In most Canadian jurisdictions, there is now comprehensive class actions legislation governing the supervision and procedure of representative actions in the Courts. The same is true in the United Stated and Australia. In some jurisdictions, however, no such legislation exists. In New Zealand, for example, there is not yet a legislative regime governing the conduct of class actions.
In the recent decision of the New Zealand ("NZ") Supreme Court in Southern Response Earthquake Services Ltd. v. Brendan Miles Ross et. al., the respondents' proposed representative opt-out proceeding was approved. The decision represents a departure from the New Zealand Courts' prior status quo, which was to grant leave for representative actions on an opt-in basis rather than an opt-out basis. In an opt-in proceeding, class members must take the necessary steps to become a plaintiff. In an opt-out proceeding, on the other hand, plaintiffs are automatically included if they fall within the class definition (and until they take steps to "opt out"). The opt-out regime is what is commonly referred to as a "class action" and governed by class proceedings legislation across Canada.
In dismissing Southern Response's appeal and approving the proposed opt-out representative proceeding, the NZ Supreme Court looked to the Canadian approach for guidance and support. This decision may spark class actions reform in NZ similar to what occurred in Canada over the past couple of decades. The Canadian approach will likely inform the NZ Courts' (and legislatures') approach in years to come.
Summary of the Case in Southern Response:
The respondents, Brendan and Colleen Ross (the representative plaintiffs), brought a claim against the appellant, Southern Response Earthquake Services Ltd., their insurer, on the basis that they agreed to settle a claim on a less favourable basis than they should have after Southern Response gave them incomplete information about their claim. It was claimed by the respondents that some 3,000 other policyholders settled their insurance claims with Southern Response in similar circumstances, and were also entitled to damages. The claims all resulted from earthquakes in the Canterbury, NZ region from 2010-2012.
The respondents applied to the NZ High Court for leave to bring their proceeding as an opt-out representative claim on behalf of the 3,000 policyholders. Southern Response opposed the application, arguing that the representative action should be brought on an opt-in rather than opt-out basis, pursuant to the status quo in New Zealand to date. Further, Southern Response argued that in the absence of a legislative scheme governing representative actions in NZ, it would be difficult for the Court to oversee an opt-out representative proceeding and unfair to "absentee plaintiffs" who would be bound by the decision, potentially to their detriment.
The High Court granted leave for the representative claim to be brought on an opt-in basis. The respondents appealed to the Court of Appeal, which made an Order that the claim should proceed as an opt-out claim. The Court of Appeal also held that proceeding on an opt-out basis should be the norm for representative actions in NZ.
Southern Response appealed the Court of Appeal's decision to the Supreme Court. Ultimately, the Supreme Court upheld the decision of the Court of Appeal, effectively changing the status quo with respect to representative proceedings in NZ.
Lessons Learned from the Canadian Approach:
In the absence of class actions legislation, the NZ Courts derive jurisdiction to govern representative proceedings (including opt-out proceedings) under rule 4.24 of the High Court Rules. The Rules, however, do not provide any guidelines with respect to the procedure to be followed, including when and whether the proceedings should be brought on an opt-out or opt-in basis. That used to be the situation across Canada. But even in the absence of applicable legislation, the Supreme Court of Canada ("SCC") encouraged the Canadian Courts to allow class proceedings when they furthered access to justice, judicial economy and behavior modification.
The NZ Supreme Court relied on that Canadian jurisprudence, and in particular, considered the SCC's 2001 decision in Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46. In that case, the SCC considered the equivalent of the NZ Rule 4.24 in Alberta, which at that point did not yet have comprehensive class action legislation. The Court in Dutton held that in the absence of legislation, "the courts must fill the void under their inherent power to settle the rules of practice and procedure as to disputes brought before them." This was a departure from the SCC's earlier 1983 decision in General Motors of Canada Ltd. v. Naken,  1 S.C.R. 72 (SCC), in which the Court dealt with an application for leave to bring a representative proceeding under the Ontario Rules of Practice and Procedure before any class actions legislation was enacted. In Naken, the Court did not grant leave to bring the proposed representative proceeding, preferring instead to leave change to the legislature. In Dutton, the Supreme Court distinguished from Naken, holding that it was a product of its time, when the modern class action was still an "untested procedure in Canada." Following Dutton, the Court in Southern Response stated:
The decision in Dutton, along with that in Rumley v. British Columbia and Hollick v. Toronto (City), have been described as showing a "radical shift" from Naken in the context of jurisdictions without class action legislation. Importantly, for the present case, Dutton provides a helpful precedent for proceeding to utilize the opt out procedure without awaiting a legislative framework.
The NZ Supreme Court in Southern Response also looked to the current approach in Prince Edward Island, which has yet to enact class actions legislation. It noted that in the recent decision of the P.E.I. Supreme Court in King v. Government of Prince Edward Island, 2019 PESC 27, the Court relied on the decision Dutton in approving a proposed representative claim. The P.E.I. Court, in its reasons, set out detailed guidance as to the various procedural issues, including notice requirements, settlement, and discontinuance, in the context of approving an opt-out representative claim.
Southern Response made several arguments regarding the ability of the Court to manage the opt-out representative proceeding in the absence of legislation. One of the issues the Court considered was the potential difficulty of approving settlements. When dealing with this argument, and ultimately finding that the Court could effectively deal with the approval of settlements in the absence of legislation, the Court discussed the recent amendments to the Ontario Class Proceedings Act, 1992, S.O. 1992, c. 6 ("CPA") which only recently came into force. As noted by the Court, the CPA previously did not provide any guidance to the Courts vis a vis the approval of settlements. Despite that, the Courts in Ontario developed a standard of approval and several other factors to be considered, which were recently codified in the CPA via the Smarter and Stronger Justice Act 2020, S.O. 2020, C. 11.
Ultimately, Southern Response's appeal was dismissed, and the NZ Supreme Court agreed with the Court of Appeal that an opt-out order was appropriate. By all indications, the NZ Courts will more readily grant opt-out orders in representative actions moving forward and may be moving in the direction of class actions legislative reform (similar to the experience in Canada). The case also provides further support and guidance for the approval and conduct of class proceedings in jurisdictions without legislation, where the proposed class proceeding would further the interests of justice and judicial economy.
Date: November 17th, 2020
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