The Third Party Litigation Funding Law Review 8th edition: New Zealand

01 November 2024 BY JASON GEISKER & SIMON GIBBS

Introduction

New Zealand is home to an evolving third party litigation funding market, although it remains a small and comparatively new industry, particularly when compared with similar common law jurisdictions such as Australia and Canada. It was not until the turn of the millennium that third party litigation funding appears to have first emerged in New Zealand.¹ Prior to that time, no-win no-fee or speculative fee arrangements had been a feature of the New Zealand legal landscape and had even been said to be 'consistent with the highest professional honour'.²

In 2024 the New Zealand legal services market was worth an estimated NZ$4.7 billion in annual revenue, being a slight increase from 2023.³ With an estimated NZ$330 million in annual revenue, civil litigation and personal injury legal services represent the fourth biggest category within the legal services market behind commercial law, family law and property law.⁴ The addressable market for third party litigation funding is considered to be around two-thirds of that, or approximately NZ$220 million.⁵ As such, given the paucity of cases⁶ that have reportedly received funding over the past two decades, third party litigation funding would appear to be significantly under-utilised in New Zealand.

The market for litigation funding in New Zealand is influenced by a range of factors including the general awareness of the availability of funding, uncertainty as to regulatory requirements, an absence of explicit endorsement of litigation funding by the courts, delays in introducing a comprehensive set of procedural rules for the conduct of funded representative actions and a lack of sufficiently resourced and experienced plaintiff law firms to properly take advantage of litigation funding. Various macroeconomic factors also impact on the strength of the local economy, with consequential impacts on the demand for legal services and the number of potential claims meeting the threshold criteria required for commercially viable funded claims. Looking ahead, the legal services market is projected to see continued modest growth⁷ and along with it, the litigation funding market.

Given the relatively small size of the current market and the fact that third party funding arrangements are not generally disclosed,⁸ precise data as to the prevalence of third party litigation funding remains difficult to ascertain. In the context of class actions, between 2020 and 2022 it was reported that 37 per cent of class actions received third party litigation funding, with a further 16 per cent either attempting to or signalling an intention to obtain funding and the remaining 47 per cent either not receiving funding or it being unclear.⁹

In terms of market participants, in earlier years third party litigation funding options were somewhat limited, with one local incumbent funder, LPF Group Ltd,¹⁰ facing little competition.¹¹ However, in more recent years other experienced and well-resourced funders have entered the market. These include Claims Funding Australia,¹² Omni Bridgeway,¹³ Litigation Lending Services¹⁴ and CASL¹⁵ from Australia and Harbour Litigation Funding from England.¹⁶ Most funders in the market require a minimum claim size of at least NZ$5 million before they will consider individual funding applications.¹⁷ Some funders also require a minimum claim value to claim budget ratio of 10:1.¹⁸

In its 2020 issues paper on Class Actions and Litigation Funding the New Zealand Law Commission (NZLC) identified a total of 40 examples of cases brought in the jurisdiction where the plaintiff had received litigation funding.¹⁹ This collection of third party funded cases included 10 representative actions under High Court Rule 4.24, comprising five consumer claims, three shareholder claims, one investor claim and a claim against the government.²⁰ The NZLC also identified at least 11 insolvency cases that have received third party litigation funding,²¹ and at least 15 insurance claim cases²² that have also received third party funding. Cases concerning negligence and breach of fiduciary duty,²³ statutory demands for repayment of a loan,²⁴ a relationship property claim²⁵ and a land claim have also received third party funding in New Zealand.²⁶

In May 2022, the final report of the NZLC on Class Actions and Litigation Funding (NZLC R147) declared that, consistent with recent judicial observations, third party litigation funding is desirable for New Zealand 'in principle'.²⁷ The report concluded that litigation funding has an important role to play in improving access to justice in New Zealand, including by alleviating the costs and risks of litigation.²⁸ Even those opposed to litigation funding in the jurisdiction acknowledge that it is now here to stay.²⁹

As discussed in this chapter, after more than a decade of inaction, the NZLC's report has certainly paved the way for legislative reform to allow more certainty, efficiency and guidance for those seeking to utilise the benefits of third party litigation funding services. Although the former Hipkins Labour government committed, in principle, to adopting the NZLC's recommendations and enacting a broad statutory regime for class actions and litigation funding, the new Luxon National-led government has yet to indicate its response.³⁰

The year in review

The past year has been marked by the incremental development of common law in the absence of statutory reform. The ambitious reform agenda outlined in by the NZLC R147 has lost momentum and stalled. This might be explained by a confluence of factors, including a change in government and a change of priorities by New Zealand policymakers, resulting in litigation funding and class action reforms being de-prioritised. However, the common law jurisprudence has continued to mature in the absence of top-down policy reform. Of most relevance to litigation funders and lawyers alike have been developments in the common fund doctrine.

Approval of early stage Common Fund Orders (CFOs)

On 19 July 2024, the New Zealand Court of Appeal handed down a watershed decision in Simons v. ANZ [2024] NZCA 330 (Simons v. ANZ (Appeal)), finding that the Court has power to make a CFO at an early stage in a representative proceeding and that such orders should be made early in the interests of justice. The Court of Appeal found that it had power to make a CFO arising from both primary and secondary legislative power conferred by Section 146 of the Senior Courts Act 2016 and High Court Rules 1.2, 1.6 and 4.24 respectively, as well as from its inherent jurisdiction.

The interaction of these provisions creates a locus of judicial discretion that enables the Court to flexibly determine procedural and substantive matters ’as it thinks fit’.³¹ This flexibility should enable the court to resolve issues not presently contemplated by the current statutory regime or, more specifically, in the absence of a comprehensive statutory class actions regime.

The decision also contributes to an ossifying line of authority which demonstrates that New Zealand Courts are conscious of balancing access to justice and commercial pragmatism, which are not mutually exclusive in the context of CFOs. For example, the Court of Appeal endorsed the reasons of Gageler J (in the minority) in the decision of the Australian High Court in Brewster:

… To my mind, it introduces an unrealistic dichotomy to postulate that an order that serves to shore up the commercial viability of the proceeding from the perspective of the litigation funder can have nothing to do with enhancing the interests of justice in the conduct of the representative proceeding.³²

The Court of Appeal’s analysis of the common fund doctrine did not substantively disturb the reasoning of the first instance decision, save to set aside the assumption that the application for a CFO should be sought at the conclusion of a proceeding. The Court specifically endorsed CFOs being made early in a proceeding to reflect what it said were three pragmatic objectives, namely to:³³

1. ensure funding arrangements for a representative proceeding are entered on a comparatively secure footing;
2. ensure class members are better informed about their possible returns when deciding whether to opt out of the proceeding; and
3. reduce uncertainty about how the court might exercise its discretion to allocate the costs of funding the proceeding at the conclusion of the litigation.

