In Brief
Class actions can be a powerful way for people affected by the same wrongdoing to pool resources, share risk and take on defendants who might otherwise be too well resourced to challenge. But the fact that a problem affects a large number of people does not, by itself, make it a viable class action. There needs to be a meaningful common issue that can materially advance the claims of the group, a suitable representative plaintiff, a strong legal and factual basis, and a realistic pathway to a useful outcome.
Just as importantly, the case has to be capable of being funded. That may be by the group itself, through conditional fee arrangements or other support, or by a commercial litigation funder. In practice, funders will usually want a very strong claim, enough money at stake to justify the cost and risk, and a defendant who can actually pay.
GCA Lawyers has been involved in more than 25 class actions and other forms of group dispute resolution, with actions that range from helping clients of collapsed law firm Renshaw Edwards in the early 1990s recover from the Lawyers Fidelity Fund, through to achieving near 100% recovery for thousands of customers of Southern Response via the Southern Response Concealment Class Action. The procedural case law created by many of our matters has helped to pave the way for an increasing number of class action claims around the country.
That experience gives us a practical understanding of what makes class actions work in New Zealand
Litigation is expensive, often stressful, carries risk, and takes time. These factors can make it difficult for most New Zealanders to take a dispute to court. That is especially true for individuals, family trusts, or small businesses taking on a government agency, insurer, bank or other well-resourced defendants who can afford to spend vast sums on lawyers and experts to wear a claimant down with "delay, deny, defend" tactics aimed at defeating claims by exhausting the plaintiff's resources and patience, rather than facing them on the merits.
But where the same wrongdoing impacts multiple people, a class action can help to even the playing field by letting many smaller claimants band together. Claims that would not make economic sense to run individually can become viable collectively because legal fees, expert costs and adverse costs risk can be shared across the group or assumed by a litigation funder. At the same time, mutual support and a shared burden can alleviate some of the stress and worry of dispute resolution processes.
As well as making the impossible possible, all of this can go a long way to nullifying "delay, deny, defend" approaches by defendants who cannot expect to "burn off" legitimate and well-resourced group actions with these tactics. Instead, an economically rational defendant faced with such a claim should (in theory) be just as motivated as the plaintiffs to resolve good claims quickly rather than wasting money paying large defendant law firms to drag out the proceedings. Ultimately, this makes things more efficient for everyone involved, including the courts and the defendants themselves.
In simple terms, a "class action" is a lawsuit filed or defended by an individual acting on behalf of a group. To be more technical about it, New Zealand courts use the term "representative action" rather than "class action", with "class action" being a term more commonly associated with similar processes in jurisdictions such as the USA and Australia. But, procedural pedantry aside, the terms are more or less interchangeable in day-to-day use and we will use the more familiar "class action" here.
More broadly still, there are a number of different ways to structure dispute resolution where multiple people pool resources and effort towards achieving a common goal, not all of which are technically class actions for the purposes of the court rules. Some of the procedural consequences of these differences can be significant, but the ins and outs of that are beyond the scope of this article.
For present purposes, the key feature of a class action and other similar forms of group dispute resolution is that a number of people concerned with the same issue act together to resolve it.
The threshold requirement for a class action is decided under rule 4.24 of the High Court Rules*. This requires that the proposed class members have a common interest in the subject matter of the case, meaning there must be a clearly identifiable class and a significant common issue of law or fact. The courts take a relatively liberal approach to the "common issue "requirement (in theory at least, if not always in practice), meaning that the common issue need not be determinative of the matter in dispute in and of itself (and often questions like causation, eligibility or the amount of individual loss can be dealt with separately later). But the common issue must still be meaningful, and in practice it would be it would be surprising to see such an issue being put forward if it didn't at the very least unlock a path to resolution of the mater in question.
The claim must also be brought by a "representative plaintiff". This is someone with an appropriate claim to test the common issue(s), and who is also able to fairly and adequately represent the class.
The procedure cannot, however, be used to improve a class member's substantive rights or deprive the defendant of a defence it could have raised against an individual claimant. And the Court will also consider when deciding if to make a representative order whether the proposed representative procedure is fair and efficient and consistent with the just, speedy and inexpensive determination of the proceeding.
* as noted already there are other ways to structure group claims, and those structures have different legal consequences and requirements. But many of the practicalities described here overlap with those for a 4.24 representative action. Eg even if a claim was structured in some other fashion you would be unlikely to use a group litigation process unless there are common issues and individuals within that group who can provide suitable evidence and instructions on the matter.
