Dialogue: Class action suits can provide justice for all

Fallout from the controversial Lion Nathan takeover of Montana has left some small shareholders considering legal action against the New Zealand Stock Exchange.

Auckland accountant Bruce Sheppard is reportedly enlisting support for legal proceedings over the market surveillance panel's decision to grant Lion Nathan a waiver from normal takeover rules.

However, the options open to these and other group claimants in New Zealand are far more limited than they are overseas.

Our law does not permit class actions of the kind common in the United States. Restrictions on paying lawyers contingency fees also limit the ability of those on low or average incomes to bring claims, even when they have a good cause of action.

In the United States, class actions are a recognised means of bringing to account large corporations and other powerful defendants.

American laws permit such actions to be financed on a contingency basis, meaning those bringing the claim do not have to find large sums for legal fees.

Class actions have been brought in America against tobacco companies, the manufacturers of biosynthetic insulin products for diabetics, and mobile phone companies. Airline passengers are the latest group to consider bringing claims against airlines over economy-class syndrome.

Class actions are typically brought together by lawyers, who organise the claim, assemble the plaintiffs and specify what percentage of the award they will take as a fee.

The New Zealand equivalent is the representative action, a far more restricted claim provided for in the High Court Rules.

New Zealand's system of awarding costs against unsuccessful claimants acts as a further disincentive to all but the wealthiest claimants.

The usual type of representative action will involve tens or hundreds of people seeking a court order that one representative may bring a claim, rather than each person suing separately.

A representative action was used successfully by disgruntled patrons of the opera Aida. They succeeded in recovering damages.

Melbourne law firm Slater & Gordon was involved in discussions in New Zealand about legal action in the wake of the Auckland power crisis and is working on a claim relating to economy-class syndrome.

A Wellington law firm has been considering legal action against the soy milk industry.

But the limited nature of the representative action and the risk that damages may be awarded against those who bring court actions severely restrict its use.

Changes to the law should be made to allow class actions of the type common in the United States to be initiated in New Zealand. The rules relating to contingency fees should also be amended.

The Law Commission in December issued a discussion paper, Subsidising Litigation, in which it examines the prohibition on contingency fees.Public submissions are being received until next Wednesday and the commission expects to publish a final report in April.

The main argument for contingency fees is that they provide access to justice for those who cannot afford to pay lawyers' fees.

Arguments against are based on a fear that they encourage claims close to blackmail by allowing legal actions with little merit to be brought against wealthy defendants who buy off plaintiffs. There is also concern that lawyers will be unable to provide impartial advice because they have a vested interest in the outcome of the case.

But Australia and England have in the past decade amended their laws to permit conditional fee agreements.

Safeguards can be built into the system by requiring agreements in writing and independent advice for clients. In some cases there are also restrictions on what proportion of damages recovered can be paid in fees and on premiums for success.

Criminal and family cases are generally excluded.

Tight restrictions on legal aid mean it is now extremely difficult - if not impossible - for beneficiaries and those on low incomes to bring cases in civil court, even when they appear to have a good claim. Redress has to be sought mainly outside the court system, allowing some injustices to flourish.

Allowing people to group together and pay lawyers conditional fees would provide greater access to justice for more of the population.

* Catriona MacLennan is a South Auckland lawyer.