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A recent decision by the Court of Appeal, in which Chapman Tripp was involved, provides useful guidance on the test applied when obtaining an opt out order for a representative class action in New Zealand.
We background the case and summarise the Court’s findings.
Context
The proceedings in Body Corporate Number DPS 91535 v 3A Composites GMBH1 were initiated by Cutterscove (a Body Corporate) and, subsequently, Argosy (a property development company). Both own buildings featuring Alucobond – an Aluminium Composite Panel cladding product.
The claim, brought against the manufacturer and two New Zealand distributors of Alucobond, alleged that two Alucobond products were inherently unsuitable for use, non-compliant with the New Zealand Building Code, and had the potential to contribute to the spread and severity of a fire.
The plaintiffs sought orders allowing them to bring an “opt out” representative claim (or “class action”) on behalf of all current and former owners and leaseholders of buildings or parts of buildings where the Alucobond products had been used.
The High Court declined the application. It was not satisfied that Cutterscove and Argosy were sufficiently representative of the full range of plaintiffs and found that the objectives of representative proceedings would not be furthered by granting the application.
The Court of Appeal upheld the High Court decision and provided important clarification of the circumstances in which opt out orders will be appropriate.
Representative actions
The primary objective of a representative action is to improve access to justice, facilitate the efficient use of judicial resources and strengthen incentives to comply with the law.
Representative orders may be granted where persons have “the same interest in the subject matter of a proceeding”. This threshold is not a high one and the courts take a liberal and flexible approach in determining whether there is a common interest. Representative orders can be made even if the commonality of interest relates to only some of the issues in a claim.
The plaintiffs in this case sought “opt out” representative orders. If granted, all those with a common interest in the proceeding (in this case, all those with Alucobond products) are bound by the outcome of the proceeding, unless they “opt out” by a certain date.
“Common issues” are generally heard at a stage 1 hearing, with particular plaintiffs required to prove the individual aspects of their claim at a stage 2 hearing.
Court of Appeal’s analysis
The Court of Appeal accepted that it was possible to identify issues that would be common to all members of the proposed plaintiff group, but meeting this minimum threshold was not enough. The objectives of the High Court Rules – just, efficient and speedy resolution of proceedings – must also be advanced for a representative order to be made. That test was not met in this case:
- The Court was sceptical that useful answers of general application would be provided by a stage 1 trial in relation to the Cutterscove and Argosy buildings given that (1) Alucobond can be used in a range of ways and across a wide range of building types and (2) the fire risk, and associated regulatory regime, varies significantly across building type and use.
- The plaintiffs proposed that the stage 1 trial could address the use of Alucobond on a range of building types, including a number that were not represented by the Cutterscove and Argosy claims. The Court held that it would be inefficient and a poor use of court resources to determine matters that were entirely hypothetical and may never arise in respect of any particular plaintiff at the stage 2 trial.
- It would also be disproportionately burdensome for the defendants to be required to provide discovery and fact/expert evidence about hypothetical uses of the Alucobond products.
- Opt out orders would prevent the defendants from identifying the buildings subject to the claim until a much later date. This time lag would increase the risk of losing access to relevant people or documents and would reduce their ability to identify and join other parties responsible for ensuring building compliance. The interests of justice would be better served by identification of all live claims sooner rather than later.
Overall, the Court concluded that a representative proceeding of the generality and breadth proposed by the plaintiffs would not give fair notice to the defendants of the nature and scale of the claims, and a fair opportunity for defence.
Chapman Tripp comment
The case highlights the fact that, in the absence of a statutory framework, the class action regime in New Zealand will remain unsettled. The judgment, however, provides helpful clarity on where the representative procedure is not appropriate.
Factors to bear in mind include:
- Establishing that there is a “common issue” shared by members of the proposed class is not enough for orders to be granted. Plaintiffs must also show that an opt out proceeding will promote the just, efficient and speedy resolution of proceedings;
- Representative plaintiffs must be sufficiently representative of the proposed class. Defendants should closely interrogate who the representative plaintiffs are, the claims and group members they can actually represent, and whether determining the representative plaintiffs’ claims will truly advance group members’ claims in a meaningful way;
- Careful attention should be paid to the scope and nature of the proposed claim (including obtaining evidence where appropriate). Opt-out orders will not be appropriate where the claim is so broadly drafted that the differences between plaintiffs, and the individual issues to which they give rise, undermine any benefits that might be obtained from determining common issues; and
- The fact that a similar claim is being progressed as an opt out class action in other jurisdictions does not mean that representative orders will be waved through in New Zealand.
While access to justice for plaintiffs remains a central consideration for the courts, potential prejudice to defendants is also an important factor. When opposing any application, defendants should ensure they provide evidence to show the nature and extent of the potential burden on them.
More practically, the case highlights the importance of engaging a legal team with strong class action knowledge and experience that is backed by quality expert witnesses.
Chapman Tripp acts for Skellerup Industries Limited, the third defendant in this proceeding.
1. Body Corporate Number DPS 91535 v 3A Composites GMBH [2023] NZCA 648
