Social media and crowdfunding drive class actions

Business leaders are keeping a wary eye on the Law Commission’s review of class action law amid concerns its recommendations will unduly favour consumers at the expense of corporations and add to the general economic uncertainty plaguing business.

Thorn Hope

Kirk Hope, chief executive of BusinessNZ, says any new class action law should be drafted carefully.

“It could increase general uncertainty for business and encourage legal proceedings where it could be difficult to predict final liability. It could increase businesses’ vulnerability to opportunistic claims brought for anti-competitive or ideological purposes.

“And it could be unfair for a business that successfully defended a claim where plaintiffs were not able to pay the costs ordered.”

Hope says litigation funding should be limited to a fees arrangement rather than a percentage of the proceeds “to reduce the risk of opportunistic claims”.

His concerns are echoed in part by Jenny Stevens, a litigation partner at Bell Gully, who says many businesses are concerned that law change will be too claimant-friendly and encourage litigation funders.

“Do we want a more permissive class action system in New Zealand?” she asks. “Are we concerned about the role of funders within that? These are big issues and I think they can expect business to take a keen interest.”

In the meantime she predicts social media and other forms of digital communication will have a significant impact on class action litigation.

“In the past it was not a simple task to establish a group with comparable complaints but social media has provided a platform to do so and this could ultimately result in more class actions.”

This has already happened in the United States, largely as a result of the #MeToo movement.

In its 2019 Workplace Class Action Litigation Report, US law firm Seyfarth Shaw says social media is now driving many claims.

“The #MeToo movement has emerged as a worldwide social phenomenon with significant implications for the workplace and class action litigation. In this age of connectivity, societal movements have unprecedented speed and reach,” the firm says.

“Traditional means of spreading information and generating social change have been supplemented — if not outright replaced — by the nearinstantaneous ability of an idea or cause to go viral on social media.

“Nowhere in the past year was this more evident than with the #MeToo movement, as the chorus of victims’ voices and the media spotlight exposed sexual misconduct in the workplace.”

Crowdfunding

Another modern phenomenon could also encourage more groups to take class actions.

Crowdfunding of litigation is gaining increased traction globally, says Law Commission President, Sir Douglas White.

He says there are two broad types of litigation crowdfunding.

“The first is when money is provided on a donation basis with no expectation of a monetary reward. This will usually occur in public interest cases.

“The second is when money is ‘invested’ in the proceeding, with the promise of a monetary reward if the claim succeeds.”

Sir Douglas cites several examples of donationbased litigation funding in New Zealand such as the 2016-17 “Justice for Blessie” Givealittle campaign.

This raised more than $150,000 to investigate the Department of Corrections’ management of Tony Robertson who was under a supervision order when he raped and murdered West Auckland mother-of-three Blessie Gotingco in May 2014.

And in 2014-15 a Givealittle campaign raised $65,000 to help cover the legal fees incurred by author Nicky Hager after a police search of his house in May 2014 as part of their investigation into the hacking that led to Hager’s book Dirty Politics. Four years later the search was deemed to be illegal; the police apologised to Hager and paid him “substantial damages”.

Sir Douglas says several websites are dedicated to litigation crowdfunding in Britain and the United States, such as CrowdJustice and FundedJustice, which are donation-based, and LexShares, a litigation investment platform.

“We can therefore reasonably expect that litigation crowdfunding will continue to grow in New Zealand. The Law Commission’s review is likely to consider the implications of these kinds of alternative third party mechanisms, in addition to conventional litigation funding by specialist firms.”

With so many complex issues to consider and so much at stake, it appears unlikely the review will be completed anytime soon.

No easy task

Complexity and high stakes are things Adina Thorn, a leading class action lawyer in Auckland, knows something about.

Obtaining a funder for a class action can be complicated and difficult, she says.

Thorn is representing claimants in one of New Zealand’s biggest-ever class actions lawsuits, the $250 million claim against building giant James Hardie .

The plaintiffs allege faulty cladding was provided to more than 1000 homeowners, resulting in leaky buildings. The proceedings are being funded by UK-based Harbour Litigation Funding.

Thorn says finding funders for such actions is no easy task.

“Those parties who do this want to be backing winners and are very discerning. They require a full range of risks to be evaluated. These include the obtaining of top quality legal, technical and financial analysis of every situation and proposal put before them.

“They want to know about the defendant in great detail.”

Thorn says successful and well-resourced funders typically accept only around one out of every 50 proposals put before them.

“Given the risks involved in such funding activities, I don’t think that largescale domestic funding represents a growth opportunity for investors in New Zealand.

“In headline terms, running class actions may appear on the surface to provide an attractive business or legal proposition but the reality is that they do require a major commitment in terms of time, investment in resources, and legal talent.

“They are very hard to bring and require massive resources. As a firm we have had to build huge databases to maintain and run our class actions.”

Thorn says a substantial class action will typically involve hundreds of claimants, with each likely to have differing needs and requirements.

“They come from a wide range of circumstance in terms of their financial resources, the extent and circumstances of their losses, their differing expectations and needs, and the technical basis for their own claims. These factors all need to be evaluated and analysed by those running the class action.

“On the other hand, defendants are mostly large well-resourced organisations with deep pockets, typically well versed in the techniques needed to drain the resources of those seeking redress.

“Delay, delay, delay and introducing complications to the proceedings are wellused tactics.”

Thorn says settlements are often confidential and outside the court system so there is a lack of suitable precedents.

“This approach will often close the door on follow-up actions as it means these will need to start from square one.”

For her part, Thorn would like to see New Zealand introduce Australian-style “opt-out” class action lawsuits.

In New Zealand, they can be taken only in the names of claimants who actively “opt in” to them, as opposed to “opt-out” actions where all potential claimants in a case are included, unless they choose to actively opt out.

“All the big commercial enterprises, the banks and the insurers, will be strongly opposed,” she says, “and that’s because opt-out class actions are easier for lawyers to launch.

“If there are no opt-out provisions, defendants and insurers will always be favoured. Class actions are about achieving fairness which is a critical factor under any justice system.”

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