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Litigation Update: Court of Appeal ushers in new era of class actions

Home Insights Litigation Update: Court of Appeal ushers in new era of class actions

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Contributed by: Polly Pope, Chris Curran, Samantha Knott and Tunisia Napia

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Published on: September 18, 2019

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The New Zealand Court of Appeal has paved the way for representative claims to proceed on an "opt out" basis. The judgment, in the context of a representative claim against Southern Response Earthquake Services Limited, on behalf of insurance policyholders, opens the door for so-called "class actions" to proceed on a greater scale in New Zealand. 

Whilst representative actions have begun to gain prominence in New Zealand in recent years, the position has been that they must be brought on an "opt in" basis. That means that only those people who have signed up to be part of the proceedings may be part of the case. In most comparable jurisdictions, notably Australia, representative actions may be brought on an "opt out" basis, on behalf of a defined class of people, unless they positively choose not to be part of the claim. 

For now at least, the Court of Appeal's decision in Ross v Southern Response Earthquake Services Limited paves the way for "opt out" representative actions in New Zealand. The Court's decision places particular weight on considerations of access to justice in reaching its decision. The significance of this decision will be known once it is seen whether leave to appeal is sought from (or granted by) the Supreme Court. 

Two-stage approach

The Ross claim is to be dealt with in two stages. The first would deal with common issues relevant to all members of the class, as well as determining the individual claim of the representative claimants, Mr and Mrs Ross. If Mr and Mrs Ross's claim is successful in whole or in part, there will be a second stage, at which the question of relief for other claimants will be addressed. If the proceeding reaches this stage, claimants will need to take active steps to establish their individual claims ie, "opt in" and provide all relevant evidence. 

The key issue for the Court of Appeal was whether stage one could proceed on an "opt out" basis (with other claimants only opting in at part two).

Legislative background

Although the Rules Committee is considering a proposal to amend the High Court Rules to provide more guidance around representative actions, and the Law Commission's work programme references class actions, there are currently no detailed legislative provisions regulating representative actions in New Zealand. Instead, the procedure has been developed by the Courts, relying on one provision of the High Court Rules; Rule 4.24 states that persons may sue, or be sued, on behalf of all persons with the same interest in the subject matter of the proceeding, with all of those persons' consent, or by court direction. 

Three potential approaches

As a starting point, the Court stated that representative proceedings are filed on behalf of all members of the class, as defined in the pleadings. 

However, the Court may direct that a class action be brought:

  • on an "opt in" basis; or
  • on an "opt out" basis; or
  • on a universal basis, meaning all members of a defined class are bringing the claim and cannot "opt out".

In this case, the Court held that the representative claim could proceed on an "opt out" basis, and made representation orders to effect this.

The Court preferred the "opt out" approach for the following reasons, centered around access to justice:

  • Rule 4.24 clearly authorises a representative plaintiff to bring a class action on behalf of others without their consent. The jurisdiction to do so was developed by the chancery courts many hundreds of years ago. 
  • Many people are unlikely to take positive action to "opt in" to a representative proceeding, which may be unrelated to whether it is in their best interests (ie, they might not receive the notice, or fail to understand it). The courts should be slow to put unnecessary hurdles before class members' access to justice by making the "opt in" requirement the default position.
  • In a representative proceeding with a large class, many more persons would have the opportunity to have their claims heard and their rights adjudicated upon with an "opt out" approach.
  • An "opt out" approach would incentivise large entities to comply with the law, as it increases the prospect that they will be held to account for even for small breaches (when many people are affected).
  • An "opt out" (rather than universal) approach would better preserve class members' freedom to determine their own involvement.

The Court anticipates that "opt out orders will be the norm, in the absence of cogent reasons to prefer either a universal approach or an 'opt in' approach by reference to the twin goals of fairness and efficiency".

The Court of Appeal also took an expansive approach to the second issue before it, which considered whether "repair" (or only "rebuild") insurance policyholders could be part of the class. The Court of Appeal reversed the High Court's approach, and allowed both types of policyholders to form part of the action. The Court of Appeal acknowledged that there may be differences in policy entitlements for repair and rebuild customers. However, these could be easily addressed in stage one of the proceedings. Ultimately, there were significant questions of both law and fact common to the two types of customers, so that they should be included in the same claimant class. Having a separate proceeding for each type of customer would "traverse much of the same territory" and it would be efficient and fair to have repair customers included in the same claimant class for this proceeding.

Where to from here?

The Court of Appeal's decision is likely to be immediately influential on representative actions in New Zealand, subject to any leave to appeal the decision to the Supreme Court. A full legislative regime regulating representative actions remains a possibility. Whilst its absence was not a barrier to the Court deciding to endorse "opt out" class actions, it did note the potential benefits of a legislative framework for class actions that provides more certainty and predictability for both plaintiffs and defendants.

Ross v Southern Response Earthquake Services Limited [2019] NZCA 431

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