Supreme Court supports self-management by parties in representative and funded proceedings (New Zealand)

Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126

The Supreme Court’s recent decision upholding an opt out class action indicates a promising future for the role of class actions and litigation funders in New Zealand. Representative proceedings have a long history in New Zealand. Litigation funding on the other hand, has traditionally had a small role in New Zealand’s civil litigation landscape. This has changed over the last two decades, with notable decisions from the Court of Appeal in Sanders v Houghton, and the Supreme Court in Waterhouse v Contractors Bonding Ltd and PriceWaterhouseCoopers v Walker.

In Southern Response v Ross, the main issue before the Court was whether the class action proceeding could be brought on an opt out basis — i.e. whether the claim could be brought on behalf of every member of the group of policyholders, apart from those members who expressly chose to opt out.

Mr and Mrs Ross’ claim against Southern Response is that they were induced to settle their insurance claim on a less favourable basis than they might have because the insurer gave them incomplete information about the cost of remedying the damage to their home following the Canterbury earthquakes. The Rosses therefore applied to bring the case on a representative basis on behalf of the approximately 3,000 other policyholders who settled in similar circumstances.

Representative proceedings

The Supreme Court upheld the Court of Appeal’s ruling that the representative action can be brought on an opt out basis. It concluded that ‘…generally, the court should adopt the procedure sought by the applicant unless there is good reason to do otherwise.’

The Supreme Court also commented that departing from a requested opt out procedure would be justified only where when there is a real prospect some class members may end up worse off or adversely affected by the proceeding. However, an opt in procedure may be preferable when the class is small and there is a 'natural community of interest' or a 'pre-existing connection'.

Litigation funding

The Supreme Court was also asked by Southern Response to consider the interaction between opt out representative proceedings and litigation funding. It rejected Southern Response’s submission that 'in an opt out situation, it is harder to manage the tension arising from the fact that litigation funders effectively assume control over settlements whilst having different economic incentives from the interests of the class.' The Court rightly pointed out that this tension exists irrespective of whether the representative claim is brought on an opt in or opt out basis and any differences in degree are not to an extent to justify precluding an opt out approach.

The Court also noted that the court’s role to prevent abuses of process and ability to supervise settlements can mitigate concerns regarding the control litigation funders may take over a claim, and restated its conclusion in Waterhouse, ‘…that a stay on abuse of process grounds should only be made for an abuse of process “on traditional grounds or where the funding arrangement effectively constitutes” an impermissible assignment of a cause of action.’

Finally, the Court noted that it may have a supervisory role for litigation funding arrangements in representative proceedings but concluded that it is premature to say there is an expectation that litigation funding agreements should routinely be provided to the court in such cases.

In our view, the Supreme Court’s comments are encouraging signs for the future of litigation funding as well as representative actions in New Zealand. It is clear the judiciary considers litigation funding to be a legitimate option for clients looking at different ways to fund claims and is willing to continue allowing parties to litigation funding agreements to have primary control over such arrangements.

This is good news for our clients who have the potential to draw upon the resources of Aldersgate Funding Limited to fund their litigation on a risk-free (non-recourse) basis, freeing up capital for their business activities.