The High Court has confirmed it will allow a major claim against ANZ and ASB to proceed as an opt-out class action.

Justice Venning concluded it would be far more efficient and cost effective for the parties and the court to have common issues determined on a representative basis and, significantly, that it was appropriate to make opt-out orders. This means the claim will include all affected customers unless they choose not to participate. The decision also confirms, in no uncertain terms, that courts have the jurisdiction to make common fund orders.

Opt-out proceeding

The Court held that opt-out orders “are clearly appropriate in a large consumer class action of this nature”. In reaching this view, it considered a range of issues:

• Requirement for “same interest” and “common issues”: Many pages of the judgment were devoted to whether or not there was a sufficient degree of commonality among the claims of the proposed class members. The Court ultimately found there was, noting it is “not necessary that the common interest completely resolve the case” and that the Court should take “a liberal and flexible approach in determining whether there is a common interest”. It confirmed the threshold is not high, and the Court has to be careful not to look for impediments to a representative action.

• Funding arrangements: The banks took issue with certain clauses in the litigation funding agreements, but the Court concluded these were not unreasonable.

• Merits: Unsurprisingly, the parties took “diametrically different positions regarding the merits of, and motivation for, these proceedings”. The Court was reluctant to consider the merits of the claim prior to a stage 1 hearing, finding only that it could not be said the claims “are so plainly without merit” that the representative orders should not be granted.

• Access to justice: The Court noted that access to justice factors pointed towards an opt-out approach as it will enable many more class members to have their claims heard and determined. It noted there was a high risk of class members failing to opt-in without good reason, and some customers may be vulnerable and not feel able to individually pursue a claim on their own.

• No adverse effect: There was no prospect of a class member being adversely affected by an opt-out order.

• Prejudice: The Court did take into account prejudice to the defendants, particularly as the opt-out orders will place a large burden on the banks to investigate and identify potential class members. However, this was outweighed by the other factors. Although defending the claims would be burdensome for the banks that did not tip the balance and could not justify refusing to make representative orders.

Common fund orders

Significantly, the Court confirmed it has jurisdiction to make common fund orders (CFO), an issue which has previously been left open by the Supreme Court and has caused intense debate in Australia.

In opt-out proceedings, CFOs set the amount a litigation funder will receive as a proportion of any money ultimately recovered in a class action proceeding, and require all members of the class to bear a proportionate share of that obligation. They are sought by representative plaintiffs to:

• prevent the practice of ‘free-riding’ by class members who have not signed up to the litigation funding agreement, but who would derive benefit from the proceeding if it succeeds; and

• provide some economic certainty and return for the litigation funder, and avoid the expense and effort involved in building a book of class members.

This is only the second time such an order has been sought in New Zealand, the earlier application in the Southern Response claim having fallen away. It was not previously clear whether the Court had jurisdiction to grant such orders. Recent case law in Australia has held the court does not have the ability grant CFOs at the outset of the proceeding.

Justice Venning concluded that the inherent jurisdiction of the courts and High Court Rules 1.2 and 1.6 provided a sufficient basis on which to be able to make such orders. However, in this case it found it was premature to make a CFO at this time and the issue was more properly considered after the conclusion of the stage 1 hearing (but before the conclusion of the proceeding, assuming the plaintiff was successful at stage 1).

This outcome is consistent with the Law Commission’s recent recommendation (see our previous article) that the Court should have the power to require the litigation costs of a class action (including the legal fees and funding commission) be equitably spread among class members, even if they have not signed up to the agreement.

Conclusion

This judgment is another step in the development and clarification by the courts of key issues affecting representative litigation. While we eagerly await Parliament’s consideration of a possible new statutory regime for class actions and litigation funding, our courts continue to fill in some of the gaps that currently exist.

Special thanks to Rachael Machado for her assistance in writing this article.