Chasing a bigger slice of the cake before it is baked, class action litigation funders are in court fighting what they claim is an existential battle over division of the spoils; seeking approval of Common Fund Orders to improve their returns.
Litigation funders hold themselves out as caped crusaders, fighting for the small guy. Joe and Jill Citizen do not have the resources to fight large corporates over perceived slights to their legal rights.
Litigation funders offer to do the heavy lifting, funding legal action in the name of representative plaintiffs with a court ruling which can then be applied to hundreds, if not thousands, of consumers in a similar position.
Most publicity has surrounded class actions filed on behalf of Christchurch earthquake claimants alleging they were shortchanged by insurers’ payouts on earthquake claims. The biggest class action success to date has been $54 million paid in an out of court settlement by government to kiwifruit growers affected by PSA virus imported by Primary Industries on pollen arriving from China.
Now it is banks in the firing line.
ANZ has admitted it did not make complete disclosure of changes to customer home loans and personal loans in 2015 and 2016, as required by the Credit Contracts and Consumers Finance Act. A poorly formulated software programme applied to existing customer accounts was to blame.
ASB made a similar stuff up over a four year period: 2015 to 2019.
Both banks self-reported their mistakes to the Commerce Commission.
Litigation funders LPF Group Ltd and CASL Management Pty Ltd are now on the hunt, seeking compensation from each bank on behalf of affected account holders.
These litigation funders offer investment opportunities in specific class actions, funding litigation on behalf of affected consumers. Punters are invited to pool resources, funding what is speculative litigation with both an uncertain outcome and an equally uncertain investment horizon.
All money invested can be lost. A class action may fail in its entirety; or drag on for so long that cash committed is exhausted.
To compensate for this risk, litigation funders seek a handsome return; agreement to keep forty to fifty per cent of any recovery from successful class action litigation is not unheard of.
Adding to headaches for litigation funders is the problem of ‘free riders,’ litigants who do not joint the class action but jump in later, collecting a payout without contributing to the cost.
Common Fund Orders (CFO) are seen by litigation funders as a panacea for the free rider problem; enabling recovery from all who benefit from a class action, whether they sign up to the funding agreement or not.
Approval of CFOs is contentious.
In Australia, the Federal Court is in two minds as to whether they are allowed. No definitive ruling has been handed down.
In England, judges have only gone so far as saying they might be a good idea.
In New Zealand, the Court of Appeal was more decisive.
Over objections from both ANZ and ASB, the court stated procedural High Court Rules enable a judge to approve a CFO in class action litigation. It further said that CFO orders should be approved upfront, not at a later stage when merits of a case are being argued. Judges retain a supervisory role to review terms of any litigation funding agreement.
As a litigation funder, LPF Group told the court that a lack of CFO orders only added to the risk assumed. Without CFO orders, litigation funders would be less likely to underwrite class actions, to the ultimate disadvantage of consumers, it said.
Prohibiting use of CFO orders has the potential of reducing, or even halting, ongoing use of class actions, funders claim.
ANZ and ASB argued there is no legal justification in New Zealand for CFO orders. It was improper to have a trial judge use current High Court Rules, which govern court procedure, as a mechanism to approve CFOs since CFOs are not concerned with court procedure; they govern substantive legal rights as between litigants, they said.
Approval of Common Fund Orders does fit within the broad remit of the High Court Rules, said the Court of Appeal.
Simons v. ANZ – Court of Appeal (19.07.24)
24.177