ZALC - Project 88: The Recognition of Class Actions and Public Interest Actions in South African Law

5.1.1 This Chapter specifically addresses class actions. A class action is a mechanism by which a single plaintiff can pursue an action on behalf of a group of persons sharing a common interest in the subject matter of the suit. The ruling of the court will bind all class members.

5.2 How should a class action be defined?

5.2.1 In the Working Paper we defined a class action as "an action instituted by a representative on behalf of a class of persons in respect of whom the relief claimed and the issues involved are substantially similar in respect of all members of the class and certified as a class action ....".^[102]

5.2.4 A distinctive feature of the procedure is that the members of the class may not be individually named but may merely be described, e.g. all the purchasers of a particular model of car during a certain period of time.^[105]

5.2.5 The Scottish Law Commission defines ‘class actions’, which they treat as a category of what they describe as ‘multi-party actions’, as follows:^[106]

5.2.6 From our discussion on the definition of a public interest action it is apparent that it is necessary to define the key concepts. The term ‘class action’ should therefore be defined in the Act.

8. The Act should define the term “class action”. We propose the following definition: “Class action” means an action instituted by a representative on behalf of a class of persons in respect of whom the relief claimed and the issues involved are substantially similar in respect of all members of the class, and which action is certified as a class action in terms of the Act.

5.3 What are the characteristics of a class action?

5.3.1 A class action is a means by which a group of litigants faced with the same or similar cause of action pool their resources to conduct a single action in circumstances where joinder is not possible or appropriate. In order for an action to be prosecuted as a class actions the action must be certified by a competent court according to a predetermined set of criteria. Once certified the class action is conducted by a representative on behalf of all the members of the class. The prosecution of the class action itself takes place in two stages: First, the issues common to all the members of the class are determined. Once that process is completed, the individual issues are determined.

5.4 Who may apply for leave to institute a class action?

5.4.1 In the Working Paper the Commission recommended that the concept of the ideological plaintiff be accepted for the purposes of class actions.^[107] This would mean that the person commencing the action or the person appointed as representative need not be a member of the class. This recommendation elicited some strong responses.

5.4.2 The Honourable Mr Justice B R du Plessis, with whom Judge President C F Eloff concurs, qualifies his support for the concept of the ideological plaintiff. He argues that the concept impairs the freedom of individual choice and negates the difference between a class action and an action in the public interest.

5.4.3 In the Working Paper the Commission based its support for the ideological plaintiff on the fact that a large percentage of the South African population is unsophisticated, poorly educated and indigent and therefore unable to enforce their rights on their own.^[108] Judge Du Plessis argues that it is not an answer to the problem to allow somebody, regardless of the wishes of the group of unsophisticated and poorly educated litigants, to proceed with an action on behalf of such a group. Judge Du Plessis concludes:

5.4.4 We believe the requirement^[109] of the suitability of the representative adequately to represent the best interests of the members of the class embraces the above suggestion of Judge Du Plessis. The fact that the representative enjoys the support of at least a substantial part of the members of the class obviously makes such a person a more suitable person than somebody who does not enjoy that kind of support.

5.4.5 The Society of Advocates (OFS Division) points out, correctly in our opinion, the practical implication of accepting the concept of the ideological plaintiff. The Society argues that in practice it will simply mean that the court will have to make a ruling on whether the plaintiff or applicant has the required standing whenever it is faced with a class action or a public interest action. The only innovative aspect is that the representative need not be a member of the class and thus need not have a direct interest in the relief sought.

5.4.6 Mr Conradie of Hofmeyr Attorneys argues that the concept of the ideological plaintiff should not be extended to class actions, especially if monetary damages are claimed. He motivates his objection as follows:

5.4.7 This is not what the Commission had in mind.^[111] We suggested three sets of factors that the court should take into account in appointing the representative.^[112] These are the suitability of the nominee to adequately represent the best interests of the members of the class; any conflict of interest between the representative and the members of the class;^[113] and the ability of the representative to make satisfactory arrangements with regard to the funding of the class action and the satisfaction of any order as to costs or for security for costs.

