts have not yet had to address issues such as the criteria for approving settlements and whether a common fund order should be allowed.¹⁶
• 4.14 Fifth, the courts do not have the opportunity to consider big picture design issues that can be considered in a public policy process, such as which courts or areas of law a class actions regime should apply to.¹⁷

CASES PROCEED WITHOUT THE BENEFIT OF CLEAR RULES

• 4.15 Representative actions have had to proceed without the benefit of procedural rules which specify how these cases should be managed. The only specific rule for representative actions is HCR 4.24, which is a mere 61 words long. This rule has changed little in substance since it was first introduced into Aotearoa New Zealand’s civil procedure rules in 1882 and it is insufficient for managing the issues that arise in modern representative actions. In Credit Suisse Private Equity v Houghton, Elias CJ commented that HCR 4.24, a rule based on a 19th century model, was being “required to bear a weight for which it was not designed”.¹⁸
• 4.16 Issues that arise due to the lack of developed rules include:

(a) A lack of certainty and clarity about the procedures for conducting representative actions, causing delay and expense for litigants.

(b) Debate as to whether HCR 4.24 and the High Court’s inherent jurisdiction are sufficient to regulate all aspects of representative actions.

• 4.17 We explore these issues below.

Lack of certainty and clarity causing delay and expense

• 4.18 There is a lack of certainty about many aspects of the procedural framework for representative actions.¹⁹ In Southern Response v Ross, the Supreme Court said there was

16. As we note above, an application for a common fund order has been made in Ross v Southern Response. See Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [62]. With respect to settlement, the Supreme Court has confirmed that courts have the power to approve a settlement in a representative action: at [82]. In that decision, the Court cited several representative actions where the High Court has approved settlements, including Harding v LDC Finance Ltd (in rec) HC Christchurch CIV-2008-409-1140, 19 November 2009; Ranchhod v Auckland Healthcare Services Ltd (No 2) [2001] NZEmpC 202; [2001] ERNZ 771 (EmpC); and Stirling v Attorney-General HC Wellington CP161/96, 27 May 1998. However, there are currently no general guidelines for approval of settlements such as in overseas jurisdictions with class actions

regimes. The Supreme Court has indicated that it may be appropriate to draw on the assistance of independent experts when considering proposed settlements: Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [82].

¹⁷ See also the observation in Andrew Beck “Opt Out Is In: The New Class Action Regime” [2019] NZLJ 356 at 359 that:

... the courts are not in a position to develop detailed schemes governing procedures, with all the intricate details necessary to ensure proper protection for persons who might be affected as a result of the way in which processes operate. It is all very well for courts to take action they perceive as necessary, but such action is inevitably of an ad hoc nature, and comes at the expense of parties involved in the process.

18. Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [49] per Elias CJ and Anderson J citing Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41, (2006) 229 CLR 386 at [3] per Gleeson CJ.
19. See Kate Tokeley “Class Actions for New Zealand Consumers” in Christian Twigg-Flesner and others (eds) The Yearbook of Consumer Law 2008 (Ashgate Publishing, Aldershot (UK), 2007) 297 at 313 commenting that the lack of detail in r 78 of the High Court Rules formerly contained in sch 2 of the Judicature Act 1908 (the predecessor to r 4.24

a limit to how far it could go in providing guidance as to how the Court’s discretion under HCR 4.24 should be exercised, particularly without a legislative framework. It commented “there are a number of procedural and other matters that will simply have to be worked through as the issues arise in a particular case”.²⁰

• 4.19 Given the lack of certainty, parties in representative actions have had to file multiple interlocutory applications to determine procedural issues. While the lack of statutory rules allows judges to tailor procedures to a particular case,²¹ requiring procedural issues to be determined on a case-by-case basis can also be inefficient and “may restrict access to justice through being cost-prohibitive”.²² This seems contrary to the objective of the High Court Rules, which is to secure “... the just, speedy and inexpensive determination” of proceedings and applications.²³ As the Court of Appeal has observed, in the absence of developed rules to facilitate representative actions there are “likely to be heavy burdens on both counsel and the judge”.²⁴ The use of judicial resources for resolving these issues may also lead to delays in other cases.
• 4.20 The cost of getting the law on representative actions to its current state has been substantial, with several cases proceeding to appeal courts on preliminary matters.²⁵ A case that is often cited to illustrate the inefficiency of the current regime is Houghton v Saunders.²⁶ The case was filed in 2008 and there were over 20 interlocutory and costs judgments before the hearing on common issues in 2014, as well as numerous judgments subsequent to the substantive hearing. Several of the judgments in that litigation have commented on the difficulties caused by the lack of rules.²⁷
• 4.21 Capital Strategic Advisors (CSA) draws a parallel between representative actions and company arrangements. It notes that economic efficiency and equity would be greatly harmed in the absence of clear rules to facilitate collective action through the company.

of the High Court Rules 2016) leads to uncertainty and confusion. See also Anthony Wicks “Class Actions in New Zealand: Is Legislation Still Necessary?” [2015] NZ L Rev 73 at 109 commenting that the absence of a legislative class actions regime can deny the parties advance certainty about their procedural rights.

²⁰ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [94].

²¹ Nikki Chamberlain “Class Actions in New Zealand: An Empirical Study” (2018) 24 NZBLQ 132 at 152.

22. Nikki Chamberlain “Contracting-Out of Class Action Litigation: Lessons from the United States” [2018] NZ L Rev 371 at 398.

²³ High Court Rules 2016, r 1.2.

²⁴ See Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [41].

25. Andrew Beck “Opt Out Is In: The New Class Action Regime” [2019] NZLJ 356 at 369. See also Anthony Wicks “Class Actions in New Zealand: Is Legislation Still Necessary?” [2015] NZ L Rev 73 at 107 commenting there “... there is currently potential for litigation over almost every aspect of group litigation procedure”.
26. See for example Chris Patterson “Class actions in New Zealand: The necessity for introducing a class action regime” (2016) 5 J Civ LP 20 at 23–24; Forrest Miller “Reflections on the earthquake litigation” (paper presented to New Zealand Insurance Law Association Conference, Wellington, September 2014) at 9; and Anthony Wicks “Class Actions in New

Zealand: Is Legislation Still Necessary?” [2015] NZ L Rev 73 at 108.

27. See Houghton v Saunders [2014] NZHC 2229, [2015] 2 NZLR 74 at [14] (commenting that supervising pre-trial issues had been made more difficult by the lack of class action provisions in the High Court Rules); Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [41] (commenting that the lack of rules was likely to impose “heavy burdens” on counsel and the judge); Houghton v Saunders [2012] NZHC 1828, [2012] NZCCLR 31 at [45] (commenting that “[t]he absence of class actions rules is creating difficulties for the parties in this case”); and Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [49] per Elias CJ and Anderson J.

CSA observes that standardising provisions and making them legally enforceable greatly reduces the transaction costs and risks of collective action.²⁸

• 4.22 Other problems arising from the lack of certainty and the associated cost and delay include the risks that:

(a) The law will develop inconsistently.²⁹

(b) Well-resourced defendants may take advantage of the procedural uncertainty by requiring plaintiffs to respond to numerous interlocutory applications.

(c) Availability and pricing of litigation funding may be affected, which may impact on access to justice.

(d) Potential plaintiffs with meritorious claims may be deterred from bringing proceedings.³⁰

(e) Litigants may choose to settle claims, even if they would be likely to succeed in court, to avoid protracted and expensive legal proceedings.

• 4.23 However, these difficulties should not be overstated. While some representative actions have required multiple interlocutory applications, this is not always the case. For example, there have been remarkably few interlocutory judgments in Cridge v Studorp, a matter that went to hearing in August 2020.³¹ The increase in representative actions filed over the past two decades shows that the lack of procedural rules has not been an insurmountable barrier for litigants.

Is HCR 4.24 and the inherent jurisdiction sufficient to regulate representative actions?

• 4.24 Given the language is so sparse, it could be argued that HCR 4.24 does not provide a sufficient basis on which the various procedural issues that arise in representative actions can be resolved.³² In several cases, courts have referred to their ability to use the inherent jurisdiction to manage those issues,³³ but there has also been some debate as to whether

²⁸ Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 33.

²⁹ See Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [21].

³⁰ See Chris Patterson “Three possible legislative responses” (2016) 881 LawTalk 20 at 22.

31. There have been a total of seven judgments issued in this proceeding to date. The only real interlocutory matters to be determined were whether leave to bring a representative action should be granted (and related limitation issues) and pre-trial admissibility of evidence.

³² See Anthony Wicks “Class Actions in New Zealand: Is Legislation Still Necessary?” [2015] NZ L Rev 73 at 102.

33. Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [59] per Elias CJ and Anderson J; Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431, (2019) 25 PRNZ 33 at [105] and [110]; Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [43], [52], [89] and [94]; and Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [15] and [36]. The High Court’s inherent jurisdiction is founded in the common law and is independent of any statutory jurisdiction. See Rosara Joseph “Inherent Jurisdiction and Inherent Powers in New Zealand” [2005] CanterLawRw 10; (2005) 11 Canta LR 220 at 221; and Andrew Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [SC12.02(2)].

it is appropriate to use the inherent jurisdiction to address more significant matters such as the use of an opt-out mechanism.³⁴

• 4.25 In Southern Response v Ross, the Supreme Court noted the willingness of courts in Australia and Canada to interpret the representative actions rule flexibly, enabling some development of procedures, including in an opt-out context.³⁵ The Court also noted the need for courts to exercise “an adjudicative power in their protective or supervisory jurisdiction” in representative actions.³⁶ At the same time, the Court accepted that, absent a more detailed statutory framework, there will “inevitably be some uncertainty” on issues as they proceed through the courts, and that the cost of resolving such uncertainty through litigation is “not an ideal situation for either plaintiffs or defendants”.³⁷ In other words, the Supreme Court endorsed the use of HCR 4.24 and the inherent jurisdiction to develop procedures for managing modern representative actions, but recognised the limits to this approach.
• 4.26 Courts have commented on the desirability of having detailed legislative rules for managing representative actions.³⁸ Some academics and practitioners have suggested that legislative reform is urgently needed in this area because the current regime is inefficient, expensive, does not facilitate access to justice and does not comply with rule of law values.³⁹ The New Zealand Law Society and the New Zealand Bar Association have also supported the development of class actions legislation.⁴⁰

34. See Anthony Wicks “Class Actions in New Zealand: Is Legislation Still Necessary?” [2015] NZ L Rev 73 at 105. Contrast Tom Hallett-Hook “Class Actions Under New Zealand’s Representative Rule: Ingenious Solution or Inadequate to the Task?” (LLM Dissertation, University of Toronto, 2015) at [3.2.3].

³⁵ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [52].

³⁶ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [81].

³⁷ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [89]. See also at [94].

38. Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [15] and [41]; and Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [49] per Elias CJ and Anderson J (“French J was justified in the remark that ‘[t]he absence of class action rules is creating difficulties for the parties in this case’”). See also Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431, (2019) 25 PRNZ 33 at [105] noting that:

It would be preferable to have a legislative framework for representative claims which provides greater certainty and predictability for both claimants and defendants. Such a framework would reduce the procedural conflict that bedevils representative proceedings.

39. See for example Chris Patterson “Class actions in New Zealand: The necessity for introducing a class action regime” (2016) 5 J Civ LP 20 at 37 (the introduction of a class actions regime is “well overdue” and that the representative action procedure under r 4.24 of the High Court Rules 2016 cannot effectively achieve the objectives of access to justice,

judicial efficiency and promotion of the rule of law); Nikki Chamberlain “Contracting-Out of Class Action Litigation:

Lessons from the United States” [2018] NZ L Rev 371 at 398 (legislation dealing with civil action procedure is “desperately needed” and that the current procedure for representative actions does not accord with the objective of the High Court Rules); and Anthony Wicks “Class Actions in New Zealand: Is Legislation Still Necessary?” [2015] NZ L Rev 73 at 109 (“[e]nacting class action legislation would accord with basic rule of law values”). See also Andrew Beck “Opt Out Is In: The New Class Action Regime” [2019] NZLJ 356 at 369:

[I]f representative proceedings are truly to achieve the objective of efficiency and cost reduction then the legislature needs to act swiftly to put in place a process that does not require ongoing preliminary decisions from the courts.

40. This position was expressed in their role as intervenors in the Supreme Court appeal of Ross v Southern Response. The third intervenor, litigation funder LPF, also supported enactment of class action legislation. See Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [22].

QUESTION
What problems have you encountered when relying on HCR 4.24 for group
litigation?

Q1

GROUP LITIGATION THAT MAY BE INHIBITED BY THE CURRENT PROCEDURAL FRAMEWORK

• 4.27 The current procedural framework for representative actions may be preventing or limiting group litigation in relation to some issues or areas of the law. We have heard that the current procedural uncertainty increases legal cost and risk and this can make it difficult to secure funding for a case. While it is difficult to ascertain exactly which kinds of litigation this prevents, we have identified two areas where there appears to be more group litigation in jurisdictions with class actions regimes than in Aotearoa New Zealand. These are consumer cases, particularly those with low individual claim values, and compensation claims following regulatory action.

Consumer cases

• 4.28 Relatively few representative actions have been taken in relation to consumer issues, particularly where the value of each individual claim is low. As outlined in Chapter 3, six consumer representative actions have been brought between 2013 and 2018. These cases are:

(a) A claim about bank fees of an average of $15.⁴¹

(b) Three cases about building materials used for residential properties and schools.⁴² Some, if not all, of the individual claims involve substantial amounts.⁴³

(c) Two cases relating to resolution of insurance claims arising out of the Christchurch earthquakes. ⁴⁴ The individual claim sizes are likely to vary. In Ross v Southern Response, many individual claims are said to be over $100,000.⁴⁵

Consumer class actions in other jurisdictions

• 4.29 While comparisons with other jurisdictions are difficult, given variations in the substantive law and dispute resolution processes, it is worth noting that 117 consumer class actions

41. Cooper v ANZ Bank New Zealand Ltd [2013] NZHC 2827. See Gareth Vaughan “Parties behind ‘largest class action in NZ’s history’, taken against major banks, stand to pocket up to NZ$250 mln” (11 March 2013) Interest

<www.interest.co.nz>.

42. Minister of Education v James Hardie Ltd [2018] NZHC 1481; Cridge v Studorp Ltd [2016] NZHC 2451, (2016) 23 PRNZ 281; and Paine v Carter Holt Harvey Ltd [2019] NZHC 478.
43. For example, in Cridge v Studorp Ltd [2016] NZHC 2451, (2016) 23 PRNZ 281 at [11] and [24], claims for two of the named plaintiffs are $275,000 (Cridge/Unwin) and $393,000 (Fowler)(note the claims also include a claim for stigma/diminution of value which was unquantified at that point).

⁴⁴ Ross v Southern Response Earthquake Services Ltd; and Smith v Claims Resolution Service Ltd.

⁴⁵ GCA Lawyers “Southern Response Concealment Class Action” (press release, 17 November 2020).

were filed in Australia between June 1992 and May 2017.⁴⁶ In the year to 30 June 2019, 16 consumer class actions were filed in Australia.⁴⁷ Consumer class actions are now the most common form of new class action case in Australia.⁴⁸ These have included claims of modest individual value. For example, the settlement of a class action against Volkswagen relating to the “Dieselgate” scandal (concerning deficiencies in diesel emissions controls) resulted in an estimated average settlement payment of $2,800 per vehicle.⁴⁹ In Canada, consumer protection and product liability cases made up an estimated 27 per cent of class actions between 1993 and 2008.⁵⁰

Why is there a lack of consumer representative actions in Aotearoa New Zealand?

• 4.30 A number of factors may be contributing to the lack of “low value” consumer representative actions in Aotearoa New Zealand. Given our small population size, small value consumer claims may not have been seen as economically viable for plaintiffs or litigation funders, particularly if brought on an opt-in basis.⁵¹ There may also be a lack of interest among consumers in pursuing low value claims and a lack of awareness that a consumer issue affects a large group. ⁵² It may also be difficult to find a motivated representative plaintiff when each individual’s claim is small.
• 4.31 More generally barriers to access to justice for consumers include: ⁵³

(a) Power imbalances between consumers and traders.

(b) Consumers may find legal processes intimidating and have limited ability to navigate these processes.

(c) Consumers’ lack of awareness of their substantive legal rights.

(d) The nature of modern supply chains and online sales creating a perception that consumers are unable to complain.

46. Vince Morabito The First Twenty-Five Years of Class Actions in Australia (Fifth Report, An Empirical Study of Australia's Class Action Regimes, July 2017) at 27. This comprises product liability and consumer protection claims.
47. King & Wood Mallesons The Review: Class Actions in Australia 2018/2019 (2019) at 4. These include product liability claims relating to the Essure contraceptive device, Hardi spray units, faulty airbags and aluminium composite panel cladding; claims relating to add-on car insurance; a claim by the taxi industry against Uber; and claims relating to banking charges and legal fees.

⁴⁸ Allens Class Action Risk 2020 (March 2020) at 3 and 6.

49. Maurice Blackburn Lawyers “Volkswagen, Audi, Skoda Australian class actions” <www.mauriceblackburn.com.au>. We note that in 2015 a New Zealand law firm sought expressions of interest for a group action against Volkswagen but we are unaware of any proceedings being filed. See Gibson Sheat Lawyers “Volkswagen Vehicle Emissions Claims” (8 October 2015) <www.gibsonsheat.com>.

⁵⁰ Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 15.

51. See Kate Tokeley “Class Actions for New Zealand Consumers” in Christian Twigg-Flesner and others (eds) The Yearbook of Consumer Law 2008 (Ashgate Publishing, Aldershot (UK), 2007) 297 at 304 and 312 observing that an opt-in approach poses a particular difficulty in a consumer dispute where it may be difficult to identify potential plaintiffs (for example, a list of persons who purchased a defective mass-marketed product).
52. Jessica Palmer “Access to Justice for Consumers” in Kate Tokeley (ed) Consumer Law in New Zealand (2nd ed, LexisNexis, Wellington, 2014) 495 at 497.
53. Jessica Palmer “Access to Justice for Consumers” in Kate Tokeley (ed) Consumer Law in New Zealand (2nd ed, LexisNexis, Wellington, 2014) 495 at 496–498 and 500–504. See also Consumer Protection New Zealand Consumer Survey 2018: Summary Findings (Hīkina Whakatutuki I Ministry of Business, Innovation and Employment, May 2019) at 40.

(e) Social and cultural factors that weigh against complaining.

(f) The cost of litigation in both money and time, particularly when compared to the low value of some individual consumer claims.

(g) The limited availability of legal aid, free or low-cost legal services, especially for representative actions.

