Phil Newland. Published in NZ Herald 10 December 2015
Litigation risk and costs, and the time it can take to achieve an outcome through the court process, are such that many parties are simply unable to pursue valid legal claims.
A recent Australia Focus column in the Herald asserts that "more than a few business leaders will be quietly enjoying" the irony of Slater & Gordon's current, somewhat troubled, situation.
Some journalists too, perhaps: certainly much of the coverage from across the Tasman has the unmistakeable whiff of schadenfreude about it.
More doubtful is the claim that there are "questions about whether class actions are an efficient way to fund shareholders after lawyers and litigation funders have taken their cut".
In support of this claim, the column refers to the 2012 class action taken against property developer Centro and its auditor PwC, which was settled for A$200 million ($217 million), writing that "by some measures, shareholders received just 20c in the dollar".
The implication is that the lawyers scooped the pool, leaving the investors with the scraps.
However, in my opinion this is misleading.
Leaving aside the fact that without a litigation funder willing to underwrite the costs of taking action there would have been no case brought and no compensation paid at all, it is important to note the following points:
The A$200 million settlement remains the biggest class action settlement in Australia's legal history.
By its very nature, any settlement involves a degree of compromise, that is, the final amount paid to Centro shareholders was always going to be somewhere between 0c in the dollar (the defendants' preferred outcome) and 100c in the dollar
The Centro-PwC case was lengthy, complex and expensive, lasting some four and a half years.
Much of the complexity stemmed from the difficulty of quantifying shareholders' losses, and deciding how blame for those losses should be attributed.
Whether 20c (if that figure is correct) in the dollar, or any other amount, represents a fair outcome can and will be debated. However, any settlement must be approved by the court, and this process will usually involve a hearing to determine whether the proposed outcome is fair and reasonable.
Typically, litigation funders are only reimbursed for their costs and any agreed success fee if the case is successful, and then only from the proceeds of a successful settlement or judgement. No success, no fee.
Litigation risk and costs, and the time it can take to achieve an outcome through the court process, are such that many parties are simply unable to pursue valid legal claims.
Well-resourced defendants, particularly those with liability insurance, can adopt tactics designed to slow down the court process, to wear down plaintiffs and to exhaust the resources available to them in order to extinguish or minimise the plaintiffs' valid claims.
In New Zealand, the remedy for a physical injury is relatively freely and easily obtained. Unlike in many other countries, you won't be asked to provide a bank statement before being admitted to your local A&E, and a certain standard of care is guaranteed for all who require it.
The same does not apply to people seeking remedy for commercial injuries. New Zealand has a culture where litigation has traditionally been seen as a negative strategy and is rarely pursued. The truth is quite different.
Litigation is an essential mechanism to hold wrongdoers to account and to ensure justice is achieved. Like any mechanism, it functions best with a skilled operator.
Commercial liability insurance has ensured defendants have always had access to those skilled operators. Plaintiffs, other than a few notably stubborn and well-resourced individuals, have typically been at a disadvantage. Litigation funders help to ensure a level playing field for all.
Phil Newland is founding director of LPF Group, which since 2010 has funded to completion 11 cases, with over $50 million in settlements or awards achieved for plaintiffs.