Ross v Southern Response [2019] NZCA 431

• There is no jurisdictional barrier to the making of opt out orders in representative claims, nor any policy reason why they should be exceptional
• Although it will depend on the case, we can expect a Court to consider access to justice reasons as a key justification in the making an opt out order

In May 2018 Mr & Mrs Ross (Ross) issued proceedings against Southern Response Earthquake Services Ltd (SR) claiming that SR provided incomplete information relevant to the settlement of their residential earthquake claim. The causes of action largely reflect those recently determined in Dodds v Southern Response Earthquake Services Ltd [2019] NZHC 2016.

Ross brought an application for leave to bring a representative action (pursuant to High Court Rule 4.24) on behalf of around 3,000 policyholders who Ross says may have settled their insurance claims with SR in similar circumstances. If so, that group would have the same claims that Ross has against SR. The proceedings will be heard in two stages, the first dealing with common issues and the Ross claim. If they succeed at stage 1 (in whole or in part) the question of relief for the group would be determined at stage 2. At that point it was agreed a represented claimant would need to opt in. However, the question arose as to whether members of the group needed to opt in to stage 1.

In the High Court, Associate Judge Matthews made various orders, but importantly held that stage 1 of the proceedings should be brought on an opt in basis, and that the membership of the group be limited to rebuild (and not also repair) customers. Ross appealed these two issues.

Both counsel in Ross referred to the Feltex litigation in which an opt out order was initially made but reversed on appeal. There is no other NZ case where an opt out order has been made. However, the Court of Appeal was satisfied there was no jurisdictional barrier to making an opt out order. HCR 4.24 is an exception to the general principle that a person normally needs to consent to become a plaintiff as it contemplates a representative plaintiff bringing proceedings on behalf of others with the same interest without first obtaining their consent.

SR argued that assuming there was jurisdiction, such orders should not be made in NZ until an appropriate legislative framework was in place. The Court disagreed. It preferred to adopt the liberal and flexible approach to HCR 4.24 as adopted in the context of a similar rule in Australia and Canada. The purposes of the Rule were better served by adopting an opt out approach. In particular:

• Improving access to justice: If there is some potential advantage in participating, and no real prospect of any disadvantage, then it should be as easy as possible for a class member to participate. The courts should be “slow to put unnecessary hurdles in the path of class members”.
• Strengthening incentives for compliance with the law: Interestingly, the Court referred specifically to insurers and other large entities in this respect, saying that an opt out process will increase the prospect they will be held to account for any breach of obligation to large numbers of individuals in circumstances where those individuals might not otherwise pursue a claim. Deterrence was also relevant here, with incentives for insurers and other entities to comply with their legal obligations if the represented group was larger.
• Facilitating efficient use of judicial resources: This aspect was more finally balanced. It was seen to be less likely that individual claimants would commence their own proceedings raising the same issues if there was a claim on foot to which they were already a represented party. But, other things being equal, it would be simpler and easier to opt in as this would have a similar effect. An opt out order would have a lesser administrative burden (fewer members would opt out than opt in). Many procedural issues would be the same, no matter the method of participating. Similarly, the courts are able to exercise the same supervisory jurisdiction using their inherent powers to control matters of practice or procedure.

An opt out order was appropriate in this instance, with compelling access to justice factors favouring this approach, particularly where the class was large so many more would have their claims heard and determined by the Court, with their rights preserved until such determination. There was no disadvantage from inclusion If a member does not want to participate, as they can simply opt out.

The short answer to this question is yes.  The Court considered there are significant questions of both fact and law which are common to rebuild and repair customers.  As both have the same interest in the proceedings they should be included as a claimant class, perhaps by being added as a second represented plaintiff.  Although the Court considered that to be a useful approach, the method to add repair customers was left with the High Court to determine during the case management process.

Although it would be useful to have detailed legislative guidance in relation to class and/or represented actions in NZ, the Court of Appeal has discounted that as a factor against making an opt out order in this instance.  This decision emphasises that of the three factors justifying representative actions, the one which is clearly the most important from a judicial perspective is access to justice.  Only time will tell whether this encourages more representative claims in the future and/or increases the appetite of litigation funders to become involved, as is the case in Ross.

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.