Landmark ruling allows NZ's first 'opt out' class action lawsuit against Southern Response

Monday, 16 September 2019

The courts have made it easier for people to join a group lawsuit which could cost the Government hundreds of millions of dollars.

The landmark court ruling clears the way for a new type of class action in New Zealand, called an 'opt out' action, for a case against Government insurer Southern Response.

The opt out action means everyone who could make the same claim against Southern Response is automatically signed up and represented together unless they actively withdraw. 

Run by Grant Cameron of GCA Lawyers, the case alleges Southern Response underpaid on some Christchurch earthquake settlements by giving claimants a detailed repair/rebuild analysis (DRA) for their home that missed several costs. The abridged DRA was used to reach settlement.

 **READ MORE:

* Government-owned Southern Response facing multimillion-dollar legal action

* Southern Response engaged in misleading and deceptive conduct, High Court finds

* Potentially costly class action against Southern Response given go-ahead**

Cameron estimated more than 3000 people may have settled based on abridged DRAs, with the average difference between the abridged and full DRA being about $100,000. 

The lawsuit was given the go-ahead late last year, but only as an 'opt in' class action – where those affected would have had to actively sign on to be part of the action. 

Cameron appealed that decision. His lawyers argued an opt out action would better protect the rights of class members, be more efficient, and allow better access to justice. 

Southern Response's lawyers opposed an opt out action because of the complexity of the issues and lack of legislative structure for how the proceedings should be run. 

The court said an opt out approach was 'likely to significantly enhance access to justice' as many people would fail to take action; 'the significance of inertia in human affairs should not be underestimated'.

'If there is some potential advantage for class members in participating in the proceedings, and no real prospect of any disadvantage, then it should be made as easy as possible for them to participate.'

The judgment said allowing such cases to proceed as opt out actions should strengthen incentives for large companies to follow the law as it increased the chance they would be held to account if they breached their obligations to a large number of people. 

'Those incentives will be weaker if the potential breacher is only exposed to an opt in claim brought on behalf of a modest proportion of affected persons.'

The court found both those who chose to buy a replacement house and those who chose to repair their damaged house based on abridged DRAs would be included in the action. 

Cameron said those Southern Response customers affected by the abridged DRA issue would now be sent a notice from the court confirming they were members of the class action. 

The action is being represented by Brendan and Colleen Ross, who in a statement said they were thrilled with the result as they could not have sued by themselves. 

Southern Response can still appeal the decision. Chairman Alister James said the company was currently considering the court's findings.

A recent High Court decision relating to Southern Response's use of two DRAs, known as the Dodds' case, was misleading and deceptive. On Thursday, Southern Response announced it would appeal the decision.

When announcing the appeal, the company and Government said they would 'proactively respond to other people in a similar situation', James said.

'The intention of this would be to avoid the need for further costly litigation for customers, and ideally to avoid a customer having to pay a portion of their entitlements to an offshore litigation funder.'

James said while considering whether it would appeal this latest decision, Southern Response would be trying to better understand the position of GCA Lawyers and the litigation funders.

The company wanted to see if GCA Lawyers would support a pro-active approach, if that was found to be suitable after the Dodds appeal had run. 

Opt-out class actions are relatively common overseas, including in Australia, but have rarely been attempted in New Zealand.

The class action is being funded by litigation funders Claims Funding Australia, with fees ranging from 17.5 to 27.5 per cent of settlement sums. 

Finance Minister Grant Robertson indemnified Southern Response 'in respect to certain litigation'.

Southern Response – set up by the Government when insurer AMI failed in 2012 – has been winding down, with open claims now below 400. All outstanding business will to be passed on to a 'receiving agency' when it effectively closes at the end of the year.

EXPLAINER: CLASS ACTIONS

This section originally ran in a story from September 2018.

What is a class action?

It's a type of lawsuit in which an individual or group represents a larger group (or class) of people with the same interest in the subject matter of the proceeding and therefore allege the same wrong. Whatever conclusion the courts come to when testing the shared issue of the representative's case is then applied to everyone in the class. They are becoming increasingly popular in New Zealand. 

Why have a class action at all? Why not test each case separately?

Auckland University lecturer Nikki Chamberlain, who is finalising a study of class actions in New Zealand, said class actions were more efficient by letting similar claims be heard together.

It also provides access to justice as some people simply could not afford to go to court otherwise.

This is especially relevant in small stakes claims, which would not be worth pursuing through the courts individually but can add up to large sums collectively. It also holds large companies accountable to small-scale wrongdoing across a large group of people. 

Are there any issues with them?

Chamberlain believes the civil procedure rules used to allow class actions are 'in dire need of reform' due to a lack of specific regulation around how they are run, including issues as simple as how the lawyers should provide notice of the proceeding to potential class members. 

Because there are few rules in place, it meant simple procedural matters were often appealed through the various courts, slowing the process down. However, some lawyers believed rules would not fix this as they would be tested in the courts anyway.

Class action review is a topic on the New Zealand Law Commission's radar. 

What's the difference between an opt-in and opt-out action?

Opt-in actions are where people have to sign up to be part of the action, the way class actions in New Zealand typically run. In an opt-out case, everyone who meets the criteria is automatically represented unless they choose to opt-out. 

Opt-in's typically get a smaller class because it requires a positive step to be involved.

Why don't we have opt-out actions in New Zealand?

Basically because we don't have comprehensive statutory-based laws for class actions, so the judge has to decide whether to allow them to happen. 

Chamberlain said most judges were allowing opt-in actions but there were reservations by some around opt-outs, because they considered it too far of a stretch from the existing rules. 

They are allowed overseas such as in Australia and the USA, and New Zealand lawyers have called for them to be introduced here. 

Why would anyone opt-out?

Chamberlain said there were a number of reasons people might want to opt-out of an action, but they came down to them not wanting to be bound by the judgment at the end. 

This may be because the individual thinks their claim is different enough from the class that they may be better off pursuing it separately. Others just do not want to be involved in litigation, or feel uncomfortable about the unknown of what being bound by the final judgment will mean. 

Others may not agree with how the representative wants to run the action, or may disagree with the fee arrangement with the litigation funders. 

Litigation funder? What's that?

A third-party company that covers the costs of the lawsuit but takes a cut of any payout from the action. This is common in class actions overseas but less so here; Chamberlain said there were four class actions using litigation funders in New Zealand between 2008 and 2015. She said this showed there was an appetite for funders to fund this type of litigation. 

Are there any issues with using a litigation funder?

Chamberlain said there were possible control issues – essentially a question over who's controlling the litigation. Because the litigation funder has different goals to the class members, they may have different views over what decisions should be made, such as whether a case should go to trial or be settled. She said a lack of regulation of litigation funders was also an issue in this area.