Class action to include all potential members

Ross v Southern Response [2019] NZCA 431

In a landmark decision, the Court of Appeal recently granted leave for a class action to be brought against government-owned settlement agency Southern Response on an opt-out basis.  

Background

In May 2018, Mr and Mrs Ross applied for leave from the High Court to bring a representative claim (that is, a class action) against Southern Response.  The claim relates to the settlement agreement they entered into with Southern Response in relation to their insurance claim for damage to their house caused by the Canterbury earthquakes.  They say that Southern Response provided them with incomplete information as to the estimated cost of remediating the earthquake damage to their home. Southern Response has previously been found to have done this in another high-profile decision Dodds v Southern Response. 

Mr and Mrs Ross estimate that a class of around 3,000 policyholders settled their insurance claims under similar circumstances, and they therefore sought leave to bring proceedings as representatives of this class, on an opt-out basis.  This means that they would bring the claim on behalf of every member of the defined group, apart from any members who expressly chose to opt out of the proceeding.  It was common ground that if liability was established in the first stage of the proceeding, the second stage of the proceeding, which would deal with the compensation (if any) that each member was entitled to, would have to proceed on an opt-in basis, as it would require members to provide information relevant to their compensation claim.  However, Mr and Mrs Ross argued that the first stage ought to proceed on an opt-out basis.  

In the High Court, Associate Judge Matthews granted leave for the representative claim, but held that it should be brought on an opt-in basis.  This followed High Court decision Houghton v Saunders, which held that while opt-out procedures were relatively common in other jurisdictions, including Australia, New Zealand lacked a clear legislative framework, and such a procedure represented “too radical a departure from the existing Rules.”  

The Court of Appeal decision 

The Court of Appeal overturned the High Court decision, finding that there was no jurisdictional barrier to the making of an opt-out order under the High Court Rules.  It found that this was consistent with the recent decision of Credit Suisse, where the Supreme Court appeared to proceed on the basis that both opt-in and opt-out orders were permissible methods of reducing the class represented. 

The Court considered that New Zealand courts should adopt the same liberal and flexible approach that was adopted in the context of similar rules in Australia and Canada.  The Court found that the absence of detailed legislation relating to representative claims was not a sufficient reason for it to decline to make whatever procedural orders would best serve the purposes of the rule.  

It described the three objectives of this rule as:

1. improving access to justice;

2. facilitating efficient use of judicial resources; and

3. strengthening incentives for compliance with the law.  

The Court considered that the opt-out approach was likely to significantly enhance access to justice, which it considered to be the most important objective of class action suits.  Practically, an opt-out approach is likely to result in a significantly larger percentage of the class taking part in the proceeding.  The Court considered that if there is some potential advantage for class members in participating, and no real prospect of any disadvantage, then it should be made as easy as possible for them to participate.   

The Court further noted that allowing representative procedures to proceed on an opt-out basis would strengthen the incentives for insurers and other large entities dealing with the public to comply with the law.  This is because there is a higher likelihood that they will be held to account for any breaches of their obligations to large numbers of individuals, where individual claims may not otherwise be pursued.  It considered that an opt-out approach would serve as a general deterrence to insurers; creating an incentive to comply with their legal obligations, including obligations under the Fair Trading Act.  

Counsel for Southern Response argued that it was inappropriate for an opt-out order to be made in the absence of detailed statutory provision for the conduct of such proceedings.  The Court agreed that it would be preferable to have a legislative framework for such claims, to provide greater certainty and predictability for all parties.  However, it did not find that the current lack of framework was a barrier, and in any event, many of the procedural issues that arise in this context would arise regardless of whether an opt-out approach was adopted.  The Court noted that there have been previous attempts to reform the law in this area, and that reform is currently under consideration. The Court anticipated that opt-out orders will become the norm.  

In terms of any disadvantage to persons in the plaintiff class, the Court found that there was minimal risk of a counter-claim by Southern Response and it did not consider that an opt-out order would negatively affect the claimants from a limitation perspective.  It therefore allowed the appeal and held that class members may elect to opt out of, rather than opt into, the proceeding.  It further ordered that the plaintiffs may discontinue the proceeding only with leave of the Court.

Comment (Cecily Brick)

This decision is a significant step towards class actions becoming a much more common feature of the New Zealand legal landscape, as it will be much easier to get a class action off the ground when it can happen on an opt-out basis rather than opt-in.  While this decision considered whether an opt-out class action could proceed against an insurer, the ramifications extend far beyond potential claims against an insurer. Like it or loathe it, the Courts are embracing class actions in the interests of greater access to justice.  The recent announcements of not one but two class actions over the failure of CBL Insurance are part of a trend set to continue.

Cecily Brick, Partner