Court of Appeal confirms common fund orders can be made at the start of a class action

In a decision that will be welcomed by class action plaintiffs and litigation funders, the Court of Appeal ruled on Friday that New Zealand courts can make Common Fund Orders (CFOs) at the start of a class action.

This means that a Court can require a class member to pay a litigation funder a share of any recovery, even if the class member hasn’t agreed. While this avoids the “free rider” problem, do the Courts really have power to make such orders?

The Australian courts have said no, at least at the start of a class action – even though the Australian federal class action legislation gives wide powers to the courts.

The New Zealand Court of Appeal ruled that the Australian approach is “unrealistic”. It said that a New Zealand court has the power to make CFOs based on an “evolving”, “flexible” and “fair” interpretation of the Court Rules, as well as under its “equitable jurisdiction” and its “inherent power to supervise its own processes”.

The Court of Appeal overturned the High Court, which had declined to make a CFO at the start of the proceeding, ruling that a CFO should be made “as early as possible” in a class action.