Developments in New Zealand Class Action Practice and Procedure – Restrictions on Class Composition: Freer v EQC [2023] NZHC 3662

10 July 2024 BY SIMON GIBBS & JASON GEISKER

On 14 December 2023 the New Zealand High Court handed down its decision in Freer v EQC [2023] NZHC 3662 (Freer). The decision makes consequential rulings in respect to class actions practice and procedure and, from a plaintiff’s perspective, represents some unwelcome developments to evolving class action jurisprudence, the role of a representative plaintiff and the composition of sub-classes in New Zealand.

Key takeaways from the Freer decision

1. A more expansive, robust and arguably prohibitive, merits assessment of a proposed representative claim might be undertaken before leave to proceed as a representative proceeding is granted under HCR 4.24. 
2. A representative plaintiff must have claims that cover the entire class, otherwise a ‘sub-group’ representative must also be identified and joined as a party to represent those ‘sub-group’ claims.

Some background

Leave to proceed as a representative proceeding in the High Court of New Zealand

It is well established in New Zealand that before granting leave to proceed as a representative action under High Court Rule 4.24, the court should undertake a provisional assessment of the merits of pleaded claims.¹ In construing HCR 4.24 the Supreme Court² has said it is relevant to consider the objective of the High Court Rules, which, as HCR 1.2 provides, is ‘to ensure the just, speedy and inexpensive determination of any proceeding or interlocutory application’.

Any HCR 4.24 provisional assessment should also be in accordance with the principles helpfully summarised by the Court of Appeal in Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group³(Southern Response). In essence, the provisional assessment does not require a detailed analysis of every allegation. The court need only be satisfied that the claims made in the proposed representative proceeding disclose an arguable case based on the facts as pleaded. Importantly, the court considers that such leave applications are not an opportunity for a wide-ranging attack on the merits of the claim and allowing this to occur can lead to very unfortunate consequences.⁴

HCR 4.24 representative proceeding leave criteria

In the more recent decision of Freer, considering a leave application pursuant to HCR 4.24, Associate Judge Paulsen undertook what might be considered to be a far more substantive review than the provisional assessment requirements summarised in Southern Response. In concluding that three of the five pleaded common issues were not sufficiently ‘common’, the court appeared to engage in a relatively detailed analysis of the underlying facts. The court considered various questions of fact and law, such as whether the defendant had a policy of making individual assessments of damages and then drew conclusions that these circumstances were not sufficiently common but were dependent upon individual circumstances. The court also heard argument and acceded to the defendant’s submission that such claims were contrary to the wording of the legislation and insurance law principles. In descending to this level of analysis, the Freer decision seems to blur the line between a provisional ‘broad brush’ assessment and what might be considered a more substantive merits assessment.

Such detailed analysis seemingly goes beyond the provisional assessment requirement set out in Southern Response, where the Court of Appeal described the assessment required as:

‘…no more than consideration of the claims as pleaded, to ensure that on their face they disclose an arguable case on the facts as pleaded. In Saunders v Houghton (No. 2) this Court approved the approach of French J who adopted a “broad brush impressionistic approach” to that issue, rather than a detailed analysis of every allegation.’⁵

In Southern Response the Court of Appeal also cautioned as to the hazards of conducting any substantive merit assessment at the HCR 4.24 leave stage, noting:

‘…But it is highly undesirable that [the criterion of a provisional appraisal of the merits of the proposed claim] be seen as creating the need or opportunity for a mini trial at the leave stage, at which the Court receives and reviews evidence on contested fact. Such an approach would be inconsistent with the objectives of the High Court Rules, and would substantially undermine the effectiveness of the r 4.24 procedure.’ ⁶

More broadly it has always been considered that the court should adopt a flexible and liberal approach to these questions, as was confirmed by the Court of Appeal in Cridge v Studorp Ltd,⁷ where French, Cooper and Asher JJ stated:

‘Access to justice is also an important consideration. Representative actions make affordable otherwise unaffordable claims that would be beyond the means of any individual claimant.  Further, they deter potential wrongdoers by disabusing them of the assumption that minor but widespread harm will not result in litigation.’

and

‘The requisite commonality of interest is not a high threshold and the court should be wary of looking for impediments to the representative action rather than being facilitative of it.’ ⁸

In light of these authorities, it is difficult to see why the detailed assessment undertaken by the High Court in Freer does not encroach precisely over the merit assessment boundary these authorities seek to discourage. From an access to justice perspective, it is hoped this decision is an anomaly and does not represent any type of broader judicial hardening on the approach to be taken on preliminary merits assessments.

