PSA negligence decision due tomorrow has ramifications

PSA negligence decision due tomorrow has ramifications for class action funding in NZ

By Nikki Mandow

June 28 (BusinessDesk) - On the eve of a decision in one of the biggest class actions in New Zealand - the kiwifruit growers case against the government over the devastating 2010 outbreak of the PSA disease - the company funding the case says the playing field is stacked against litigation-funded plaintiffs.

More than 200 kiwifruit growers are expecting to learn tomorrow morning whether the Ministry for Primary Industries was negligent when it failed to prevent the entry of PSA into New Zealand. The judgment will indicate whether the government has a duty of care to growers, who should therefore be compensated if that is the case.

Losses from the 2010 PSA outbreak are estimated at close to $1 billion.

This is a case which will have wider significance across the agricultural sector. The Crown argued that biosecurity risks occur without specific fault and therefore farmers could not claim MPI was negligent. Whether it is right or wrong, the ramifications of the decision will stretch from Mycoplasma bovis to stink bugs.

But the case, because of its size and visibility, is also a critical one in terms of how this sort of class action may be funded in the future.

Litigation funding - where a third party provides the money to take a case in return for a percentage of the share of the settlement - is a relatively new phenomenon in New Zealand.

LPF Group, the company funding the PSA case and another involving shareholders suing the directors of failed construction company Mainzeal, was founded in 2009. It has funded just 11 cases to completion since 2010, and won awards of more than $50 million for plaintiffs.

LPF stands for ‘level playing field’.

Founder Phil Newland says rules around litigation funding are stacked against the plaintiffs, who are often groups of small shareholders or creditors, and in favour of the defendants, who are often accountants, lawyers or directors backed by big insurance companies.

Of particular concern, he says, is the fact that the plaintiffs have to reveal how the litigation funding cost structure works for each case and how much money is available from the funder. They often also have to put up security for costs, in case they lose.

But on the other side, defendants don’t have to release any information - even whether they have insurance to fund an award or settlement, or how much that comes to. They also don’t have to make security for costs.

“How is that fair? How does that facilitate justice? We must disclose our commercial model and our risk model, which is useful for them. But on the other side, we are spending money with great uncertainty.”

Bruce Sheppard, founder and long-time head of the Shareholders Association, is on the board of LPF. He says the reason the company was set up was to give people who would never have the financial clout to take action against big companies, their insurance companies or the government, the chance to get justice - and financial redress.

“The game, particularly when insurance companies are involved, is to fund the defendants to wear the plaintiffs out - emotionally, physically and financially. In New Zealand, justice has become the prerogative of the wealthy, where the poor doesn’t have access. Litigation funding evens the playing field.

“But the way disclosure works here, our opposition, the insurance companies, can add up all of our caseload, they can add up all of our commitments, and make a judgement about whether they can run us out of money or not. We have to disclose our full risk book to our competitors in a highly combative marketplace.

“On the other side of the ledger, defendants are under no obligation to disclose. That’s not how it works overseas, it’s not fair and it’s a continuous battle.”

No one from the Insurance Council, the body representing the insurance industry, was immediately available for comment.

LPF chair Bill Wilson, a former Supreme Court judge and member of the Waitangi Tribunal, hopes a proposed Law Commission review including litigation funding, will bring more certainty to the sector.

“Both the Victorian Law Commission and the Australian Law Commission have both recently looked at the issue and come up with wide-ranging recommendations, including stronger regulation. The recommendations have not as yet been implemented, but we’d hope the Law Commission here would look at what they have done.”

Wilson said he was cautiously optimistic about tomorrow’s PSA decision. The kiwifruit plaintiffs argued during the 12-week trial that the government was negligent in allowing contaminated kiwifruit pollen into New Zealand and that the PSA outbreak would never have happened if MPI had followed its own protocols under the Biosecurity Act.

Wilson says the 212 kiwifruit growers could never have taken the case to court without support from a litigation funder, and he hopes that if the judgment goes in their favour, the government will look at compensation for the kiwifruit growers, rather than a continuing legal battle.

“The government is paying substantial compensation to farmers over M bovis. I’d hope it would be similarly concerned about kiwifuit growers.”

(BusinessDesk)

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