Boost for New Zealand class actions as litigation funding rules confirmed
Just before Christmas, the Supreme Court declined ANZ and ASB's application for leave to appeal in their current banking class action.1 As a result, the Court of Appeal's judgment remains binding and the High Court can grant common fund orders (CFOs), a tool used to finance "opt-out" class actions and provide greater certainty to litigation funders, early in proceedings.
A CFO imposes the terms of a litigation funding agreement on all the "opt-out" plaintiffs in the class action, regardless of whether they have signed up to the proceedings and the funding agreement. This ensures that litigation funders can recover their share from the total damages awarded at the end of a successful proceeding.
These decisions will make litigation-funded "opt out" class actions easier in New Zealand, reflecting a broader international trend towards facilitating access to justice through third-party litigation funding.
Background
The plaintiffs are suing ANZ and ASB for alleged breaches of disclosure rules relating to their home loans with the banks under the Credit Contracts and Consumers Finance Act 2003.
The High Court:
- granted the plaintiffs leave to bring proceedings against the banks on behalf of approximately 73,000 ASB customers and 17,000 ANZ customers on an "opt out" basis; and
- confirmed that the High Court had jurisdiction to grant a CFO, but declined the plaintiffs' application for a CFO at this early stage of the proceedings.
Both sides appealed. The plaintiffs appealed the refusal to make a CFO. ASB and ANZ both cross appealed the conclusion that the High Court had jurisdiction to make a CFO, and ASB also cross appealed the ruling that the proceedings be brought on an "opt-out" basis.
What is an "opt-out" representative order?
The High Court can make a representative order, allowing one or more persons (the representative party) 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". In other words, the Court can order that a representative party represents a class of people in proceedings.
That order can be made on an "opt-in" or "opt-out" basis. "Opt-in" orders require that class members must consent to the representative party bringing proceedings on their behalf, while "opt-out" orders do not. In other words, an "opt-out" order means class members do not need to take any positive step to become a plaintiff in the proceedings.
"Opt-out" proceedings generally allow larger classes of plaintiffs (and, therefore, larger potential damages claims) to be assembled and can make a claim more financially viable for litigation funders and plaintiffs.
What is a CFO?
A representative party (plaintiff) often has a contract (a funding agreement) with a litigation funder, the terms of which require the litigation funder to bear the costs of the proceedings. If the representative party successfully applies, a CFO would impose the terms of the funding agreement on all class members, e.g. the class members must share the proceeds of a successful claim as agreed between the representative party and the litigation funder.
A CFO is designed to resolve the issue of "free riders" who choose not to sign up to a funding agreement and don't share the risks and costs of the litigation, but nevertheless enjoy the benefit of a successful outcome. This is a common risk with "opt-out" class actions.
If a CFO is made, the court plays a supervisory role to ensure that the interests of justice are upheld between the litigation funder and class members.
What did the Court of Appeal rule?
"Opt-out" representative order
The Court of Appeal confirmed that the High Court was correct to order that the proceedings be conducted on an "opt-out" basis, because:
- the opt-out approach would significantly enhance access to justice because many class members were unlikely to take the required positive steps to participate in opt-in proceedings [86]; and
- there were no genuine disadvantages to class members in the court directing representation on an opt-out basis [87].
Common fund order at early stage
The Court of Appeal confirmed that the High Court has jurisdiction not only to make a CFO, but also to do so at the outset of representative proceedings. The Court considered that making a CFO as early as possible allowed the best access to justice by providing certainty to the representative party, class members, and the litigation funder. Conversely, the Court considered that there is no clear benefit to delaying the making of a CFO, which would merely prolong uncertainty and jeopardise access to justice.
The Court noted that the court's supervisory role in relation to a CFO was critical to this decision, because the court would (a) closely scrutinise the CFO and (b) be required to approve the terms of any settlement that might be reached in the proceedings.
Related insights
CFOs have been instrumental in streamlining class actions in other jurisdictions including Australia and England & Wales, and have provided predictability for funders and claimants alike. See our related commentary from those jurisdictions below.
1ANZ Bank New Zealand Limited & Anor v Simons & Ors [2024] NZSC 330