The Court’s finding on inherent jurisdiction was concisely reasoned. It held that, as a court of equity, ‘[t]he High Court’s inherent power to supervise its own processes, and in particular, its ability to control representative proceedings ensures it has the jurisdiction to make a CFO at the outset of a class action’.³⁴ One implication of this finding is to reaffirm the Court’s inherent power to regulate non-parties to proceedings, such as third party litigation funders. Even in the absence of statutory power the Court concluded that it may rely on its equitable jurisdiction to police these relationships. The Court of Appeal noted ‘[t]hat equitable jurisdiction may also exist to regulate the financial relationship between the representative plaintiff, members of the class, and in this case, the litigation funder without whose investment there is little prospect of the representative proceeding progressing.’³⁵ The Court’s finding was generally supportive of the constructive role played by litigation funders but noted that it will closely scrutinise CFOs to ensure that the interests of the class and the funder are in balance.³⁶

New Zealand's position is now somewhat in contrast to the Australian position, where a CFO may only be granted at a late stage in a proceeding as an incident of the Court’s statutory settlement approval power. The Simons v. ANZ (Appeal) decision suggests that New Zealand’s developing jurisprudence in this area is accounting for the commercial realities of large-scale litigation and accepting of the benefits that can be obtained via litigation funding, particularly in representative proceedings. Notably the Court of Appeal held, at [133], that: ‘[u]nlike the majority of the High Court of Australia in Brewster we consider that the commercial viability of a litigation-funding arrangement enhances access to justice by providing certainty in the way a representative proceeding is funded.’

The statutory language (‘as it thinks fit’) has an echo in the Australian statute (which adopts the language ‘thinks appropriate’³⁷) that, conversely, the Australian High Court found lacks the legislative foundation to make a CFO. However, part of the Australian High Court’s rejection of this approach was that the section in question exists within a broader statutory scheme and purpose that does not permit a CFO to be made early in proceedings. This highlights the highly textual and contextual nature of statutory construction, which can sometimes produce unexpected or unanticipated results. Arguably the absence of a comprehensive statutory framework in New Zealand has so far resulted in a more flexible and contemporary judicial approach to legal and procedural questions, which cannot always be anticipated by legislatures.

Mass tort class action for Wairoa and Gisborne flood damage

In July 2024 a mass tort class action was filed in relation to flooding that occurred along the Wairoa River on the North Island of New Zealand in June 2024. The claim alleges that Hawke's Bay Regional Council mismanaged water infrastructure in Wairoa region during a period of heavy rain that led to major flooding and damage to over 400 properties and over 500 buildings and structures. The claim alleges the damage could have been avoided if the water infrastructure had been correctly managed, constructed and maintained. The claims allege negligence, nuisance and the Ryland v. Fletcher tort; a novel tort of strict liability for non-natural use of land which results in damage arising from ‘a dangerous thing emanating from the land’.³⁸

The claim is filed as an open class action on behalf of all property owners that suffered loss or damage from the flooding that occurred on 26 June 2024. The claim is funded and it is expected the funder will seek an early CFO, in reliance on the recent decision in Simons v. ANZ (Appeal).

The Dilworth School Abuse Class Action

The Dilworth School Abuse Class Action is a representative complaint filed on behalf of former students of the Dilworth School in Auckland. The complaint was filed in June 2021 with the Human Rights Commission, alleging that the school knowingly failed to protect students in its care from systematic sexual abuse perpetrated by staff and representatives between 1970 and 2006. The claim seeks damages for breaches of the Human Rights Act 1993 (HRA) on the basis the alleged sexual abuse is a form of sexual harassment committed in the context of education – which is a prohibited form of discrimination under the HRA.

A novel aspect of the claim is that the litigation funder, barrister and law firm have agreed to support the case on a pro bono basis³⁹ and is a singular example of public interest litigation that has subordinated commercial considerations to legal merits and vindicating the rights of victims. At the time of writing the claim does not appear to have moved into the Human Rights Review Tribunal or been removed the High Court for determination.

Recent developments in concurrent class actions

There have been recent developments in concurrent class action case management. Where 'competing' or concurrent class actions have been commenced, New Zealand courts have generally preferred to stay or consolidate those claims, reflecting the orthodox view that 'having competing class actions relating to the same dispute is generally undesirable'.⁴⁰ The caveat has always been that the response to multiplicity will ultimately depend on the circumstances of each proceeding.⁴¹ The judgment in Whyte v. The a2 Milk Company Limited identified three broad categories of concurrent proceedings.⁴² This analysis provides a helpful road map as to how New Zealand courts might in the future seek to categorise and address concurrent claims under the Trans-Tasman Proceedings Act 2010 (TTPA) and more generally.⁴³ The analysis relied heavily on Australian case law to explore the principles of interpretation relevant to resolving multiplicity issues, which involve a panoply of procedural tools to manage these proceedings, such as: consolidate the proceedings; stay all but one; change the class structure of one proceeding (e.g., from an opt-out to an opt-in proceeding);⁴⁴ and 'de-class one or more of the proceedings; hold a joint trial of all proceedings with each left constituted as opt-out (open class) proceedings; and close the classes in one or more of the proceedings (that is, making them opt-in) but leave one of the proceedings as an opt-out proceeding with a joint trial of all'.⁴⁵

Both the New Zealand proceeding (A2 NZ⁴⁶) and Australian proceeding (A2 AUS⁴⁷) were funded and the funding arrangements in place were adjudged to be a neutral factor in the multifactorial analysis to order a stay, on the basis that the contractual arrangements were 'broadly comparable' between the proceedings.⁴⁸ The effect of a stay practically conferred a choice upon class members as to which proceeding they would participate in (by opting out of one). Therefore, any prejudice potentially caused by the funding arrangements were 'matters for the plaintiffs to assess and determine for themselves'.⁴⁹ Although this conclusion reflects a continued cautiousness of New Zealand courts not to look behind funding arrangements, it is perhaps more accurately a reflection of the fact that the funding arrangements were not interpreted as germane to the question of law before the court, namely whether the Australian court was the more appropriate court to determine the claims for the purpose of granting a stay.⁵⁰

Ultimately, the court determined that the proceedings fell within the third category of concurrent proceedings⁵¹ and considered that the practicalities arising from the jurisdictional differences and hazard of competing judgments could not be sufficiently ameliorated through parallel case management so as to justify both proceedings remaining on foot.⁵² Accordingly, the A2 NZ proceeding was stayed.

The TTPA decisions handed down in 2023 represent an interesting development in the New Zealand litigation landscape. The A2 NZ decision appears to be a common-sense approach to case management of concurrent proceedings, aimed at reducing duplication of costs and judicial resources and avoiding conflicting judgments. Practically, it provides a welcome bulwark for dual-listed entities (or entities with trans-Tasman operations) against the risk of having to meet litigation on either side of the Tasman. It will be interesting to observe whether the TTPA is used as a strategic tool by defendants to frustrate litigation due to an advantage (perceived or real) that may arise in the other jurisdiction, and relatedly whether New Zealand courts are competent to apply Australian law, a finding that may be inferred but was ultimately left open by the decision in A2 NZ.

Other recent decisions of significance 

Climate-related litigation – in search of damages and third party funding

Smith v Fonterra [2024] NZSC 5

The Supreme Court decision in Smith v. Fonterra was an important development in the nascent area of climate change litigation. It highlights some of the challenges in commencing funded litigation in respect of such claims.