• 4.32 Another factor may be the perception that consumer issues are best left to the Commerce Commission to pursue. However, while the Commission has an important role to play in protecting consumers, it rarely pursues compensation claims on behalf of consumers (as discussed in Chapter 3). It is also important to note that the Commission does not enforce the Consumer Guarantees Act 1993 — only an aggrieved consumer can bring an action under this legislation.⁵⁴

Consumer issues often go unresolved

• 4.33 The limited number of consumer representative actions in Aotearoa New Zealand does not reflect a lack of consumer problems. Surveys on unmet legal needs have found that consumer issues are the most prevalent legal problem experienced by New Zealanders, but people are less likely to seek help in resolving these issues than other legal issues.⁵⁵ The 2018 Consumer Survey found over half of consumers (56 per cent) had reported a problem with a product or service over the past two years.⁵⁶ Only 35 per cent reported the problem was able to be resolved to their satisfaction.⁵⁷ This survey indicates that certain groups are less likely to have knowledge about consumer rights, and to take action to resolve their problems. While there is some variation across different measures, young people, students, people who identified as Māori, Pacific or Asian, non-English primary language speakers, low-income households, and people without tertiary education were less likely to have knowledge of their consumer rights. ⁵⁸ Those with low levels of knowledge were more likely to have their problems left unresolved, and young people,

54. See Alexandra Sims "Reforming the Consumer Guarantees Act 1993 and Its Enforcement: Time for Action" (2010) 16 NZBLQ 145 at 146.
55. Pokapū Ratonga Ture I Legal Services Agency Report on the 2006 National Survey of Unmet Legal Needs and Access to Services (November 2006) at 1 and 35; and Colmar Brunton Legal needs among New Zealanders (13 April 2018) at 3 and 7.
56. Consumer Protection New Zealand Consumer Survey 2018: Summary Findings (Hīkina Whakatutuki I Ministry of Business, Innovation and Employment, May 2019) at 31. See also Colmar Brunton Legal needs among New Zealanders (13 April 2018) at 3 which found that 9 per cent of the general population had an “impactful problem” with a product or service over the past two years.
57. Thirty-nine per cent were not able to resolve the problem, either because they did not take action (28 per cent) or because the problem was unlikely to be resolved (11 per cent). Eighteen per cent reported the problem was resolved but not to their satisfaction and eight per cent were still in the process of resolving the problem. Where the person did not take action to resolve the problem, reasons were: no time (34 per cent), unsure what action to take (33 per cent), couldn’t be bothered (33 per cent), didn’t think action would resolve it (29 per cent), unsure where to seek advice (20 per cent), not sure if legal issue (17 per cent), product/service not worth enough money (15 per cent), would cost more money to resolve (15 per cent), not confident to deal with it (13 per cent), afraid of damaging relationship with supplier (4 per cent), and other (15 per cent). See Consumer Protection New Zealand Consumer Survey 2018: Summary Findings

(Hīkina Whakatutuki I Ministry of Business, Innovation and Employment, May 2019) at 40 and 42.

58. Consumer Protection New Zealand Consumer Survey 2018: Summary Findings (Hīkina Whakatutuki I Ministry of Business, Innovation and Employment, May 2019) at 10.

students and people who identified with the ‘other ethnicities’ group ⁵⁹ were also specifically identified in this category.⁶⁰ Where problems were resolved, the vast majority were resolved directly with the business and only one per cent were resolved through the Disputes Tribunal or a court.⁶¹

• 4.34 Disputes about debt, which tend to affect more disadvantaged groups, are a category of legal issue that often remains unresolved.⁶² Class actions relating to debt have been brought in other jurisdictions. For example, in Australia, two class actions were brought against pay-day lender Cash Converters in relation to its lending practices, resulting in a combined settlement of $23 million.⁶³

Limitations of other mechanisms for resolving consumer issues

• 4.35 Consumers do have a variety of alternative dispute resolution mechanisms for resolving problems. Claims of up to $30,000 may be brought in the Disputes Tribunal,⁶⁴ although as we note above, few consumer disputes are resolved in this way. Those who do use the Disputes Tribunal are said to be “disproportionally male, Pākehā, better educated and in the middle income bracket”.⁶⁵ The Tribunal does not address unequal access to legal services: claimants are not able to appear with a lawyer nor given access to legal advice, while corporate defendants are likely to have obtained legal advice prior to the hearing.⁶⁶ Further, Disputes Tribunal proceedings are held in private,⁶⁷ so it does not provide the benefit of the vindication of rights in a public forum.
• 4.36 In addition to the Disputes Tribunal, there are various industry-specific dispute resolution processes for resolving consumer claims. ⁶⁸ However, we understand that these are generally designed for individual rather than collective dispute resolution. While some

59. The survey categorised ethnic identification in the following groups: NZ European, Māori, Pacific Peoples, Asian and other ethnicities. See Consumer Protection New Zealand Consumer Survey 2018: Summary Findings (Hīkina Whakatutuki I Ministry of Business, Innovation and Employment, May 2019) at 81.
60. Consumer Protection New Zealand Consumer Survey 2018: Summary Findings (Hīkina Whakatutuki I Ministry of Business, Innovation and Employment, May 2019) at 43.
61. Consumer Protection New Zealand Consumer Survey 2018: Summary Findings (Hīkina Whakatutuki I Ministry of Business, Innovation and Employment, May 2019) at 43. Of the problems that were resolved, 88 per cent were resolved directly with the business, 1 per cent were resolved through a dispute resolution services or mediation and 1 per cent were resolved through a lawyer.

⁶² Colmar Brunton Legal needs among New Zealanders (13 April 2018) at 3 and 7.

63. Vince Morabito and Jarrah Ekstein “Class Actions Filed for the Benefit of Vulnerable Persons—An Australian Study” (2016) 35 CJQ 61 at 75.

⁶⁴ Disputes Tribunal Act 1988, s 10(3).

65. Alexandra Sims "Reforming the Consumer Guarantees Act 1993 and Its Enforcement: Time for Action" (2010) 16 NZBLQ 145 at 160.
66. Jessica Palmer “Access to Justice for Consumers” in Kate Tokeley (ed) Consumer Law in New Zealand (2nd ed, LexisNexis, Wellington, 2014) 495 at 507.

⁶⁷ Disputes Tribunal Act 1988, s 39(1).

68. New Zealand consumers have access to over 50 dispute resolution schemes in New Zealand including the Disputes Tribunal and industry-specific schemes such as the Banking Ombudsman, Motor Vehicle Disputes Tribunal, Insurance and Financial Services Ombudsman and Telecommunications Dispute Resolution. Each scheme has its own process for resolving disputes, which may involve mediation and/or a hearing process. See Consumer Protection New Zealand Consumer Survey 2018: Summary Findings (Hīkina Whakatutuki I Ministry of Business, Innovation and Employment, May 2019) at 18; and Consumer Protection “Take your complaint further” <www.consumerprotection.govt.nz>.

may allow for claims to be brought by a group of individuals or for claims to be aggregated, there appears to be a lack of clear information about this possibility and an absence of a process to aggregate claims. Given the low value of many consumer claims, collective complaint mechanisms are of particular importance in overcoming barriers to access to justice.⁶⁹

• 4.37 Kate Tokeley argues that while it can be tempting to view consumer disputes as unimportant and not worth burdening the legal system with because of the small amounts involved, it is important to recognise the cumulative effects that many small harms can have on society. She also notes the deterrent role class actions can play by ensuring wrongdoers do not escape liability simply by causing small amounts of harm to a large number of people rather than large amounts of harm to a few.⁷⁰ She concludes it is in the public interest to have a mechanism which allows consumers to sue as a class.⁷¹

Compensation following regulatory action

• 4.38 Another area where there may be a lack of representative action cases relates to compensation claims which follow on from regulatory action. In other jurisdictions, it is common for ‘follow on’ or ‘piggyback’ class actions to be filed after a regulator has commenced enforcement action.⁷² An Australian example is the proceedings against Reckitt Benckiser, the manufacturer of Nurofen, in relation to its claims that its various pain products targeted different parts of the body (when they contained the same active ingredient). The Australian Competition and Consumer Commission successfully brought proceedings against Reckitt Benckiser, with the Federal Court finding the company had engaged in misleading and deceptive conduct and ordering it to pay a fine of $6 million.⁷³ A class action was then filed seeking compensation for consumers who had purchased Nurofen products; this was settled for $3.5 million.⁷⁴
• 4.39 Follow-on representative actions do not seem to be an established practice in Aotearoa New Zealand. For example, while our Commerce Commission successfully brought proceedings against Reckitt Benckiser in relation to the Nurofen claims (with the District

69. Jessica Palmer “Access to Justice for Consumers” in Kate Tokeley (ed) Consumer Law in New Zealand (2nd ed, LexisNexis, Wellington, 2014) 495 at 515.
70. Kate Tokeley “Class Actions for New Zealand Consumers” in Christian Twigg-Flesner and others (eds) The Yearbook of Consumer Law 2008 (Ashgate Publishing, Aldershot (UK), 2007) 297 at 300. We discuss whether class actions create a deterrence effect in Chapter 5.
71. Kate Tokeley “Class Actions for New Zealand Consumers” in Christian Twigg-Flesner and others (eds) The Yearbook of Consumer Law 2008 (Ashgate Publishing, Aldershot (UK), 2007) 297 at 325.
72. See for example Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 73–74; Janet Walker Who’s Afraid of US-Style Class Actions? (2012) 18 Southwestern Journal of International Law 509 at 531–532; Michael J Legg “Shareholder Class Actions in Australia – The Perfect Storm?” [2008] UNSWLawJl 37; (2008) 31 UNSWLJ 669 at 687; and John C Coffee Jr “Rescuing the Private Attorney General: Why the Model of the Lawyer as Bounty Hunter is not Working” (1983) 42 Md L Rev 215 at 222.
73. Australian Competition and Consumer Commission “Full Federal Court orders $6 million penalty for Nurofen Specific Pain products” (press release, 16 December 2016).
74. Amber Schultz “Thousands claim compensation for misleading Nurofen products” The Sydney Morning Herald (online ed, Sydney, 11 January 2018).

Court ordering a fine of $1.08 million),⁷⁵ there was no subsequent representative action seeking damages despite the ability to rely on that successful prosecution.⁷⁶

• 4.40 So far as we are aware, none of the 44 representative actions under HCR 4.24 identified in Chapter 3 followed enforcement proceedings by a regulator, although we are aware of several cases with connections to regulator activity:

(a) There was a Securities Commission investigation into the Feltex Carpet Company prior to Houghton v Saunders being filed. ⁷⁷ The Registrar of Companies also unsuccessfully prosecuted five directors of Feltex in the District Court.⁷⁸

(b) The Scott v ANZ Bank representative action resulted from information uncovered in an investigation by the Financial Markets Authority.⁷⁹

(c) In 2019, two representative actions were filed in relation to the collapse of CBL Corporation. These were filed prior to three regulatory proceedings (two actions by the Financial Markets Authority and one by the Serious Fraud Office) rather than as ‘follow on’ proceedings.⁸⁰

• 4.41 There are provisions in both the Fair Trading Act 1986 and the Financial Markets Conducts Act 2013 which allow a finding of breach to be relied upon in a subsequent civil proceeding.⁸¹ While these provisions could be used to facilitate a representative action, to our knowledge they have not been relied upon in this context.
• 4.42 While it may be the current procedural framework which is inhibiting follow-on claims, it could also be due to other factors. First, the claim size might be insufficient to make a follow-on claim economically viable for litigation funders. For example, in relation to the Nurofen claims, differences in population size mean a compensation claim in Aotearoa New Zealand would presumably be significantly less than the Australian one, which settled for $3.5 million. Second, follow-on compensation claims may be unnecessary in cases where a company has provided redress for consumers, either voluntarily or as a result of a settlement with the Commerce Commission. Third, there may be legal difficulties with establishing compensation claims. For example, it can be difficult to

75. Commerce Commission v Reckitt Benckiser (New Zealand) Ltd [2017] NZDC 1956, [2017] DCR 431. See also Te Komihana Tauhokohoko | Commerce Commission “$1m penalty for misleading Nurofen specific pain range claims” (press release, 3 February 2017).

⁷⁶ Fair Trading Act 1986, s 46. See also Chapter 3.

77. “Feltex IPO prospectus not misleading: Securities Commission” The New Zealand Herald (online ed, Auckland, 11 October 2007).
78. The directors each faced two charges under s 36A of the Financial Reporting Act 1993. The prosecution was unsuccessful: Feltex “Registrar of Companies will not appeal Feltex decision” (press release, 16 August 2010).
79. This proceeding is Scott v ANZ Bank New Zealand Ltd [2019] NZHC 1908. See Financial Markets Authority v ANZ Bank New Zealand Ltd [2018] NZCA 590 where the Court of Appeal held it was within Te Mana Tatai Hokohoko | Financial Markets Authority’s powers to disclose the information to investors for the purpose of determining whether to bring a claim against ANZ. The Supreme Court denied leave to appeal: ANZ Bank New Zealand Ltd v Financial Markets Authority [2019] NZSC 40.
80. These proceedings are Livingstone v CBL Corp Ltd CIV-2019-404-2727 (ongoing proceedings); and TEA Custodians Ltd v Wells CIV-2019-485-642 (ongoing proceedings).

⁸¹ Fair Trading Act 1986, s 46; and Financial Markets Conduct Act 2013, s 487.

determine who is the “harmed” consumer in relation to breaches of the Commerce Act 1986 because the affected party often passes on the cost to consumers.⁸²

• 4.43 We note also that follow-on claims are not without their critics. Some have argued that follow-on class actions may be unnecessarily duplicative and may undermine the work of regulators.⁸³

QUESTION
Which kinds of claim are unlikely to be brought under HCR 4.24 and why?

Q2

Time to consider a statutory class actions regime

• 4.44 Because of the issues we have discussed in this chapter, we think it is timely to consider whether Aotearoa New Zealand should have a statutory class actions regime. In Chapters 5 and 6 we discuss the advantages and disadvantages of class actions and then in Chapter 7 we discuss our preliminary conclusion.

82. Letter from Te Komihana Tauhokohoko | Commerce Commission to Rules Committee regarding the consultation paper on class actions (31 July 2007) noting that the reasons for the relative lack of private damages claims in New Zealand for breach of competition law are uncertain. One obstacle noted in other jurisdictions was that many competition claims encounter evidential difficulties, particularly in cartel cases where the offending behaviour is covert and hard to detect and where assessment of damages may be complicated by inflated prices being passed down a vertical chain of purchasers and customers.
83. See for example Linda A Willett “Litigation as an Alternative to Regulation: Problems Created by Follow-On Lawsuits with Multiple Outcomes” (2005) 18 Geo J Legal Ethics 1477 at 1477, 1482 and 1491.

CHAPTER 5

Advantages of class actions

INTRODUCTION

• 5.1 In this chapter we discuss three primary advantages of class actions:

(a) Improving access to justice.

(b) Enabling economy and efficiency of litigation.

(c) Strengthening incentives for compliance with the law.

• 5.2 The Canadian Supreme Court set out these advantages in Western Canadian Shopping Centres Inc v Dutton and they have been described as the “definitive tripartite justification” for class actions in Canada.¹ They are also seen as key advantages of class actions in other jurisdictions as well as being described as the advantages of representative actions in Aotearoa New Zealand.
• 5.3 While some of these advantages are already being realised in Aotearoa New Zealand through litigation under High Court Rule 4.24 (HCR 4.24), we would expect them to be more easily realised under a statutory class actions framework. This is because a statutory framework would provide a more certain basis for bringing proceedings than the current representative actions regime, as well as providing better protections for the parties involved.

CLASS ACTIONS MAY IMPROVE ACCESS TO JUSTICE

Conceptualising access to justice

• 5.4 Access to justice concerns the ability of people to have their legal rights determined and upheld through a process which is fair, efficient and transparent for all parties involved. Effective access to justice is vital for upholding rule of law values.² As the Ontario Law

1. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 49; and Western Canadian Shopping Centres Inc v Dutton 2001 SCC 46, [2001] 2 SCR 534 at [27]–[29]. Note the Court listed judicial economy and efficiency first, and access to justice second.
2. See Jeremy Waldron “The Concept and the Rule of Law” (2008) 43 Ga L Rev 1 at 59. See also Andrew Little, Minister of Justice “Speech to Law Foundation Awards Dinner” (Wellington, 8 December 2017).

Reform Commission (OLRC) has noted, “effective access to justice is a precondition to the exercise of all other legal rights”.³

• 5.5 We consider the possible access to justice benefits of a class actions regime in the context of an access to civil justice ‘gap’. As we discussed in Chapter 1, Aotearoa New Zealand is facing significant issues with respect to access to civil justice. The costs associated with litigation mean seeking redress through the courts is beyond the means of most New Zealanders.⁴ Many claims are not economic to pursue in the High Court because of the high costs involved.⁵ Lawyers’ fees are not affordable in many cases and access to civil legal aid is limited.⁶ The potential for adverse costs awards also adds a significant financial barrier to potential litigants.⁷
• 5.6 A class action is a form of court proceeding, or ‘formal justice’. This means it may be more accurate to refer to a class action as having the potential to ‘improve access to the court system’ rather than improving access to justice generally. Access to the courts and other formal dispute resolution mechanisms can sometimes dominate discussion of access to justice, given the centrality of the court system to the rule of law.⁸ However, other aspects of access to justice are also relevant to the achievement of justice, such as access to legal information and education, non-court dispute resolution and law reform.⁹ In practice, formal justice, or resolving disputes through the courts and tribunals (often with legal assistance), is the least common form of resolving disputes.¹⁰ Disputes are more often resolved through ‘everyday justice’ (avoiding conflicts or managing disputes) or ‘informal justice’ (resolving disputes with the help of a third party advisor or facilitator).¹¹
• 5.7 That said, while access to the court system is only a small component of access to justice, it can still have a significant impact. Formal justice mechanisms may have wide influence because the decisions of adjudicative bodies cast a shadow, influencing and guiding people beyond those who are parties to a particular dispute.¹² The availability of formal justice also supports the effectiveness of everyday and informal justice.
• 5.8 Jasminka Kalajdzic considers a holistic concept of access to justice should be applied to class actions. Rather than simply focusing on access to the courts and lawyers, she

³ Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 139.

⁴ See The Rules Committee Improving Access to Civil Justice: Initial Consultation with the New Zealand Community

(Discussion Paper) at [2] and [30].

⁵ See Chapter 1.

6. Kayla Stewart, Bridgette Toy-Cronin and Louisa Choe New Zealand lawyers, pro bono, and access to justice (University of Otago Legal Issues Centre, March 2020) at 4; and University of Otago Legal Issues Centre Accessing Legal Services: The Price of Litigation Services (July 2019) at 21–22.

⁷ We discuss adverse costs in Chapter 13.

8. We have adopted the categories “formal justice”, “informal justice” and “everyday justice” from Australian Government Attorney-General’s Department “Access to Justice” <www.ag.gov.au>.
9. Christine Coumarelos and others Legal Australia-Wide Survey: Legal Need in Australia (Law and Justice Foundation of New South Wales, Access to Justice and Legal Needs Volume 7, August 2012) at 207.

¹⁰ Australian Government Attorney-General’s Department “Access to Justice” <www.ag.gov.au>.

¹¹ Australian Government Attorney-General’s Department “Access to Justice” <www.ag.gov.au>.

12. Robert H Mnookin and Lewis Kornhauser “Bargaining in the Shadow of the Law: The Case of Divorce” (1979) 88 Yale L J 950 at 997. We discuss the behaviour modification and deterrence benefits of class actions later in this chapter.

proposes four components of access to justice: access to the courts, a fair and transparent process, meaningful participation rights for class members and a substantively just result.¹³ This broader conception moves the focus from a class action increasing access to the court system to ensuring the entire process from commencement to resolution meaningfully achieves a fair and just result for class members. The ability of a class action to achieve this will depend on the processes and protections built into the regime. We have found Kalajdzic’s conception of access to justice a helpful framework and we discuss these four components below.

Improving access to the courts

• 5.9 Improving access to the courts is seen as a key benefit of class actions in other jurisdictions.¹⁴ The Supreme Court of Canada has said that “[w]ithout class actions, the doors of justice remain closed”.¹⁵ All of the Canadian class actions statutes are aimed at improving access to the courts and when courts certify a class action, access to justice is always given as a reason.¹⁶ Access to justice is also seen as an important objective of the Australian class actions regimes.¹⁷ In the United States, the objective is usually framed as compensating victims of alleged wrongdoing.¹⁸ Commentary has observed that in the United States, class actions may enable litigation to proceed in situations where it would not otherwise be economically feasible, redress the power imbalance between plaintiff and defendant and make it easy for individuals to participate in litigation.¹⁹

Overcoming barriers to bringing litigation

• 5.10 Class actions may help improve access to the courts by helping to overcome financial, social and psychological barriers to litigation.

13. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 51. Professor Kalajdzic’s broader conception of access to justice generally aligns with substantive rule of law theories. See further Brian Z Tamanaha On the Rule of Law: History, Politics, Theory (Cambridge University Press, Cambridge, 2004) at 102–113.
14. See Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 47–66.