It is not enough to just have a legally viable class action. There also needs to be a practical way to get it off the ground and keep it running through to settlement or hearing.
That generally means having funding to pay lawyers, experts, court fees and the other costs of litigation. There may also be a requirement to provide security for costs, meaning money or other security set aside to meet some of the defendant's costs if the claim ultimately fails. And naturally, the wider risk of an adverse costs award (where an unsuccessful party is ordered to contribute towards a successful party's legal costs) also needs to be accounted for.
All of this introduces a key question: who is going to pay for it, and who is going to carry the financial risk?
There are a number of possibilities.
Sometimes the group funds the case itself, with members contributing on an agreed basis. That can work, but requires coordination, trust and a mechanism for dealing with members who do not pay their share. In other, rarer cases, one or more class members may have sufficient resources to fund the proceeding themselves, perhaps on the basis that they are reimbursed later on if the claim succeeds.
But external support is often required. In (also typically rare) cases, this might involve a conditional fee arrangement with the lawyers, where some or all fees are deferred and an agreed premium is payable if the case succeeds; financial support from an interested benefactor or charitable organisation; or, more often, commercial litigation funding. Sometimes several of these approaches are combined.
A significant practical difficulty with obtaining funding support for a class action is that considerable work may have to be done before anyone external to the group is prepared to consider funding the case.
Not only does the proposed action need to be identified, an appropriate and willing representative must be available, the facts need to be investigated, the legal basis for the claim analysed, and a strategy developed for resolving both the common and individual issues. Depending on the case, expert evidence or advice from senior counsel may also be required as part of this. In some cases a "book building" process to recruit or at least identify potential class members may be desirable. And even once an interested funder is identified, there may be lengthy negotiations over the funding terms, together with requirements for independent legal advice.
That preliminary work can itself cost a substantial amount. Someone has to pay for it and, until funding is secured, that will usually fall on the people trying to get the claim underway. There may be some prospect of recovering those costs later, but there is normally no guarantee.
And of course, not every legally viable class action will attract litigation funding.
While many litigation funders are very concerned with assisting access to justice and the other socially positive aspects that flow from promoting class litigation, ultimately, most are commercial entities investing money and taking on risk in the expectation of a commensurate financial return. They therefore need to be satisfied that there is a realistic prospect of recovering that investment and earning an appropriate return.
Different funders have different criteria, but they will commonly want to be satisfied that:
Relevantly for New Zealand, where our rules for representative actions are not proscribed and are still "under development" in many key respects, funders will also often want a clear legal framework and pathway for the action thought through at an early stage. This can include consideration of a reliable mechanism for being paid if the case succeeds which can include consideration of matters such as whether the Court should be asked to make orders under r4.24 on an "opt in", "opt out" or "universal" basis, whether a "common fund order" or some other cost sharing direction should be sort, how the proceedings might be staged, and how the relief sought might tie into resolution of individual class member claims.
Funders will also often look beyond these factors to more intangible matters. Political risk (will the Government or even the defendant attempt to intervene or act in such a way as to render the proceeding a nullity, for instance), the nature of the defendant, the likely duration of the litigation, the reputation of the proposed representative plaintiff, and any wider reputational risk to the funder, may all matter too.
The practical reality is that if one of the key elements is missing or uncertain, whether that is the strength of the claim, its value, the defendant's ability to pay or the economic or reputational risk of funding it, a commercial funder may simply move on to another, easier, case.
That can create something of a chicken-and-egg problem. Significant money may need to be spent establishing that a class action is suitable for funding before there is any certainty that funding will actually be available.
Ultimately, there is a difference between identifying a problem that affects a large number of people, establishing that it is legally capable of being brought as a class action, and having a case that can actually be run.
A viable class action needs a meaningful common issue that will materially advance the position of the class, a suitable representative plaintiff, a strong factual and legal foundation, a realistic prospect of achieving a useful remedy, and a practical way of paying for the litigation and managing its risks. Where external litigation funding is required, there must also be enough value in the claim, and a sufficiently good prospect of recovery, to make the economics work for both the funder and the class members.
Sometimes all of those pieces come together. Sometimes a claim that looks compelling at first falls over when one of them does not. Working out which is which is one of the most important parts of assessing a proposed class action.
GCA Lawyers has been doing that work for more than 30 years. If you are impacted by a legal issue affecting a significant group of people, businesses or other entities, and think there may be a strong claim capable of being pursued collectively, get in touch with us. We can assess whether the matter may be suitable for a class action or another form of group litigation, identify the legal and practical issues that will determine whether it is viable, and advise on what would be required to take it forward.