The defendants were various New Zealand companies said to be involved in industries that either emit greenhouse gases (GHGs) or supply products that release GHGs when burned. The plaintiff alleged that the defendants contributed materially to the climate crisis, contributing ~30 per cent of New Zealand’s GHG emissions, and had damaged, and will continue to damage, his whenua⁵³ and moana,⁵⁴ including places of customary, cultural, historical, nutritional and spiritual significance to him and his whenau.⁵⁵

Relevantly, the remedies sought did not include damages and were limited to declarative and injunctive relief,⁵⁶ thereby obviating one of the most contentious and illusive elements of climate-related litigation – proving and quantifying damages. By sidelining the question of damages, the Smith v. Fonterra litigation may materially advance the jurisprudence on climate-related harm. In framing the remedies to avoid the issue of damage and loss, the claim may create some space for the common law to grapple with and develop some interpretive guidance on climate liability principles divorced from the nebulous question of how to quantify any such liabilities.

In March 2020, the High Court struck out the first cause of action (public nuisance) and second cause of action (negligence), concluding that they were untenable. The Court declined to strike out the third cause of action (a novel climate system tort). In October 2021, the Court of Appeal upheld the High Court’s decision to strike out the first two causes of action and allowed a cross-appeal, striking out the third cause of action as well. The Court held that there are strong policy reasons against imposing private law duties on greenhouse gas emitters; matters of this complexity are best dealt with legislatively. In March 2022 leave to appeal was granted by the Supreme Court and judgment was handed down allowing the appeal.

The central question before the Supreme Court was whether to strike out the primary cause of action in public nuisance.⁵⁷ The Court found that the elements for strike out were not established, namely that there was a reasonably arguable cause of action and it was not bound to fail.⁵⁸ Central to this finding was that a measured approach to strike out is appropriate where a claim is novel, and founded on ‘seriously arguable non-trivial harm’.⁵⁹ Whether the defendants’ actions amount to a substantial and unreasonable interference with public rights ‘remains a fundamental issue of fact for trial. We do not prejudge that issue here’.⁶⁰

In finding that the primary claim in public nuisance was tenable, the court effectively resuscitated the remaining two causes of action – in negligence and a novel climate-related tort – as they raised common issues and relied on the same underlying facts.⁶¹ The Court relied on authority which discouraged ‘striking out any remaining causes of action as a point of principle, unless it can be said they both meet the criteria for striking out and are likely to add materially to costs, hearing time and deployment of other court resource.’⁶²

Caution should be exercised not to conflate the lower evidentiary standard for strike out as conclusive of the higher evidentiary standard for liability in tort for climate related harm. The Supreme Court was at pains to point this out.⁶³ It was noted that procedural law should not be used dispositively as a gatekeeper to the development of the common law or the determination of legal questions of broad and vital societal significance, with the Court stating, ‘the common law must develop, if at all, in the fertile fields of trial, not on the barren rocks of a strike out application’.⁶⁴

To date, climate-related litigation has not typically been an attractive investment for third party litigation funding. The challenge remains how to monetise these claims in a way that would make them attractive to commercial funders. At present, the challenges with climate change litigation include questions of attribution, causation and damage.⁶⁵ For example, the multiplicity of contributory causes and the challenge of attribution to specific wrong-doers complicates the causation question. In relation to damages, there is no agreed method of quantification of climate related losses.

Although this litigation was not funded by third parties it provides an interesting case study in the commercial challenges of funding litigation where novel causes of action are alleged and quantification of liability is at large. The structure of the claim obviated the question of monetary damage as a matter for decision and with it, an opportunity for traditional third party funding. Until climate litigation develops a workable paradigm for the assessment and quantification of climate-related damage, such claims are unlikely to attract commercial litigation funding, as opposed to philanthropic or pro bono funding or legal support.

Further clarity on ‘opt out’ orders in representative proceedings

Two recent decisions in the last year highlight issues to be addressed when bringing representative proceedings on an opt-out basis. The ability to obtain opt-out orders, (and an early stage CFO), are matters of commercial significance for third party litigation funders and their clients, particularly given the time, cost and uncertainty associated with the identification and sign-up of individual opt-in group members. While the Supreme Court has previously indicated that an opt-out approach is to be adopted in granting leave pursuant under HCR 4.24 with representative proceedings ‘unless there is good reason otherwise’, recent cases demonstrate that such orders will not always be made if the key criteria are not satisfied.

Simons & Ors v ANZ Bank New Zealand Limited & Anor – [2024] NZCA 330

The Court of Appeal in Simons v. ANZ (Appeal) made a representative order for an opt-out proceeding under HCR 4.24. The reasoning underscores why an opt-out approach was preferable to an opt-in approach when the class is large⁶⁶ and dispels common lines of defendant-friendly sophistry on the purported ‘advantages’ of an opt-in approach.

The Court of Appeal held that ‘[t]he opt-in approach has the effect of frustrating access to justice by placing unnecessary hurdles in front of those who are entitled to be members of the representative class’.⁶⁷ The Court reinforced the role for opt-out orders as a mechanism to ‘significantly enhance access to justice as many class members are unlikely to take the positive steps required to participate in opt-in proceedings’.⁶⁸ This finding explicitly recognised that, ‘inertia in human affairs’ and the administrative challenges of providing an opt-in notice to eligible class members should not be underestimated as explaining why eligible class members may fail to opt in, rather than as a result of a clear election not to participate in proceedings.⁶⁹

The Court of Appeal specifically rejected the respondents’ submissions that an opt-in approach would more accurately identify the class and enable the parties to better determine the issues in dispute.⁷⁰ A related procedural finding was to uphold the reasoning of the High Court regarding the eligibility of open class members (i.e., whether they in fact had a consumer credit contract), as a matter which could be dealt with at a stage two hearing, after liability had been determined. In doing so, the Court of Appeal affirmed an approach that avoids the costly and time-consuming process of book building early in the proceeding. The effect was to use the representative procedure to shift the costs of establishing individual claims and entitlements after liability has been found to streamline the running of the stage one action and limit expenditure of unnecessary costs.

The opt-out order approved by the High Court and Court of Appeal enabled thousands of eligible class members to benefit from participation in the proceeding without having to take a positive step in the proceeding, balancing access to justice with the efficient use of judicial resources.

Body Corporate Number DPS 91535 v 3A Composites GmbH [2023] NZCA 648

On 13 December 2023, the Court of Appeal handed down its decision in Body Corporate Number DPS 91535 v. 3A Composites GmbH (3A Composite). For lawyers and litigation funders alike, the decision eschews any assumption that an opt-out model is available or appropriate in all cases. The case is a reminder of the hazards of assuming that opt-out orders will be made without establishing, to the Court’s satisfaction, that these orders are appropriate considering the efficient use of judicial resources, access to justice considerations and the balance of prejudice to defendants. In effect, the decision fills in some of the jurisprudence that the Supreme Court in Southern Response left to the common law to develop, when it found at [95]:

Firstly, the court should adopt the procedure sought by the applicant [to obtain a representative order on an opt out basis] unless there is good reason to do otherwise. We see no basis in policy or practical terms for not adopting that course so long as the court turns its mind to all of the relevant factors. But it is not necessary to characterise the situations in which the court may depart from an opt out order as rare, as Mr and Mrs Ross submit. Rather, it is a question of considering the relevant factors in light of what will best meet the permissible objectives of the representative action in the particular case.