¹⁵ Western Canadian Shopping Centres Inc v Dutton 2001 SCC 46, [2001] 2 SCR 534 at [28].

16. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 4. See also Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 52; and Western Canadian Shopping Centres Inc v Dutton 2001 SCC 46, [2001] 2 SCR 534 at [28].
17. Commonwealth, Parliamentary Debates, House of Representatives, 14 November 1991, 3175 (Michael Duffy, Attorney- General); Australian Law Reform Commission Grouped Proceedings in the Federal Court (ALRC R46, 1988) at 146; Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Report (March 2018) at [7.1]; and Parliament of Tasmania "Fact Sheet: Supreme Court Civil Procedure Amendment Bill 2018"

<www.parliament.tas.gov.au>.

18. Linda S Mullenix “Ending Class Actions as We Know Them: Rethinking the American Class Action” (2014) 64 Emory LJ 399 at 418; William B Rubenstein Newberg on Class Actions (online ed, Thomson Reuters) at [§1.7]; and Deborah R Hensler “Happy 50th Anniversary, Rule 23! Shouldn’t We Know You Better After All This Time?” (2017) 165 U Pa L Rev

1599 at 1611.

¹⁹ William B Rubenstein Newberg on Class Actions (online ed, Thomson Reuters) at [§1.7].

Financial barriers

• 5.11 As we noted earlier in this chapter, there are significant financial barriers to bringing litigation in Aotearoa New Zealand and many small value claims are likely to be uneconomic because of high legal costs.²⁰ A class action may improve access to the courts by enabling a large number of small claims, which would be uneconomic to pursue individually, to be grouped together into a single claim.²¹ By grouping claims together, the size of the claim increases and the costs of bringing the claim can be shared. In terms of who may benefit from this, we note that a recent survey on unmet legal needs found that people with low incomes are more likely than others to experience a greater occurrence of legal problems in a given year.²² A class action procedure alone may not sufficiently lower the financial barrier for potential litigants. However, grouping claims together is likely to make litigation funding more attractive to funders who typically seek to fund higher value claims.²³

Social and psychological barriers

• 5.12 As well as financial barriers, social and psychological barriers can also limit access to the courts.²⁴ For instance, claimants may not know they have a possible claim and those who do may have insufficient familiarity with the legal system to commence litigation.²⁵ This is likely to disproportionately affect certain groups. One survey found that people who identified as Māori or Asian or were from a low income household were more likely to report having a low level of awareness of their consumer rights.²⁶
• 5.13 Claimants may also doubt the possibility that litigation will be useful or worthwhile, fear possible reprisals, feel shame or fear stigmatisation because of the nature of their claim, or want to move on from a painful or traumatic episode in their past.²⁷ There may also be cultural barriers to accessing the courts. For example, the Porirua and Kapiti Community Law Centre has said that feelings of whakamā may hinder engagement with the legal system and undermine access to justice.²⁸ Individuals who are vulnerable or marginalised

²⁰ University of Otago Legal Issues Centre Accessing Legal Services: The Price of Litigation Services (July 2019) at 20–22.

21. Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018); Catherine Piché “Class Action Value” (2018) 19 Theo Inq L 261 at 272– 273; Vicki Waye “Advantages and Disadvantages of Class Action Litigation (and its Alternatives)” (2018) 24 NZBLQ 109 at 109 and 115; and Kenneth S Canfield “Advantages and Disadvantages of Class Actions from a Plaintiff’s Lawyer’s Perspective” [1999] Brief 58 at 61.

²² Colmar Brunton Legal needs among New Zealanders (13 April 2018) at 5.

²³ We discuss how funders select cases in Chapter 14.

²⁴ Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 127–129.

²⁵ Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 127–128.

26. Consumer Protection New Zealand Consumer Survey 2018: Summary Findings (Hīkina Whakatutuki I Ministry of Business, Innovation and Employment, May 2019) at 10.
27. See Rachael Mulheron Class Actions and Government (Cambridge University Press, Cambridge, 2020) at 75; and Vince Morabito “Ideological Plaintiffs and Class Actions—An Australian Perspective” (2001) 34 UBC L Rev 459 at 503.
28. Letter from Porirua Kapiti Community Law Centre to Rules Committee regarding the “Improving Access to Civil Justice” Initial Consultation (2020) at 3. The Porirua Kapiti Community Law Centre offers the following definition of whakamā: “Whakamā is a Māori concept which encompasses feelings of shame, a lack of knowledge, inferiority, inadequacy, shyness, embarrassment, and self-doubt”.

may face particular barriers to accessing the court system. This might include socio- economic, health, age-related, psychological and/or intellectual barriers.²⁹

• 5.14 By grouping claimants together, a class action can help individuals overcome some of the stresses and difficulties posed by individual litigation. In one case, the Supreme Court of Canada acknowledged that the vulnerability of class members, who were deaf and blind survivors of sexual abuse, was a factor favouring certification because the class action process could help mitigate communication difficulties.³⁰ A class action may also help redress any power imbalance felt by individuals when litigating against a large and powerful defendant.
• 5.15 Capital Strategic Advisors (CSA) suggests that class actions are likely to make access to justice more equitable by enabling claimants to overcome these non-financial barriers.³¹ In some instances the vulnerability may result from the harm alleged to have been caused by the defendant, such as abuse in state care.³² CSA also observes that broad based class membership could increase access to justice for risk-adverse individuals.³³

Which types of litigation do class actions enable?

• 5.16 When assessing whether class actions improve access to the courts, it is important to consider which kinds of cases ultimately proceed as class actions. Catherine Piché, discussing Québec class actions, suggests the lack of data means it is questionable whether class actions truly allow people to bring claims that they otherwise would not bring.³⁴ Despite this, Piché concludes that class actions do compensate and provide access to justice to those in Québec.³⁵
• 5.17 In overseas jurisdictions, class actions brought by shareholders and investors (securities class actions) tend to dominate.³⁶ For example, in Australia, they comprised around 30 per cent of class actions filed in the 2018/2019 financial year. ³⁷ By comparison, discrimination class action claims are rare in Australia.³⁸ Securities claims have also been prevalent in Ontario, comprising 16 per cent of class actions filed between 1993 and February 2018.³⁹ In the United States, securities class actions have been described as the

29. Vince Morabito and Jarrah Ekstein “Class Actions Filed for the Benefit of Vulnerable Persons—An Australian Study” (2016) 35 CJQ 61 at 62.

³⁰ Rumley v British Columbia 2001 SCC 69, [2001] 3 SCR 184 at [39].

³¹ Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 43 and 65.

32. Vince Morabito and Jarrah Ekstein “Class Actions Filed for the Benefit of Vulnerable Persons—An Australian Study” (2016) 35 CJQ 61 at 62.

³³ Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 43.

³⁴ Catherine Piché “Class Action Value” (2018) 19 Theo Inq L 261 at 273.

³⁵ Catherine Piché “Class Action Value” (2018) 19 Theo Inq L 261 at 300.

36. As noted in Chapter 3, shareholder and investor cases also make up a significant proportion of representative actions in Aotearoa New Zealand.

³⁷ King & Wood Mallesons The Review: Class Actions in Australia 2018/2019 (2019) at 4.

38. Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [8.9].

³⁹ Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 15.

“800-pound gorilla that dominates and overshadows other forms of class actions”.⁴⁰ One study showed that securities class actions comprised 37 per cent of United States class action settlements between 2006 and 2007.⁴¹

• 5.18 The prevalence of securities class actions overseas may in part be due to reliance on litigation funding or lawyers charging a contingency fee.⁴² A key consideration for funders (and lawyers charging contingency fees) is the claim value — claims with low costs, large pay-outs, and low risks will be particularly attractive.⁴³ Securities class actions are said to be particularly compatible with litigation funding models.⁴⁴ Funders are less likely to be attracted to rights based, non-monetary claims which may be of significant public interest.⁴⁵ The proliferation of securities class actions does potentially improve access to justice for shareholders and investors. However, the benefits of such cases will likely accrue to higher income rather than lower income individuals.⁴⁶
• 5.19 While securities class actions appear to dominate, class actions are also regularly brought with respect to other types of legal claim which may be more significant in increasing access to the courts for those who may otherwise face the financial, social and psychological barriers discussed above.
• 5.20 For instance, consumer cases make up a significant proportion of class actions overseas,⁴⁷ and are now the most common form of new class action case in Australia.⁴⁸ Employment

40. John C Coffee Jr “Reforming the Securities Class Action: An Essay on Deterrence and its Implementation” (2006) 106 Colum L Rev 1534 at 1539.

⁴¹ Brian T Fitzpatrick "An Empirical Study of Class Actions Settlements and Their Fee Awards" (2010) 7 JELS 811.

42. Australian Government Productivity Commission Access to Justice Arrangements (Inquiry Report No 72, 5 September 2014) vol 2 at 607. We discuss litigation funding and case selection in Chapter 14.
43. Australian Government Productivity Commission Access to Justice Arrangements (Inquiry Report No 72, 5 September 2014) vol 2 at 607. We discuss litigation funding and case selection in Chapter 14.
44. Vince Morabito Shareholder class actions in Australia – myths v facts (An evidence-based approach to class action reform in Australia, November 2019) at 9. See also Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [8.9] commenting that federal class actions are “heavily skewed towards shareholder and investor disputes” because they are considered “low risk and profitable to run”.
45. Australian Government Productivity Commission Access to Justice Arrangements (Inquiry Report No 72, 5 September 2014) vol 2 at 607.
46. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 88.
47. Consumer class actions were 22.7 per cent of class actions filed between 1992 and 2017: Vince Morabito The First Twenty-Five Years of Class Actions in Australia (Fifth Report, An Empirical Study of Australia's Class Action Regimes, July 2017) at 27. In the year to 30 June 2019 consumer cases were 29.6 per cent of cases filed: King & Wood Mallesons The Review: Class Actions in Australia 2018/2019 (2019) at 4.27 per cent of class actions filed in Ontario between 1993 and 2018 were Competition Act (15 per cent) and consumer protection (12 per cent) claims: Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 15. In the United States 12.6 per cent of class action settlements approved in 2006 and 2007 were consumer actions: Brian T Fitzpatrick “An Empirical Study of Class Action Settlements and Their Fee Awards” (2010) 7 JELS 811 at 818.

⁴⁸ Allens Class Action Risk 2020 (March 2020) at 3 and 6.

class actions ⁴⁹ and class actions against the Government ⁵⁰ are also commonly seen overseas.

• 5.21 There are also many examples of class actions brought on behalf of vulnerable people or which could be considered ‘public interest litigation’. In Australia, around one-quarter of federal class actions filed in the first 22 years of the class actions regime were brought on behalf of vulnerable persons, including refugees and claimants with intellectual disabilities.⁵¹ The recent “stolen wages” class action in Australia represents a significant example where the action successfully obtained a gross sum of $190 million on behalf of thousands of indigenous workers for unpaid wages over a period of 30 years.⁵² Class actions in Canada have also been successful in winning compensation for indigenous victims of government mistreatment.⁵³

Procedural access to justice

• 5.22 Kalajdzic’s second and third components of access to justice are a fair and transparent process and meaningful participation rights for class members.⁵⁴ It is essential to ensure that the procedural rights of all participants in a class action are protected. No matter how speedy or efficient a process is, if it remains a mystery to its participants or leaves them doubting whether they have been treated fairly, this is not meaningful access to justice.⁵⁵ The extent to which a class actions regime can satisfy these components will largely depend on its design. Safeguards might include court oversight to ensure the protection of class members’ interests, robust mechanisms for notice and the ability of class members to object to a settlement.
• 5.23 Importantly, access to justice “cannot be assessed solely from the perspective of the claimants” and must also include consideration of the interests of other parties as well as

49. Employment class actions were 10.9 per cent of class actions field between 1992 and 2017: Vince Morabito The First Twenty-Five Years of Class Actions in Australia (Fifth Report, An Empirical Study of Australia's Class Action Regimes, July 2017) at 27. In Ontario, employment and pension claims were 12 per cent of class actions filed between 1993 and 2018: Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 15. In the United States 12.6 per cent of class action settlements approved in 2006 and 2007 were employment actions: Brian T Fitzpatrick “An Empirical Study of Class Action Settlements and Their Fee Awards” (2010) 7 JELS 811 at 818.
50. In Australia 19.6 per cent of class actions filed to 30 June 2020 were claims against the Government: Vince Morabito “Government has shelled out $1.1B in class actions” (23 July 2020) Lawyerly <www.lawyerly.com.au>; and King & Wood Mallesons The Review: Class Actions in Australia 2018/2019 (2019) at 4. In Ontario seven per cent of class actions filed between 1993 and 2018 were against the Government: Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 15.
51. Vince Morabito and Jarrah Ekstein “Class Actions Filed for the Benefit of Vulnerable Persons—An Australian Study” (2016) 35 CJQ 61 at 87.

⁵² Pearson v State of Queensland (No 2) [2020] FCA 619.

53. For example, the Sixties Scoop Class Action, and the Federal Indian Day School Class Action: see “Sixties Scoop Class Action” Klein Lawyers <www.callkleinlawyers.com>; and “Federal Indian Day School Class Action”

<http://indiandayschools.com> .

54. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 51.
55. Roderick McDonald “Access to Justice in Canada Today – Scope, Scale, Ambitions” in J Bass, WA Bogart and Frederick H Zemans (eds) Access to Justice for a New Century: The Way Forward (The Law Society of Upper Canada, Toronto, 2005) 19 at 105 as cited in Ray Finkelstein “Class Actions: The Good, The Bad and The Ugly” in Damian Grave and Helen Mould (eds) 25 Years of Class Actions in Australia: 1992–2017 (Ross Parsons Centre of Commercial, Corporate and Taxation Law, Sydney, 2017) 415 at 416, n 3.

the public at large.⁵⁶ As we discuss below, it has been argued that class actions can lead to a compensation culture of “frivolous litigation designed to extract unmeritorious settlements”. ⁵⁷ CSA observes that additional class actions can impose costs on defendants, even where they successfully defend actions.⁵⁸ Procedural protections can play an important role in protecting the defendant’s access to justice rights by ensuring that meritless claims cannot progress.⁵⁹

Substantive access to justice

• 5.24 Kalajdzic’s final component of access to justice in class actions is achieving a substantively fair result.⁶⁰ A class action may increase access to the protections of substantive law by effectively giving such laws ‘teeth’. ⁶¹ One means of assessing whether class actions provide substantive justice is the extent to which class members are compensated through class actions.
• 5.25 There is a limited evidence on the extent to which class members achieve compensation or other forms of substantive justice through participation in a class action. ⁶² One assessment of a sample of class actions in Québec found that the majority of those class actions compensated class members.⁶³ However, some United States scholars consider there is a lack of evidence demonstrating that class members achieve meaningful compensation, particularly in securities class actions.⁶⁴ In a survey of consumer class actions, the Federal Trade Commission found that only nine per cent of class members

⁵⁶ Houghton v Saunders [2020] NZHC 1088 at [70].

⁵⁷ Vicki Waye “Advantages and Disadvantages of Class Action Litigation (and its Alternatives)” (2018) 24 NZBLQ 109 at

129. See also Brian T Fitzpatrick “Can the Class Action Be Made Business Friendly?” (2018) 24 NZBLQ 169 at 171.

58. Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 43. CSA also note that, as with any increase in litigation, an increase in the number of class actions will impose an increased cost on the courts.
59. For instance, see Civil Justice Council “Improving Access to Justice through Collective Actions”: Developing a More Efficient and Effective Procedure for Collective Actions (Final Report, November 2008) at 93.
60. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 51 and 70.
61. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 53.
62. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 57.

⁶³ See Catherine Piché “Class Action Value” (2018) 19 Theo Inq L 261.

64. Linda S Mullenix “Ending Class Actions as We Know Them: Rethinking the American Class Action” (2014) 64 Emory LJ 399 at 418–419 and 433; Jason Scott Johnston “High Cost, Little Compensation, No Harm to Deter: New Evidence On Class Actions Under Federal Consumer Protection Statutes” [2017] Colum Bus L Rev 1 at 4–11; and John C Coffee Jr “Reforming the Securities Class Action: An Essay on Deterrence and its Implementation” (2006) 106 Colum L Rev 1534 at 1545–1546. Contrast Anjan V Thakor, Jeffrey S Nielsen and David A Gulley The Economic Reality of Securities Class Action Litigation (United States Chamber Institute for Legal Reform, 26 October 2005). Although note in one study securities class actions did compromise the vast majority of money transferred in class action settlements: Brian T Fitzpatrick “An Empirical Study of Class Action Settlements and Their Fee Awards” (2010) 7 JELS 811 at 825.

claimed compensation from a settlement.⁶⁵ Another study found the median distribution rate in a sample of consumer class actions was 15 per cent.⁶⁶

• 5.26 Litigation, including class actions, is widely criticised as a very expensive way of compensating victims.⁶⁷ Class actions often have high transaction costs, including legal fees, court expenses, insurance costs and commission paid to a litigation funder. Even in cost shifting jurisdictions where a successful plaintiff may recoup some of their legal expenses from the defendant, class members are highly likely to receive less than full compensation, particularly where a proportion of a settlement must be paid to a litigation funder.⁶⁸ In Houghton v Saunders, the High Court accepted that the importance of access to justice for a plaintiff may be “diluted” where a substantial sum of any award is paid to a litigation funder.⁶⁹
• 5.27 At the same time, it is rare (in any kind of litigation) for a plaintiff to recover the full amount of compensation that they claimed at the outset. In addition, access to justice can also encompass a plaintiff’s broader interest in the vindication of their claim even if that only entails partial compensation for the loss suffered. In addition, even if class actions have high transaction costs which limit compensation, the alternative may be that individuals never learn of their legal rights and receive nothing for their loss. The partial compensation which a class action can achieve is closer to substantive justice than nothing.⁷⁰ While this response prioritises access to the courts over access to full substantive justice for claimants, without meaningful alternatives it is nonetheless a real improvement.⁷¹
• 5.28 The effectiveness of a class actions regime at compensating class members will largely depend on how key elements of the regime are designed. For example, the court’s role in approving settlements and their distribution will be crucial in ensuring that substantive justice can be meaningfully achieved for class members.⁷²

CLASS ACTIONS MAY ENABLE EFFICIENCY AND ECONOMY OF LITIGATION

• 5.29 In the context of representative actions, the Supreme Court in Credit Suisse Private Equity LLC v Houghton commented that representative actions seek to promote “the efficiency

⁶⁵ Federal Trade Commission Consumers and Class Actions: A Retrospective and Analysis of Settlement Campaigns

(September 2019) at 11–12.

66. Nicholas Pace and others Insurance Class Actions in the United States (RAND Corporation, 2007) at 55 as cited in Deborah R Hensler “Can private class actions enforce regulations? Do they? Should they?" in Francesca Bignami and David Zaring (eds) Comparative Law and Regulation: Understanding the Global Regulatory Process (Edward Elgar Publishing, Cheltenham (UK), 2016) 238 at 263.

⁶⁷ Deborah L Rhode Access to Justice (Oxford University Press, New York, 2004) at 33 as cited in Jasminka Kalajdzic

Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 57.

68. Vicki Waye “Advantages and Disadvantages of Class Action Litigation (and its Alternatives)” (2018) 24 NZBLQ 109 at 127–128.

⁶⁹ Houghton v Saunders [2020] NZHC 1088 at [74].

70. John C Coffee Jr “The Regulation of Entrepreneurial Litigation: Balancing Fairness and Efficiency in the Large Class Action” (1987) 54 U Chi L Rev 877 at 900.
71. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 57–58.

