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High-profile litigator urges govt to fix class action law

19 May 2023

| Author: Sally Lindsay

Adina Thorn, the lawyer behind one of New Zealand’s biggest class actions, says the Law Commission’s year-old report recommending new class actions legislation appears to be gathering dust on a shelf in the Justice Minister’s office.

Thorn was a member of the commission’s expert advisory group looking at class actions and funding. At the same time, she was acting for more than 365 plaintiffs with about 1,000 leaky homes and commercial buildings who were seeking about $250 million compensation in a funded class action against the James Hardie Group of companies.

London-based Harbour Litigation Funding, the biggest privately-owned global litigation funder, pulled the plug mid-trial in August 2021 and settled with James Hardie for $1.25m – money that was being held by the court. Although extremely disappointed and not able to communicate why Harbour withdrew its support, Thorn says the decision to settle was not made with the home owners, who opposed it.

She says the settlement should not have been permitted and if New Zealand had a code around litigation funding similar to that of Australia, it probably would not have happened. “In most funding arrangements, the funder cannot pull out after the trial starts. Otherwise the plaintiffs are left with nothing as they cannot get another funder,” Thorn says.

She is surprised that there appears to be no action on the Law Commission’s 500-page report with 121 recommendations to improve access to justice and efficiency in funded litigations through new High Court rules and amendments to the Lawyers and Conveyancers Act 2006. But there’s no relief in sight – at least, not in the short-to medium term. Justice Minister Kiri Allan says the government supports the recommendations but because of the technical nature of the issues and the need for legislative reform, advancing them will take time. “Resourcing this work will be balanced against other government priorities.”


Opening the gates

Third-party litigation funding is permitted in New Zealand. Although the common-law torts of maintenance (assisting a party in litigation without justification) and champerty (assisting in consideration of a share of the proceeds of the litigation) have not technically been abolished, the courts over the past few years have gradually accepted third-party funding. But the lack of a definitive law around litigation funding and funders limits the number of class actions taken in New Zealand. This needs to be addressed, Thorn says.

A contentious issue is the level of control funders have over a class action. Thorn says it is not like defamation where, if the plaintiff is insured, the insurance company usually calls the shots. In class actions, the plaintiffs have the most say. If the law around litigation funding were made more certain Thorn says it would open the gates to more class actions to deal with “plenty of bad behaviour” she is aware of in the property and commercial sectors.


Economic and knowledge disparity

The justice system assumes everybody is in a position to fight a court battle, which is “totally wrong”, Thorn says. “We need to have a means for people to bring these disputes to court and one of those means is litigation funding. But the lack of law around it is a real disadvantage to plaintiffs.

“It means the defendants can keep raising issues with the funding in the courts, which is a long way from getting on with the dispute in front of them. Defendants call that ‘engaging in satellite litigation’. I call it a total waste of time and resources.” Thorn says this satellite litigation is concerning. “From where I am sitting, I can see about 90% of the courts’ time is involved in pre-trial procedural and ancillary matters that have almost nothing to do with the main dispute.

“In Australia, where they are far more advanced with litigation funding, there is far less of it – and the cases seem to be going through at double the speed.” There is no question that class action funding is needed, Thorn says, “but it is difficult because there is such an economic disparity between plaintiffs and the funder and usually a knowledge disparity as well”. Equally, she acknowledges litigation funding is a hard and difficult business. “Obviously funders want to protect their investment. Consumers want to understand the rules of the road, but at the moment the real lack of clarity is pro-defendant or anti-plaintiff.”


Separate court

Thorn says to make the “slow wind” through the courts of funded class actions easier, the introduction of a separate court, or a division or list of the existing court, would streamline matters. She envisages something similar to the earthquake and leaky homes lists.

“Those lists worked. The rules of the road were clearer, the judges were all over it and there are many reasons why that process is better for everyone. “We see the same types of issues in different courts now with different judges and it is far more efficient if these cases are in one list. Then these issues can be resolved once and much more quickly. “The judiciary could introduce a list now. It does not need Parliament to legislate, which could take years or never happen. Those specialist lists work. They would work for class actions, whether funded or not.”

New Zealand judges are also receptive to funded class actions, Thorn says. “The judges are helpful. It is just unfortunate they are dealing with similar issues in different courts or on different days.” The James Hardie case was an example of that. “It is a disgrace to New Zealand’s legal system that these cases involve so many satellite actions brought by defendants’ lawyers.” Some of the James Hardie plaintiffs were elderly and just wanted their day in court but died during the protracted litigation.

Effectively, she says, these people are being denied access to the courts because it is too expensive to launch a case on their own and the cost of expert witnesses can be “astronomical”. “It is a really unfair world, but litigation is insanely complex and risky for those who are paying for it,” she says. Most funded cases rely on experts and they are a significant cost component of the class action – many in the tens of thousands of dollars and some even in the hundreds of thousands.

On top of that, if the plaintiffs win a case, the funder usually takes 30% to 40% of the amount awarded. If they lose, then the funder has to pay the defendants. While the amount the funder takes seems excessive, Thorn says funders need deep pockets and a huge appetite for risk. “There is a massive cost of capital here.”


Few funders

Litigation funders in New Zealand are thin on the ground compared with other jurisdictions. The UK Association of Litigation Funders has 21 members with total assets of £2.2 billion. There are many more across Europe.

In Australia, only four litigation funders and two other companies obtained litigation funding licences when they were introduced in 2021. The licence was introduced by the government to curtail the number of class actions filed, but the changing mix of class actions gave law firms options that don’t require external funding. Thorn says the Australian scheme makes sense. “I’ve heard few complaints about it. It is a step in the right direction.”


Suing the Crown

One area of major tension Thorn sees is the ability to sue the Crown and government entities – for example, for improperly taking land, causing land to flood or any kind of negligence or nuisance. A group of Kiwifruit growers took a $450m funded class action against the Crown for what the growers alleged was actionable negligence in allowing the disease Psa into the country. The Crown settled for $40m, with $15m coming from its insurers.

Thorn asks whether the government really wants to allow these class actions to continue, especially when the defendant is the Crown. “My view is the reason this issue is habitual is because the government is not dealing with it as recommended in the Law Commission’s report.


Recommendations

The Law Commission made 121 recommendations for reforming class actions and litigation funding. Key recommendations include:

  • a new statute called the Class Actions Act as the principal source of law on class actions;
  • a requirement that cases require court approval to proceed as a class action, a process known as certification;
  • that both opt-in and opt-out class actions be permitted. 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 to ensure the interests of class members are protected. For example, a settlement of a class action should be binding only if approved by the court;
  • that in funded class actions, a litigation funding agreement be enforceable only 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; and
  • a public class action fund which can provide funding for plaintiffs.

 

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