Class Actions – the current situation

Carter Pearce*

Carter Pearce from Bankside Chambers explains where we are at with class actions and how we got to this position.

In any civilised society, some sort of procedure allowing groups of people to sue or be sued is essential. All societies are made up of individuals, but all societies also contain groups: people linked together by common social roles, legal rights or interests, cultural connection, or even just descent.

Some societies are more “groupy” than others of course, and from the viewpoint of today’s individualistic society, medieval England was pretty groupy indeed. Membership of groups such as the parish, manor, guild, or religious order defined social identity to an extent unfamiliar to modern eyes. These groups were not legal persons who could be sued by corporate name, and thus representative litigation - where one or more group members sued (or were sued) on behalf of the whole - was common in medieval England.1 The class represented was usually a cohesive social group that existed independently of the litigation, and the named party’s standing to represent the group often went unquestioned.2

By the turn of the 18th century, individualism was on the march and representative litigation had become the exclusive province of Chancery. The common law courts dispensed “justice between man and man”, 3 were unfriendly to joinder,4 and did not permit representative suits.5 But the equity courts sought to do “complete justice, and not by halves”, 6 and thus demanded that all persons materially interested in a case be joined.7 Where those interested were too numerous to be made parties, the court permitted one or more members of the class to represent the rest. Over time, Chancery extended the use of representative suits to groups whose membership was arguably less “natural” and cohesive than the older medieval groups, such as shareholders (and creditors) of companies, mutual assurance societies, and trade unions.

With the 19th century “merger” of the law and equity courts, the Chancery practice of permitting representative suits was carried over into the merged system and extended to cases that previously could only have been brought in the law courts. At the same time, the Chancery practice with its various quirks and inconsistencies was distilled to a one sentence rule included in the new codes of civil procedure. This happened first in New York, where a rule formulated in 1849 became the model for rules in other American states. Then in England, the rule as formulated in the schedule to the Judicature Act of 1873 became the model for rules in other Commonwealth jurisdictions, including New Zealand.

Class actions emerged as a major feature of American litigation after 1938, when the law-equity “merger” occurred in the Federal courts. In England, however, the law “took a wrong turning”.8 While the appellate courts in the merged system initially exhibited a liberal approach to representative suits,9 the 1910 Court of Appeal decision in Markt & Co v Knight Steamship was read as confining representative suits to a relatively narrow field of cases, with a resultant “stultifying” of the law.10 In particular, suits for damages were thought to be out of bounds. In New Zealand too, the “straitjacket of Markt”11 hampered the use of representative suits for most of the 20th century.

This divergence between England and America may partly explain the false but widespread notion that “class actions” and “representative actions” are fundamentally different beasts. Both names refer to the same thing: a proceeding in which one of the parties represents a class of other persons.12 Prior to the early 20th century the two names were used interchangeably on both sides of the Atlantic.13 The split in naming seems to date to 1938, when the US rule appeared under the heading “Class Actions” in the Federal Rules of Civil Procedure, and that name has stuck in the US ever since. That this has led some to imagine a difference in kind is testament to the power of labels to direct (and misdirect) thought.

Having said that, the “class action” regimes in Australia and North America do have important features that were until recently either absent or uncertain in New Zealand. In those jurisdictions, the rulebook for class actions is contained in statute or detailed rules of court, whereas in New Zealand (and England), the “rules” are scattered across the case law. So, a good way to approach the question “Where are we at with class actions?” is to look at how far New Zealand courts have come in addressing those important features.

Although a definitive list is hard to compile, some of the key features of a “modern-day” class action regime include (a) the ability to combine individual damages claims in one proceeding; (b) the use of an opt-out procedure to refine the class membership; (c) tolling or suspension of limitation periods in respect of class members’ individual claims; (d) dealing with issues particular to individual class members via staged hearings; (e) active court supervision of proceedings, and in particular settlements; (f) remedial flexibility e.g. awarding global damages and/or directing any unclaimed amounts to a “cy-prés” recipient; and (g) a “common fund” approach to the costs of the proceeding,14 with the court exercising control over the amount of legal fees and litigation funding charges.

Taking those in turn, in New Zealand (a) the ability to combine individual damages claims was confirmed at appellate level in the Feltex litigation;15 (b) the use of an opt-out procedure likewise in Ross v Southern Response;16 (c) tolling of limitation was dealt with by the Supreme Court in Feltex and the Court of Appeal in Cridge v Studorp, 17 although some of the finer details remain to be worked out; and (d) staged hearings were also addressed in Feltex,18 although the attempt to actually conduct a “Stage 2” hearing in that case was abortive for want of funding.19 The Supreme Court gave guidance on (e) court supervision of proceedings and settlements in Ross v Southern Response. 20 The High Court discussed (f) awards of global damages nearly 35 years ago,21 and it appears such awards have been made in the Employment Court,22 but the courts have not yet dealt with “cy-prés” awards. Finally, (g) a common fund approach to costs was going to be a live issue in Ross v Southern Response, but as that proceeding has now been settled,23 that issue will have to await another case.24 This brief survey reveals that the New Zealand courts have come quite some way towards establishing the framework for a “modern day” class action regime. However, many of the details remain to be worked out on a case-by-case basis, and that presents great opportunities for the Bar.25 Given the amounts that are often at stake in class actions, small procedural points can be worth appellate-level argument. And even in jurisdictions where much of the procedural detail is now prescribed by statute or rules, a lot of argument still occurs around the edges of the rules.

