Mass claims, mixed results: the class action dilemma

Mass class actions for personal injury claims don’t always deliver justice for victims or deter wrongdoing, new research suggests.

In a journal article, Auckland Law School’s Nikki Chamberlain and Professor Michael Legg (University of New South Wales) examine how class actions, which enable groups with similar claims to pursue a case collectively, operate in Australia and New Zealand.

They say that while class actions can compensate claimants and deter wrongdoing to some extent, significant issues hinder their effectiveness; ‘class actions are necessary, but often not sufficient’, they write.

Although large compensation payments are often awarded, these payments can come years after the wrongdoing was committed, which is particularly problematic when personal injury is involved.

Ultimately, says Chamberlain, this raises questions about whether there's a more effective way to remedy mass damages, and her ongoing research digs deeper into options, including New Zealand's regulatory approach under the Accident Compensation Act.

In the article, published in the bimonthly journal, Laws, Chamberlain and Legg analyse the Australian and New Zealand class action systems, prior research, and three case studies.

One of the case studies looks into a $450 million class action brought by 200 kiwifruit growers against the Attorney-General in New Zealand in 2009.

The growers suffered financial and emotional loss after the Ministry of Agriculture and Forestry (now MPI) gave a permit to import kiwifruit pollen into the country. The shipment contained a bacterium lethal to kiwifruit orchards, and it spread in the Bay of Plenty and Northland.

In 2020, after years of proceedings, the Attorney-General settled with the kiwifruit growers for $40 million, but it was reported that approximately 40 percent of the total settlement went towards legal costs and litigation funding fees.

Chamberlain says the case highlights the significant transaction costs associated with class actions and the time it can take to receive compensation.

She also notes that for defendants without insurance, class action members run the very real risk of not being compensated at all. In other words, compensation can be contingent on the defendant's financial means.

Compensation is also contingent on being able to fund class action litigation in the first place, says Chamberlain, pointing to an Australian class action concerning the acne drug Roaccutane, in which solicitors representing the class on a ‘no win, no fee’ basis discontinued their action after realising they lacked the resources to run a proceeding of the scale that was required.

Additionally, when it comes to compensation, Chamberlain says the loss claimed for each class action varies, particularly in personal injury claims overseas. And, she says, inaccuracies can occur in assessing compensation, with some class members receiving too much and others too little.

"This is particularly acute in class actions because most settle and many of the class action group members are often not actively engaged in the negotiation process."

While her paper points out some of the issues, she says there's a dire need for more research on the compensation outcomes of class actions compared to regulatory measures.

One comparison Chamberlain’s undertaking is to examine outcomes for the 11,000 members in the Australian Ethicon pelvic mesh class action against Johnson & Johnson, versus the regulatory response to pelvic mesh claims in New Zealand through ACC.

In New Zealand, between June 2005 and June 2018, ACC paid compensation to 439 women with injuries relating to mesh repair surgeries for pelvic organ prolapse and urinary incontinence. The payment was approximately AUD 21,500 per person, although payouts varied depending on individual circumstances.

Average payouts in Australia's Johnson & Johnson class action based on a very rough estimate suggest a similar figure of just under AUD 20,000 per person, says Chamberlain. “However, time-wise, there's a significant difference. It took ACC an average of 48 days to issue a decision on the mesh claims, and more than 80 percent of claimants received compensation within two years.”

Meanwhile, it took the mesh class action a decade to reach the High Court for a final decision in 2023, and many of the women involved are still awaiting compensation.

However, there are also flaws in terms of the ACC outcome, says Chamberlain: "It doesn't hold Johnson & Johnson to account; taxpayers paid for their negligence."

Her doctoral research investigates ways to address these shortcomings, including options for ACC to pursue court action against negligent companies.

As to whether class actions deter wrongdoing, Chamberlain and Legg say it's difficult to measure.

"We take the view that deterrence is achieved when a class action imposes sufficient costs that the original misconduct is no longer profitable or desirable. The difficulty with this approach is that some class action costs, such as to reputation, are difficult to measure."

They say the extensive media coverage many class actions attract, typically because of the number of people affected and the compensation at stake, may promote deterrence. Costs incurred by the wrongdoer in defending litigation, such as legal fees and lost management time, may also act as a deterrent.

On the whole, Chamberlain says the class action should be seen as one element of a larger compensatory and regulatory regime that operates in conjunction with other sources of compensation and deterrence, such as ACC or other government regulation, used together or as alternatives to meet the needs of different situations.