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Supreme Court Agrees on ‘Opt Out’ Class Actions

The Supreme Court in the Southern Response Earthquake Services Ltd v Ross appeal has unanimously agreed class actions can proceed on an ‘opt out’ basis, pending development of a comprehensive legislative framework.

The Supreme Court in Southern Response Earthquake Services Ltd v Ross has unanimously upheld the Court of Appeal’s decision that representative claims/class actions can proceed on an ‘opt out’ basis – meaning that a representative claim can be brought on behalf of every member of a class other than those who expressly choose to opt out.

Previously, the New Zealand approach had been for class actions to proceed on an ‘opt in’ basis – requiring each member of the class to elect to opt in to the proceeding in order to be included in the claim.

In comparable overseas jurisdictions, comprehensive rules or legislation regulate class actions. Opt out remains the procedure generally favoured in Australia, Canada and the United States. There is currently no class actions legislative regime in New Zealand, and the Law Commission is undertaking a comprehensive review of class actions and litigation funding.

The Supreme Court did not consider it necessary to wait for comprehensive legislation before allowing representative claims to proceed on an opt out basis. In the absence of legislation, the court “should fill the void with a flexible application of existing rules of court to develop procedures concerning representative actions, including in an opt out context … [and that] Rule 4.24 had to continue to be interpreted to meet modern requirements”, pending the Commission’s review.

The Court identified three objectives for representative proceedings: to improve access to justice, facilitate the efficient use of judicial resources, and strengthen incentives for compliance with the law. Representative proceedings must also be guided by the High Court Rules, which seek to secure the just, speedy and inexpensive determination of proceedings.

The Court considered an opt out approach is generally consistent with those objectives and, in particular, has advantages in improving access to justice.

It noted that even with a legislative regime, there will be questions arising about the scope of the court’s powers in a particular case and room for debate about the adequacy of particular safeguards – and that experience in New Zealand with the opt out procedure may assist the forthcoming law reform exercise.

The Court addressed concerns about the difficulty of managing tensions arising from litigation funding in an opt out context, noting that such issues would also arise in opt in claims. The court’s ability to supervise settlements and the provision for notice, in addition to the court’s role to ensure litigation funding arrangements do not amount to an abuse of process, would go some way to addressing concerns. It also provided some guidance as to when a representative proceeding should be allowed to proceed on an opt in or opt out basis.

The New Zealand Law Society and the New Zealand Bar Association, and litigation funder LPF Group Ltd, were granted leave to intervene in the appeal. The Society’s intervention was as a neutral party, focusing on the issues of significant public interest regarding access to justice and procedures for the efficient and fair conduct of representative proceedings.

The Law Society submitted that comprehensive legislation is the preferred solution to the complexities of class actions, but until then the courts have jurisdiction to make opt out orders and are able to address any procedural questions that arise.

It also considered the responsibilities of plaintiff lawyers to “absentee plaintiffs” – those who are unaware of the proceedings or who have elected not to engage with the plaintiff lawyer. In its submissions, the Law Society said these plaintiffs will be protected by a combination of the lawyer’s duties to the court and the court’s supervisory role in representative proceedings.

The Law Society regards the Supreme Court’s judgment as a welcome clarification of the approach to class actions in New Zealand, until a comprehensive legislative framework is in place. It also welcomes the Commission’s forthcoming review and will seek views from the profession when the Commission’s consultation paper is released later this year.

 

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