Review of Class Actions and Litigation Funding

Publication Date 
10 May 2018

The Law Commission has a new project looking at both class actions and litigation funding. While the project is not currently a priority, the President of the Law Commission Sir Douglas White spoke to a symposium at Auckland University in March on the future of class actions.

Sir Douglas’s full speech is here. Short excerpts of his speech are below.

 “Last year the Commission had the opportunity to make suggestions to its previous Minister on possible future references. In addition to considering possible references itself, the Commission consulted the wider law reform community for suggestions. As part of that process, the New Zealand Law Society proposed that the Commission should review the law relating to class actions.

 “The Commission agreed with this suggestion. It also considered that the separate, but closely related issue of litigation funding should be included in the proposed reference. Litigation funding plays an important role in facilitating class actions, which would often be unable to proceed without third party funding. The previous Minister agreed that the Commission should consider both class actions and litigation. The new Minister, Hon Andrew Little has now confirmed that reference.

 “A class action is a proceeding in which a group of plaintiffs with similar interests collectively sues one or more defendants. The proceeding is initiated by a lead plaintiff who represents the interests of the group. Class actions are particularly useful in cases where the amount recovered by each claimant will not be great, but the total sum recovered by a group of claimants is likely to be significant. In such cases the cost of bringing an individual claim is unlikely to be justified by the amount recovered. Consumer protection and investor claims often fall into this category.

 “Litigation funding is when a person who is not a party to a proceeding—such as a specialist litigation funding firm—provides funding to a party to cover some or all of the costs of the proceeding. Usually, the funder covers the plaintiff’s costs in return for a share in the proceeds if the claim is successful. Litigation funding is not limited to class actions. It may, however, be particularly important in such cases. In the absence of a funder, there may not be a lead plaintiff who is willing or able to take on the burden of funding the litigation.

 “It is considered opportune for the Commission to review these issues now. Our laws are lagging behind other jurisdictions we usually compare ourselves with, such as Australia and the United Kingdom. Practitioners, judges and commentators have argued that the absence of a regulatory regime for class actions and litigation funding in New Zealand is creating inefficiencies in the court system and uncertainty for court users. The Feltex litigation, for example, involved more than 20 interlocutory and costs judgments over a five-year period.

 “Both class actions and litigation funding have the potential to enhance access to justice and strengthen the rule of law. They may allow people to enforce their legal rights in situations where it would otherwise be difficult to do so. Class actions may also increase efficiencies in the court system by allowing similar claims to be determined together rather than in separate proceedings.

 “There are, however, also risks and costs associated with both class actions and litigation funding. For example, class action proceedings may take longer and cost more to resolve than individual claims due to the complex procedural issues involved. There is a risk that “opt-out” class actions, which require potential class members to take a positive step to exclude themselves from the proceeding, might prejudice unwitting class members. Litigation funding raises questions of fairness, both to the defendant (for example, if the funder has insufficient capital to meet a costs order) and to the funded plaintiffs (if the funder’s interests conflict with theirs or if the terms of the funding agreement are unfair).”