5.4.8 The Society of Advocates of Natal is opposed to the notion that an ‘ideological plaintiff’ should be able to be both representative and counsel at the same time. However, the crux of the objection of the Society seems to be against a particular set of circumstances where somebody other than the individual appearing in person or a legal representative(s) acts in litigation on behalf of the class. We dealt with this issue in the Working Paper.^[114] The general rule is that, save in those instances where an individual appears in person, litigants should have legal representation. We believe, however, that a case has been made in the Working Paper for the use of in-house legal counsel in particular circumstances. We understand the concern of the Society but access to justice does not entitle us to reserve work for members of the Bar. We cannot, therefore, support this contention of the Society of Advocates of Natal.

5.4.9 The Ontario Act provides that only class members may commence proceedings on behalf of a class. In Quebec, however, nonprofit organisations and employee associations are given limited rights to act as class representatives. In accordance with article 1048 of the Code of Civil Procedure, legal persons may request representative status.^[115] The experience in Quebec has shown that no abuse has resulted from this provision.^[116]

5.4.10 While recognising that an ‘ideological advocate’ may be an adequate class representative, the Ontario Law Reform Commission did not endorse the Quebec model. Their failure to do so appears to have been based both on American case law, under which class representatives generally must have individual standing, and their reluctance to make changes to the law of standing pending the release of their report on standing.

5.4.11 Section 2(4) of the British Columbia Act allows a court to certify a person who is not a member of the class as the representative plaintiff if it is necessary to do so in order to avoid a substantial injustice to the class. That provision was included in the Act on the belief that a particular non-member individual or group may possess special ability, experience or resources that would allow them to be not only an adequate class representative, but also, the most appropriate class representative.^[117]

5.4.12 Although we are aware that some critics might argue that the concept of an ideological plaintiff could result in busybodies with frivolous claims inundating the courts, the Commission believes, as Professor De Vos does,^[118] that this would be an overstatement of the potential risk involved.^[119] We therefore believe that the concept of the ideological plaintiff can be implemented with success.

5.4.13 The representative takes the action forward on behalf of all the members of the class: He or she is looking after the interests of members of the class, some of whom might be absent. Furthermore, the judgment will bind not only the representative but also the members of the class on whose behalf he or she sues. The quality of the representative therefore matters to the court and to the class members.

5.4.14 The assigned representative may, however, die or become unsuitable or unable to proceed with the class action after certification. This eventuality is not covered by the draft bill. The Act should therefore provide for the dismissal of a representative on good cause shown and should enable the court to appoint somebody else in his or her place.

9. The person commencing the class action or the person appointed as representative in the class action need not be a member of the class. Since the quality of the representative may be relevant, only suitable persons should be appointed as representatives. The Act should accordingly provide that the person who brings the application for certification may request the court to appoint him or her, or any other suitable person (with that person’s prior consent), to be the representative. Before the court appoints the representative, it must be satisfied that the contemplated action is a bona fide class action. The Act should further provide that the court may dismiss a representative on good cause shown.

5.5 Is certification as a class action necessary?

5.5.1 The first issue in any proposal for class action legislation is whether there is a need for a preliminary step in the process called “certification” or “authorization”.^[120] In Quebec, a class action cannot be instituted without the prior authorisation of the court. Under the Ontario Act, the British Columbia Act and the US Federal Rule 23, a member of the class may commence the action, but then must apply to the court for an order certifying the proceeding as a class action and appointing a representative plaintiff. Outside Quebec and Ontario, the existing law on class actions is set out in rules of court in terms similar to the following Saskatchewan provision:

5.5.2 This rule does not require judicial approval before a class action can be undertaken.

5.5.3 Amendments to the Federal Court of Australia Act in 1991 established a procedure for what it calls “Representative Proceedings”. It does not include a certification process and relies instead on a number of other protections for absent class members and defendants. In Sweden, as well, the proposal of their law reform commission is that class action legislation be implemented that does not include a certification procedure.