⁷² Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 58.

and economy of litigation”.⁷³ The Court went on to explain in Southern Response v Ross that the Court was guided by the objective of the High Court Rules: to secure the “just, speedy, and inexpensive determination of any proceeding or interlocutory application”.⁷⁴ The Supreme Court also observed that both ensuring access to justice and facilitating the efficient use of resources “fall readily within that objective”.⁷⁵

• 5.30 Efficiency and economy of litigation is a common goal for overseas class actions regimes.⁷⁶ A class action may promote economy and efficiency by allowing the court to hear multiple claims together, thereby freeing up judicial resources. Class actions can also promote consistency in the law by avoiding multiple decisions on the same matter.⁷⁷

Improving economies of scale

• 5.31 A class action is likely to improve efficiency and economy of litigation in cases where individual class members’ claims are economically viable to litigate separately. A class action can avoid what would otherwise be multiple individual proceedings.⁷⁸
• 5.32 By grouping economically viable claims together, a class action can impose a lower social cost through economies of scale.⁷⁹ Such class actions will have a lower cost of litigation per class member. Importantly, the benefits of these cost reductions not only accrue to class members but also defendants, who do not need to defend multiple cases.⁸⁰ The

73. Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [147]. The Court of Appeal also recognised “facilitating efficient use of judicial resources” as one of the advantages of representative claims: Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431, (2019) 25 PRNZ 33 at [52]. This was adopted by the Supreme Court on appeal: Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [40].
74. Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [38]. Note that the objective of the High Court Rules 2016 is set out in r 1.2.

⁷⁵ Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [38].

76. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 49; Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 2; and Commonwealth, Parliamentary Debates, House of Representatives, 14 November 1991, 3174 (Michael Duffy, Attorney-General). For the United States, see William B Rubenstein Newberg on Class Actions (online ed, Thomson Reuters) at [§1:9]; and Linda S Mullenix “Ending Class Actions as We Know Them: Rethinking the American Class Action” (2014) 64 Emory LJ 399 at 418 and 421. In relation to United States practice, see also United States Federal Rules of Civil Procedure, r 23 (Notes of Advisory Committee on Rules—1966 Amendment), stating that r 23(b)(3) (which covers what are frequently referred to as “damages class actions”):

... encompasses those cases in which a class action would achieve economies of time, effort, and expense, and promote, uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results.

Also relevant is the Class Action Fairness Act of 2005 Pub L No 109-2, 118 Stat 4 at 4 (2005), s 2(a)(1) where Congress found that:

Class action lawsuits are an important and valuable part of the legal system when they permit the fair and efficient resolution of legitimate claims of numerous parties by allowing the claims to be aggregated into a single action against a defendant that has allegedly caused harm.

⁷⁷ See Western Canadian Shopping Centres Inc v Dutton 2001 SCC 46, [2001] 2 SCR 534 at [27].

78. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 57–58; Commonwealth, Parliamentary Debates, House of Representatives, 14 November 1991, 3174 (Michael Duffy, Attorney-General); and Ontario Law Reform Commission Report on Class Actions (1982, Volume I) at 118.
79. Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 34. The economies of scale achieved by a class action will significantly depend on class definition. Where there are differences between class members’ claims this can increase cost.

⁸⁰ Ontario Law Reform Commission Report on Class Actions (1982, Volume I) at 118.

court system is also likely to benefit from these greater efficiencies, despite the resource intensive nature of class actions.⁸¹ However, although high value claims could be grouped together in a class action, the management and coordination tasks required for claims to proceed in this way means that relatively few of these class actions are likely to occur.⁸²

• 5.33 CSA notes that class actions are more likely to consist of claims by individuals who would otherwise be unable to bring their claim.⁸³ An example might be low value consumer claims. It has been said that few people would pursue small consumer claims in the absence of a class actions rule.⁸⁴ If that is so, consumer class actions would add to, rather than reduce, the burden on the court system. However, the addition of low value cases, while potentially increasing that burden, is consistent with the goal of improving access to justice discussed above.⁸⁵ A low value claim class action can still be regarded as an efficient use of court time given how many individual claims may be resolved in one proceeding.
• 5.34 A class action may also create greater judicial efficiency and economy compared to individual claims because a class action is more likely to settle rather than go to trial.⁸⁶ A process which results in a single settlement rather than multiple trials or settlements can provide significant savings on legal costs for all parties and the court system itself.

Precedential consistency and certainty

• 5.35 A class action can also contribute to greater judicial efficiency and economy by reducing the risk of inconsistency from multiple judgments. A class action ensures that like cases are treated alike, promotes legal consistency and certainty and avoids the need for duplication of judicial efforts.⁸⁷ The certainty provided by judgments on common issues which bind the entire class will also provide greater clarity than reliance on alternatives such as test cases.
• 5.36 Representative actions in Aotearoa New Zealand appear to demonstrate the benefits a class action type procedure could offer for ensuring consistency across judgments. One commentator observes that Cridge v Studorp, by dealing with common issues despite a number of factual differences between class members, has potentially helped avoid inconsistent judgments on core common issues such as the existence and scope of a duty

81. See Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [3.14]; and Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Report (March 2018) at 140.

⁸² See Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 35.

⁸³ Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 46.

84. Linda S Mullenix “Ending Class Actions as We Know Them: Rethinking the American Class Action” (2014) 64 Emory LJ 399 at 422.

⁸⁵ See discussion in Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 120–121.

86. Craig Jones Theory of Class Actions (Irwin Law, Toronto, 2003) at 81; Andrew Morrison and Colin Loveday “Class Actions in Australia” (10 December 2019) Lexology <www.lexology.com>; and Jeremy Martin and Myriam Brixi “Class Actions in Canada” (10 December 2019) Lexology <www.lexology.com>. We discuss the strong settlement pressures in class actions in Chapter 6.
87. For further discussion of the benefits of precedential certainty see Douglas White “Originality or Obedience? The Doctrine of Precedent in the 21st Century” (2019) 28 NZULR 653 at 671–672.

of care.⁸⁸ At the time of this Issues Paper, the ‘stage one’ trial of this case was occurring in the High Court.

Class actions may indirectly increase efficiency

• 5.37 Craig Jones has also made the point that a correctly functioning class actions regime can indirectly contribute to greater efficiency and economy of litigation:⁸⁹

[It] will tend to increase deterrence, reduce incidence of compensable accidents, promote settlement and ease the associated costs that are currently externalised through formal and informal insurance. Assuming that the secondary benefit of increased compensation for victims is also realised, then these effects will be further enhanced. The money thus saved can be redirected into the judicial system to accommodate these cases.

CLASS ACTIONS MAY STRENGTHEN INCENTIVES TO COMPLY WITH THE LAW

• 5.38 Class actions can play a role in enforcing the law and making sure that defendants internalise the costs of their wrongdoing. This may then result not only in the defendant modifying its behaviour, but also other potential wrongdoers being deterred by the prospect of a future class action. In these ways, class actions may improve compliance with the law.
• 5.39 The Supreme Court has said that strengthening incentives for compliance with the law is an objective of representative actions.⁹⁰ It cited comments of the Supreme Court of Canada that class action proceedings “serve efficiency and justice by ensuring that actual and potential wrongdoers do not ignore their obligations to the public”.⁹¹

The role of class actions in enforcing the law

• 5.40 While regulators play an important role in enforcing the law, resourcing constraints mean that they are unable to take action in all cases. Agencies therefore apply enforcement criteria to determine when it is appropriate to take actison and what form this should take.⁹² Class actions may play a role by allowing action to be taken when regulators are unwilling or unable to act.⁹³ Such private enforcement may have a “safety valve” function as it enables enforcement to occur even if public enforcers are “captured” or otherwise

⁸⁸ Vicki Waye “Advantages and Disadvantages of Class Action Litigation (and its Alternatives)” (2018) 24 NZBLQ 109 at

115. Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 is a representative action alleging that faulty cladding systems manufactured by Studorp Ltd and James Hardie caused damage to the claimants’ homes.

⁸⁹ Craig Jones Theory of Class Actions (Irwin Law, Toronto, 2003) at 83.

90. Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [37] and [40]. The Supreme Court adopted the Court of Appeal’s description of the objectives of r 4.24 of the High Court Rules 2016: see Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431, (2019) 25 PRNZ 33 at [52].
91. Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [39], citing Western Canadian Shopping Centres Inc v Dutton 2001 SCC 46, [2001] 2 SCR 534 at [29]. See also Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [11(b)].
92. We refer to Te Komihana Tauhokohoko | Commerce Commission’s and Te Mana Tatai Hokohoko | Financial Markets Authority’s enforcement criteria in Chapter 7.
93. See for example Deposit Guaranty National Bank of Jackson v Roper [1980] USSC 81; 445 US 326 (1980) at 339: “The aggregation of individual claims in the context of a class wide suit is an evolutionary response to the existence of injuries unremedied by the regulatory action of government”.

unavailable.⁹⁴ In addition, as the Australian Securities and Investment Commission has observed, where private action can achieve a similar outcome to regulatory action, this allows the regulator to allocate its resources to other priorities.⁹⁵

• 5.41 The lawyer representing the class is sometimes described as a ‘private Attorney-General’ because of their role in enforcing the law.⁹⁶ However, there is some debate as to whether it is appropriate for class actions to have a law enforcement function, or whether compensation should be the sole focus. Some consider that enforcing laws should be the role of regulators rather than class action lawyers. For example, the Australian Institute of Company Directors has argued that regulators should enforce continuous disclosure and misleading and deceptive conduct provisions, and that private actions should be prohibited.⁹⁷
• 5.42 Others consider that the class action is not simply a procedural device with the objective of maximising individual recovery but is a regulatory device which can enforce standards and protect the public from widespread harm. ⁹⁸ The United States Federal Judicial Center’s guide for judges states:⁹⁹

Class actions may also help regulators control conduct that threatens to harm various markets. Securities and other consumer class actions serve to enforce regulatory standards designed to deter fraudulent marketplace conduct that might otherwise escape regulation.

• 5.43 As well as the argument that class actions can step in where regulators have failed, some see private action as superior to government action. Brian Fitzpatrick has put forward a ‘conservative case for class actions’, arguing that private lawyers representing private citizens pursuing defendants after they have committed wrongdoing should be preferred over government regulation.¹⁰⁰ His reasons for preferring private over public regulation include that class action lawyers have more of an incentive to do a good job because of their profit motive and government agencies may be subject to capture.¹⁰¹

94. John C Coffee Jr Entrepreneurial Litigation: Its Rise, Fall, and Future (Harvard University Press, Cambridge (Mass), 2015) at 175. See also John C Coffee Jr “Rescuing the Private Attorney General: Why the Model of the Lawyer as Bounty Hunter is not Working” (1983) 42 Md L Rev 215 at 226–227.
95. Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [9.29].
96. See for example William B Rubenstein “On What A ‘Private Attorney General’ Is—And Why It Matters” (2004) 57 Vand L Rev 2129; Owen M Fiss “The Political Theory of the Class Action” (1996) 53 Wash & Lee L Rev 21; and Craig Jones Theory of Class Actions (Irwin Law, Toronto, 2003) at 44.
97. Australian Institute of Company Directors, Submission No 40 to Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into Litigation Funding and the Regulation of the Class Action Industry (11 June 2020) at 10– 13.
98. Craig Jones “The Class Action as Public Law” (paper presented at Osgoode Hall Law School, January 2006) as cited in Janet Walker (ed) Class Actions in Canada: Cases, Notes, and Materials (2nd ed, Emond Publishing, Toronto, 2018) at

19. See also Craig Jones Theory of Class Actions (Irwin Law, Toronto, 2003) at 44.

99. Barbara J Rothstein and Thomas E Willging Managing Class Action Litigation: A Pocket Guide for Judges (3rd ed, Federal Judicial Center, 2010) at 1.
100. Brian T Fitzpatrick “Why Class Actions Are Something both Liberals and Conservatives Can Love” (2020) 73 Vand L Rev 1147 at 1154; and Brian T Fitzpatrick The Conservative Case for Class Actions (University of Chicago Press, Chicago, 2019).

¹⁰¹ Brian T Fitzpatrick and John H Beisner “The conservative case for class actions” (2020) 104 Judicature 68 at 70–71.

• 5.44 Alternatively, class actions may be viewed as an additional form of enforcement, rather than one which usurps the role of regulators.¹⁰² In European jurisdictions which have strong inclinations towards public regulation (compared to the United States), class actions are seen as “a complementary form of private regulation that supports rather than substitutes for state authority”.¹⁰³
• 5.45 The co-existence of regulatory action and private proceedings has recently been seen in Aotearoa New Zealand in relation to the collapse of CBL Corporation. There have been two civil proceedings brought by the Financial Markets Authority (FMA) and a criminal prosecution by the Serious Fraud Office, as well as two representative actions brought by shareholders.¹⁰⁴ The Scott v ANZ Bank representative action is a further example of collaboration between a regulator and private litigants. In that case, the FMA received information from ANZ Bank during its investigations into the Ponzi scheme run by Ross Asset Management. The FMA disclosed this information to investors in Ross Asset Management, which ultimately resulted in a representative proceeding being filed by investors against ANZ Bank.¹⁰⁵
• 5.46 In Aotearoa New Zealand, class actions may play a particularly valuable enforcement role in respect of statutes that have no regulator in charge of their enforcement, such as the Consumer Guarantees Act 1993. It may also be valuable where legislation is premised on the principle of private enforcement, such as the Companies Act 1993.¹⁰⁶ We note that Aotearoa New Zealand regulators acknowledge the role that class actions may play. For example, the FMA has recently stated that it recognises that “private class actions play a crucial part in addressing defective corporate disclosure”.¹⁰⁷ In its 2007 submission to the Rules Committee on the draft Class Actions Bill, the Commerce Commission said that it supported the private enforcement of competition and fair trading laws in Aotearoa New Zealand as an important complement to the Commission’s work.¹⁰⁸

102. See Deborah R Hensler “Can private class actions enforce regulations? Do they? Should they?" in Francesca Bignami and David Zaring (eds) Comparative Law and Regulation: Understanding the Global Regulatory Process (Edward Elgar Publishing, Cheltenham (UK), 2016) 238 at 269:

Like public enforcement, private enforcement can fail, but taken together the two systems make it much more likely that market actors will comply with economic regulation and that critical regulatory policies will take hold on the ground.

103. Vicki Waye “Advantages and Disadvantages of Class Action Litigation (and its Alternatives)” (2018) 24 NZBLQ 109 at 127.

¹⁰⁴ Nikki Chamberlain “CBL collapse ignites firestorm of litigation” [2020] NZLJ 163.

105. Te Mana Tatai Hokohoko | Financial Markets Authority’s decision to disclose the information was the subject of litigation: see Financial Markets Authority v ANZ Bank New Zealand Ltd [2018] NZCA 590. ANZ unsuccessfully sought to strike out the representative proceeding: see Scott v ANZ Bank New Zealand Ltd [2020] NZHC 906.
106. See Andrew Beck Morison’s Company Law (NZ) (online ed, LexisNexis) at [36.1]; and Fran Barber “Indirectly Directors: Duties Owed Below the Board” (2014) 45 VUWLR 27 at 41.
107. Te Mana Tatai Hokohoko | Financial Markets Authority “FMA statement on director liability and continuous disclosure” (press release, 17 June 2020).
108. Letter from Geoff Thorn (General Manager of the Commerce Commission) to the Rules Committee regarding a possible group actions regime in the High Court Rules (31 July 2017) at 6–7.

Behaviour modification and deterrence

• 5.47 A class action can result in the defendant modifying their behaviour and the risk of a class action may also deter other potential defendants from engaging in wrongdoing.¹⁰⁹ As Deborah Hensler explains:¹¹⁰

The goal is to incentivize economic actors to include the expected value of injuries or losses caused by their illegal behaviour (including the legal expenses associated with recouping losses) in their calculus when deciding whether and how to design, produce, distribute, and market a product or service.

• 5.48 At the same time, it may be challenging to prove the existence of behaviour modification and deterrence and measure their effect.¹¹¹ The Law Commission of Ontario (LCO) has commented that the question of whether behaviour modification is achieved in practice is one that has “long vexed class action scholars”.¹¹²
• 5.49 In relation to behaviour modification, the terms of a judgment or a settlement in a class action may require a defendant to modify its behaviour, such as an injunction or a settlement term requiring it to take (or refrain from taking) certain steps. Research into federal class action settlements in the United States found that 23 per cent contained a provision requiring a defendant to change its behaviour in some way. Examples included modifying terms of employee benefit plans, modifying compensation practices, changes in business practices, capital improvements, and research and property repairs. These types of terms were most common in civil rights cases (where 75 per cent of cases had such a term) and least common in securities cases (2 per cent).¹¹³ However, it has been observed in Aotearoa New Zealand that while claimants may be interested in settlement terms requiring changes in practice, when a litigation funder is involved, settlement becomes focused on money.¹¹⁴ Even when a settlement agreement does not contain a behaviour modification provision, defendants will sometimes cease offending practices on their own account after they are sued.¹¹⁵
• 5.50 As to a wider deterrent effect, some studies have found that class actions do have a general deterrent effect but the position remains contested. Brian Fitzpatrick’s research found six studies that showed class actions have a deterrent effect and only one that did

109. This has been referred to as specific deterrence (stopping the defendant from continuing the misconduct) and general deterrence (preventing potential wrongdoers from committing misconduct): Brian T Fitzpatrick “Do Class Actions Deter Wrongdoing?” (12 September 2017) Social Science Research Network <www.ssrn.com> at 184.
110. Deborah R Hensler “Can private class actions enforce regulations? Do they? Should they?" in Francesca Bignami and David Zaring (eds) Comparative Law and Regulation: Understanding the Global Regulatory Process (Edward Elgar Publishing, Cheltenham (UK), 2016) 238 at 244.

¹¹¹ See Catherine Piché “Class Action Value” (2018) 19 Theo Inq L 261 at 276.

¹¹² Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 89.

113. Brian T Fitzpatrick “An Empirical Study of Class Action Settlements and Their Fee Awards” (2010) 7 JELS 811 at 824; and Brian T Fitzpatrick “Do Class Actions Deter Wrongdoing?” (12 September 2017) Social Science Research Network

<www.ssrn.com> at 184.

114. See comments by Bell Gully partner Jenny Stevens in Rod Vaughan “Debate over litigation funding heats up” (5 June 2020) ADLS <http://adls.org.nz> .

¹¹⁵ Brian T Fitzpatrick “Do Class Actions Deter Wrongdoing?” (12 September 2017) Social Science Research Network

<www.ssrn.com> at 185.

not.¹¹⁶ Others consider there is insufficient evidence.¹¹⁷ Linda Mullenix comments that while in some cases prudent lawyers are likely to guide their clients’ actions to avoid class action litigation:¹¹⁸

it is equally likely that the prospect of future class litigation serves little or no deterrent function and that at least some (if not many) corporate clients view class litigation as a cost of doing business, with costs passed along to consumers.

• 5.51 In its 2019 report on class actions, the LCO referred to the difficulty in measuring behaviour modification and noted this tended to be proved through anecdotal evidence rather than statistics or quantitative data.¹¹⁹ It considered it unnecessary for every class action to achieve behaviour modification in order for the objective to be valid in a general sense. Rather, it said the question was whether class actions provided general incentives for increased compliance with the law, stating that its research and consultations had confirmed the answer was “most certainly yes”. ¹²⁰ In other words, the LCO considered that taken as a whole class actions have a behaviour modification effect even if it is not obvious from all cases.¹²¹
• 5.52 The deterrent effect of a class action may depend, to some extent, on the level of settlement or damages awarded compared to a regulatory fine. The Australian Law Reform Commission (ALRC) was advised that damages in shareholder class actions tend to be greater than penalties or fines imposed by the Australian Securities and Investment Commission for infringement of continuous disclosure rules.¹²² In the United States, it has been calculated that class action settlements in securities class actions are often ten times the fines imposed by the Securities and Exchange Commission.¹²³ However, the fact that

¹¹⁶ Brian T Fitzpatrick “Do Class Actions Deter Wrongdoing?” (12 September 2017) Social Science Research Network

<www.ssrn.com> at 196–200.

