Law Commission finishes report on class actions and litigation funding

The Law Commission has released its final report on class actions and litigation funding, concluding that the government must pass a new Class Actions Act to improve access to justice and efficiency in litigation.

The commission also recommended to increase regulation and oversight of litigation funding in New Zealand.

“There are significant barriers to accessing civil justice in Aotearoa New Zealand, including the costs associated with litigation,” said Amokura Kawharu, Law Commission president and lead commissioner for the review. “Class actions and litigation funding are not a silver bullet for those issues, but we think they can both make important contributions. While group litigation is currently being brought in Aotearoa New Zealand under the representative actions rule, our review has found this rule is insufficient for modern group litigation. The overwhelming feedback we received was that a class actions statute is necessary.”

While class actions can improve access to justice and be an efficient way of managing many individual claims, the commission acknowledged that there are some risks and costs associated with class actions and made recommendations to manage those. It also acknowledged that litigation funding can improve access to justice but also identified some concerns that require regulation.

“We considered a range of models for regulating litigation funding and have concluded that court oversight, together with professional regulation of lawyers, is the best option,” Kawharu said.

The report made a total of 121 recommendations for reform of class actions and litigation funding, including recommendations for provisions in a new Class Actions Act, new rules in the High Court Rules 2016 and amendments to the Lawyers and Conveyancers Act 2006.

Other key recommendations were:

• A case should require court approval to proceed as a class action, a process known as certification.
• Both opt-in and opt-out class actions should be permitted in Aotearoa New Zealand. An opt-in class action requires individuals to actively sign up to the class action to be a class member. In an opt-out class action, persons falling within the class definition are part of the class action unless they opt out by the required date.
• Additional court oversight is needed in class actions to ensure the interests of class members are protected. For example, a settlement of a class action should only be binding if approved by the court.
• In funded class actions, a litigation funding agreement should only be enforceable by a funder if it has been approved by the court. The court should not approve the litigation funding agreement unless it is satisfied the agreement is fair and reasonable and the representative plaintiff has received independent legal advice.  
• A public class action fund should be created which can provide funding for plaintiffs.

In developing its recommendations, commission held a consultation with various sectors, including government agencies, members of the legal profession, litigation funders, business and community organisations and academics.

The government will consider these recommendations in its decision whether to reform the law.