5.5.4 After reviewing the class action procedures in the United States, Canada and Australia, the Scottish Law Commission suggested that a class action procedure be established in Scotland that includes a certification procedure.^[121] This was also the recommendation of the Uniform Law Conference of Canada.^[122]

5.5.7 The generally accepted practice in other jurisdictions is that a class action may be commenced by a representative on behalf of the class, but within a specified time it must be certified by a court in order to proceed as such. In the Working Paper the Commission accepted the necessity of certification, but proposed a distinct two-stage approach to class action proceedings. Firstly, the representative would be required to bring an application, supported by affidavit, before the court for leave to institute a class action. Once the court has certified the action as a class action and determined the procedure to be followed and related matters, the case proceeds through the second phase to finality.

5.5.8 Professor De Vos supports this two-staged approach. He argues as follows:^[124]

5.5.9 Those respondents who commented also agree in general with our provisional view. Mr P J Conradie of Hofmeyr Attorneys, it will be recalled,^[125] argues that public interest action should also be subject to a certification process.

10. In class actions a preliminary application should be brought before court requesting leave to institute or defend an action as a class action and to ask for directions as to procedure.

5.6 What criteria should be adopted in certifying an action as a class action?

5.6.1 The criteria on which an action may qualify as a class action constitute one of the most important and distinctive features of rules regulating a class action procedure.^[127] These conditions are the prerequisites for an action to be maintained as a class action.^[128]

5.6.2 Our provisional view was that the criteria for certification should be:^[129]

5.6.3 Contained within this draft clause are the various elements that make up the certification criteria. They are numerosity, commonality, a preliminary merits test, the adequacy of representation, and superiority. These elements will be discussed individually.

* Numerosity^13[0]

5.6.4 Not all respondents agree with our view that the group of potential pursuers (or petitioners) need not consist of a specified number of litigants. Mr P J Conradie of Hofmeyr Attorneys, for instance, argues that our formulation allows parties that could have been joined in terms of the normal rules applicable to joinder to participate in the benefits of an action without having to face the consequences of a cost order should the action fail. According to Mr Conradie this will open the system to abuse which will lead to severely unfair consequences to defendants. This is also the argument of Judge B R du Plessis who submits that it should be a requirement for certification that joinder is impracticable or impossible.

5.6.5 The precise number of the litigants is not necessarily directly related to the complexity of the litigation and whether it deserves a special procedure. The "two or more persons"-requirement recommended in the Working Paper^[131] can therefore be done away with. However, numerosity is one of the matters to be taken into account in considering whether conventional procedures - such as joinder of actions or the selection of a test case - would be inappropriate or impracticable. Accordingly we recommend that in deciding whether to grant certification the court should be required to consider whether there are so many potential pursuers (or petitioners) that it would be impracticable for them to sue together in a single conventional action.

5.6.6 Prior to the passage of the Act, Rule 5(11) of the British Columbia Supreme Court Rules allowed a representative proceeding to be brought where “numerous” persons have the same interest. This rule provided that, where numerous persons have the same interest in a proceeding, one or more of them may commence the proceeding as representing all or some of them. Other jurisdictions tie the requirement for numerosity to the difficulty or impracticality of joining parties in one action^[132] or require a minimum number of named plaintiffs.^[133] The Ontario Law Reform Commission rejected these two options as too inflexible and recommended the maintenance of the “numerous persons” test. It is not clear from the case law what number of plaintiffs is required to meet this test, but courts interpreting former Ontario Rule 75 have held that classes of two, four and five members are not “numerous”.

