From cold relief to the courtroom: how effectiveness claims are reshaping consumer class actions

Small consumer claims about everyday health products are rarely brought on an individual basis. The cost and complexity of pursuing a claim usually outweigh the loss suffered by any one consumer. As a result, disputes about whether widely used over-the-counter products do what they claim often never reach the courts.

The High Court’s decision in Gielen v Johnson & Johnson (New Zealand) Ltd shows how that position is changing. By allowing the case to proceed as an opt-out representative action, and approving a common fund order (CFO) at the outset, the Court adopted a structure that makes low-value consumer claims economically viable.

The decision may provide a model for future New Zealand consumer class actions, particularly in the life sciences sector.

The case also highlights how overseas scientific and regulatory developments can become drivers of litigation in New Zealand – even where the issue is product effectiveness rather than product safety.

 

Background

The proceeding concerns a range of Codral, Sudafed and Benadryl branded cold and flu products containing phenylephrine (PE), sold in New Zealand over almost 20 years.

PE has been found by the United States’ Food and Drug Administration (FDA) to be no more effective than a placebo in relieving cold and flu symptoms when used orally.

The representative plaintiffs allege that, despite being marketed as relieving nasal congestion, the products were ineffective for that purpose when used orally. They say that Johnson & Johnson breached the Consumer Guarantees Act 1993 and engaged in misleading and deceptive conduct under the Fair Trading Act 1986.

The claims are framed as pure economic loss claims, seeking the price consumers paid for products that allegedly did not perform as promised. There is no allegation of injury or safety risk associated with those products.

 

A claim that would not proceed individually

The Court accepted that, without a representative action, the claim would not proceed at all. The potential class could include hundreds of thousands of consumers, each with a small claim. Justice Fitzgerald held that requiring individuals to sue on their own would make enforcement of rights practically impossible.

The Court noted that representative proceedings exist precisely to deal with this kind of widespread, low-level harm.

For those reasons, the Court allowed the case to proceed on an opt-out basis, noting that:

• the proposed class was very large;
• individual claims were small;
• most consumers would not take active steps to join a proceeding; and
• if consumers were required to opt in, the claim would be unlikely to proceed at all.

The Court rejected the argument that uncertainty about the precise size of the class counted against an opt-out approach. Where a class is large, opt-out proceedings are often the only realistic means of providing access to justice. The Court also saw little downside for class members, noting the absence of counterclaims or other risks that might justify an opt-in model.

 

How far representative treatment can go

The Court confirmed that the “same interest” test under rule 4.24 of the High Court Rules 2016 sets a relatively low bar, and that claims do not need to be identical. The Court will consider whether there are common issues that can sensibly be resolved together.

However, the decision makes clear that class definition remains important.

• Consumer Guarantees Act claims: In respect of the claims under the Consumer Guarantees Act 1993, the Court allowed the claims to proceed for all purchasers. These claims do not require proof that a consumer relied on specific representations. If the products were not fit for the common purpose of relieving nasal congestion, that issue affected all purchasers in the same way.
• Fair Trading Act claims: By contrast, the Court declined to allow the Fair Trading Act 1986 claims to proceed on a representative basis in respect of combination products, being those containing PE plus other active ingredients. Fair Trading Act claims require proof that loss was suffered “by” misleading conduct, which in turn requires proof of reliance. Because some consumers may have purchased combination products for different symptoms, this raised issues related to reliance that would not be shared across the class.

The decision indicates that New Zealand courts will support class actions where there is genuine commonality, but will not stretch class definitions where individual issues, especially reliance, become central.

 

Common fund orders

The most significant aspect of the decision is the Court’s approval of a common fund order at the commencement of the proceeding.

A CFO requires all class members who benefit from the case to contribute to the litigation funding costs, whether or not they signed a funding agreement. The Court accepted that, in an opt-out consumer case of this kind, a CFO was necessary to make the claim viable.

Relying on the Court of Appeal in Simons v ANZ Bank New Zealand Ltd [2024] NZCA 330, Fitzgerald J held that:

• CFOs are intended to improve access to justice;
• they are ordinarily appropriate at an early stage in suitable opt-out cases;
• certainty around funding benefits both funders and class members; and
• concerns about funder returns can be managed through ongoing court supervision at settlement or judgment.

 

What this means for life sciences businesses

The case was partly prompted by overseas developments, including the FDA’s proposal to remove oral PE from certain cold and flu medicines on effectiveness grounds. The High Court did not treat those developments as decisive, but accepted that they formed part of the broader factual background.

For life sciences companies, the decision is a reminder that legal exposure is no longer driven only by safety risks or major adverse events. Claims about product effectiveness, value for money and marketing claims can now generate large-scale litigation, even where regulators have not taken enforcement action and products remain lawfully on the shelf.

A few practical implications stand out.

1. Global developments matter locally

This case shows that shifts in scientific consensus can quickly find their way into New Zealand court proceedings. Even where New Zealand regulators maintain an existing position, developments offshore may still be relied on to argue that consumer expectations have changed, or that representations have become misleading over time.

2. Effectiveness is now a litigation risk, not just a marketing issue

Traditionally, questions about a product’s efficacy have been handled through regulatory processes or advertising complaints. This case shows that effectiveness claims can also underpin consumer litigation framed as economic loss, particularly where products are mass-marketed and relatively low cost.

3. Scale cuts both ways

Large consumer populations were once a practical barrier to litigation because individual claims were too small and difficult to run. Opt-out procedures and common fund orders now change that dynamic. The larger the customer base, the greater the potential exposure once claims are aggregated.

 

The bigger picture in class actions

Seen more broadly, Gielen v Johnson & Johnson fits within a clear trend in New Zealand class action practice, where courts are increasingly focused on making claims workable rather than shutting them down because they are complex or novel.

Several themes are emerging.

1. Procedure is becoming a driver of access to justice

Opt-out representative actions and common fund orders are now being treated as practical tools to deal with widespread, low-value harm. Courts are showing a willingness to approve these structures early, so that cases can be brought and tested on their merits.

2. Economic loss consumer claims are gaining traction

New Zealand has generally seen fewer consumer class actions than jurisdictions such as Australia. This case shows that the combination of representative procedures, litigation funding and a willingness to engage with aggregate issues may increase activity in New Zealand, particularly in consumer products and life sciences.

3. Courts are prepared to manage complexity rather than avoid it

Questions about class size, reliance and funding returns are no longer treated as reasons to prevent proceedings at the outset. Instead, they are being managed through staged approaches, judicial oversight and targeted limits on class definitions where needed.