A new approach to class action litigation

Topics covered in this article: Other

The Supreme Court recently delivered a landmark decision for class actions however it has also left many unanswered questions.

The case involved a claim brought on behalf of several thousand insureds who had settled with Southern Response. The insured alleged they settled their insurance claims, due to incomplete information given to them by Southern Response, on less favourable terms than they otherwise would have been. This type of litigation involving many people that have a similar claim is called a “representative claim” or more colloquially a “class action”.

The Supreme Court did not consider the substantive merits of the claim, instead it considered whether the representative claim should be allowed to proceed on an “opt out” basis. Ultimately, they ruled in favouring of allowing the opt out process. This is a first in New Zealand.

What is an opt out claim you ask?

An “opt out” claim is when all individuals of the affected class are included and represented in the class action proceeding, unless and until they specifically choose to not participate (i.e. opt out). This differs from an opt in claim which requires the individuals to take active steps to participate in the representative claim.

The Supreme Court identified the three primary principles and purposes of representative actions. These are:

• increased access to justice,
• incentivising compliance with the law, and
• efficient use of judicial resources.

The court determined that an opt out approach best aligned with these objectives.

This ruling marks a departure from the traditional approach of favouring opt in proceedings, which can be less efficient. This new approach brings our law into line with similar Commonwealth jurisdictions. However, unlike these other jurisdictions, New Zealand lacks a comprehensive legislative framework. The Court acknowledged that this may result in some uncertainty during proceedings but they were confident the scope of the High Court Rules provided a means of dealing with this uncertainty before legislative intervention is implemented.

The court suggested that New Zealand would be particularly receptive to and suitable for more proceedings of this kind in the future, highlighting the history of claims brought by individual rangatira on behalf of their hapū or iwi.

The Law Society and the New Zealand Bar Association (who intervened as interested paties) raised potential issues that need to be considered further. Absent plaintiffs, who are members of the “class” that have failed to opt out, remain one of the key points for discussion. It remains to be seen if any of the issues pre-empted by various parties will play out as feared, and of particular interest is how the Courts (and eventually Parliament) will deal with those problems should they arise. 

Procedural uncertainty aside, it seems that opt out proceedings are now possible in New Zealand and this type of action may be a more common feature of our legal landscape.

 

Written by Peter Mcdonald, Law Clerk

 27 November 2020