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The Law Commission has released its final report Class Actions and Litigation Funding which recommends the creation of a statutory class action regime and litigation funding regulation. The Law Commission states that having its recommended Class Actions Act as the principal source of law on class actions, will provide more certainty and accessibility than is currently available. More specific procedural rules will be contained in the High Court Rules.
The Law Commission report also confirms regulation and oversight of litigation funding was needed, and all its recommendations were all made following consultation with government agencies, the legal profession, funders, business and community organisations, and academics.
It notes that while representative actions akin to a class action are possible under current High Court Rules 2016, (allowing a person to sue (or be sued) on behalf of, or for the benefit of, all persons with the same interest in the proceeding) this has resulted in large, complex litigation outside the scope of the current representative action procedure. It has also resulted in extensive litigation on procedural issues, causing delay for parties and required considerable court resources, and increasing the costs involved.
The Law Commission report discusses some of the access to justice barriers for potential representative plaintiffs and class members, including the high costs of litigation and adverse costs rules, and the potential unavailability of legal aid. It notes that while litigation funding can remove or reduce these barriers somewhat, it will only be available if the litigation funder considers it sufficiently profitable. It is unlikely to be available in public interest litigation, or where the relief sought is non-monetary. To that end the Commission recommends the creation of a public class action fund, which could have significant access to justice benefits.
Other key recommendations on class actions include:
For litigation funding, the Law Commission has recommended court oversight, combined with professional regulation of lawyers, and changes to strengthen the security for costs mechanism, as the best model for regulating litigation funding, while assuring the integrity of the court system. It also considered the courts were best placed to assess the fairness and reasonableness of funding arrangements in class actions.
Its recommendations include:
In March 2021 the IoD made a submission in support of the Law Commission’s preliminary view that a statutory class actions regime should be created and that litigation funding should be regulated.
We noted that there were significant risks and concerns that will need to be addressed and managed in developing a new regime, including:
In November 2021 the IoD made a further submission (following the Law Commission’s Supplementary Paper) in which the IoD expressed continued support for the review of class actions and litigation funding in New Zealand, and confirmed this as being a key opportunity to put in place a regime that is fit for purpose and for the long-term.
We are pleased to see that the final Law Commission report has adequately addressed the concerns that we raised. As we submitted in March 2021 the IoD considers that:
“It is essential that New Zealand gets this right for various stakeholders and also for governance, capital markets and the country as a whole. Adverse outcomes of getting this wrong may lead to greater risk aversion in board decision-making and further add to the compliance burden. A danger with undue risk aversion is that boards can miss strategic and innovative opportunities failing to realise the potential for their organisations.”
The Law Commission says the government will now consider its recommendations and decide whether to reform the law. While we are encouraged by the content of the Law Commission Report, and that it has adequately addressed the issues we have previously raised, we will be watching closely the government’s response.
Should the Law Commission report’s recommendations be progressed, we anticipate the opportunity to submit on any reforms proposed as part of the usual parliamentary process. We will continue to monitor and advise on future developments.