Unfortunately for the plaintiffs in 3A Composite, the Court determined that the proceeding did not satisfy the objectives of being a permissible representative action. The claim related to a cladding product (Alucabond) that the plaintiffs alleged was inherently defective as external cladding due to certain combustible characteristics that did not comply with the New Zealand Building Code. The class was defined as all current and former owners and leaseholders of buildings or parts of buildings with the Alucobond products as exterior cladding.

The lower court refused to make a representative order under HCR 4.24, finding that the appellants were not sufficiently representative of the proposed group and that the proposed proceedings would not be an efficient use of court resources.⁷¹ The issue on appeal was whether the proceeding was appropriate to proceed as an opt-out representative proceeding.

The Court of Appeal upheld the original decision, finding that the plaintiffs’ claims were not suitable for representative proceedings on an opt-out basis. The Court acknowledged that the minimum threshold for a representative order under HCR 4.24 was met, namely there are persons with the same interest in the subject matter of the proceeding.⁷² Crucially however, the Court of Appeal found that this was a necessary but not a sufficient basis for obtaining a representative order, finding at [65]:

However that does not mean that a representative proceeding order will automatically be made. Rather, all it means is that the minimum threshold for the making of such an order has been crossed. The real question in this case is whether the objectives of the High Court Rules — the just, efficient and speedy resolution of proceedings — will be advanced by making the opt out representation order sought by the appellants.⁷³

This line of reasoning reaffirms the position that to obtain a representative order requires more than merely satisfying the low bar of the statutory language of HCR 4.24. Specifically, plaintiffs must consider:

• the objectives of HCR 1.2 to ensure the just, speedy and inexpensive determination of any proceeding or interlocutory application;⁷⁴
• addressing the Court’s concern not to work injustice on a defendant by satisfying the court that there is sufficient common interest;⁷⁵ and
• proportionality of cost to the size of the claim and burden on the defendant will be relevant in terms of the objective of the High Court Rules.⁷⁶

The Court of appeal dismissed the appeal on the following grounds:

• The representative applicants’ claims were unlikely to be appropriate or efficient vehicles through which to resolve the common questions, with some being too minor and idiosyncratic to serve as useful representative claims.⁷⁷
• The generality of the claims and broadness of the common questions were apt to cause inefficiency of the court processes.⁷⁸ The broadness of the common questions meant that, even if answered, the Court was sceptical that they would resolve the liability question or materially contribute to resolution of individual building owners’ claims at the damages stage.⁷⁹ Also, the lack of commonality between sub-group buildings and their interplay with an open class structure may have resulted in significant resources (both of the court and the defendants) being expended and ultimately not identify a damaged building as part of a sub-group.⁸⁰
• Prejudice to the defendants on multiple bases. The Court did not consider that an open representative claim of the breadth and generality proposed by the appellants would give the respondents fair notice of the nature and scale of the claims against them, and a fair opportunity to defend those claims.⁸¹ The Court held: ‘[t]here is also real force in the respondents’ submission that they will be prejudiced by a representative claim brought on an opt-out basis because they will not be able to ascertain what buildings are the subject of the claim until a much later date [until a stage two damage trial after liability is established]. That will affect their ability to identify, and join as parties, the persons who were responsible for design of each relevant building and for ensuring compliance of each building with relevant provisions of the Building Code.’⁸²
• The paucity of class members that could be identified or that came forward did not support an open class order. The plaintiffs identified 14 claimants who collectively own 30 buildings and signed litigation funding agreements.⁸³ The Court reasoned that the absence of more complaints or claims directed at the defendants about the cladding product, and the absence of widespread regulatory action, ‘cast doubt on the likely number of individual claims if a representative proceeding is not authorised.’⁸⁴ The Court expressed caution in committing ‘extensive resources to resolving the proposed representative claim on the basis of speculation about the likely number of potential claimants, it seems preferable to wait to see what claims are actually filed in the High Court, and then manage those appropriately… That would avoid the court being called on to hear and determine a wide range of issues that ultimately prove to be relevant to no claim at all.’⁸⁵ In the alternative, the Court dismissed the idea of an ‘opt-in’ proceeding as a viable option as it was not raised by the plaintiffs.

If viewed in isolation, this last finding is arguably inapposite to the purpose of representative proceedings. It also lends notional support for the idea of a statutory minimum (a ‘numerosity requirement’) for how many claims are sufficient to commence a representative proceeding to avoid future contests over this threshold question in the context of opt-out claims. However, read in the context of the other problems the Court identified with the claims (regarding a lack of commonality, generality of pleaded claims and the resulting prejudice to defendants and procedural inefficiency), it is likely this finding will be narrowly read down to the circumstances of the case. The reasoning of the Court of Appeal infers that these types of claims could be better dealt with as individual claims, cases managed concurrently to the extent of any similarity, or run as an opt-in claim (nothing this was not raised by the plaintiffs). The Court’s reasoning appears to support such an inference when it stated:

Representative proceedings can be an important way of solving the problem of access to justice where there is a large class of similarly situated claimants with low value claims, none of which would individually be worth pursuing, but which collectively justify the cost of proceedings. But there is no evidence before us to suggest that is the position here.⁸⁶

It is notable that a significant issue for the lower court was that the representative nature of the proceeding was contrived, ‘primarily to enable the appellants to engage a litigation funder in return for a share of any ultimate recoveries.’⁸⁷ The High Court also expressed an oblique missive to funders about the problems with a representative action regime if it provides ‘a mechanism for meritless claims, artificially incentivising settlements and involving third-party funders in litigation decision-making.’⁸⁸

The Court of Appeal did not address the observations of the High Court in relation to any concerns about the influence of the litigation funder on the representative character of the claims or misuse of the HCR 4.24 procedure. However, the lower court and appeal court decisions do demonstrate that each will be vigilant to ensure opt-out orders reflect the circumstances of each case balancing access to justice, prejudice to defendants and the efficient use of judicial resources.

Legal and regulatory framework

New Zealand does not have a statutory or regulatory regime specifically governing litigation funding. Accordingly, funders' conduct in litigation is dealt with under the general law and through the torts of maintenance and champerty. The court regulates this conduct via its powers to:

1. stay proceedings;⁸⁹
2. strike out proceedings;⁹⁰
3. order security for costs;⁹¹ and
4. make non-party cost orders.⁹²

The applicability of statutory schemes to funding agreements

The extent to which litigation funding services are captured by existing statutory schemes remains a matter of debate and some uncertainty. Broadly, litigation funding services may be captured by general consumer protection legislation,⁹³ credit and financial services legislation⁹⁴ and financial services provider legislation.⁹⁵ However, in respect of each of these general legislative schemes there has been no court ruling confirming their application to third party funding.