117. For example, it has been observed that while the costs of defending class actions are visible, we do not know which of the precautionary measures taken by defendants would not be there without the threat of a class action: James D Cox and Randall S Thomas “Mapping the American Shareholder Litigation Experience: A Survey of Empirical Studies of the Enforcement of the US Securities Law” (2009) 6 ECFLR 164 at 183. It has also been said that if a class action claim is based on an activity unique to government, general deterrence is largely irrelevant: Craig Jones and Angela Baxter “The Class Action and Public Authority Liability: ‘Preferability’ Re-Examined” (2007) 57 UNBLJ 27 at 44.
118. Linda S Mullenix “Ending Class Actions as We Know Them: Rethinking the American Class Action” (2014) 64 Emory LJ 399 at 420.

¹¹⁹ Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 89.

¹²⁰ Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 89.

121. Some examples of behaviour modification that were given to the LCO included: employers changing policies relating to overtime, legal advice to corporate clients including discussions about the risk of class action litigation, improved disclosure by companies and changes to solitary confinement practices. However, there were cases where behaviour modification did not appear to occur or where it was difficult to isolate the deterrent effect of class actions compared to other factors such as regulatory proceedings: Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 89–90.
122. Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [9.31].
123. John C Coffee Jr Entrepreneurial Litigation: Its Rise, Fall, and Future (Harvard University Press, Cambridge (Mass), 2015) at 175. See also John C Coffee Jr “Reforming the Securities Class Action: An Essay on Deterrence and its Implementation” (2006) 106 Colum L Rev 1534 at 1542–1543. Some have said that the threat of a class action looms much larger than the prospect of enforcement by the Securities and Exchange Commission: see Myriam Gilles and Gary B Friedman “Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepreneurial Lawyers” (2006) 155 U Pa L Rev 103 at 106.

settlements are much larger than regulatory fines does not mean that securities class actions create an adequate deterrent threat. One reason is that only claims above a certain level are economic to pursue, which means that small companies are said to become practically exempt from securities class actions.¹²⁴ Another reason is that it may be defendant companies and insurers who actually pay the costs of a settlement, rather than culpable officers and directors.¹²⁵ One study found that individual defendants almost never contribute personally to settlements in United States securities class action settlements.¹²⁶ Australian research found that individuals are more likely to have orders or enforcement mechanisms imposed on them personally by regulatory action than by an investor class action.¹²⁷

• 5.53 Where there is both regulatory action and a class action over the same conduct, there could be a risk of a defendant being punished too much, or “over deterrence”.¹²⁸ However, research indicates it is unlikely that the penalties inflicted by a class action that follows regulatory action cause wrongdoers to internalise more than 100 per cent of the social cost of their actions.¹²⁹
• 5.54 CSA suggests that, with respect to class actions with high individual values (where the individual would have otherwise brought their own litigation), a class action enables the same deterrence incentive to occur at a lower social cost of litigation.¹³⁰ CSA’s analysis also suggests class actions involving low value individual claims are likely to improve deterrence of activities prone to causing small harms across a large number of people.¹³¹
• 5.55 According to CSA, insurance does reduce deterrence incentives, but not necessarily below an efficient deterrence level. This is because insurers substitute various monitoring, reporting and practice requirements to encourage precautionary behaviour and investments. Insurers generally also reserve the right to refuse to pay out if the insured acted in breach of the insurance contract. A defendant could also be left with significant exposure if its level of insurance cover falls short of the expected damages.¹³²
• 5.56 Our overall sense of the literature is that class actions can modify behaviour and have a deterrent effect, although the extent of these effects is difficult to measure. A class actions regime is likely to both modify the actions of those subject to a class action and

124. John C Coffee Jr “Reforming the Securities Class Action: An Essay on Deterrence and its Implementation” (2006) 106 Colum L Rev 1534 at 1543.
125. John C Coffee Jr “Reforming the Securities Class Action: An Essay on Deterrence and its Implementation” (2006) 106 Colum L Rev 1534 at 1550–1551.
126. See Janet Cooper Alexander “Rethinking Damages in Securities Class Actions” (1996) 48 Stan L Rev 1487 at 1499; and Denise N Martin and others “Recent Trends IV: What Explains Filings and Settlements in Shareholder Class Actions” (1999) 5 Stan J L Bus & Fin 121 at 134.
127. Michelle Welsh and Vince Morabito “Public v Private Enforcement of Securities Laws: An Australian Empirical Study” (2014) 14 JCLS 39 at 64.
128. See discussion of this in John C Coffee Jr “Rescuing the Private Attorney General: Why the Model of the Lawyer as Bounty Hunter is not Working” (1983) 42 Md L Rev 215 at 220.
129. Myriam Gilles and Gary B Friedman “Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepreneurial Lawyers” (2006) 155 U Pa L Rev 103 at 155–157.

¹³⁰ Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 34.

¹³¹ Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 38.

¹³² Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 24–25 and 44.

also cause others to pre-emptively modify their behaviour to mitigate the risk of also becoming subject to one.

Should behaviour modification and deterrence be an objective of class actions or simply an incidental benefit?

• 5.57 The above discussion shows that class actions may play a role in modifying behaviour and deterring wrongdoing, through enforcing the law in specific cases. However, there is some debate as to whether deterrence should be an objective of a class actions regime, or simply a by-product.¹³³ Rachael Mulheron has commented that compensatory redress is, and has always been, the primary motivator of class actions regimes.¹³⁴ However, Craig Jones argues that from a public policy perspective, deterrence is a more important objective than compensation in furthering the goals of class actions.¹³⁵ One reason is that deterrence can prevent harm from occurring in the first place, rather than simply compensating for harm after the fact.¹³⁶
• 5.58 If deterrence is to be an objective of a class actions regime, this may have implications for its design. From a deterrence perspective, it is the sum paid by a defendant that matters and it is irrelevant whether that sum is paid as compensatory damages to class members or as an equivalent sum to others (such as a charity).¹³⁷ It has been observed that the amount of legal fees paid to the plaintiff’s lawyer may not be problematic from a deterrence perspective as it may incentivise the lawyer to vigorously prosecute the case. However, from a compensation perspective, the amount of money a lawyer receives is significant as it will reduce the amount paid to class members.¹³⁸
• 5.59 In its 1982 report on class actions, the OLRC considered the view that behaviour modification and deterrence are not a proper function of civil litigation and that these should only be pursued through criminal (or quasi-criminal) enforcement. In rejecting this view, the OLRC noted that:¹³⁹

(a) Even an individual case which had compensation as its main purpose would inevitably help to achieve deterrence by preventing the defendant from retaining unjust profits or forcing a defendant to internalise costs.

(b) There were aspects of civil substantive law which had incorporated deterrence, such as restitution and punitive damages.

133. Deborah Hensler has commented that “[w]hether regulatory enforcement ought to be a goal of collective litigation ... is central to controversy over the use of class action procedures in virtually every jurisdiction that has considered adopting, expanding, or restricting their use": Deborah R Hensler “Can private class actions enforce regulations? Do they? Should they?" in Francesca Bignami and David Zaring (eds) Comparative Law and Regulation: Understanding the Global Regulatory Process (Edward Elgar Publishing, Cheltenham (UK), 2016) 238 at 243–244.

¹³⁴ Rachael Mulheron Class Actions and Government (Cambridge University Press, Cambridge, 2020) at 79.

¹³⁵ Craig Jones Theory of Class Actions (Irwin Law, Toronto, 2003) at 29.

¹³⁶ Craig Jones Theory of Class Actions (Irwin Law, Toronto, 2003) at 44.

137. See Deborah R Hensler “Can private class actions enforce regulations? Do they? Should they?" in Francesca Bignami and David Zaring (eds) Comparative Law and Regulation: Understanding the Global Regulatory Process (Edward Elgar Publishing, Cheltenham (UK), 2016) 238 at 244.

¹³⁸ See Craig Jones Theory of Class Actions (Irwin Law, Toronto, 2003) at 44–45.

¹³⁹ Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 142–145.

(c) It may not be in the public interest (or the interests of defendants) to make behaviour modification the exclusive preserve of the criminal law.

(d) Fines imposed in criminal proceedings may not deprive defendants of the benefits of their wrongful conduct or require them to internalise the costs of the injuries caused to individuals.

(e) A class action procedure simply removes the barriers to litigation that prevent individual claims from being brought. A class action will not modify behaviour to any greater extent than other methods of removing barriers to bringing claims.

• 5.60 The OLRC considered that, while the main justification for class actions was achieving either judicial economy or increased access to justice, behaviour modification was “essentially an inevitable, albeit important, by-product of class actions”.¹⁴⁰
• 5.61 Deterrence is now seen as a key goal of class actions in the United States,¹⁴¹ although it was not the original purpose of the 1966 amendments to Rule 23 of the Federal Rules of Civil Procedure which created the class actions regime.¹⁴²
• 5.62 In its 1988 report recommending a group proceedings regime, the ALRC considered that the primary goal of the regime was to enable people to access legal remedies and said that any deterrent effect on the respondent’s behaviour was only incidental. ¹⁴³ Subsequently, neither behaviour modification nor deterrence was mentioned as an objective of class actions in the Attorney-General’s Second Reading speech on the Bill introducing the federal class actions regime.¹⁴⁴ There are, however, some indications that class actions are seen as having a behaviour modification and deterrence role in Australia, even if this is not emphasised to the same degree as access to justice.¹⁴⁵

¹⁴⁰ Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 145.

141. Linda S Mullenix “Ending Class Actions as We Know Them: Rethinking the American Class Action” (2014) 64 Emory LJ 399 at 420; Deborah R Hensler “Happy 50th Anniversary, Rule 23! Shouldn’t We Know You Better After All This Time?” (2017) 165 U Pa L Rev 1599 at 1611. See also William B Rubenstein Newberg on Class Actions (online ed, Thomson Reuters) at [§1:8]; and Rachael Mulheron Class Actions and Government (Cambridge University Press, Cambridge, 2020) at 63–64.
142. Arthur R Miller “Of Frankenstein Monsters and Shining Knights: Myth, Reality, and the ‘Class Action Problem’” (1979) 92 Harv L Rev 664 at 669:

Although it was expected that the revision would operate to assist small claimants, the draftsmen conceived the procedure’s primary function to be providing a mechanism for securing private remedies, rather than deterring public wrongs or enforcing broad social policies.

¹⁴³ Australian Law Reform Commission Grouped Proceedings in the Federal Court (ALRC R46, 1988) at [323].

144. Commonwealth, Parliamentary Debates, House of Representatives, 14 November 1991, 3174 (Michael Duffy, Attorney- General).
145. In the Senate, the Minister for Justice and Consumer Affairs commented in Commonwealth, Parliamentary Debates, Senate, 13 November 1991, 3125 (Michael Tate):

The enhancement of the rights of many shareholders to take this sort of representative proceeding will be a great aid to the more formal regulators, such as the Australian Securities Commission, in ensuring compliance with the corporations law.

See also Michael Legg and Ross McInnes Australian Annotated Class Actions Legislation (2nd ed, LexisNexis Butterworths, Chatswood (NSW), 2018) at [1.13]; and Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [9.28] commenting that “[i]t is generally accepted that there are two goals that shareholder class actions are expected to deliver: compensation for shareholders harmed by breaches of the rules, and deterrence against future breaches”.

• 5.63 In its 1996 report, the Scottish Law Reform Commission rejected the view that behaviour modification or punishment should be an aim of multi-party litigation. It considered that the proper objective of a claim for damages was to obtain compensation, rather than being used as a pretext for a public inquiry.¹⁴⁶

QUESTION
What do you see as the advantages of class actions? In particular, to what extent

do you think class actions are likely to:

1. improve access to justice?
   2. improve efficiency and economy of litigation?
   100. strengthen incentives to comply with the law. Is this an appropriate role for a class actions regime?

Q3

¹⁴⁶ Scottish Law Commission Multi-Party Actions (Scot Law Com No 154, Report, 1996) at [2.23].

CHAPTER 6

Disadvantages of class actions

INTRODUCTION

• 6.1 In this chapter we discuss the following potential disadvantages of a class actions regime:

(a) Negative impacts on the court system.

(b) Negative impacts for defendants, including pressure to settle claims and increased costs.

(c) Broader negative impacts on the business and regulatory environment.

(d) Insufficient protection of class members’ interests.

• 6.2 Many of these potential disadvantages are inter-related. There are also a number of counter-arguments, which we discuss below.

CLASS ACTIONS MAY HAVE NEGATIVE IMPACTS ON THE COURT SYSTEM

• 6.3 Because class actions make it easier for individuals to join a legal action, a class actions regime may result in an increase in litigation. While some of this litigation may be socially advantageous, it could also lead to meritless class actions or claims which involve relatively trivial individual claims.

Increasing the workload of the courts

• 6.4 One criticism of class actions is that it may lead to a ‘flood’ of class actions that will overload the courts and cause delays for other litigation.¹ For example, there have been a significant number of securities class actions in other jurisdictions. In Australia, while there were initially very few, the numbers have steadily increased, with around 20 securities class actions filed annually in recent years.² One report claims that securities

¹ This criticism is discussed in Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 169.

2. There were 17 securities class actions filed in the year ending 30 June 2017, 24 securities class actions filed in the year ending 30 June 2018 and 19 securities class actions filed in the year ending 30 June 2019. Vince Morabito discusses some of the reasons for the “fairly significant” number of securities class actions and disputes the claim there has been an “explosion” in securities class actions in Australia: Vince Morabito Shareholder class actions in Australia – myths v facts (An evidence-based approach to class action reform in Australia, November 2019) at 15.

class actions are “skyrocketing” in the United States, with one in 12 companies subject to such a case.³

• 6.5 Class action litigation is also likely to be judicially intensive because of the sheer size of cases and the need for judges to ensure that class members’ interests are safeguarded.⁴ Class actions may also be harder fought than other litigation because the stakes are so much higher, creating additional costs for litigants and the court.⁵ An increase in judicial workload also means the costs of running the court system will increase, and this cost is largely borne by the taxpayer. While civil litigants in Aotearoa New Zealand are required to pay filing fees and hearing fees, these are intended to recover less than half of the actual cost to the court system.⁶ In the United States, securities class actions have been described as “essentially subsidized by the U.S. taxpayer” since they consume so much judicial resource.⁷ Similarly, it has been noted that in Canada, the public purse essentially underwrites class action lawyers’ business.⁸
• 6.6 The data shows that in overseas jurisdictions, class action cases make up a relatively small proportion of all cases filed. For example, in the 2017–2018 financial year, only 32 of the 4,659 proceedings filed in the Federal Court of Australia were class actions, which amounts to 0.68 per cent.⁹ The Australian Law Reform Commission (ALRC) did note, however, that the number of cases may not accurately indicate the effect that class action cases have on the court’s workload, given the length of time they take to resolve and the intensive case management and court oversight required.¹⁰ Vince Morabito’s empirical analysis identified 634 class actions in Australia between March 1992 and June 2019, a period of over 27 years.¹¹ Deborah Hensler discusses the data available on class actions filed in different jurisdictions and concludes:¹²

3. United States Chamber Institute for Legal Reform A Rising Threat: The New Class Action Racket That Harms Investors and the Economy (October 2018) at 1.
4. The Victorian Law Reform Commission has commented that class actions are significantly more resource-intensive than other cases and often require extensive judicial case management: Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Report (March 2018) at 140.

⁵ Michael J Legg “Shareholder Class Actions in Australia – The Perfect Storm?” [2008] UNSWLawJl 37; (2008) 31 UNSWLJ 669 at 698.

6. Court fees are set out in the High Court Fees Regulations 2013. The Ministry of Justice’s consultation paper on these fees set the estimated cost recovery level at 33 per cent for the District Court, 37 per cent for the High Court, 15 per cent for the Court of Appeal and 0.5 per cent for the Supreme Court. See Tāhū o te Ture | Ministry of Justice Civil fees review: A public consultation paper (September 2012) at 7.
7. John C Coffee Jr “Reforming the Securities Class Action: An Essay on Deterrence and its Implementation” (2006) 106 Colum L Rev 1534 at 1540.
8. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 8.
9. Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [3.13].
10. Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [3.14].
11. Vince Morabito Shareholder class actions in Australia – myths v facts (An evidence-based approach to class action reform in Australia, November 2019) at 12.
12. Deborah R Hensler “From Sea to Shining Sea: How and Why Class Actions Are Spreading Globally” (2017) 65 U Kan L Rev 965 at 987.

Taken together these data suggest that in common law jurisdictions class actions are used sparingly (relative to the size of national caseloads of civil damage litigation) and tend to rise and fall in response to broader economic trends, as well as with precedential decisions. There is no evidence of class actions overwhelming any country's civil justice system.

• 6.7 Further, objecting to a class actions regime because it may increase the rate of litigation misses the point that class actions aim to ensure greater access to justice.¹³ In relation to shareholder class actions, the ALRC cited these as examples of claims that might be litigated under the new regime it recommended.¹⁴ In other words, the class actions regime has done the very thing it was intended to. Capital Strategic Advisors (CSA) notes that while class actions involving low individual claim values will increase costs for the court system, any policy change that increases litigation activity will have that effect. The underlying driver is not anything specific to low-value class actions but rather that the fees paid by users of the court system are lower than the actual costs incurred by the court system.¹⁵

Encouraging trivial claims

• 6.8 While some class action claimants may have suffered significant harm, this is not always the case. There are many examples of class actions litigating what might seem like trivial claims, particularly in the United States. For example, one class action against a cable television company involved allegations that a $5 late payment fee was excessive.¹⁶ Another alleged that a furniture retailer sold more loan insurance than was needed, with an estimated average loss to individual class members of $3.83.¹⁷ Between 2010 and 2012, there were a series of class actions in the United States about the failure of ATMs to contain a sticker advising that a fee may be charged (even though the fee itself was required to be disclosed on the ATM screen).¹⁸ A recent example is a 2020 settlement of a class action claim that black pepper containers were underfilled, resulting in payments of around $4 per customer.¹⁹
• 6.9 It may not be an effective use of the court system to litigate trivial claims, particularly where there are lower cost alternatives available. In Aotearoa New Zealand, these include the Disputes Tribunal and specific bodies such as the Banking Ombudsman, Privacy

13. See Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 75; and Craig Jones Theory of Class Actions (Irwin Law, Toronto, 2003) at 82–83.

¹⁴ See Australian Law Reform Commission Grouped Proceedings in the Federal Court (ALRC R46, 1988) at 33.

¹⁵ Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 43.

16. Selnick v Sacramento Cable No 541907 (Cal Super Ct 1996) as cited in Deborah R Hensler and others Class Action Dilemmas: Pursuing Public Goals for Private Gain (RAND Corporation, 2000) at 418.
17. Inman v Heilig-Meyers Furniture No CV 94-047 (Ala Cir Ct Fayette County filed May 12, 1994) as cited in Deborah R Hensler and others Class Action Dilemmas: Pursuing Public Goals for Private Gain (RAND Corporation, 2000) at 418.
18. Congress voted to remove the sticker requirement from legislation in 2012. The Bureau of Consumer Protection considered that the consumer benefit being eliminated was minimal. It noted that the sticker notice did not tell the consumer the amount of the fee or whether a fee would be charged, it usually only stated that a fee “may” be charged: Supplementary Information issued by the Bureau of Consumer Financial Protection on 26 March 2013 in relation to Disclosures at Automated Teller Machines (Regulation E) 78 FR 18221-01.

¹⁹ See “McCormick & Company, Inc, Pepper Products Settlement” <www.blackpeppersettlement.com>.

Commissioner and Motor Vehicles Disputes Tribunal.²⁰ A potential consequence of class actions may be the development of a litigious mindset in the community, with litigation being seen as the first resort for dispute resolution.²¹

• 6.10 Vicki Waye has observed that whether class actions lead to a “compensation culture” of frivolous litigation depends on the features of a class actions framework and a jurisdiction’s litigation culture.²² We think the risk of trivial claims is likely to be lower in Aotearoa New Zealand than in some other jurisdictions. First, some of the overseas examples which have caused particular concern are due to the substantive law in place in those jurisdictions, such as the requirement to have a fee notice ‘on or at’ an ATM. Second, our population size means that class actions involving very small individual claims may not be economically feasible. Third, our adverse costs regime may deter trivial claims from being commenced. The High Court is empowered to order indemnity costs where a party commenced proceedings “vexatiously, frivolously, improperly, or unnecessarily”.²³
• 6.11 We also note that while class action claims might involve small individual amounts which seem trivial, the cumulative effect may be significant. For example, while the television cable company class action mentioned above involved a $5 fee, the estimated gain to the defendant was $5 million. As was put by former United States Vice President Walter Mondale:²⁴

Nothing is more destructive to a sense of injustice than the widespread belief that it is much more risky for an ordinary citizen to take $5 from one person at the point of a gun than it is for a corporation to take $5 each from a million customers at the point of a pen.

