Why aren't there more class action lawsuits in New Zealand?

The class action, which alleges Johnson & Johnson sold ineffective cold and flu medicines – namely Codral Cold & Flu tablets – is an opportunity for Aotearoa consumers. A win would let New Zealanders hold one of the largest pharmaceutical companies in the world to account.

There’s no cost involved in joining the action, and members won’t have to pay anything in the event of a loss. So, why aren’t there more class actions in New Zealand?

We take a look at what class actions are, why they’re seldom used in Aotearoa and what the potential pitfalls can be.

What is a class action?

A class action is a kind of lawsuit where a group of people with the same interest sue a party together. A representative will take the proceedings to court on behalf of the collective.

In theory, this means that a lot of people can access justice for little to no cost. The legal system is expensive to navigate, and by combining claims in a class action, not only are costs likely to be less, but the burden on the overloaded legal system is reduced.

Rebecca Jancauskas is a director at JGA Saddler, the Australian law firm taking the class action against Johnson & Johnson.

“We expect this will be the largest class action in New Zealand history in terms of the number of affected individuals,” Jancauskas said.

The case here mirrors one in Australia, brought by the same firm on the same grounds. But there’s a crucial difference – Australia has a range of class action regimes that regulate the process.

“We have a federal regime that's been enforced for a couple of decades now, and we have state-based regimes as well that have been implemented by different states,” Jancauskas said.

How class actions work in New Zealand

We don’t have a class action regime in New Zealand. Instead, we have ‘representative actions’.

Representative actions are taken under a specific legal rule. The rule allows one person to sue on behalf of all people with the same interest.

Because of the similarities between representative and class actions, many people use the terms interchangeably. But there are differences.

The representative action rule wasn’t designed to enable class actions, but increasingly, is being used as the basis for starting these large and complex litigations.

This lack of a dedicated regime makes class action proceedings in Aotearoa uncertain. It can be difficult to anticipate outcomes, and the litigation tends to focus on procedural issues rather than substantive ones.

Put simply, a lot of money is being spent in court arguing, but not about the issues at the core of the class action claims. This isn’t an efficient use of plaintiffs’ money, or the legal system’s time.

A recent example is the multi-million dollar ‘bank fees’ class action, filed against ANZ and ASB in 2021. The substantive issues in the case are yet to be heard.

The lack of certainty also means class actions in Aotearoa are rare. There were just two actions filed in 2022, and only one in 2023.

How to join a class action lawsuit

In New Zealand, a class action is either taken on an opt-in or an opt-out basis. With opt-in actions, you’ve got to sign up to be a part of a case. Once you sign up, you become a kind of plaintiff called a ‘class member’.

With opt-out actions, all people affected by the alleged conduct are automatically included. The Johnson & Johnson case is an example. This means you don’t have to sign up, but can register your interest to stay up to date with the case.

Who pays for class actions?

You don’t usually have to pay anything to be part of a class action. This is because cases tend to be backed by litigation funders.

A litigation funder is a company or person that agrees to pay for the costs of a case’s journey through the legal system.

Generally, if you bring and lose a case, the court may order you to pay costs, such as the defendant’s legal costs. When a litigation funder is involved, class members don’t have to pay those costs.

But if you win, the litigation funder is entitled to some portion of any costs award against the defendant.

Compensation from class action lawsuits in New Zealand

The compensation you get from a successful class action will depend on how the defendant’s conduct affected you.

Jancauskas said when it comes to the Johnson & Johnson case, “Our proceeding aims to recover the purchase price of these products since they came on to the New Zealand market, which has been progressively since 2005. So, for some consumers who have only got sick occasionally, they may have purchased a couple of packets a year. Their claim will be at the more modest end of the spectrum.

But then there are those who have been more significant users of these products, who have bought 10 or more packets a year, and so that adds up over the course of 20 years.”

At the time of writing, a packet of 48 Codral Cold & Flu tablets cost $23.74 at Chemist Warehouse.

According to Jancauskas, it doesn’t matter if you’ve bought three packets or 30.

“We encourage you to register, because when one of the biggest pharmaceutical companies sells products that don't work, consumers should get their money back, even if it is only $100 that you're recovering at the end of the day.”

Jancauskas said, “consumers are entitled to expect that the products on their shelves to work and when they don't, for the company responsible to be held to account.”

If the case is unsuccessful, you’re unlikely to get any compensation.

The problem with litigation funding

Litigation funding plays an important role in helping people access justice. It can level the playing field between large commercial parties that are well resourced, like Johnson & Johnson, and consumers.

Omni Bridgeway, an Australian litigation funder, is funding the Johnson & Johnson class action. It’s providing funding on a ‘no win, no pay’ basis, which means members don’t have to pay anything if the action is unsuccessful.

If the action is successful, Omni Bridgeway will be entitled to have its costs reimbursed and a commission. Any remaining compensation awarded will be disbursed equally among members.

In a 2022 report, the New Zealand Law Commission expressed concerns about litigation funding in New Zealand. Litigation funding isn’t regulated, and this lack of regulation could expose members to risks. For example, unfair litigation funding agreements, conflicts of interest between funders and plaintiffs, and the issue of profiting off cases.

However, the cost of litigation is so prohibitive that, for some, having access to litigation funding is key.

Jancauskas said, “The vast majority of class actions in Australia, and the couple that have proceeded in New Zealand so far, have progressed with the support of a litigation funder.

“The reality is that most class actions that are brought in Australia simply wouldn't be possible without the support of a litigation funder. And [the Johnson & Johnson] claim would not be brought without the support of a litigation funder.”

Time for a class action regime

The rules around class actions and litigation funding in New Zealand need some clarity.

We think class actions could be a valuable legal tool for consumers to enforce their rights. However, without a class action regime, cases are few and far between and carry sizeable risks, including those posed by unregulated litigation funding.

Despite the risks, taking part in class actions is one way we can improve access to justice for everyday people. The outcome of the Law Commission’s report was a comprehensive set of 121 recommendations to the Ministry of Justice. Top of the list? A true statutory regime for class actions in New Zealand.

It’s been nearly 3 years since those recommendations were made public. The then Labour-led government said it supported the recommendations and intended “to undertake policy work to advance them beginning in 2023”.

After Labour failed to secure a third term, the baton passed to the National, ACT and New Zealand First coalition government, which to date has done no work on the recommendations.

A spokesperson at the Ministry of Justice said “The government has an ambitious justice work programme focused on its priorities of law and order, an efficient justice system, public safety and effective democracy and integrity. The focus on these priorities mean work to introduce a new statutory regime is not being progressed at this time.”

We don’t think that’s good enough.