The contractual terms of a funding agreement are likely subject to the Fair Trading Act 1986 prohibitions against misleading or deceptive conduct,⁹⁶ making unsubstantiated claims,⁹⁷ false or misleading representations,⁹⁸ unfair contract terms⁹⁹ and engaging in unfair practices.¹⁰⁰ This is because a litigation funder’s services are likely to be captured by the expansive definition of ‘services’ under Section 2 of the Fair Trading Act 1986. However, the application of the other legislative schemes depends, at minimum, on a construction of threshold definitions under the respective legislation that have not yet been judicially determined and may involve a fact-specific enquiry on an individual case basis.¹⁰¹

Litigation funding services do not easily or appropriately comport with the definitions of financial products,¹⁰² credit contracts,¹⁰³ consumer credit contracts¹⁰⁴ or consumer services¹⁰⁵ that would invoke the jurisdiction of other legislative schemes. Consequently, there is a degree of uncertainty as to the precise regulatory requirements applying to litigation funders in New Zealand. This uncertainty is perhaps best illustrated by the fact that only two of the five domestic funders operating in New Zealand have registered as a financial service provider under the Finance Service Providers (Registration and Dispute Resolution) Act 2008.¹⁰⁶

Maintenance, champerty and abuse of process

In contrast to other common law jurisdictions, the ancient torts of maintenance and champerty persist in New Zealand. Even so there are no reported examples of these torts being invoked to challenge funder control of litigation¹⁰⁷ and the torts have largely fallen into disuse.¹⁰⁸ Notably, there has been no reported New Zealand case in which a maintenance and champerty tort claim has succeeded.¹⁰⁹ Consequently, there has been debate as to the continued relevance of these archaic torts in modern day litigation along with a mounting push for reform.¹¹⁰ The most recent voice advocating for reform is the NZLC. In May 2022, NZLC R147 recommended the abolition of tortious maintenance and champerty,¹¹¹ bringing New Zealand into line with other common law jurisdictions, such as Canada and Australia.

In practice, the mechanism courts have favoured to police litigation funding has been to stay proceedings as an abuse of process.¹¹² The power to declare a proceeding an abuse is derived from the court’s inherent jurisdiction¹¹³ and the rules of court,¹¹⁴ and is governed by the test set down by the Supreme Court of New Zealand in Waterhouse v. Contractors Bonding Ltd (Waterhouse).¹¹⁵

Although there have been recent examples where the court has exercised the power to stay a proceeding,¹¹⁶ such orders have been granted sparingly. Taken together, the authorities indicate judicial acceptance of the legitimate role of litigation funding to facilitate access to justice, indemnify plaintiffs and provide commercial certainty for defendants.¹¹⁷ New Zealand courts have adopted a broadly non-interventionist approach to regulate funding that seeks to balance the rights of private parties to contract¹¹⁸ with the court’s supervisory role, particularly in representative proceedings.¹¹⁹ That said, the courts have shown a willingness to scrutinise client–funder relationships and intervene to protect plaintiffs, or class members as the case may be, when they consider it necessary.¹²⁰

The relationship between litigant and funder

The relationship between litigant and third party litigation funder is principally a creature of contract supplemented by any existing protections at law or in equity or statute. The touchstone of regulation is the funding agreement. The orthodox position of the court in relation to funding contracts was expressed by the Supreme Court in Waterhouse¹²¹ and reaffirmed by the Supreme Court in PricewaterhouseCoopers v. Walker at [55]:

In Waterhouse, this Court determined that it is not the role of the courts to act as general regulators of litigation funding arrangements or to give prior approval to such arrangements, at least in cases not involving representative actions.¹²² Nor was it the Court’s role to assess the fairness of a funding arrangement as between the funder and the claimant party.¹²³ However, a court may exercise jurisdiction to stay for abuse of process.¹²⁴

A recurring question for courts has been the degree to which a third-party funder may exercise control over the litigation. Courts have recognised there is a legitimate locus of control that may be exercised by a litigation funder consistent with its reasonable entitlement to protect its investment.¹²⁵ The outer boundaries of this control are somewhat uncertain. The Supreme Court has tentatively suggested this boundary in the following terms, ‘to be objectionable such control must be beyond that which is reasonable to protect money actually advanced or committed to by the litigation funder.’¹²⁶

In more recent times, the emergence of representative proceedings has altered the relative passivity of the court in regulating and exercising oversight functions in respect of third party funding arrangements. Class actions represent a unique nexus between the public interest, access to justice and the fair resolution of mass claims, which has attracted increased scrutiny by courts and legislators. In particular, the availability of opt-out class actions following the seminal decision in Southern Response v. Ross¹²⁷ has highlighted the importance of the court’s oversight role, particularly where persons may unknowingly be members of a class.¹²⁸ The 2021 High Court decision in Southern Response v. Ross confirms that courts will now take a more active role in class proceedings in respect of approving proposed settlements and granting leave for discontinuance¹²⁹ or communications with class members.¹³⁰

Recent reviews into the regulation of litigation funding

In May 2022, the NZLC published its much-anticipated report into class actions and litigation funding.¹³¹ NZLC R147 was the culmination of an extensive discussion and consultation process over the previous two-and-a-half years, with the NZLC engaging widely with stakeholders from government, the legal profession, the litigation funders, business, academics and community organisations.¹³² The NZLC’s report made 121 recommendations for comprehensive and integrated reform of class actions and litigation funding in New Zealand, including a statutory class actions regime.

In November 2022, the former Hipkins Labour government provided its formal response to the NZLC 147 Report, accepting in principle the 121 recommendations and confirming its intention to begin policy work in 2023 to advance the recommendations. The former government’s response noted that some aspects of the NZLC recommendations require further consideration before implementation. Specifically, the following issues were raised for further analysis:

1. the policy implications of introducing a public fund for public interest litigation;
2. the scope of oversight for litigation funders and whether oversight should be restricted only to class actions; and
3. the impact on court resources posed by class actions and court oversight of litigation funding agreements.

Since the change of government in 2023 the Luxon-led National government is yet to provide a formal response to NZLC R147.

Structuring the agreement

Funded litigation requires consensus between the claimant, their lawyers and the litigation funder as to when, where and how the proceeding will be conducted and agreement as to how the risks of the litigation will be shared.

Form of the typical litigation funding arrangement

Comprehensive arrangements for funded litigation are commonly comprised of two distinct agreements. The first being the retainer, or terms of engagement, between the client and their lawyers. This agreement sets out the scope of the legal work and the terms under which such work is to be performed. The retainer will typically set out the lawyer’s basis for charging legal fees and disbursements as well as a raft of other standard terms and conditions of engagement, required by the Rules of Conduct and Client Care for Lawyers. The litigation funder is not generally party to the client retainer agreement. Commonly, the funder and lawyers have no direct contractual relationship, although clients often authorise their lawyers to report directly to the funder in relation to progress. Clients can also agree with the funder on a series of approved ‘standard lawyer terms’, which are the terms to be agreed as between the client and their lawyer, which give the funder a base level of assurance that the lawyers will keep the funder informed of progress, provide regular and timely invoices and budget updates and advise of material developments and any settlement discussions or offers. The funded client usually also authorises and directs the lawyer to receive any resolution sum or settlement amount on the client’s behalf and to apply it in accordance with an agreed waterfall priority, as set out in the funding agreement.

The funded client typically enters a second, separate agreement directly with the litigation funder. This litigation funding agreement details the terms on which the litigation funding will be provided to the client. Generally, the lawyers are not a party to the funding agreement, although (as noted above) it may provide for certain irrevocable directions to be given by the client to their lawyers for the purposes of keeping the litigation funder informed of progress and consulted on any significant decisions to be made throughout the litigation.

