Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa | Class Actions and Litigation Funding

Start date
01 July 2019
(04) 473 3453
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Project Overview

A class action is a court proceeding in which a group with similar interests collectively sues one or more defendants. The court proceeding is brought by a representative plaintiff on behalf of the class. We do not currently have class actions in Aotearoa New Zealand. Instead, claims that might be brought as class actions in other jurisdictions are brought as representative actions under High Court Rule 4.24. This rule allows a claim to be brought “on behalf of, or for the benefit of, all persons with the same interest in the subject matter of the proceeding.” Aotearoa New Zealand has seen an increasing number of representative actions, particularly since the arrival of litigation funding. However, our representative actions rule has changed little since the 19th century and it does not provide guidance on the many issues that arise in modern group litigation. Representative actions can be inefficient and expensive as the courts need to determine complex procedural issues without the benefit of a statutory framework.

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). In general, the funder will be paid nothing if the case is unsuccessful. If the case is successful, however, 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 funder’s commission. Litigation funding is not limited to representative or class actions, but such actions are often unable to proceed without it.

Litigation funding is not specifically regulated in Aotearoa New Zealand. For centuries the common law has prohibited litigation funding, however the high costs of litigation may mean that litigation funding has an increasingly important role to play in facilitating access to justice.

The Commission is therefore conducting a review of the law relating to class actions and litigation funding in Aotearoa New Zealand. The scope of the Commission’s review is set out in the Terms of Reference below. In its final report the Commission will make recommendations as to what, if any, reform of the law is desirable.

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Terms of Reference 

Class actions enable a group of people with similar claims against the same defendant to have their claims determined in one legal proceeding. Litigation funding is where a third-party with no pre-existing interest in the litigation agrees to fund it, sometimes in exchange for a fee if the action is successful and nothing if the action is lost. Litigation funding is not limited to class actions, but many class actions would be unable to proceed without litigation funding.

The law on class actions and litigation funding in New Zealand is uncertain. High Court Rule 4.24 allows one or more persons 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 (commonly referred to as a “representative proceeding”). However, unlike many other jurisdictions, New Zealand does not have a detailed class actions regime. Nor is there specific regulation of litigation funding in New Zealand. The courts have been cautious in permitting litigation funding, as the torts of maintenance and champerty have traditionally restricted its use.

A key benefit of establishing clearer regimes for class actions and litigation funding would be to enhance access to justice. The Law Commission will therefore conduct a first principles review of class actions and litigation funding in New Zealand to ensure the law in these areas supports an efficient economy and a just society; and is understandable, clear and practicable. [1]

The Commission’s review will include, but not be limited to, consideration of the following matters:

Class Actions

  • Whether and to what extent the law should allow class actions;
  • If class actions should be allowed, how they should be regulated, for example in relation to:
  • the scope of a class actions regime;
  • the criteria and process for commencing a class action, including how a “class” should be defined;
  • management of class action proceedings; and
  • damages, costs and settlement.

Litigation Funding

  • Whether and to what extent the law should allow litigation funding, having regard to the torts of maintenance and champerty;
  • The role of the courts, if any, in overseeing litigation funding arrangements;
  • Whether and to what extent litigation funders and/or funding arrangements should be regulated, for example in relation to:
  • the nature and extent of the litigation funder’s recovery;
  • the powers and responsibilities of litigation funders;
  • the potential for conflicts of interest; and
  • disclosure requirements.

For the purposes of this review, litigation funding does not include civil legal aid.

The Law Commission will consult with the public, experts, Māori and other stakeholders during the review.

[1] Letter from Minister responsible for the Law Commission to President of the Law Commission regarding Annual Expectations for 2018/2019 (14 May 2018).