Sub-group representatives joined as parties to the representative proceeding

The Freer decision also made consequential findings in respect to the evolving jurisprudence on common issues in representative proceedings and the role of representative plaintiffs and sub-classes. The decision is the latest in a series of recent cases, which suggest that a sub-group representative must be formally joined as a party to the proceeding if there is a common issue to be determined which does not form part of the representative plaintiff’s own pleaded claims.⁹ The High Court found that ‘a representative plaintiff must be able to advance a common issue on behalf of the represented class and have experienced the conduct they allege forms the common issue. They cannot advance claims other than those that their own claim represents.’¹⁰

Viewed critically, the requirement that a sub-group representative be formally joined as a named party to a representative proceeding has the potential to add procedural complexity to the pleading of common issues. As a practical matter, the requirement also exposes the named sub-group representative to individual adverse cost risks as a named party. This often operates as an impediment to identifying an appropriate candidate and assembling the class, particularly where the identity of putative class members is not known or readily ascertainable. It can be expected that this requirement, if it continues, will result in additional costs in assembling a representative class, further impeding access to justice and the efficient use of judicial resources.

Congruency of representative plaintiff claims with the entire class – the Australian experience

The Australian position offers an example of how these procedural issues might be streamlined. Under Australian law, a representative plaintiff is entitled to represent the interests of a subgroup, even though their common claims may not be entirely congruent. The fact that a claimant ‘is claiming different relief to any other claimant and also has claims arising out of different acts or omissions, does not preclude the proceeding being a representative proceeding’¹¹. Instead of having to join sub-group members as named parties to represent those parts of the claims that are not common, ‘sample’ group members may be appointed.

In Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 3),¹² the representative plaintiffs were permitted to call group members to give evidence relevant to their claims, even though their evidence was not relevant to the claims of the plaintiffs.¹³Since the decision in Johnson Tiles sample group members have become commonplace in Australia. The court retains a statutory power to appoint a sub-group representative party (who also bears costs consequences for their appointment) or to appoint sample group members. Sample group members are not required to be joined as parties and may give evidence in respect of factual or legal issues, which are not the same as the issues raised by the representative plaintiff.¹⁴This latter solution of appointing sample group members is a common-sense solution that avoids exposing a member to individual cost risks and enables the efficient disposition of common issues. It is also worth noting the difference between a formal joinder application under HCR 4.56 compared to appointment as a sub-group representative or sample group member is procedurally significant and adds to the cost and procedural complexity of representative proceedings.

The recent Federal Court of Australia decision of Lee J in Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 2),¹⁵ referred with approval to the following passage from Johnson Tiles Pty Ltd, which eschews the concept that there must a representative party for each sub-group:

[49] In my opinion, it follows that it is open to a plaintiff to call a witness who may give evidence of factual matters, which do not assist that plaintiff's claim but do raise for consideration and determination, a question of fact or law which is common to some or all members of a group.
[50] In my view, the Court should endeavour to decide as many common questions of fact and law in a group proceeding, to facilitate the outcome of the litigation. If some questions are only relevant to some group members and not all, or to one group and not the other, so be it. As long as it may have some substantial practical effect in the determination of the litigation, one of the objects of group litigation is achieved.
[51] It follows that, in my opinion, the plaintiffs are entitled to call, as witnesses, any member of a group in order to adduce evidence which is relevant to any issue raised, and a plaintiff may represent a group even though he is not a member of that group. Of course, he must have a claim against the defendant.