The funding agreement generally provides for the funder to advance some or all of the funded client’s legal costs and disbursements of conducting the litigation as they are incurred and invoiced, generally on a non-recourse basis.¹³³ The funding arrangements typically also require an indemnity from the funder in favour of the funded client, in respect of any adverse costs awarded against the funded client, should the litigation be unsuccessful.¹³⁴ Where an adverse costs indemnity is provided to the client, litigation funders generally also agree to provide security for costs should the court order security be provided.¹³⁵

In return, the funded client agrees that the funder may receive a portion of any settlement or resolution sum recovered from the litigation. Resolution sums are usually achieved via settlement or from the proceeds of any favourable judgment or court order once recovered. The funder’s remuneration is commonly calculated as a percentage of the sum recovered, although it can be calculated in other ways, such as on a multiple of the funded costs advanced. Commissions based on percentages are usually dependent on the nature of the risks undertaken, the time involved, and the type and amount of funding required. Other factors can include the time until recovery, the expected value of the plaintiff’s claim and the strength of the plaintiff’s litigation strategy.¹³⁶

In larger projects or class action litigation, the funder may also provide other assistance, such as with pre-claim administration, book building, project management and general administration, and may sometimes charge a separate fee for such services, again usually only in the event of success. Funding agreements can allocate certain project management responsibilities and day-to-day administrative control over the litigation to the funder, allowing it the right to provide recommendations and administrative support to the lawyers, subject to the client’s overriding instructions.

Judicial intervention

From time to time the Supreme Court has been asked to consider or reconsider the role it should play in respect of oversight and approval of litigation funding agreements. As previously mentioned, the court has consistently rejected the notion that it should act in the role as regulator of litigation funding agreements,¹³⁷ expressly noting that this is more appropriately a matter for legislation or regulation if considered desirable. More recently the NZLC has accepted this invitation, recommending a raft of legislative and regulatory changes in this area, which have not been adopted.¹³⁸

Likewise, the court plays no role in assessing the fairness of any bargain between a litigation funder and a claimant,¹³⁹ although the court can be called on to determine whether individual arrangements with litigation funders amount to an abuse of process.¹⁴⁰ Consistent with common law developments in other jurisdictions, the criteria constituting an abuse of process in the context of a litigation funding agreement have been restricted. In Waterhouse, the Supreme Court found that a stay on abuse of process grounds should only be made ‘on traditional grounds or where the funding arrangement effectively constitutes’ an impermissible assignment of a cause of action.¹⁴¹ In assessing whether there has been an assignment, the court will have regard to the funding arrangements as a whole, including the level of legal control able to be exercised by the funder, the profit share and the role of the lawyers acting.

Relatedly, in Fostif, the New South Wales Court of Appeal recognised that a high level of control by the funder is expected and permissible but cautioned that it would be contrary to public policy for the lawyers to fully abdicate to the funder the obligation to act for the representative party.¹⁴² This acceptance of a level of control being an inevitable part of the funder merely protecting its investment has also been embraced in New Zealand.¹⁴³ Therefore, while it is permissible for a funder to maintain day-to-day control of a claim, the legal representatives are expected to consult with the client on key issues. Hence, funding agreements often expressly preserve the funded client’s right to override the funder’s instructions and commonly also include dispute resolution mechanisms.

Disclosure

The Supreme Court has made its position clear on the issue of disclosure and approval of third party litigation funding agreements, at least in the context of non-representative proceedings. The leading case in this area is again Waterhouse,¹⁴⁴ where the Court said it was not its role ‘to act as general regulators of litigation funding arrangements’. The Court confirmed it is not its role to give prior approval to funding arrangements.¹⁴⁵ However, it left open the scope of its supervisory role for litigation funding arrangements in representative proceedings.¹⁴⁶

Subsequently, while dealing with a representative proceeding on other procedural issues, the Supreme Court in Southern Response Earthquake Services Ltd v. Ross considered what had been said in Waterhouse about the role of the court in reviewing litigation funding agreements. The Supreme Court concluded (contrary to submissions of the Law Society) that it would be premature to say that there is any expectation that a funding agreement should routinely be provided to the court as part of an application under HCR 4.24(b).¹⁴⁷

So, although there is no requirement for disclosure of the funding agreement as a whole, Waterhouse remains authority for the proposition that the parties to the litigation are entitled to know the identity of the real parties to the litigation and, on this basis, the funded parties must still disclose the fact that there is litigation funding involved, the identity of the litigation funder and whether that funding arrangement is subject to the jurisdiction of the New Zealand courts.¹⁴⁸

Other particulars of the funding arrangement, such as the financial means of the funder and the basis on which the funding can be withdrawn, are generally not required to be disclosed. These issues can be addressed more directly with an application for security for costs if appropriate. Even in the context of an abuse of process application, where the funding agreement is to be disclosed to the parties, the courts have still been careful to permit the funded party to maintain confidentiality over terms that might provide a tactical advantage to their opponent should they be divulged.¹⁴⁹

Costs

New Zealand is an adverse costs jurisdiction where the power to award costs is at the discretion of the court.¹⁵⁰ Practically, the courts administer a scale costs regime that is instructive, but not determinative, of the manner in which costs are calculated and recovered.¹⁵¹ An increase or uplift on scale costs is available at the discretion of the court, following a multifactorial assessment of the complexity, significance and reasonableness of the costs claimed.¹⁵²

Security for costs

Security for costs may be ordered on the application of a defendant where the plaintiff is either resident or incorporated outside of the jurisdiction, or there is reason to believe that a plaintiff will be unable to pay a defendant’s costs if unsuccessful.¹⁵³ The order is discretionary and the presence of a litigation funder may be a relevant factor to security being ordered.¹⁵⁴ Practically, security for costs is more commonplace in representative proceedings where a litigation funder is involved. The NZLC has recommended a statutory presumption in favour of security where the proceeding is supported by litigation funding, to be provided in a form that is enforceable in New Zealand.¹⁵⁵ Beyond ordering security, the courts have been reticent to adopt a general regulatory mandate of litigation funding in respect of capital adequacy or requiring proof of a funder’s capacity to satisfy an adverse costs award.¹⁵⁶

The forms of security that the court is willing to accept are not closed, and ultimately will be at the satisfaction of the court.¹⁵⁷ In practice, the court has accepted the following forms of security, depending on the circumstances of each case:

1. cash paid into court or held on trust;¹⁵⁸
2. a bank bond or guarantee;¹⁵⁹ and
3. a guarantee from the litigation funder.¹⁶⁰

New Zealand courts have typically rejected after-the-event (ATE) insurance as an adequate form of security arising from concerns regarding enforceability against underwriters.¹⁶¹ The court in Houghton v. Saunders did, however, highlight the narrow circumstances in which a deed of indemnity from an insurer may be permissible: where the underwriters’ obligations were enforceable in New Zealand and the underwriters were reputable and solvent.¹⁶²

Funder's liability for costs

A funder’s liability for costs arises in two contexts: under contract and at general law. At general law, the power to make a non-party cost order against a funder already exists as part of the court’s general costs discretion and is recognised at common law.¹⁶³ Despite the acceptance of non-party cost orders, a funder’s liability for costs is the subject of reform debate in the class actions context. The NZLC has recommended a discrete statutory power to ‘make orders directly against the litigation funder for the provision of security for costs and payment of adverse costs’¹⁶⁴ in class actions. Practically, the issue for the NZLC is enforceability, where the assets of the funder may be outside the jurisdiction, or the terms of the funding agreement may not be governed by the laws of New Zealand. Notably, the NZLC has recommended a suite of intersecting recommendations that would substantially amend the costs regime currently applicable to class proceedings, namely that (in addition to the aforementioned non-party orders):

