Supreme Court rejects challenge to common fund orders in class actions

15/01/2025·2 mins to read

Supreme Court rejects challenge to common fund orders in class actions

The Supreme Court delivered an early Christmas gift for litigation funders late last year when it declined an application by ANZ and ASB for leave to appeal the Court of Appeal’s decision allowing early-stage common fund orders to be made in class actions.

Key takeaways

The Supreme Court’s decision is a significant win for litigation funders and class action plaintiffs, and underscores the strong focus on access to justice in representative proceedings that has developed (and continues to develop) through New Zealand’s courts. It also highlights that the law in this area is continuing to develop despite legislative reform being delayed following the Law Commission’s report in 2022.^[1]

Common fund orders

Common fund orders (CFOs) are critical for litigation funders in an opt-out class action as they ensure class members who do not sign the funding agreement, but who are still able to benefit from any recovery in the proceeding, are required to pay a proportionate share of that recovery to the funder in the event the claim is successful.

If the CFO is made by the Court at an early stage of the proceeding then it provides the funder with certainty as well as enabling it to avoid the costs of a significant book-build process.

In short, they are intended to guard against what has been described as the ‘free rider’ problem.

The High Court decision

In 2022, the High Court granted an application for the litigation against the banks to proceed as an opt-out class action and at the same time confirmed it had jurisdiction to make CFOs, based on the inherent jurisdiction of the Court and High Court Rules 1.2 and 1.6. However, Justice Venning concluded that in this case it was premature to make a CFO and the issue should be considered after the conclusion of the stage 1 hearing (but before the conclusion of the proceeding, assuming the plaintiff was successful at stage 1).

The Court of Appeal decision

In July 2024, the Court of Appeal upheld the High Court’s finding that it had jurisdiction to make a CFO. On the issue of timing, the Court of Appeal was firmly in favour of CFOs being made as early as possible to support access to justice. It held there was “no clear benefit in deferring making a CFO at an early stage” and that “[f]ailing to make a CFO at this juncture in this case merely prolongs uncertainty about the funding of the proceeding, thereby placing access to justice at risk”.

The Supreme Court decision

In late December 2024, an application by the banks for leave to appeal to the Supreme Court on both issues (that is, jurisdiction and timing) was declined.

The Supreme Court concluded there was nothing to indicate the proposed challenge had “sufficient prospect of success to justify the expense and delay of a further appeal”. On the issue of jurisdiction, the Court observed that this appeared “to arise naturally from the making of an opt-out order” (having previously found^[2] that the courts have the necessary powers to regulate representative proceedings).

As to timing for making a CFO, the Supreme Court referred to its own emphasis on access to justice and again concluded there was nothing to suggest a sufficient prospect of success. In doing so, the Supreme Court noted it was “hard to resist” the Court of Appeal’s reasoning on this issue.

You can read the full decision of the Supreme Court here and our earlier comments on both the Court of Appeal decision here and High Court decision here.