Law set to aid class actions

The law also makes it easier for civil cases to be brought against those responsible for misstatements. Photo / NZ Herald

An overhaul of capital markets law is expected to open the door for out-of-pocket investors to launch big civil cases against those involved with misleading offers.

The Financial Markets Conduct Bill, described as a once-in-a-generation law change, passed its third reading in Parliament late last month and will be phased in from April next year.

One shift in the law is a sharper focus on civil penalties for those who have, for example, released misleading offer documents to the market.

The law also makes it easier for civil cases to be brought against those responsible for misstatements, shifting the burden of proof to defendants.

Someone bringing a case previously had to prove losses suffered were caused by misstatements they had relied upon when investing, making class actions difficult.

Under the new law it is up to defendants to prove losses were caused by things other than the relevant misstatement.

Chapman Tripp partner Michael Arthur said the law change was likely to mean more of these cases going to court.

"At some stage things will go badly again either generally or for specific companies and my own view is that removing the impediment for plaintiffs is going to have a big impact on the chances of proceedings actually commencing or making it to trial.

"You've also seen indications that we are moving towards a sort of large-scale litigation culture in New Zealand, with things like the Feltex litigation and the bank fees class action."

More than 3600 former Feltex shareholders have opted into litigation against the carpet-maker's former directors, and a lawsuit involving 11,000 customers claims ANZ charged excessive penalty fees.

Ross Pennington, also a partner of Chapman Tripp, said because a large number of parties are involved in preparing and releasing offer documents, the likes of auditors, lawyers and trustees could also be targeted.

"Let's just say the issuer has in fact failed so there's no good suing them, what you're going to be looking for is other people who can compensate you and who have deep pockets or indeed pockets at all."

Simpson Grierson partner Michael Pollard said his firm had argued against the change.

"You've got to get the balance right when you change the burden of proof because there's a lot of good directors out there who aren't out there to rip people off and ... you can end up catching the good guys out inappropriately," Pollard said.

Litigation funders LPF Group said the law was a "step in the right direction". However, more improvements were needed to help New Zealanders bring class actions, director Phil Newland said.

"We woefully lag behind other jurisdictions like Australia to bring meaningful class actions."