High transaction costs

• 6.12 Class actions are said to impose high transaction costs compared with alternatives such as regulatory action. These costs include legal fees, expenses such as court fees and expert reports, adverse costs insurance and litigation funder commissions.²⁵ Data from other jurisdictions shows these costs can be considerable:

²⁰ For details of dispute resolution bodies by services, see Consumer Protection “Help by product & service”

<www.consumerprotection.govt.nz>.

²¹ Michael J Legg “Shareholder Class Actions in Australia – The Perfect Storm?” [2008] UNSWLawJl 37; (2008) 31 UNSWLJ 669 at 708.

²² Vicki Waye “Advantages and Disadvantages of Class Action Litigation (and its Alternatives)” (2018) 24 NZBLQ 109 at

129. She discusses class actions in Israel, where up to a third of all class actions have been classified as frivolous and many cases are withdrawn prior to certification due to low prospects of success and few cases ever reach a settlement. This is compared with Australia, where around half of cases result in a judicially approved settlement and only a small number are voluntarily withdrawn.

²³ High Court Rules 2016, r 14.6(4)(a).

24. Vice President Walter F Mondale “Address to the Second Judicial Circuit Conference” (10 September 1977) as cited in Kate Tokeley “Class Actions for New Zealand Consumers” in Christian Twigg-Flesner and others (eds) The Yearbook of Consumer Law 2008 (Ashgate Publishing, Aldershot (UK), 2007) 297 at 300.

²⁵ Vicki Waye “Advantages and Disadvantages of Class Action Litigation (and its Alternatives)” (2018) 24 NZBLQ 109 at

127. Capital Strategic Advisors refers to class actions as having ‘management costs’ such as the time a lawyer must spend promoting the claim to prospective class members, conducting due diligence and assessing class member claims and the time spent by the parties and the court on certification: Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 35.

(a) In Australia, the median funder commission taken out of class action settlement funds is 25 per cent.²⁶ Legal fees make up a median 15 per cent of settlements.²⁷

(b) An Ontario study found that the average lawyer’s fee approved by a court in a class action was $3.06 million.²⁸

(c) Data from the United States shows that legal fees made up an average of 27 per cent of gross recovery.²⁹

• 6.13 The Law Commission of Ontario (LCO) commented that almost all stakeholders expressed a concern about the enormous expense and slow pace of class actions.³⁰ In Australia, the average duration of settled class actions is 978 days (or over two and a half years).³¹ Where a matter proceeds to trial, this can involve a lengthy hearing. For example, in Australia, the class action resulting from the 2009 Black Saturday bushfire through Kinglake-Kilmore East involved 208 hearing days, with over 5000 pages of opening and closing submissions.³² In the United States, one study found the average time to settle a class action was around three years.³³

CLASS ACTIONS MAY HAVE NEGATIVE IMPACTS FOR DEFENDANTS

• 6.14 The negative impacts of class actions will be felt most keenly by the defendants they are brought against – and their insurers. While the typical class action defendant is a large

26. Vince Morabito Common Fund Orders, Funding Fees and Reimbursement Payments (An Evidence-Based Approach to Class Action Reform in Australia, January 2019) at 11. This does not include litigation costs that a funder will receive reimbursement for. See also Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [3.49]–[3.50] showing that litigation funding fees make up a median 30 per cent of a settlement in funded cases in the Federal Court. Funding commissions ranged from 17 per cent of a $3 million settlement ($510,000) to 62 per cent of a $6.6 million settlement ($4.092 million).
27. Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [3.49]–[3.50]. Fee percentages ranged from 2 per cent of a $250 million settlement ($5 million) to 50 per cent of a $3 million settlement ($1.5 million). Vince Morabito comments that while the Full Federal Court of Australia has observed it frequently costs at least $10 million to run a class action, this figure has been surpassed in several cases, citing examples of cases costing over $36 million, $25 million and $19.2 million to run. See Vince Morabito “Lessons from Australia on Class Action Reform in New Zealand” (2018) 24 NZBLQ 178 at 184.
28. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 131.
29. Theodore Eisenberg, Geoffrey Miller and Roy Germano “Attorneys’ Fees in Class Actions: 2009–2013” (2017) 92 NYU L Rev 937 at 947. Costs and expenses made up a median 1.71 per cent of recovery: at 963.

³⁰ Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 23.

31. Vince Morabito The First Twenty-Five Years of Class Actions in Australia (Fifth Report, An Empirical Study of Australia's Class Action Regimes, July 2017) at 30. The category of settled class actions with the longest average duration was product liability class actions, with a duration of 1,149 days.
32. Jack Forrest “Issues in Case Management of Class Actions and Administration of Settlements – Kilmore East/Kinglake Bushfire Trial” in Damian Grave and Helen Mould (eds) 25 Years of Class Actions in Australia: 1992–2017 (Ross Parsons Centre of Commercial, Corporate and Taxation Law, Sydney, 2017) 71 at 73.
33. Brian T Fitzpatrick “An Empirical Study of Class Action Settlements and Their Fee Awards” (2010) 7 JELS 811 at 820. This was a study of federal class action cases from 2006–2007. The average time to settlement was 1,196 days and the median time was 1,068 days.

company, overseas experience shows this is not always the case. In Australia, for example, one in five class actions has been brought against the Government.³⁴

• 6.15 For a defendant, the impact of a class action can be significant because of the potential costs it may face in defending the action. A defendant will incur legal costs regardless of whether it is ultimately found to be liable, given that an unsuccessful plaintiff will usually only have to pay a portion of the defendant’s costs.³⁵ There will also be indirect costs such as time spent by management on defending the litigation and negative reputational effects.³⁶ One United States report claims that the mere filing of a securities class action erases (on average) 3.5 per cent of a defendant company’s equity value.³⁷

Defendants face strong settlement pressure

• 6.16 Defendants in class actions may face strong incentives to settle because of the high transaction costs and the potential for a large but uncertain financial liability. ³⁸ For example, even if a corporation believes its prospects of defending a claim are high (say 80 per cent), it may be economically rational to settle a $100 million claim for $20 million to remove the risk of liability and avoid further costs.³⁹ In the United States, some have even described class actions as a form of ‘legalised blackmail’ whereby defendants feel compelled to settle claims, irrespective of the merits, due to the high costs of litigation and the risk of a large recovery against them.⁴⁰
• 6.17 The data shows that class actions do frequently settle. In the United States it is very rare to go to trial and most cases allowed to proceed as a class action result in a settlement.⁴¹

³⁴ Vince Morabito “Government has shelled out $1.1B in class actions” (23 July 2020) Lawyerly <www.lawyerly.com.au>.

³⁵ See Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 43.

³⁶ Michael J Legg “Shareholder Class Actions in Australia – The Perfect Storm?” [2008] UNSWLawJl 37; (2008) 31 UNSWLJ 669 at 674–675.

37. United States Chamber Institute for Legal Reform A Rising Threat: The New Class Action Racket That Harms Investors and the Economy (October 2018) at 18.
38. Michael J Legg “Shareholder Class Actions in Australia – The Perfect Storm?” [2008] UNSWLawJl 37; (2008) 31 UNSWLJ 669 at 698 and 699– 700.

³⁹ Gary L Sasso “Class Actions: De Minimis Curat Lex?” (2005) 31(4) Litigation 16 at 18.

40. The concept of a ‘blackmail settlement’ is believed to have originated in Henry J Friendly Federal Jurisdiction: A General View (Columbia University Press, New York, 1973). See also United States Chamber Institute for Legal Reform Unstable Foundation: Our Broken Class Action System and How to Fix It (October 2017) at 17–18; Linda S Mullenix “Ending Class Actions as We Know Them: Rethinking the American Class Action” (2014) 64 Emory LJ 399 at 416; Milton Handler “The Shift from Substantive to Procedural Innovations in Antitrust Suits—The Twenty-Third Annual Antitrust Review” (1971) 71 Colum L Rev 1 at 9 (“Any device which is workable only because it utilizes the threat of unmanageable and expensive litigation to compel settlement is not a rule of procedure—it is a form of legalized blackmail”). For a critique of the legalised blackmail argument, see Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 146; Charles Silver “‘We’re Scared to Death’: Class Certification and Blackmail” (2003) 78 NYU L Rev 1357; and Bruce Hay and David Rosenberg “Sweetheart and Blackmail Settlements in Class Actions: Reality and Remedy” (2000) 75 Notre

Dame L Rev 1377 at 1391.

41. William Rubenstein Newberg on Class Actions (online ed, Thomson Reuters) at [§11:1]. One empirical study of class actions in four districts found that the percentage of certified class actions that resulted in a class settlement ranged from 62 per cent to 100 per cent: Thomas E Willging, Laural L Hooper and Robert J Niemic Empirical Study of Class Actions in Four Federal District Courts: Final Report to the Advisory Committee on Civil Rules (Federal Judicial Center,

1996) at 60.

This is said to be particularly the case for securities class actions.⁴² In Canada, over 90 per cent of cases allowed to proceed as class actions result in negotiated settlements.⁴³ In Australia, empirical analysis of class actions between March 1992 and March 2017 shows that 52 per cent of class actions settled, with some categories of cases having much higher settlement rates than others.⁴⁴ In its 2018 report, the ALRC noted that all federal shareholder class actions had settled to date and that it was difficult to assess whether claims were meritorious in the absence of judgments.⁴⁵ In Victoria, approximately two- thirds of all class actions have settled.⁴⁶

• 6.18 Settlement of litigation in general has many benefits. It enables both sides to avoid the legal costs of going to trial, frees up judicial resources for other cases, is generally faster, avoids a lengthy period of uncertainty and may enable a more creative array of remedies. In Aotearoa New Zealand, most civil disputes settle and only 9.5 per cent of all civil proceedings in the High Court go to trial.⁴⁷
• 6.19 The desire to settle rather than litigate because of the prospect of an adverse judgment or non-recoverable legal costs is not unique to class actions.⁴⁸ In 1982, the Ontario Law Reform Commission (OLRC) observed that the prospect of high litigation costs and large monetary awards also incentivises defendants to settle non-class action cases. In its view, any increased pressure to settle meritorious class actions that results simply from the ability of class actions to overcome individual barriers to litigation and provide greater access to the courts was legitimate and desirable.⁴⁹
• 6.20 A high settlement rate is not necessarily problematic and may simply indicate a rational response to litigation risk. However, there is a risk that defendants will feel compelled to settle meritless class action claims. There is also a risk that defendants will overpay in settlement because the risks of class actions are so high. We discuss these risks below.

42. Linda S Mullenix “Ending Class Actions as We Know Them: Rethinking the American Class Action” (2014) 64 Emory LJ 399 at 432–433 commenting that the “in terrorem” effect of a certified securities class action is so powerful that they almost never go to trial. She cites figures showing that only 14 out of 3,998 securities class actions went to trial verdict.
43. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 92.
44. Vince Morabito The First Twenty-Five Years of Class Actions in Australia (Fifth Report, An Empirical Study of Australia's Class Action Regimes, July 2017) at 30, 34 and 37. For example, 73 per cent of investor class actions settled compared with 26 per cent of consumer protection class actions: at 30.
45. Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [9.50]–[9.51]. We are aware of one shareholder class action having proceeded to judgment since the Australian Law Reform Commission’s report: TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Ltd [2019] FCA 1747, (2019) 140 ACSR 38.
46. Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Report (March 2018) at [4.10].
47. Geoffrey Venning “Greater Efficiency in Civil Procedure” (paper presented to New Zealand Bar Association-Australian Bar Association Joint Conference, Queenstown, August 2019).
48. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 76.

⁴⁹ Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 147.

Settlement of meritless claims

• 6.21 Class action critics warn of ‘strike suits’ which are: ⁵⁰

[F]rivolous claims which utilise the threat of unmanageable and expensive litigation to compel defendants to settle because of the risks inherent in any litigation and the enormous costs of defending a class action.

• 6.22 In the 1990s, concern was expressed about strike suits in securities class action litigation in the United States.⁵¹ Legislative reform resulted, including prescribed procedures for selecting the representative plaintiff and class counsel in securities class actions, stricter pleading requirements for securities claims, potential sanctions for plaintiffs and lawyers who brought frivolous lawsuits and precluding certain types of securities class action from being brought in state courts.⁵²
• 6.23 It is difficult to know how many settled class action cases are lacking in merit in the absence of a court having adjudicated on these claims.⁵³ A report on settlement of United States class actions described cases resulting in settlements under $5 million as “nuisance suits” and found that in 2019 just under 22 per cent of securities settlements were under this level.⁵⁴ Some consider the meritless settlements argument to be overblown, noting that there are many successful applications to dismiss cases and many unsuccessful applications for class certification.⁵⁵ One report shows that between 1997 and 2018, 44 per cent of United States federal securities class actions (excluding merger and acquisition cases) were dismissed.⁵⁶
• 6.24 The OLRC did not discount the possibility that some class actions would be frivolous or otherwise lacking in merit. However, it said the answer was not to bar all class actions but rather to develop a procedure that could prevent meritless claims or those commenced

⁵⁰ Australian Law Reform Commission Access to the Courts — II Class Actions (ALRC Discussion Paper 11, 1979) at [23].

51. See Conference Report (HR Rep No 104-369) at 31 on what is now the Private Securities Litigation Reform Act of 1995 Pub L No 104-67, 109 Stat 737 (1995). See also discussion in Elliott J Weiss and John S Beckerman “Let the Money Do the Monitoring: How Institutional Investors Can Reduce Agency Costs in Securities Class Actions” (1995) 104 Yale LJ 2053 at 2084–2088 where the authors comment:

Some portion of class actions surely meet our definition of strike suits, but whether the correct figure is four percent or forty percent we cannot say. We are confident, though, that the strike suit problem has an agency-cost dimension.

52. Private Securities Litigation Reform Act of 1995 Pub L No 104-67, 109 Stat 737 (1995); and Securities Litigation Uniform Standards Act of 1998 Pub L 105-353, 112 Stat 3227 (1998). See discussion of these Acts in David M Levine and Adam C Pritchard “The Securities Litigation Uniform Standards Act of 1998: the sun sets on California’s Blue Sky laws” (1998) 54 Bus Law 1.
53. The Australian Law Reform Commission commented on this point. It noted that all federal shareholder claims had settled at that point and the question of whether claims were meritorious was difficult to assess in the absence of any having proceeded to judgment: Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [9.50]–[9.51].

⁵⁴ Cornerstone Research Securities Class Action Settlements: 2019 Review and Analysis (2019) at 4.

55. Myriam Gilles and Gary B Friedman “Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepreneurial Lawyers” (2006) 155 U Pa L Rev 103 at 158. See also Brian T Fitzpatrick “Can the Class Action Be Made Business Friendly?” (2018) 24 NZBLQ 169 at 171; and Charles Silver “‘We’re Scared to Death’: Class Certification and Blackmail” (2003) 78 NYU L Rev 1357 at 1396.

⁵⁶ Cornerstone Research Securities Class Action Filings: 2020 Midyear Assessment (2020) at 13.

in bad faith from proceeding.⁵⁷ The ALRC considered that the risk of meritless claims was countered by the adverse costs rule that operates in Australia and the court’s power to dismiss proceedings that were frivolous, vexatious or an abuse of process.⁵⁸ It has also been said that there are unique characteristics of litigation in the United States that might lead to ‘blackmail’ settlements, including the use of jury trials in civil cases and high levels of punitive damages.⁵⁹

• 6.25 In Aotearoa New Zealand, a court has the power to strike out or stay a claim which does not disclose a reasonably arguable cause of action, is likely to cause prejudice or delay, is frivolous or vexatious or is an abuse of the court’s process.⁶⁰ In addition, the adverse costs regime is likely to deter meritless claims and allow a defendant to recoup at least some of their legal costs in defending such a claim. Indemnity costs may also be available if the claim was brought vexatiously, frivolously, improperly or unnecessarily. ⁶¹ CSA comments that an adverse costs regime “should discourage all but the most motivated nuisance plaintiff”.⁶² However, where a defendant faces a claim they think has little merit but which is unlikely to meet the threshold for indemnity costs, it may still consider it economically rational to settle the claim because it will not recover all of its costs.⁶³
• 6.26 Many jurisdictions also have a certification stage where the court must determine whether a case can proceed in class action form and this provides another way of screening out meritless claims.⁶⁴

Overpayment due to risk aversion

• 6.27 It is possible that defendants will pay more than they should to settle a class action claim because of the risk and uncertainty involved. A company may be willing to settle for not only what it believes the average outcome will be, but an amount above that to avoid the possibility of an extreme outcome.⁶⁵ This risk is heightened in the United States because of the role of juries in setting the amount of damages and the greater availability of punitive damages. However, there is limited evidence that defendants are risk averse.⁶⁶

57. Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 149. See also Alberta Law Reform Institute Class Actions (Final Report 85, 2000) at [130].

⁵⁸ Australian Law Reform Commission Grouped Proceedings in the Federal Court (ALRC R46, 1988) at [351].

⁵⁹ Craig Jones Theory of Class Actions (Irwin Law, Toronto, 2003) at 57–58.

60. High Court Rules 2016, r 15.1. See also rr 5.35A and 5.35B of the High Court Rules 2016 which allow a Registrar to refer a proceeding to a judge before service if it is “plainly an abuse of the court”.

⁶¹ High Court Rules 2016, r 14.6(4).

⁶² Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 22.

63. Michael Legg comments that strike suits are possible in Australia because a successful company will not recover all of its direct costs (let alone indirect costs such as management time): Michael J Legg “Shareholder Class Actions in Australia – The Perfect Storm?” [2008] UNSWLawJl 37; (2008) 31 UNSWLJ 669 at 710.

⁶⁴ We discuss certification in Chapter 10.

⁶⁵ Brian T Fitzpatrick “Can the Class Action Be Made Business Friendly?” (2018) 24 NZBLQ 169 at 173.

66. Charles Silver “‘We’re Scared to Death’: Class Certification and Blackmail” (2003) 78 NYU L Rev 1357 at 1409. See also John C Coffee Jr “Rescuing the Private Attorney General: Why the Model of the Lawyer as Bounty Hunter is not Working” (1983) 42 Md L Rev 215 at 230 discussing risk aversion among plaintiff lawyers.

Even if defendants are risk averse, this may be cancelled out by plaintiff lawyers also being risk averse and being willing to accept too little to settle cases.⁶⁷

Impacts of large settlements or damages awards

• 6.28 For a defendant, the impact of a settlement or damages award will depend on many variables such as its financial position, insurance arrangements and the size of the payment. The cost of a class action may be indirectly passed on to consumers in the form of increased prices for goods and services.
• 6.29 It has been claimed that class actions result in “company-killing verdicts”, but this is disputed and few if any companies are said to have been rendered insolvent by a class action.⁶⁸ A defendant facing a securities class action could rationally predict that the outcome would be a “modest settlement” rather than a “company-killing verdict rendered at trial”.⁶⁹ Vince Morabito has challenged the claim that Australian class actions have resulted in billions of dollars being paid by defendants. His research shows there have been 13 Australian class action settlements of $100 million or more over a 27-year period, which he considers is not an excessive number of high value settlements.⁷⁰
• 6.30 We also note that it is the existing right to compensation and obligations to redress and not the procedures for enforcing those rights and obligations which determine the legal position of defendants.⁷¹

CLASS ACTIONS MAY HAVE NEGATIVE IMPACTS ON THE BUSINESS AND REGULATORY ENVIRONMENT

• 6.31 A class action will clearly have an impact on the defendant it is brought against. However, the risk of class actions may have a broader impact on the business and regulatory environment. We discuss potential issues below.