In Australia, there is clear authority that the representative plaintiffs and group members’ claims do not need to seek the same relief, or be based on the same conduct.¹⁶ The following extract from the seminal decision in King v GIO demonstrates the statutory flexibility of the Australian regime when it comes to the threshold requirements for commencing a class action and the expansive approach to common issues that ought to be undertaken when considering if a claim satisfies these threshold criteria for class action:

‘There is a clear requirement in s 33(1)(a) that the group members must have, if there is one respondent, a claim against that respondent. That is, each member must have a claim against that respondent. However it is equally clear that the claim, for the purposes of s 33C(1)(a), need not result in the same relief: s 33C(2)(a)(iv), need not be based on the same conduct of the respondent: s 33C(2)(b)(ii) and may arise out of different transactions with the respondent: s 33C(2)(b)(i). What the claims must have as unifying characteristics to permit their prosecution under Pt IVA is that they are founded in the same, similar or related circumstances: s 33C(1)(b) and give rise to a substantial common issue. The common issue can be either of fact or law: s 33C(1)(c).’¹⁷

Grave et al., the authors of ‘Class Actions in Australia’, summarise the position this way:

‘[e]xpressed another way, [the statute] requires a common issue or question to arise but does not expressly require the representative party to share a common interest with the group members.’¹⁸

The decision in King v GIO also demonstrates the willingness of the Court to undertake an assessment of the adequacy of the representative plaintiff selected as the vehicle to resolve all class claims.

In New Zealand, assessment of the adequacy of the representative plaintiff’s claims, as being typical of group member claims, goes beyond the Australian position, where there is no positive requirement to assess the adequacy of the representative. The flexibility of the Australian approach may be a product of the guiding statutory framework underpinning the federal and state-based class action regimes, which include specific power to:

1. establish a sub-group;
2. substitute a group member for the representative; or
3. order the proceeding no longer continue as a representative proceeding.

Conclusion

If followed the approach taken by the High Court in Freer gives rise to uncertainties in the way representative proceedings might be constituted and approved to proceed in the future, including the extent of the merits assessment of the common issues and the requirement to use subgroup representatives. The decision appears to be inconsistent with previous appellate court authorities extolling the objectives of the High Court Rules and the importance of maintaining the effectiveness of the HCR 4.24 representative procedure. 

Contrasted with the more liberal position adopted in Australia, which has no leave or certification requirement to commence a representative proceeding and permits the use of ‘sample’ group members in lieu of named sub-group representatives, it might be concluded that the existence of a comprehensive statutory regime for representative proceedings in Australia has helped preserve the court’s flexibility to manage common issues. Specific statutory case management powers appear to have had a positive impact on Australian court’s ability to case manage representative proceedings in a manner that is procedurally efficient and reflects the circumstances of each case.

Footnotes

_{1 Rule 4.24 empowers the High Court to allow a plaintiff to bring representative proceedings on behalf of others having the same interest in the subject matter of the proceeding.
2 Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126, [2021] 1 NZLR 117, at [26]
3 [2017] NZCA 489, [2018] 2 NZLR 312.
4 Ibid, at [16].
5 Ibid, at at [17].
6 Ibid, per Winkelmann J
7 [2017] NZCA 376
8 Ibid, at [11]
9 Simons v ANZ Bank New Zealand Ltd [2022] NZHC 1836 at [109]; Sneesby v Southern Response Earthquake Services Ltd [2023] NZHC 246;
10 Freer v EQC [2023] NZHC 3662 at [42].
11 Grave et al. ‘Class Actions in Australia’ (3rd eds) at [5.330].
12 [2001] VSC 372
13 Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 2) [2020] FCA 1355 at [17].
14 Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 3) [2001] VSC 372 at [13], [16]-[37].
15 [2020] FCA 1355
16 Grave et al. ‘Class Actions in Australia’ (3rd eds) at [4.610].
17 King v GIO Australia Holdings Ltd (2000) 100 FCR 209 at [30]–[32]
18 Grave et al. ‘Class Actions in Australia’ (3rd eds).}