Paul McBeth is the editor of The Bottom Line and Curious News, having worked at BusinessDesk for 15 years. He’s been a customer of ASB Bank since 2016.
When things go wrong, one of the first things an aggrieved party often reaches for is the threat of legal action.
The courts are littered with complaints where an outraged party seeks redress, thinking that our judicial system is designed to offer justice rather than the strict interpretation of laws dreamed up by 120 of the nation’s best and brightest – or at least ambitious enough to run the gauntlet of a very public and unforgiving political career.
That’s why we’ve created quasi-judicial bodies such as the disputes resolution services for financial services to bring warring parties together to have an honest conversation about what went wrong and how everyone can walk away with a modicum of self-respect.
To secure success in the courts, you need money – something large organisations have in spades.
That tilted playing field warranted the introduction of private funders to back class actions, given the difficulties scores of regular people faced when trying to seek redress form the big end of town.
Unfortunately, in a very New Zealand fashion, we adopted a very hands-off approach when it came to litigation funders coming into the country, despite plenty of groundwork being done to set up a regime to manage things.
The long and winding road
The long-running Feltex case did much of the heavy lifting through countless courtroom skirmishes on how to manage the then-novel representative action we saw in New Zealand.
A certain amount of hubris from the driving force left that action stranded – and its named representative on the hook for a hefty bill – but we subsequently saw new players enter the market.
The loudest was LPF – code for level playing field – which brought former prime minister Jenny Shipley down a peg or two in its successful claim against failed construction firm Mainzeal.
It’s at it again in a claim it’s co-funding against two of the country’s biggest organisations – ANZ Bank New Zealand and ASB Bank – over sloppy disclosures made to customers.
To be fair, New Zealand’s legislators are pretty rubbish when it comes to consumer finance law given the mad rush we seem to be in when making regular fixes.
The latest tweak has really got up some people’s noses in that it cuts across the LPF-backed action against the banks by proposing to give judges the discretion to water down the penalty for a lender to give up all the fees and interest pocketed while being in breach of disclosure obligations, provided it’s just and equitable.
The change is already current law, but the commerce minister proposed going back in time to make the law apply to the past – typically a constitutional no-no – and specifically included the ANZ and ASB action.
Let me tell you how it will be
The banks sound quite reasonable when laying out their case that the law was an ass and that borrowers might still get all of their interest and fees back if a judge finds the lender was in breach and deems it just and equitable to do so.
No problem, right?
After all, LPF was obviously going to talk its own book and there was a certain amount of grandstanding when it made a very public offer to settle the claims against the banks when appearing before Parliament’s finance and expenditure committee.
What was slightly more surprising was commercial lawyer Andrew Harmos turning up with his two cents, pointing out that the Commerce Commission probably wouldn’t have settled at the levels it did had it not specifically kept the door open for borrowers to take their own claims.
Harmos isn’t a bleeding heart, and has gone through the trials and tribulations of being a director of Australia’s AMP when it was lumped with hefty remediation bills in the wake of Royal Commission into financial services across the Tasman a few years back.
Likewise, the Christian think tank Maxim Institute was dead set against cutting the banks a break retrospectively, saying it not only undermined the current case but would set a precedent for Parliament to change the rules in future and likely deter future claims from being lodged if people couldn’t trust the judicial system.
Law firm Cuncannon isn’t involved in the current case but has crossed swords with ANZ before when it took a claim against the country’s biggest lender over its role banking Ross Asset Management, which turned out to be a Ponzi scheme.
All the lonely people
It warned legislating against an existing litigation in a circumstance it didn’t think was justifiable would scare off funders from New Zealand.
If that’s what policymakers want to achieve, they should be frank about their intentions.
We’ve faffed about on class actions for years.
A draft law was left to languish through the 2010s and policy work on the Law Commission’s 2022 report hasn’t made any of prime minister Christopher Luxon’s quarterly to-do lists.
The Ministry of Education’s big noting more than a decade ago in taking a representative action over leaky schools petered out in a series of backroom deals with cladding makers that took the wind out of the sails of groups of homeowners seeking to ride the government agency’s coattails.
And there’s the simple fact that the threat of class actions has increased the cost of doing business, driving up insurance premiums for director liability to a level that makes a mockery of small firms wanting to go public and list on the local stock exchange.
If the government wants to run class action litigation funders out of town, it’d be better if it was a conscious decision thrashed out in public rather than the result of some last-minute lobbying on an unrelated law.
Image from Julia Rodriguez on Unsplash.