Legal landscape looking riskier for firms

Business NZ chief Phil O'Rielly. Photo / Jason Oxenham

Class action litigation funders and more muscle for regulators pose challenge for firms, says Chapman Tripp.

New Zealand companies face an increasingly risky legal landscape as professional litigation funders bankroll class action lawsuits and emboldened regulators flex their muscles, says a major law firm.

In a new report, Chapman Tripp said such trends were gaining intensity and needed "careful and thoughtful management" by businesses.

The arrival of litigation funders on the local legal scene was both a symptom and a cause of a rise in class action lawsuits - claims launched by a group of people, the report said.

Funders provide financing for litigation in return for a cut of any damages from successful claims.

Representative proceedings, such as class actions, tended to be expensive, particularly when expert witnesses were required, the report said.

Chapman Tripp partner Edward Scorgie said litigation funders had "changed the nature of the game".

"There will be a set of claims that may or may not have got off the ground, for economic reasons, which have access to a different funding source now," Scorgie said.

More than 500 New Zealand leaky-home victims are expected to launch a claim against Australian building materials firm James Hardie in the next few weeks. British-based Harbour Litigation Funding is understood to be gearing up to fund that.

Harbour also helped to finance an unsuccessful class action against the promoters and directors of failed carpet maker Feltex, which resulted in the funders being ordered to pay the successful defendants' costs and disbursements that reportedly totalled around $5 million.

Those costs included more than $800,000 for the services of US Professor Bradford Cornell, a senior consultant at Compass Lexecon.

Meanwhile, the report said companies were exposed to heightened regulatory risk as a result of reforms that bolstered the powers and reach of regulators including the Financial Markets Authority and Commerce Commission.

Chapman Tripp said the FMA had largely finished its post-global financial crisis legacy work and had a big, well-resourced enforcement team.

"Market participants should prepare for increased scrutiny across the board, as regulators demonstrate their resolve and test their pre-enforcement powers of monitoring and investigation," the report said.

"How well this scrutiny is handled will likely dictate who will be first off the blocks in formal enforcement actions."

BusinessNZ chief executive Phil O'Reilly said the changes required an alert response from businesses.

Companies would face more scrutiny and might need specialist professional advice, he said, adding that upskilling around governance and management would also be required.