Impact on directors and officers liability insurance

• 6.32 In Australia, it has been claimed that the increase in shareholder class actions has had a significant impact on the pricing and availability of directors and officers liability insurance (D&O insurance).⁷² The increase in Australian shareholder class actions has been said to

⁶⁷ Brian T Fitzpatrick “Can the Class Action Be Made Business Friendly?” (2018) 24 NZBLQ 169 at 174.

⁶⁸ Charles Silver “‘We’re Scared to Death’: Class Certification and Blackmail” (2003) 78 NYU L Rev 1357 at 1404–1405.

⁶⁹ Charles Silver “‘We’re Scared to Death’: Class Certification and Blackmail” (2003) 78 NYU L Rev 1357 at 1407.

70. Vince Morabito Common Fund Orders, Funding Fees and Reimbursement Payments (An Evidence-Based Approach to Class Action Reform in Australia, January 2019) at 9. He explains that another three cases could possibly be added this list — two involve confidentiality orders and one involves waiver of debt rather than a payment by the defendants.
71. See Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 77. We discuss this point further in Chapter 7.
72. The claim is discussed in Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [9.81]–[9.85]. See also Australian Institute of Company Directors, Submission No 40 to Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into Litigation Funding and the Regulation of the Class Action Industry (11 June 2020) at 7–9.

affect the pricing and availability of D&O insurance in Aotearoa New Zealand.⁷³ A recent report predicts that increased litigation funding, developments in representative actions as well as potential class actions law reform, and the growing regulatory burden on directors and officers, could also result in changes to the D&O insurance market in Aotearoa New Zealand.⁷⁴ It has been suggested that these changes may in turn adversely impact the ability of companies to recruit directors and officers.⁷⁵

• 6.33 We describe the recent trends in the Australasian D&O insurance market in more detail in Chapter 17 and consider the claims that an increase in funded shareholder class actions in particular are contributing to the ‘hardening’ of the market (where premiums increase and the availability of insurance decreases). As we discuss in Chapter 17, we have not yet seen robust evidence in support of those claims.

Difficulties in appointing directors

• 6.34 It is possible that individuals will be deterred from becoming directors because of the fear of a class action being brought against companies they serve on. According to a 2019 report, 40 per cent of directors agreed that the scope of director responsibilities was more likely to deter them from taking on a governance role than a year ago. The report attributed this to increasing disclosure obligations and regulatory scrutiny as well as potentially the rise of class actions and litigation funding. ⁷⁶ This risk may also be compounded by the impact of class actions and litigation funding on the market for D&O insurance.

Defendants may become overly risk averse

• 6.35 While an aim of class actions is to deter negative conduct, the fear of a class action could potentially also cause defendants to become overly risk-averse and avoid desirable conduct.⁷⁷ If Government agencies fear class actions and become more risk-averse, for example, this could slow down decision making or cause a retreat from certain areas of regulation.⁷⁸ However, as we discuss elsewhere in this Issues Paper, the potential for

73. Institute of Directors New Zealand, MinterEllisonRuddWatts and Marsh Directors and Officers Insurance: Trends and Issues in Turbulent Times (June 2019) at 5.
74. Institute of Directors New Zealand, MinterEllisonRuddWatts and Marsh Directors and Officers Insurance: Trends and Issues in Turbulent Times (June 2019) at 11.
75. Institute of Directors New Zealand, MinterEllisonRuddWatts and Marsh Directors and Officers Insurance: Trends and Issues in Turbulent Times (June 2019) at 3.
76. Institute of Directors New Zealand and ASB Director Sentiment Survey 2019 (21 November 2019) at 8. See also Australian Institute of Company Directors, Submission No 40 to Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into Litigation Funding and the Regulation of the Class Action Industry (11 June 2020) at 5.
77. Edward H Cooper “Class Action Advice in the Form of Questions” (2001) 11 Duke J Comp & Intl L 215 at 219; Martin H Redish “The Liberal Case Against the Modern Class Action” (2020) 73 Vand L Rev 1127 at 1144; and Brian T Fitzpatrick “Can the Class Action Be Made Business Friendly?” (2018) 24 NZBLQ 169 at 173.
78. See Tim Smith and Duncan McLachlan “Kiwifruit and the Crown – Expanding regulator liability in Strathboss” (2018) 920 LawTalk 49. This discusses the High Court’s decision in Strathboss Kiwifruit Ltd v Attorney-General [2018] NZHC 1559, a representative action under r 4.24 of the High Court Rules 2016, which is described as “a decision causing some angst for all regulators carrying out an operational rule”. This decision was subsequently overturned by the Court of Appeal (Attorney-General v Strathboss Kiwifruit Ltd [2020] NZCA 98) and the Supreme Court has granted leave to hear the case (Strathboss Kiwifruit Ltd v Attorney-General [2020] NZSC 68).

liability is ultimately due to the underlying legal claims rather than the procedure used to bring the claims.⁷⁹

Impact on overall business environment

• 6.36 Where businesses face greater exposure to litigation, this may create additional compliance and legal costs. In relation to Australia, it has been said these costs could harm the country’s competitive position as businesses may choose to base themselves in a less litigious country.⁸⁰ This argument was dismissed by the Alberta Law Reform Institute, which did not think the presence or absence of a class actions regime was likely to have any effect on business location.⁸¹ We note that many businesses in Aotearoa New Zealand conduct operations in jurisdictions that have class actions regimes. We think it is unlikely that these businesses would choose to move locations simply because a class actions regime was introduced here.
• 6.37 The Australian Institute of Company Directors has argued that Australia’s “relatively facilitative class action law” combined with its strict continuous disclosure regime has created a constant risk of a class action every time a listed company has a significant decline in share price.⁸² It also argued that these factors risked having a chilling effect on a company’s ability to attract investment or to engage in mergers and acquisitions or capital raising activity.⁸³
• 6.38 Class actions could also have a positive impact on the business environment because stricter enforcement could lead to greater transparency and integrity of the market.⁸⁴ Similarly, CSA comments that deterring small but widespread harms is likely to have wider implications for confidence in markets. CSA argues that if behaviour such as misleading and deceptive conduct is allowed to go undeterred, it may lead to a “race to the bottom” where other firms are encouraged to engage in similar practices, further reducing participation in markets.⁸⁵ In CSA’s assessment, there are no reasonable innovation and productivity arguments for inhibiting wronged parties from accessing the justice system through class actions. An essential part of this analysis is that courts apply the same liability rules regardless of the choice of legal vehicle for pursuing claims, so it is the substantive law rather than class actions which creates the liability.⁸⁶

79. In relation to the Strathboss decision for example, commentary has focused on the High Court’s substantive findings on the plaintiff’s claims as opposed to the use of the representative actions rule to bring the claim. See Stephen Young and Alex Latu “Class actions, Crown negligence, immunities and epidemics on trial” [2020] NZLJ 368.

⁸⁰ Michael J Legg “Shareholder Class Actions in Australia – The Perfect Storm?” [2008] UNSWLawJl 37; (2008) 31 UNSWLJ 669 at 710.

⁸¹ Alberta Law Reform Institute Class Actions (Final Report 85, 2000) at [147].

82. Australian Institute of Company Directors, Submission No 40 to Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into Litigation Funding and the Regulation of the Class Action Industry (11 June 2020) at 4.
83. Australian Institute of Company Directors, Submission No 40 to Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into Litigation Funding and the Regulation of the Class Action Industry (11 June 2020) at 7.

⁸⁴ Michael J Legg “Shareholder Class Actions in Australia – The Perfect Storm?” [2008] UNSWLawJl 37; (2008) 31 UNSWLJ 669 at 710.

⁸⁵ Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 44.

⁸⁶ Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 45.

Increased cost to Government

• 6.39 As noted above, one in five Australian class actions has been against the Government. This has resulted in payments of over $1 billion to claimants, which is ultimately borne by taxpayers. ⁸⁷ A similar result may occur in Aotearoa New Zealand with class actions regularly brought against the Government, resulting in significant costs to defend and settle cases. A number of representative actions have been brought against the Government, as we set out in Chapter 3.

CLASS ACTIONS MAY PROVIDE INSUFFICIENT PROTECTION OF CLASS MEMBERS’ INTERESTS

• 6.40 If a class actions regime is poorly designed, there is a risk that class actions will insufficiently protect the interests of class members. One issue is that class members will be bound by the outcome of a case, potentially even in circumstances where they were unaware of the case. Even when class members are aware of the case, they may have limited knowledge and little ability to participate in the litigation.
• 6.41 Another issue is that conflicts of interest may arise. These conflicts may arise between different class members as well as between the class and the representative plaintiff.⁸⁸ A conflict may also arise between the lawyer and the class at settlement if settlement improves the prospects and timing of payment of the lawyer’s fee but may result in a reduced amount available for class members.⁸⁹ Conflicts may be exacerbated when a litigation funder is present and where there is a tripartite relationship between the lawyer, litigation funder and representative plaintiff.⁹⁰

Class action judgment binds the class

• 6.42 A key feature of class actions is that a single judgment on common issues binds the whole class. These common issues cannot be relitigated in subsequent proceedings by class members. However, in an opt-out class action, there is a risk of class members being bound by a judgment when they had little or no knowledge of proceedings. We have been told this could have a particularly harsh effect in Māori collective litigation, in cases where a class comprises members of a hapū or iwi and the judgment has an impact well beyond the lifetimes of the current members of group. The potential risks associated with opt-out proceedings are discussed further in Chapter 12.
• 6.43 Class actions regimes do, however, contain safeguards to minimise the effect that an unwitting class member will unintentionally be bound by litigation they did not wish to be

87. Vince Morabito “Government has shelled out $1.1B in class actions” (23 July 2020) Lawyerly <www.lawyerly.com.au> stating that a total of $1,155,270,100 was paid in judicial-approved settlements and post-trial awards of damages.
88. Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Report (March 2018) at [4.126].
89. Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Report (March 2018) at [4.129].
90. Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Report (March 2018) at [4.130]; and Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [1.43].

part of. In particular, this includes the requirement to provide notice and an opportunity to opt out of the claim. We discuss this in Chapter 12.

Class members have limited involvement in litigation

• 6.44 Class members do not have the status of parties and may have limited opportunities to meaningfully participate in a class action proceeding. Class actions regimes generally give class members the opportunity to object to a settlement although objectors face hurdles in doing so, including a lack of legal representation and lack of expertise at reviewing the settlement.⁹¹ As a result, objections tend to be scarce and they are rarely successful.⁹² Some regimes also provide class members with the opportunity to apply to participate in the proceeding.⁹³ However, class members need sufficient understanding of the litigation and how they can have their concerns put before the court in order to take up these opportunities.⁹⁴
• 6.45 The Victorian Law Reform Commission (VLRC) has noted that a disadvantage of class actions is that most class members have limited contact with the lawyers acting for the class and incomplete information about the cost, progress and likely outcome of proceedings. It described this as inevitable, because the lawyers acting for the class cannot have the same degree of contact with all class members as they have with the representative plaintiff.⁹⁵

Conflicts between class members and with the representative plaintiff

• 6.46 In a class action, there are likely to be differences between the claims of the representative plaintiff and the other class members, as well as differences between class

91. See Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Report (March 2018) at [4.183]–[4.187]; Class Proceedings Act SO 1992 c 6, ss 14, and 27.1(7), (8) and (16); United States Federal Rules of Civil Procedure, r 23(e)(1) and (5)(A); and The Competition Appeal Tribunal Rules 2015 (UK), r 94(7).
92. See Michael Legg "Class Action Settlements in Australia — The Need for Greater Scrutiny" [2014] MelbULawRw 23; (2014) 38 MULR 590 at 599– 600; Azra Alagic “Objectors – The Reality of Objecting to Class Action Settlements” (1 September 2020) Class Action Clinic: Windsor Law <www.classactionclinic.com>; and William B Rubenstein Newberg on Class Actions (online ed, Thomson Reuters) at [§3:21] and [§13:58].
93. In Canada, a court may permit a class member to participate in the proceeding to ensure that the interests of class members are fairly and adequately represented: Federal Courts Rules SOR/98-106, r 334.23(1); Class Proceedings Act SO 1992 c 6, s 14(1); Class Proceedings Act RSBC 1996 c 50, s 15(1); Class Proceedings Act SA 2003 c C-16.5, s 16(1); The Class Proceedings Act CCSM 2002 c C-130, s 15(1); The Class Actions Act SS 2001 c C-12.01, s 17; Class Proceedings Act SNS 2007 c 28, s 18(1); Class Proceedings Act RSNB 2011 c 125, s 17(1); and Class Actions Act SNL 2001 c C-18.1, s 166. In the United States, class members may intervene in proceedings: see United States Federal Rules of Civil Procedure, rr 23(d)(1)(B)(iii), 23(d)(1)(c) and 24. In the United Kingdom Competition Appeal Tribunal, a proposed class member may

apply to make submissions at the certification hearing: The Competition Appeal Tribunal Rules 2015 (UK), r 79(5).

94. We note that in 2019 the University of Windsor class action clinic was set up for this purpose. See Class Action Clinic: Windsor Law “Our Mission and Services” <www.classactionclinic.com>.
95. Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Report (March 2018) at [4.4]. See also Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [1.35].

members. They will have different circumstances and they may have experienced different types and amounts of harm.⁹⁶ This may lead to conflicts of interest.

• 6.47 Another risk is that a representative plaintiff may seek to settle their own claim at a premium, in return for discontinuing the class action or settling it on terms that are not advantageous to all class members. One scenario is a representative plaintiff who brings a class action for the sole purpose of exerting pressure on a defendant to settle their own personal claim. Another scenario is that a representative plaintiff has brought the claim in good faith but cannot rationally refuse a generous offer from the defendant to settle their own claim, at the expense of the class.⁹⁷
• 6.48 There are, however, features of class actions regimes which are designed to safeguard against the risk of such conflicts. In most jurisdictions, there is a requirement that a representative plaintiff fairly and adequately represent the class, which includes an absence of conflicts of interest.⁹⁸ Sub-classes may be created, each with a representative plaintiff, where there are differences between class claims.⁹⁹ Another safeguard is judicial approval of class actions settlements, which is required across comparable jurisdictions.¹⁰⁰ In general, courts will need to consider whether a proposed settlement is fair, reasonable and in the best interests of the class overall.¹⁰¹ A representative plaintiff may also need to obtain the leave of the court before they can settle their individual claim and withdraw as representative party.¹⁰²

Potential conflicts between the lawyer and the class

• 6.49 A principal-agent problem arises where a principal is unable to observe an agent’s effort or quality and has difficulty getting the agent to act in their best interests.¹⁰³ CSA surmises that class actions involving low individual claim values suffer from severe principal-agent problems between the lawyer and the representative plaintiff. Because the representative plaintiff’s individual stake in the litigation is low in such a case, they have a

⁹⁶ Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Consultation Paper

(July 2017) at [3.65].

⁹⁷ Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 164.

⁹⁸ This is discussed in Chapter 11.

99. See Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 184–188 and 287.
100. Rachael Mulheron The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing, Oxford, 2004) at 390.
101. In Australia, the parties will usually need to persuade the court that (a) the proposed settlement is fair and reasonable, having regard to the claims of those who will be bound by the settlement; and (b) it is in the interests of the class members, as well as the applicant and respondent: see Federal Court of Australia, Practice Note GPN-CA — Class Actions Practice Note, 20 December 2019 at [14.3]; Supreme Court of Victoria, Practice Note SC Gen 10 — Conduct of Group Proceedings (Class Actions) (Second Revision), 1 July 2020 at [16.1]; Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925, (2000) 180 ALR 459 at [19]; and Michael Legg and Ross McInnes Australian Annotated Class Actions Legislation (2nd ed, LexisNexis Butterworths, Chatswood (NSW), 2018) at [22.1]. In Canada, in order to approve a settlement, the court must find that it is fair, reasonable and in the best interests of the class: Nunes v Air Transat A T Inc (2005) 20 CPC (6th) 93 (ONSC) at [7]; and Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of

Access to Justice (UBC Press, Vancouver, 2018) at 93.

¹⁰² See for example Federal Court of Australia Act 1976 (Cth), s 33W.

¹⁰³ Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 5 (glossary).

weak incentive to supervise their lawyer. This can lead to litigation costs that are substantially higher than efficient levels.¹⁰⁴

• 6.50 In practice, there is evidence that class actions can result in significant fees paid to lawyers. This is particularly the case in jurisdictions which allow contingency fees (calculated as a percentage of a settlement or damages award), such as Canada and the United States.¹⁰⁵ Even in jurisdictions without contingency fees, class actions can result in substantial legal fees for plaintiff lawyers and law firms. For example, in the Federal Court of Australia, legal fees comprise a median 15 per cent of settlements, which can amount to several million dollars.¹⁰⁶
• 6.51 It is not unheard of for lawyers to earn significant fees in traditional litigation and in principle there would be nothing inherently wrong with a lawyer earning a substantial fee in a class action as well. The LCO has observed that legal fees are directly related to access to justice as lawyers may not pursue cases if their fees are set too low.¹⁰⁷ However, the profit motive combined with certain features of class actions, such as the lack of a traditional lawyer-client relationship with class members, may risk inappropriate litigation or conflicts of interest.¹⁰⁸
• 6.52 The potential financial benefit to lawyers provides an incentive for lawyers to find and bring class action cases, meaning that litigation is often driven by lawyers rather than by individuals seeking access to justice. A Canadian survey found that less than 25 per cent of class actions were initiated by a client; instead, lawyers often reported commencing class actions following the announcement of regulatory investigations, referrals by third parties or the firm’s own research. ¹⁰⁹ Lawyers also play a key role in selecting the representative plaintiff.¹¹⁰ The constitution of the class has been described as “entirely a creation of the lawyer: class counsel control its beginning, its end, its shape, and its conduct”.¹¹¹

104. Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 37. Capital Strategic Advisors also comments that the principal-agent problems arise from two sources of information asymmetry: a client’s inability to perfectly observe lawyers’ actions and effort levels and a client’s lack of legal expertise: see at 22–

24. We note that lawyers are bound to act competently and must not charge more than a fee that is fair and reasonable. See Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, rr 3 and 9 in particular.

105. See Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 131 which states legal fees have been calculated as an average of $3.06 million in class action cases; and Theodore Eisenberg, Geoffrey Miller and Roy Germano “Attorneys’ Fees in Class Actions: 2009–2013” (2017) 92 NYU L Rev 937 at 944 which states the mean attorney fee award for cases with recoveries over $100 million ranged from

$37.9 million in 2010 to $124 million in 2013.

106. Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [3.49].

¹⁰⁷ Law Commission of Ontario Class Actions: Objectives, Experiences and Reforms – Final Report (July 2019) at 71.

¹⁰⁸ Martin H Redish “The Liberal Case Against the Modern Class Action” (2020) 73 Vand L Rev 1127 at 1142.

109. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 73.
110. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 79; and Susan P Koniak and George H Cohen “In Hell There Will Be Lawyers Without Clients or Law” (2001) 30 Hofstra L Rev 129 at 132–133.
111. Susan P Koniak and George H Cohen “In Hell There Will Be Lawyers Without Clients or Law” (2001) 30 Hofstra L Rev 129 at 143.

