Te Aka Matua o te Ture | Law Commission conducted a review of the law relating to class actions and litigation funding in Aotearoa New Zealand.

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 don't 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.

Currently 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.

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.

Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa | Class Actions and Litigation Funding (NZLC IP45, 2020)

Te Aka Matua o te Ture | the Law Commission has published an Issues Paper on class actions and litigation funding.

In relation to class actions, we formed the preliminary view that a statutory class actions regime is desirable because:

• The representative actions rule is inadequate for modern group litigation.
• Class actions may improve access to justice, improve efficiency and economy of litigation and strengthen incentives for compliance with the law.
• Many of the potential disadvantages of class actions can be mitigated with careful design.
• A statutory regime would provide greater certainty on the rules for group litigation.

This was a preliminary view only and we sought public feedback on whether a statutory class actions regime is desirable for Aotearoa New Zealand. We also sought feedback on some issues relating to the scope and design of any class actions regime, including:

• Which courts and areas of the law a class actions regime should apply to.
• Principles for a class actions regime.
• Whether preliminary court approval should be required to bring a class action and what the legal tests should be.
• Who should be allowed to be a representative plaintiff in a class action.
• How class membership should be determined.
• Whether an unsuccessful litigant in a class action should have to pay costs to the other party.

With respect to litigation funding, our preliminary view was that litigation funding is desirable in principle and should be permitted in Aotearoa New Zealand, as long as certain concerns can be addressed. These concerns include:

• Funder control over litigation
• The potential for conflicts of interest
• Funder profits
• Capital adequacy of litigation funders.

We sought feedback on our preliminary view that litigation funding is desirable in principle. We also sought feedback on how the concerns with litigation funding can be managed and whether a regulatory response is warranted. Options for the form of any regulation and oversight of litigation funding include:

• Industry self-regulation.
• Bringing litigation funding within the scope of the Financial Markets Conduct Act 2013, as a “managed investment scheme”.
• A tailored licensing system for litigation funders.
• A new statutory regime with oversight by a new statutory body.
• Court approval of funding arrangements.

Read the submissions received on Issues Paper IP45.

Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa | Class Actions and Litigation Funding: Supplementary Issues Paper (NZLC IP48, 2021)

Te Aka Matua o te Ture | Law Commission has published a supplementary Issues Paper on class actions and litigation funding.

After considering the submissions we received on our 2020 Issues Paper we have confirmed our view that Aotearoa New Zealand should have a statutory class actions regime. Our Supplementary Issues Paper seeks feedback on detailed aspects of a class actions regime and includes draft legislative provisions on some topics. The topics covered in our Supplementary Issues Paper are:

• Issues relating to commencement of a class action, including class actions with multiple defendants and the impact of a class action on limitation periods. We are also seeking feedback on a detailed proposal for certification.
• How competing class actions should be managed.
• Relationships in a class action, including the responsibilities of the representative plaintiff and the nature of the lawyer-class member relationship.
• Issues that arise during a class action, including giving notice to class members, case management, discovery, managing individual issues and whether to allow common fund orders or funding equalisation orders.
• Several issues associated with class action judgments.
• Settlement of a class action.

As the 2020 Issues Paper contained a comprehensive discussion of litigation funding issues, it has not been necessary to seek further feedback on litigation funding. However, some litigation funding issues are addressed where they overlap with other issues discussed in the Supplementary Issues Paper.

Read the submissions received on Supplementary Issues Paper IP48.

Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa | Class Actions and Litigation Funding (NZLC R147, 2022)

On 27 May 2022 Te Aka Matua o te Ture | Law Commission completed its review of class actions and litigation funding and submitted its report to the Minister Responsible for the Law Commission. The report was presented to Parliament on 27 June 2022. 

The report makes 121 recommendations for reform of class actions and litigation funding.

In relation to class actions, the Commission has recommended a new statute called the Class Actions Act as the principal source of law on class actions. The Commission has also made recommendations on the rules that should apply to class actions, including:

• A case should require court approval to proceed as a class action, a process known as certification.
• Both opt-in and opt-out class actions should be permitted in Aotearoa New Zealand. An opt-in class action requires individuals to actively sign up to the class action to be a class member. In an opt-out class action, persons falling within the class definition are part of the class action unless they opt out by the required date. 
• When a class action is commenced, any concurrent class action should be filed within 90 days (or with the leave of the court). A concurrent class action has the same or substantially similar issues in dispute and at least one common defendant.  
• Additional court oversight is needed in class actions to ensure the interests of class members are protected. For example, a settlement of a class action should only be binding if approved by the court.  

The Commission’s recommendations on litigation funding include:

• In funded class actions, a litigation funding agreement should only be enforceable by a funder if it has been approved by the court. The court should not approve the litigation funding agreement unless it is satisfied the agreement is fair and reasonable and the representative plaintiff has received independent legal advice.
• The court should have the power to make orders directly against a litigation funder for the provision of security for costs and payment of adverse costs.
• A public class actions fund should be created which can provide funding for plaintiffs.

In developing its recommendations, the Commission has been informed by its consultation, including with government agencies, members of the legal profession, litigation funders, business and community organisations and academics. The review has considered relevant New Zealand law as well as overseas approaches to class actions and the regulation of litigation funding.  

The Government responded to our report (R147) on 30 November 2022. It acknowledged the substantial work that went into the Law Commission’s report and expressed appreciation for the detailed recommendations. It accepted in principle that:

• A statutory regime for class actions, underpinned by a Class Actions Act, will provide clarity and could enhance access to justice.
• Abolishing the torts of maintenance and champerty would clarify the permissibility of litigation funding.
• Court oversight of litigation funding agreements in class actions should aid in ensuring the terms of agreements are fair and reasonable.

The Government said that it is supportive of the Commission’s recommendations in principle and it intends to begin policy work to advance them in 2023. It said due to the technical nature of the issues and the need for legislative reform to give effect to the recommendations, advancing the reforms will take some time and will need to be balanced against other Government priorities.