As the UK Supreme Court recently put it, “Although the world has changed out of all recognition since the representative proceeding was devised by the Court of Chancery, it has done so in ways which have made the problems to which the procedure provided a solution more common and often vastly bigger in scale”. 26 All indications are that class actions will continue to be a growth area in New Zealand law. Moreover, it is an area that rewards deep reading and an open mind, with an enormous wealth of case law stretching across jurisdictions and centuries. The development of the field in New Zealand calls for the expertise and focus that the independent Bar can bring. Just as importantly, class actions are far too interesting to be left to the “other branch” of the profession.

* Carter Pearce is a barrister at Bankside Chambers in Auckland. He is instructed as junior counsel for the plaintiffs in the class actions Ross v Southern Response and Livingstone v CBL Corporation.

REFERENCES

1See Stephen C Yeazell From Medieval Group Litigation to the Modern Class Action (Yale University Press, 1987). 2I am reminded of a comment Williams J made during the Supreme Court hearing in Southern Response v Ross, that Maori litigation has traditionally been representative “and no one even notices”; cases are brought by the chief on behalf of the tribe, and “the Courts don’t even bat an eyelid when the plaintiff happens to be the Chief of the tribe”: Southern Response Earthquake Services v Ross [2020] NZSCTrans 18 (15 June 2020). So it was, it would seem, in medieval English litigation. 3In the words of Lord Brougham LC. 4See Tippet v Hawkey (1793) 3 Mod 263, 87 ER 174 (KB). 5Ross v Southern Response Earthquake Services (2019) 25 PRNZ 33 (CA) at [42]. 6Knight v Knight (1734) 3 P Wms 334, 24 ER 1088 (Ch) per Lord Talbot LC. 7Duke of Bedford v Ellis [1901] AC 1 (HL) at 8 per Lord Macnaghten. 8Esanda Finance v Carnie (1992) 29 NSWLR 382 (NSWCA) at 394 per Kirby P. 9See Duke of Bedford v Ellis [1899] 1 Ch 494 (CA), [1901] AC 1 (HL); Taff Vale Railway [1901] AC 426 (HL). 10See Beck “Opt Out is In: The New Class Action Regime” [2019] NZLJ 356 at 357. 11Credit Suisse v Houghton [2014] 1 NZLR 541 (SC) at [57]. 12“Representative action” takes its name from the verb, “class action” from the object. 13In England, for example, the 1909 edition of the Annual Practice uses “representative action” at p 169 and “class action” at p 171. The High Court of Australia used both terms, seemingly interchangeably, in Barnes & Co v Sharpe (1910) 11 CLR 462. United States authors up to the late 1930s referred to “representative suits” just as often as “class actions”: see for example Wheaton “Representative Suits involving Multiple Litigants” (1934) 19 Cornell LQ 399; McLaughlin “The Mystery of the Representative Suit” (1938) 26 Geo LJ 878. 14Whereby the plaintiff’s legal fees and litigation funding costs (where applicable) are recouped from the “fund” recovered in any judgment or settlement, and the balance of the fund is distributed to class members pro rata. The net effect of this is to spread the costs of the proceeding across the whole class in exact proportion to the benefits each class member receives. 15Saunders v Houghton (No 1) [2010] 3 NZLR 331 (CA) at [14]; Saunders v Houghton (No 2) [2013] 2 NZLR 652 (CA) at [84]; Credit Suisse v Houghton [2014] 1 NZLR 541 (SC) at [8]. 16Ross v Southern Response Earthquake Services (2019) 25 PRNZ 33 (CA); Southern Response Earthquake Services v Ross [2020] NZSC 126. 17Credit Suisse v Houghton [2014] 1 NZLR 541 (SC); Cridge v Studorp (2017) 23 PRNZ 582 (CA). 18Credit Suisse v Houghton [2014] 1 NZLR 541 (SC) at [59]. 19See Houghton v Saunders [2020] NZCA 638. 20Southern Response Earthquake Services v Ross [2020] NZSC 126 at [64] – [89]. 21R J Flowers v Burns [1987] 1 NZLR 260 (HC). 22See Andersen v Capital Coast Health [2000] 1 ERNZ 256 (EmpC). 23Subject to court approval, which at the time of writing has not yet been granted. 24For what it is worth, this writer considers that the common fund approach has a solid pedigree at common law (or more precisely, in equity) and will likely be embraced by the New Zealand courts as it has been overseas. 25The Law Commission will presumably deal with all the topics I have identified (and more) when it releases its final report on Class Actions and Litigation Funding in 2022. But who can say when - or if - Parliament will act on whatever the Commission recommends? In the meantime, courts and practitioners will need to apply the existing rule and continue developing the law on a case-by-case basis: see Ross v Southern Response Earthquake Services (2019) 25 PRNZ 33 (CA) at [39].