Law firm Chapman Tripp is urging the Government to act on Law Commission recommendations to establish a proper legal framework for class actions

The law on class actions by litigants needs to be tightened up, according to law firm Chapman Tripp.

It says recommendations to sort out legal uncertainties about class actions were made by the Law Commission last year, but moves to implement them appear to be “idling at the lights”, to quote the law firm's litigation and disputes resolution partner, Laura Fraser.

Her comments come as a huge class action looms against the ANZ and ASB banks, but is bogged down in interlocutory arguments that are delaying the substantive hearing. Chapman Tripp is not involved in that case.

Class Actions are law suits taken collectively by large numbers of plaintiffs who all have the same claim against a defendant. They happen frequently in the United States and have been developing in New Zealand since the 1980s.

But in its report last year, the Law Commission said New Zealand does not have any legislation designed for the administration of class actions.  Furthermore, the High Court Rules used to govern class actions were intended for something slightly different.

“As a result, there has been extensive litigation on procedural issues, which has caused delay for parties and required considerable court resources,” the Commission wrote

“We have concluded that a statutory class actions regime will be clearer, more certain and more accessible.”

In its recommendations, the Law Commission said a class action should need certification by a court before it can proceed. In addition, any concurrent action would have to be filed within 90 days. And an out-of-court settlement would have to be approved by a court.

In a response, the Government expressed agreement with many of the Law Commission's recommendations, but so far nothing has happened. Information on this matter has been sought from the Minister of Justice Kiri Allan. Moves to improve New Zealand's class action laws date back to 2009, after the finance company sector's collapse.

Class actions in the United States have become famous for the size of their awards. In one case, the tobacco industry was ordered to pay $US206 billion for health costs incurred in 46 US states. In another case, BP incurred a $US20 billion bill for its Deepwater Horizon oil spill.

Class actions are also blamed for a wave of lawsuits in America for lesser, but still substantial sums, which can sometimes reduce a defendant to bankruptcy.

But an expert on litigation at Auckland University, Nikki Chamberlain, says that is unlikely to happen here.

“We live in a very different environment from the United States. In the United States, court costs lie where they fall. That is called the American Rule. In New Zealand the losing party pays a scaled cost. So already, there is a deterrent against unmerited legal action,” she says.

““And in any event, with unmerited claims, you have still got the interlocutory applications like strike-out of causes-of-action and summary judgement if you say there is no arguable case – those can stop the proceedings.” 

One of the big issues for class actions is the problem of opt-in versus opt-out litigation. Opt-in suits are sometime seen as having more merit, since they are joined by people who clearly feel strongly about their case. Opt-out lawsuits, by contrast, are more controversial, since they temptingly dangle the prospect of thousands of dollars of damages to people who were not exercised enough to actively take a case in the first place.

The case against ASB and ANZ is an opt-out lawsuit, and this forms the basis of an appeal by the defendants in an interlocutory case being brought to the Court of Appeal. The case concerns alleged over charging of interest and fees to customers.

In her appeal to politicians,  Fraser says class actions are growing in number all the time, and they could easily attract the attention of offshore litigation funders.

“This trend was anticipated by the Law Commission.....which recommended a statutory class action regime,” Fraser writes.

“Yet the future of class actions in New Zealand remains at a crossroads,” she says.

“The Law Commission’s report, comprising of 121 recommendations, was regarded as a landmark piece of work and was endorsed by the Government. But we seem now to be idling at the lights with the prospect of a 'green light' seeming to diminish as the election comes closer.”

In the meantime she says “class actions are on a growth trajectory”.

Chamberlain adds this means judges are having to come up with a proper procedure for class actions as they go along.

“They are having to look overseas for guidance on their class action regimes and that creates a lot of ambiguity,” she says.

“And it means that these cases have a lot of scope for interlocutory appeals and that causes lots of delay and lots of expense.”