• 6.53 However, the mere fact that a lawyer identifies a case does not mean that it lacks merit. Given the barriers to access to justice, it may be unrealistic to expect an individual to be the driving force behind class action litigation, particularly where individual claims are small.¹¹² Lawyers may also uncover legal harms that individuals do not even recognise as such. In this way, entrepreneurial class action lawyers may further access to justice by addressing information deficits. ¹¹³ The class action lawyer has been described as a “bounty hunter”, who is motivated to prosecute legal violations that are still unknown by prospective clients.¹¹⁴ There are situations where solicitation of clients for a class action may be inappropriate. For example, a Canadian class action law firm was criticised after contacting residential school survivors to discuss their experiences of abuse.¹¹⁵
• 6.54 Where the lawyer rather than the client drives cases, this may cause certain types of cases to be preferred over others. Because class actions provide a business opportunity, the size of a potential damages claim is a critical factor for lawyers in selecting cases and so class actions have been described as providing access to justice for the middle class more than for the poor.¹¹⁶ Class action lawyers are also incentivised towards cases where their costs of finding and evaluating a case are low, such as cases which “piggyback” on regulatory action.¹¹⁷ There is a risk that an unconstrained lawyer may be motivated to sue where the client would not.¹¹⁸
• 6.55 The profit motive may also cause lawyers to pursue opportunistic claims or settle claims at a disadvantage to class members. ¹¹⁹ In the United States, there have been a considerable number of class actions challenging merger and acquisition transactions. These lawsuits generally claim that corporate disclosures were inadequate and/or misleading and seek a preliminary injunction to put the transaction on hold. There may be pressure on defendants to settle these claims quickly so the transaction can be closed.¹²⁰ Settlements are frequently said to involve the class receiving “trivial” additional

112. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 87.
113. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 86.
114. John C Coffee Jr “Understanding the Plaintiff’s Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions” (1986) 86 Colum L Rev 669 at 679.
115. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 87. See also David Napier “Sins of the Father – Residential Schools special report” Anglican Journal (online ed, Toronto, 2 May 2000).
116. Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 88.
117. John C Coffee Jr “Understanding the Plaintiff’s Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions” (1986) 86 Colum L Rev 669 at 681–682; and John C Coffee Jr “Rescuing the Private Attorney General: Why the Model of the Lawyer as Bounty Hunter is not Working” (1983) 42 Md L Rev 215 at 224.
118. John C Coffee Jr “Understanding the Plaintiff’s Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions” (1986) 86 Colum L Rev 669 at 680.
119. See generally Howard M Erichson “Aggregation as Disempowerment: Red Flags in Class Action Settlements” (2016) 92 Notre Dame L Rev 859 for a discussion of features of class action settlements that benefit the plaintiff’s lawyer and the defendant without providing value to class members.
120. United States Chamber Institute for Legal Reform A Rising Threat: The New Class Action Racket That Harms Investors and the Economy (October 2018) at 7.

disclosures while the plaintiff’s lawyer receives a significant fee. ¹²¹ Another form of settlement that may provide little benefit to class members is coupons for the defendant’s product, particularly where the coupons may not be transferred to others, may not be used with other discounts and have restrictions such as an expiry date.¹²² There may also be a risk of collusive or ‘sweetheart’ deals, where plaintiff lawyers are willing to settle class action claims for less than their true value in exchange for generous legal fees.¹²³ However, the collusive settlement claim has been criticised on the basis that class action fees must be approved by the court rather than by settlement between the parties (in the United States at least).¹²⁴

• 6.56 There are a number of ways that these concerns can be mitigated. In Aotearoa New Zealand, a lawyer cannot get paid a fee calculated as a percentage of the amount recovered by a client.¹²⁵ A lawyer can charge a fee calculated as a normal fee plus a premium for success but this must still be “fair and reasonable”.¹²⁶
• 6.57 Rules of professional conduct and ethical guidelines for lawyers are another means of mitigating concerns about conduct in class actions. For example, following the concerns about solicitation of vulnerable clients for a class action (discussed above), the Canadian Bar Association issued voluntary guidelines stating that lawyers “should not initiate communications with individual survivors of Aboriginal residential schools to solicit them as clients or inquire as to whether they were sexually assaulted”.¹²⁷
• 6.58 There are also features of class actions regimes that are designed to mitigate any potential conflict between the interests of lawyers and class members, such as requirements to give class members notice of certain stages in a class action proceeding, rules on who can be the representative plaintiff, requiring the court to approve settlement of a class action, the ability for class members to object to settlement and the court’s general supervisory role in class actions.

121. Emma Weiss “In Re Trulia: Revisited and Revitalized” (2018) 52 U Rich L Rev 529 at 529; and United States Chamber Institute for Legal Reform A Rising Threat: The New Class Action Racket That Harms Investors and the Economy (October 2018) at 7.
122. See Howard M Erichson “Aggregation as Disempowerment: Red Flags in Class Action Settlements” (2016) 92 Notre Dame L Rev 859 at 878–882.
123. Deborah R Hensler and Thomas D Rowe Jr “Beyond ‘It Just Ain’t Worth It’: Alternative Strategies for Damage Class Action Reform” (2001) 64 LCP 137 at 138. See also John C Coffee Jr “Understanding the Plaintiff’s Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions” (1986) 86 Colum L Rev 669 at 690; John C Coffee Jr “Rescuing the Private Attorney General: Why the Model of the Lawyer as Bounty Hunter is not Working” (1983) 42 Md L Rev 215 at 232; and Susan P Koniak and George H Cohen “In Hell There Will Be Lawyers Without Clients or Law” (2001) 30 Hofstra L Rev 129 at 146–147.
124. Myriam Gilles and Gary B Friedman “Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepreneurial Lawyers” (2006) 155 U Pa L Rev 103 at 160.

¹²⁵ See Lawyers and Conveyancers Act 2006, ss 333 and 334.

126. See Lawyers and Conveyancers Act 2006, ss 333 and 334; and Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, r 9.
127. Canadian Bar Association “Resolution 00-04A” <www.grantnativelaw.com> as cited in Jasminka Kalajdzic Class Actions in Canada: The Promise and Reality of Access to Justice (UBC Press, Vancouver, 2018) at 87.

Possible conflicts between class and litigation funder

• 6.59 As discussed elsewhere in this Issues Paper, litigation funding is a common method of funding class actions, particularly in jurisdictions where lawyers are prohibited from charging contingency fees. In Australia, almost half of all class actions filed between 2012- 2017 were financed by a litigation funder.¹²⁸ Litigation funding is less common in Canada and the United States, where contingency fees may be charged. In Aotearoa New Zealand, litigation funding is increasingly being used to fund representative actions.¹²⁹ If this form of funding continues to be available here, we would expect a significant proportion of class actions to involve a litigation funder.
• 6.60 Conflicts of interest may arise between litigation funders and claimants, as we discuss in detail in Chapter 20. The VLRC noted that these conflicts of interests may affect decision making at different stages of a class action proceeding, including:¹³⁰

(a) When recruiting class members. The litigation funder has an incentive to maximise the class size and so may give undue prominence to the prospects of success of a claim.

(b) The terms of a funding agreement. The litigation funder has an incentive to maximise the amount it receives if the claim is successful, while class members will want to minimise costs and maximise their return.

(c) Settlement. The litigation funder may want to settle while class members wish to continue the claim. The terms of a settlement, such as non-monetary benefits, may also cause a conflict.

• 6.61 Data on Australian federal class action settlements show that a median 51 per cent of the settlement was returned to the class in funded class actions compared with 85 per cent in unfunded class actions.¹³¹

QUESTION
Do you have any concerns about class actions? In particular, do you have concerns

about:

1. the impact on the court system?
2. the impact on defendants?

100. the impact on the business and regulatory environment?

4. how class members’ interests will be affected?

Q4

128. Vince Morabito The First Twenty-Five Years of Class Actions in Australia (Fifth Report, An Empirical Study of Australia's Class Action Regimes, July 2017) at 33. This shows that 74 out of 160 class actions filed between 1 June 2012 and 31 May 2017 were funded by a litigation funder, which is 46.2 per cent.

¹²⁹ We discuss this in Chapter 3.

¹³⁰ Victorian Law Reform Commission Access to Justice—Litigation Funding and Group Proceedings: Consultation Paper

(July 2017) at [3.62].

131. Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [3.49].

CHAPTER 7

A statutory class actions regime for Aotearoa New Zealand

INTRODUCTION

• 7.1 Earlier in this Issues Paper we discussed the problems with the current representative actions regime, as well as the advantages and disadvantages of a class actions regime. After considering these matters, we have formed the preliminary view that it would be desirable to have a statutory class actions regime in Aotearoa New Zealand.
• 7.2 In this chapter, we discuss the key reasons for our preliminary view, namely:

(a) Group litigation is beneficial but current mechanisms and alternatives are inadequate.

(b) Class actions are likely to improve access to justice, facilitate efficiency and economy of litigation and strengthen incentives for compliance with the law.

(c) Many of the potential disadvantages of class actions can be mitigated by the design of the regime.

(d) A statutory regime can provide greater certainty, predictability and transparency of the law.

• 7.3 The position we have reached is a preliminary one and we intend to fully consider all of the submissions or comments we receive on our Issues Paper before forming a final view.

GROUP LITIGATION IS BENEFICIAL BUT CURRENT MECHANISMS AND ALTERNATIVES ARE INADEQUATE

• 7.4 As discussed in previous chapters, group litigation provides benefits such as improved access to justice, procedural efficiency and consistency of outcomes. Capital Strategic Advisors (CSA) observes that without group litigation mechanisms, coordination among potential plaintiffs is likely to be costly, especially if they each retain their own lawyer, find it difficult to agree among themselves, or are unknown to each other. Potential problems include:¹

1. Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 31–32 (discussing the counterfactual of there being no class actions regime).

(a) People may be tempted to free ride on the efforts of others, and adopt a ‘wait and see’ approach before commencing their own litigation.

(b) If a defendant has a limited ability to pay, plaintiffs have incentives to compete to access the defendant’s funds.

(c) A defendant has an incentive to over-spend in an effort to defeat early litigation attempts, in order to deter later claims.

(d) If a plaintiff has a claim with a low chance of success, even if they are successful, other potential plaintiffs may still doubt their own prospects of success and fail to bring their own claim.

Existing group litigation mechanisms

• 7.5 As we have outlined in Chapter 3, Aotearoa New Zealand is seeing an increasing number of representative actions in the High Court under Rule 4.24 of the High Court Rules (HCR 4.24). While the first case was brought in 1902, the majority were filed in the last 20 years. The representative actions rule has changed little since the procedure was first introduced and we think it is insufficient for modern group litigation. The lack of procedural rules for representative actions and the current approach of relying on the courts to develop procedural rules on a case-by-case basis makes litigation inefficient and increases its costs.² It may also be preventing certain types of group litigation from proceeding. In Chapter 4 we identified consumer claims (particularly those where individual claim values are small) and compensation claims following regulatory action as potential examples.
• 7.6 In addition to HCR 4.24, there are other methods of bringing group litigation in Aotearoa New Zealand (as we discussed in Chapter 3). However, these methods have limitations. For example, joinder might be more useful as a case management technique where proceedings have already been filed, rather than as a mechanism for overcoming barriers to litigation.³ The specific statutory group litigation procedures we outlined are rarely, if ever, used.

Regulatory action

• 7.7 The argument is sometimes made that litigation is an inefficient and expensive method of holding defendants to account where they have caused harm and that this role is better left to government regulators.⁴ Regulators play an important role in enforcing breaches

² These points are discussed in more detail in Chapter 4.

3. See Rachael Mulheron Class Actions and Government (Cambridge University Press, Cambridge, 2020) at 50, where she notes that the drawbacks of using consolidation and joinder devices have been cited by overseas law reform bodies when considering class actions reform.
4. In David Friar and Daniel Scholes “Do litigants need a new statutory regime to cover opt-out class actions?” (3 April 2020) Auckland District Law Society <www.adls.org.nz> the authors refer to the proportion of compensation paid to law firms and litigation funders in Australian class actions and ask:

Is an opt-out class action regime the most efficient way to remedy wrongs by corporate defendants? Or should regulators be better empowered and resourced to prosecute the type of proceedings commonly brought as class actions?

See also Deborah R Hensler “Can private class actions enforce regulations? Do they? Should they?" in Francesca Bignami and David Zaring (eds) Comparative Law and Regulation: Understanding the Global Regulatory Process (Edward Elgar Publishing, Cheltenham (UK), 2016) 238 at 265 who notes that:

of the law and in Chapter 3 we discussed the powers of the Commerce Commission and the Financial Markets Authority (FMA) with respect to enforcement of consumer, competition and financial markets legislation.

• 7.8 There are a number of advantages of regulatory action over private litigation including the broad powers that regulators have (such as the ability to compel information), the ability to consider issues in their broader context and public funding of the legal costs.⁵ A regulator can draw upon a range of enforcement tools, which can create incentives for businesses to provide adequate redress and enable wider objectives to be achieved, such as changing future corporate behaviour. For example, the prospect that a regulator could bring legal action against a business or that the regulator could increase or reduce the penalty faced by a business can incentivise negotiated redress payments at appropriate levels.⁶ Rachael Mulheron has commented:⁷

Undoubtedly, if public enforcers had the resources and willingness both to prosecute culpable defendants, and to pursue compensatory redress on behalf of victims of that behaviour, then the need for private enforcement via civil litigation would be reduced, if not obviated.

• 7.9 In our view, under present regulatory powers and settings, relying on regulators to take action when a defendant has caused harm to a large group is an insufficient response to that harm. The reality of resource constraints is that regulators must prioritise their enforcement activities and cannot bring proceedings against every possible defendant who is alleged to have caused loss to a class.⁸ For example, when deciding whether to commence an investigation and what enforcement action is appropriate, the Commerce Commission focuses on the extent of detriment, the seriousness of conduct and the public interest.⁹ The FMA focuses on responding to market conduct that poses the greatest likelihood of harm to capital markets.¹⁰ We note that recognition of the limitations of

... there is little agreement on whether private class actions operate as a useful complement to public enforcement. Some argue that private class actions add little of value to public enforcement of market regulations. They argue that in many instances class counsel bring actions when public regulators deemed or would deem no actionable violation took place, and that where public officials have undertaken regulatory activities class counsel simply ride the coattails of public officials, driving up the costs of enforcement without achieving commensurate benefits.

5. Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [8.8]–[8.9]; and Alberta Law Reform Institute Class Actions (Final Report 85, 2000) at [118].
6. The Australian Law Reform Commission notes that the shift in the role of regulators in England and Wales has meant that:

... regulators do not ‘settle’ for lower sums as happens in contested litigation. What may be reduced is the civil penalty (or fine) and ... the transaction costs (lawyers fees and court costs) ...

See Australian Law Reform Commission Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC R134, 2018) at [8.33].

⁷ Rachael Mulheron Class Actions and Government (Cambridge University Press, Cambridge, 2020) at 72.

8. The Australian Competition and Consumer Commission has commented that “class actions are an efficient and appropriate mechanism for obtaining compensation that generally and appropriately supplements public enforcement”: Australian Competition and Consumer Commission, Submission No 15 to Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into Litigation Funding and the Regulation of the Class Action Industry (11 June 2020) at 2.

⁹ Te Komihana Tauhokohoko | Commerce Commission "Enforcement Criteria" <www.comcom.govt.nz>.

¹⁰ Te Mana Tatai Hokohoko | Financial Markets Authority “Enforcement” (23 April 2019) <www.fma.govt.nz>.

regulatory agencies has been a factor in class actions reform in other jurisdictions.¹¹ In CSA’s assessment, while regulatory agencies reduce the need for class actions, they are unlikely to remove the need for them entirely. This is due to constraints faced by regulators such as politically determined budgets.¹²

• 7.10 While private litigants are likely to have compensation as a key goal of proceedings, regulators are likely to have broader aims, such as encouraging compliance with the law, deterring misconduct, clarifying the law and ensuring public safety. Litigation may not always be the most suitable tool for achieving these broad goals, as seen in the guidelines developed by the Commerce Commission and the FMA on determining the appropriate enforcement response. ¹³ Even where a regulator decides it is appropriate to bring proceedings against a particular defendant, the regulator will not necessarily seek compensation for harmed individuals.¹⁴ An Australian empirical study of 19 securities class actions found that the Australian Securities and Investment Commission had only pursued compensation in three of those cases.¹⁵
• 7.11 In our view, there is a role for both class actions and regulatory action in taking action when defendants are alleged to have caused harm to a group. Class actions may be particularly valuable where legislation does not have a regulator to enforce it, such as the Consumer Guarantees Act 1993. They may also be beneficial where the legislation has given the regulator a relatively limited role. For example, the Companies Act 1993 was intended to provide for self-enforcement and the Registrar of Companies has a very limited enforcement role.¹⁶

Other alternatives to class actions are also inadequate

• 7.12 Rather than a class actions regime, Aotearoa New Zealand could consider other new options for group litigation. However, we do not think they would provide the same level of access to justice as a class actions regime and they might best be considered as supplements to such a regime.

11. Ontario Law Reform Commission Report on Class Actions (Volume I, 1982) at 211; Australian Law Reform Commission Grouped Proceedings in the Federal Court (ALRC R46, 1988) at [36] and [38]; and Department for Business, Innovation and Skills Private Actions in Competition Law: A consultation on options for reform – final impact assessment (January 2013) at [17]–[18].

¹² Capital Strategic Advisors The economics of class actions and litigation funding (6 November 2020) at 27.

13. See Te Komihana Tauhokohoko | Commerce Commission Enforcement Response Guidelines (October 2013) at [5]; and Te Mana Tatai Hokohoko | Financial Markets Authority Regulatory response guidelines (August 2016) at 8 and 10–14.
14. For example, Te Mana Tatai Hokohoko | Financial Markets Authority (FMA) brought two civil proceedings in relation to CBL Insurance. There have also been two representative actions filed relating to CBL Insurance. The website promoting one of the actions states:

We understand the key focus for the FMA is to establish that the defendants have breached their duties and for pecuniary penalties as well as clarify law and provide important legal precedents. So, while the FMA’s case, if successful, will impose fines on the directors, their proceedings aim to address wider public interest and regulatory concerns under the Financial Markets Conduct Act and are therefore unlikely to directly provide compensation for individual investors.

See CBL Class Action “FAQ’s” <www.cblclassaction.co.nz>.

15. Michael J Duffy “Australian private securities class actions and public interest—Assessing the ‘private Attorney-General’ by reference to the rationales of public enforcement” (2017) 32 Aust Jnl of Corp Law 162 at 190. Duffy comments this suggests a “generally useful supplemental role” for private securities class actions.
16. See Andrew Beck Morison’s Company Law (NZ) (online ed, LexisNexis) at [36.1]; and Fran Barber “Indirectly Directors: Duties Owed Below the Board” (2014) 45 VUWLR 27 at 41.

Group Litigation Order

• 7.13 As discussed in Chapter 2, the Group Litigation Order (GLO) used in England and Wales since 2000 enables claims raising common or related issues to be managed together and has the benefit of enabling a judgment on one claim to bind other claimants. It has been described as “primarily a managerial tool” which allows similar cases to be grouped together for a judge to make managerial decisions best suited to the particular litigation.¹⁷ The GLO differs from most class actions regimes in several ways: it is an opt-in regime so litigants have to choose affirmatively to litigate; the rules are “lightly detailed” with many important issues not covered; and each litigant is a party rather than a class member.¹⁸ Group members are liable for costs incurred in relation to their individual claim and generally severally liable for an equal proportion of “common costs”.¹⁹ Use of the GLO has been relatively limited, with around 110 up to June 2020.²⁰
• 7.14 The courts can already consolidate individual proceedings, as we discussed in Chapter 3. While consolidation is similar to a GLO, the procedure could be expanded to include features of GLOs such as a group register of claims and proportional sharing of costs.²¹ However, the objective of consolidation is largely judicial economy, rather than addressing access to justice issues. This is because, like GLOs, consolidations will only apply to cases that have been or will be filed, and so do not generally address the issue of claims that would not be considered viable unless pooled in a class action.²²
• 7.15 As the United Kingdom’s Civil Justice Council identified, a significant limitation of the GLO is its failure to facilitate access to justice because individuals with potential claims must take active steps to commence proceedings or join the GLO claim register. As a consequence, they have not been used by those with small individual claims, even though such claims can be extremely large when aggregated.²³

Collective alternative dispute resolution mechanisms