Unanimous Supreme Court ruling allows class actions to push through on opt-out basis

In a unanimous ruling, the Supreme Court of New Zealand has allowed class actions to push through on opt-out basis pending the establishment of a comprehensive legislative framework, reported the New Zealand Law Society.

As per the ruling, a representative claim can be “brought on behalf of every member of a class other than those who expressly choose to opt out,” the Law Society said. The decision, which was made in relation to a case involving insurer Southern Response Earthquake Services Ltd and their clients Brendan and Colleen Ross, upholds the judgment made by the Court of Appeal.

The opt-out process is popular in Australia, Canada and the US, but in lieu of a detailed legislative regime, New Zealand has typically approached class actions from an opt-in basis, which requires “each member of the class to elect to opt in to the proceeding in order to be included in the claim,” the Law Society said.

At present, the Law Commission is conducting a comprehensive review of class actions and litigation funding; nonetheless, the Supreme Court said that in the absence of detailed legislation for class actions, it “should fill the void with a flexible application of existing rules of court to develop procedures concerning representative actions, including in an opt out context.”

The court outlined the following objectives for representative proceedings:

• to improve access to justice
• to facilitate the efficient use of judicial resources
• to strengthen incentives for compliance with the law

An opt-out process, the court said, fit these objectives and improved access to justice. Experience with the procedure could aid in forthcoming law reform, and the court’s ability to oversee settlement processes and notice provision could help address concerns related to litigation funding.

The court also offered guidance on when a representative proceeding should be permitted to progress on either an opt in or opt out basis.

The Law Society said it applauded the court’s decision as “a welcome clarification of the approach to class actions in New Zealand, until a comprehensive legislative framework is in place.” The organisation had intervened in the appeal as a neutral party, concentrating on issues of significant public interest related to access to justice and on procedures facilitating efficient and fair representative proceedings.

In the Law Society’s submission, the organisation said that while detailed legislation was the “preferred solution” to complex class actions, in lieu of such a regime, courts had the jurisdiction to issue opt-out orders and address questions of procedure. Moreover, absentee plaintiffs who are either unaware of representative proceedings or who have chosen not to engage with the plaintiff lawyer would be protected by both the lawyer’s duties to the court and the court’s position as a supervisor in these proceedings.

The organisation also said that it welcomed the Law Commission’s upcoming review and that it would “seek views from the profession when the Commission’s consultation paper is released later this year.”

The New Zealand Bar Association and litigation funder LPF Group Ltd also served as intervenors in the appeal.