1. the terms of funding agreements are only enforceable if approved by the court;¹⁶⁵
2. a rebuttable presumption that security for costs, in all funded class proceedings, will be provided in a form that is enforceable in New Zealand;¹⁶⁶ and
3. the governing law under funding agreements of class proceedings should be the law of New Zealand.¹⁶⁷

Recovery of costs for self-represented litigants

In November 2022 the Judicial Rules Committee¹⁶⁸ published its report, ‘Improving Access to Civil Justice’ which made comprehensive recommendations in relation to how the rules of court could be amended to facilitate access to justice. In particular the Committee looked at revisions to court filing fees and other procedural fees that can be a barrier to entry for many litigants.¹⁶⁹ The Rules Committee continues to engage with the Attorney-General and Minister of Justice on how to best implement its proposed recommendations and that process is ongoing.

One recommendation already implemented relates to the recovery of costs for self-represented litigants. Previously, self-represented litigants (or ‘litigants-in-person’) were not entitled to claim their costs, even if successful. The proposed amendments to the rules of the District Court, High Court, and Court of Appeal enabling self-represented litigants to claim costs upon success at the rate of NZ$500 per day, if they are successful. The proposal comes on the back of the Supreme Court decision in McGuire v. Secretary for Justice [2018] NZSC 116, which indicated that it may be appropriate for the Rules Committee to reassess the continuing appropriateness of the rule prohibiting the award of costs to successful lay-litigants, and the exceptions to that rule allowing costs to lawyers appearing in person and in-house counsel. On 29 July 2024, Cabinet approved these proposed amendments, which take effect from 1 September 2024.¹⁷⁰

Costs and class actions

Class actions have introduced some novel issues into the costs landscape, such as common fund orders and common costs in concurrent proceedings.

Common fund doctrine

The common fund doctrine is in a nascent stage of development in New Zealand. The first application for a common fund order (CFO) was made in the Ross v. Southern Response class litigation.¹⁷¹ Ultimately, the proceedings resolved in December 2021 without the court being required to determine the application for a CFO. However, the series of decisions from the High Court, Court of Appeal and Supreme Court in this litigation describe the general contours of an emerging acceptance of the common fund doctrine.¹⁷²

The Supreme Court in Southern Response v. Ross¹⁷³ recognised that the court has power to approve settlements as a condition of leave being granted under HCR 4.24 to bring a representative proceeding on an opt-out basis,¹⁷⁴ and that this power derives from the court ‘exercising an adjudicative power in their protective or supervisory jurisdiction’.¹⁷⁵

The common fund doctrine arises in this context as a mechanism to ensure that individual class members are not prejudiced inter se. As the Supreme Court expressed, ‘common fund orders are one of the techniques used to try and respond to what is referred to as the problem of “free riders”; that is, those who take the benefit of the claim without shouldering any of the burden’.¹⁷⁶ The acceptance of opt-out or open class representative proceedings in New Zealand as a result of the decision in Southern Response v. Ross¹⁷⁷ produces the potential for free-riding by open class members who may not have entered a funding agreement; thereby, they are not contractually bound to contribute to the legal or litigation funding costs of the proceeding, but are able to share in the resolution of the proceeding.

In the same litigation in Ross v. Southern Response, the Court of Appeal expressed support, albeit obliquely, that the Court had sufficient power to make such an order without determining the question.¹⁷⁸

In 2022/3 any doubt or ambiguity, as to the Court’s power to make a CFO, was removed by the decisions in the Simons v. ANZ Bank¹⁷⁹ class action. The first instance decision in Simons v. ANZ Bank (handed down on 27 July 2022) draws heavily upon the Ross v. Southern Response litigation, ultimately finding that the High Court has power to make a CFO in a representative proceeding, although the Court ultimately declined to make the CFO at an early stage in the proceeding.¹⁸⁰ The Court of Appeal’s line of reasoning ultimately informed Venning J’s acceptance that the court has power to make a CFO in Simons v. ANZ Bank.¹⁸¹

The first instance decision in Simons v. ANZ Bank was appealed in Simons v. ANZ Bank (Appeal).¹⁸² The Court of Appeal did not substantively disturb the reasoning of the first instance decision, save to set aside the assumption that the application for a CFO should be sought at the conclusion of a proceeding. Instead the Court affirmed its power to make a CFO at an early stage in a representative proceeding and that such orders should be made early in the interests of justice.¹⁸³ See a fulsome analysis of the Simons v. ANZ (Appeal) decision above.

The first instance decision provides helpful interpretive analysis on the source of power to make such an order. The decision eschews an interpretation that the power arises under HCR 4.24,¹⁸⁴ preferring the inherent jurisdiction of the court, supplemented by the expansive plenary powers conferred by HCR 1.6¹⁸⁵ to fashion bespoke orders, where there is no existing procedure ‘in the manner that the court thinks is best calculated to promote the objective of these rules’.¹⁸⁶ The analysis of the first instance decision regarding the Court’s inherent jurisdiction supplements the relatively concise reasons provided by the Court of Appeal (which agreed with the lower court). Per Venning J at [166]:

Further, at some stage in every representative proceedings, it will be necessary for the Court to address the issue of how any fund recovered in the class action is to be distributed. That will inevitably require the Court to consider the position of, and appropriate return to, the litigation funder. As the Supreme Court noted in Southern Response Earthquake Services Ltd v. Ross it is common for this Court to make orders approving settlements and distribution proposals. The Court has an adjudicative power in its protective or supervisory jurisdiction, and there is a need for the Court to exercise that jurisdiction in that context.

As a consequence of Simons v. ANZ Bank and Simons v. ANZ Bank (Appeal), New Zealand courts have the power to make CFOs, and that power may be exercised early in a proceeding. In the absence of a specific statutory power permitting CFOs, the jurisprudence in this area continues to accommodate and manage innovations introduced by litigation funding. Set against this backdrop is the legislative reform debate where the NZLC has recommended a series of reforms that, if adopted, would codify the power of the court to apportion legal costs and funding commissions.

The distinction between a CFO and a cost-sharing order as proposed by the NZLC is important to understand. There is a profusion of definitions for a CFO at common law, depending upon the precise content of the order and the stage of the proceeding when an order is sought. The order has been referred to as a commencement CFO,¹⁸⁷ settlement CFO,¹⁸⁸ judgment CFO,¹⁸⁹ an expense sharing order¹⁹⁰ and an equitable remuneration order.¹⁹¹ In examining the definitional diversity that now exists, it is easy to become distracted by what has been referred to as the ‘triviality of labels’.¹⁹² In this context, a CFO is a term of convenience used to describe a broad specie of orders whose function is to apportion the litigation funding costs of a proceeding.

The court has also considered the funding equalisation order (FEO) as an alternate cost-spreading mechanism. In Simons v. ANZ Bank¹⁹³ the Court succinctly summarised how an FEO operates:

CFOs can be contrasted with funding equalisation orders (FEOs). FEOs deduct an amount from the settlement or award paid to non-funded members that is equivalent to the amount they would have had to pay to the funder, had they entered the funding agreement. The amount deducted is then pooled and distributed pro rata amongst all class members, but not the funder. FEOs achieve equity amongst class members, but do not augment the sums paid to the funder.

The decision in Simons v. ANZ Bank did not specifically deal with the availability of FEOs as a matter of law. However, it can be inferred that an FEO is available on the same basis as a CFO where the court ‘thinks it is best calculated to promote the objective of the HCR’.¹⁹⁴ There is typically a misplaced assumption that a FEO will be reliably superior to a CFO, on the basis that under an FEO the funder does not receive more than the total commission it would have received from the funded class members.¹⁹⁵ That assumption is misplaced particularly when accepted reflexively and without regard to the circumstances of each case.

Australian jurisprudence is instructive on this point: ‘a funding equalisation order is not always the appropriate counterfactual or comparator’ to a CFO.¹⁹⁶ The range of factors that weigh against an FEO in certain circumstances were summarised by the court in Simons v. ANZ Bank NZ Ltd, referring to the plaintiff’s submissions:¹⁹⁷

In Mr Salmon’s submission FEOs are inferior to CFOs. FEOs do not incentivise funders to invest in opt out proceedings, because they do not allow funders to collect a commission on unfunded class members’ recoveries or provide certainty as to potential returns at the beginning of the proceedings. Under FEOs the Court has less flexibility to amend the funding commission rates (FCRs). CFOs are simpler and easier to understand. The other advantage of a CFO is that it obviates the need for book building and ensures that class members are able to make better informed choices as to whether to opt out.

As can be seen, the common fund doctrine is evolving in parallel with the courts’ recognition of the role played by litigation funders, the emergence of opt-out class actions and a developing litigation funding market.

Common costs

The series of class actions against James Hardie in New Zealand have raised novel but consequential issues regarding costs incurred in concurrent or parallel class actions, alleging materially similar claims. In one of these cases a dispute arose as to whether the court should recognise and apportion costs incurred across separate, but materially similar, class proceedings for the common benefit of all claims; for example, where common experts give evidence on the same subject matter or parties seek to rely upon evidence filed in related or parallel proceedings in respect of common issues.

The issue arose in Cridge v. James Hardie in the context of three proceedings filed against a common defendant, James Hardie, for materially similar claims.¹⁹⁸ The plaintiffs in the Cridge proceeding were the first to proceed to trial, ultimately failing in their claims at first instance and incurring significant adverse costs. The second proceeding¹⁹⁹ settled and the third proceeding²⁰⁰ has also subsequently settled in 2023.

At first instance the court in Cridge v. James Hardie²⁰¹ held that common costs were incurred across all three proceedings but declined to apportion those costs, despite conceding that ‘there is, however, undoubtedly within the James Hardie evidence material that would fall within the concept of a common cost, being output that will be usable in whole or in part, directly or as relevant material, in the defence of all three claims’.²⁰²

The common costs decision is subject to an application for leave to appeal, as at the time of writing. The consequences of this decision on concurrent class actions are manifold and potentially profound. It is expected the appeal will consider issues such as:

1. whether the ruling disadvantages claims filed first-in-time by forcing those claimants to bear all the costs risks for common work;
2. whether the ruling risks incentivising the commencement of subsequent proceedings, seeking to take advantage of reduced potential adverse costs risks burden that subsequent claims might benefit from. Crucially, the first instance finding does not appear to sit conformably with the object of the HCR ‘to secure the just, speedy, and inexpensive determination of any proceedings’;²⁰³
3. the potential risk of double recovery by a successful defendant where there is multiplicity of similar claims that are not heard together; and
4. the role of case management by the court where proceedings alleging similar claims against the defendant or defendants are run concurrently (or sequentially) and the appropriate role for consolidation orders.

The James Hardie series of class actions also raise the question of whether a bespoke class actions costs regime is necessary in New Zealand, arising from the unique attributes of these types of claims. Issues to consider include the concept of cost multipliers, the vulnerability of representative plaintiffs to adverse cost events, particularly in public interest representative proceedings, and the general costs quantum involved. Notably, the NZLC’s view is that a bespoke class action costs regime is not necessary at present.

Outlook and conclusions

Recent years have seen incremental developments in support of a developing third party litigation funding market and a relaxation of the torts of maintenance and champerty. These developments have aided the maturing jurisprudence on third party litigation funding in New Zealand but the regime would benefit from more certainty. To date the courts have generally maintained a non-interventionist approach to third party funding arrangements. That said, increasing competition in the funding market, recent law reform reviews and a maturing discourse have created favourable conditions for statutory reform.

Class actions have been the touchstone of many of these recent developments. The acceptance of the common fund doctrine, coupled with the comprehensive class action and litigation funding reform agenda advanced by the NZLC, are important milestones in the evolving architecture of New Zealand’s litigation funding landscape. In particular, NZLC R147 remains an ambitious blueprint that, if adopted, offers a pathway to greater procedural clarity. The proposed codified regime would, if implemented, potentially reduce interlocutory skirmishing and standardise processes and procedures. However, should the proposed regulatory regime be implemented in full, compliance burdens may prove to be significant disincentives for litigation funders and claimants alike. It is important to recognise that setting the regulatory hurdles too high may simply result in litigation funders exiting the New Zealand market, thereby reducing competition and pathways to access to justice. Onerous compliance burdens may have other unintended consequences too, such as delaying proceedings, via additional pre-commencement requirements, adding to procedural complexity and increasing cost, all of which would adversely impact claimants, funders and defendants alike.

New Zealand is at the vanguard of litigation in some areas, such as privacy and climate change litigation and is well positioned to offer a world-class justice system. New Zealand’s legal sector is at a crossroads whereby regulators can choose to support the growth of this industry through appropriately crafted regulation or inhibit access to justice through a convoluted approach.²⁰⁴ It is hoped that legislators will remain mindful that any additional proposed regulatory safeguards are designed to assist meritorious claimants to advance claims quickly, efficiently and cost-effectively in the interests of justice.

In the meantime, in the absence of statutory reform, the judicial approach to litigation funding and class actions continues to demonstrate a willingness to exercise judicial power appropriately and flexibly in accordance with the interests of justice. It is expected that the courts will continue to develop a bespoke regime which is responsive to the novel issues that will continue to arise.

Looking ahead, the immediate challenge appears to be striking the right balance between achieving appropriate levels of consumer protection while minimising regulatory compliance burdens and costs, to encourage competition from litigation funding providers. Although no silver bullet, implementing a comprehensive but appropriately calibrated statutory regime for the conduct of class actions and third party litigation funding arrangements could potentially represent a positive step towards reducing uncertainty and facilitating better access to justice for more people across New Zealand. In this regard in Southern Response v. Ross²⁰⁵ the Supreme Court provided a useful guide when discussing the related threefold objectives of representative actions. It noted these objectives as: (1) improving access to justice, (2) facilitating the efficient use of judicial resources and (3) strengthening incentives for compliance with the law. There are strong arguments that providing clarity in relation to the permitted uses of third party litigation funding will also see these objectives advanced.