5.6.7 The Ontario Act clarifies the issue by providing for a slightly different test. That Act requires an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant. The British Columbia Act adopted the model of the Ontario Act. The intent of the “two or more persons” test is to avoid litigation on what constitutes “numerous persons” while facilitating certification through a minimal numerosity threshold. The Australian legislation requires that there be seven or more persons.^[134]

* The preliminary merits test^13[5]

5.6.8 The Ontario Law Reform Commission recommended more rigorous scrutiny of the merits of class actions at the certification stage than is available for ordinary actions. They recommended that an action be certified only if it has been brought in good faith and there is a reasonable possibility that the material issues of fact and law common to the class will be resolved at the trial in favour of the class. Under article 1003(b) of the Ontario Code of Civil Procedure, the judge must conclude that the facts alleged “seem to justify” the conclusions sought. However, neither the Ontario Act nor the British Columbia Act includes a preliminary merits test. Instead, these Acts merely require that the pleadings disclose a cause of action. The use of a preliminary merits test for interlocutory applications of this nature has been rejected by the courts because of the difficulty of conducting a mini-trial on the merits at this stage of the proceedings.

5.6.9 Some respondents do not agree with our view that a court considering whether to grant certification should assess the general suitability of the intended litigation for the new procedure but should not be required to undertake a preliminary assessment of the merits of the applicant’s proposed case. Mr P J Conradie of Hofmeyr Attorneys argues that it should be necessary to demonstrate a probability of success on the merits as a prerequisite to maintain a class action to “prevent lawyers from enriching themselves to the prejudice of others with pie in the sky promises of large money awards”. Judge B R du Plessis, with whom Judge President Eloff concurs, suggests that it should be required from the applicant for certification to show a reasonable prospect of success. If the applicant only needs to establish a prima facie cause of action it would probably mean that he or she only needs to aver facts that, if true, would establish a cause of action.^[136] However, if the applicant wants to convince the court that he or she has a reasonable prospect of success then he or she will have to disclose to the court not only his or her evidence, but also the nature of the evidential material in his or her possession.^[137]

* The interests of justice

5.6.10 The Working Paper did not specify the interests of justice as a separate criteria for certification as a class action. This may have been an oversight especially if an analogy is drawn with one leg of the test for referral from the High Court to the Constitutional Court in terms of section 102(1) - (3) of the Constitution, 1993. Some elaboration, however, is necessary.

5.6.12 The wording of section 102(1) sets out three requirements for a valid referral of an issue to the Constitutional Court:

5.6.13 In S v Bequinot^[140] the Constitutional Court held that the order of referral was defective in that it failed to contain any indication (a) why the court a quo regarded the constitutionality of section 37 of the General Law Amendment Act 62 of 1955 to be potentially decisive of the case before it; (b) why it was considered to be in the interest of justice to order referral of that issue; and, in that context, (c) why the referral was made at that juncture, before considering the appeal on non-constitutional grounds. The Court held that a positive finding on each of those considerations was a prerequisite for a referral.^[141]

5.6.14 An issue can be referred to the Constitutional Court under section 102(1) only if it is one raised in the matter before the High Court and is potentially decisive of the case. Thus in Ferreira v Levin NO^[142] the Constitutional Court refused to entertain argument on a number of issues which had not been issues before the High Court but which the Court had purported to refer to the Constitutional Court under section 102(1).^[143] In Luitingh v Minister of Defence^[144] the Constitutional Court considered this requirement and Didcott J held that a referral may be competent not only when the entire case will turn on the issue referred but also when "some individual and self-contained part of the case will be directly affected".^[145] However, where the pleadings disclose a possibility that the referred issue will not even arise on the evidence the issue cannot be described as one potentially decisive of the case.^[146] Similarly, where the decisiveness of the referred issue depends on a finding of common law which has not yet been made be the referring court the referral is improper.^[147] In J T Publishing (Pty) Ltd v Minister of Safety and Security^[148] the Constitutional Court held that no sound reason exists to differentiate between cases of referral in which the questions calling for consideration were the sole ones raised and those where others that did not concern the Court accompanied them, excluding the former from the process and confining it to the latter.

5.6.15 A referral under section 102(1) of the Constitution, 1993 must be in the interests of justice.^[149] The Constitutional Court has held that this requires at least that there must be a reasonable prospect that the law or provision referred is unconstitutional and invalid.^[150] Even where there is a reasonable prospect that the law will be held to be invalid it will often not be in the interest of justice for a trial to be interrupted so that the Constitutional Court can consider the validity of the law.^[151] The Court has confirmed that it is ordinarily not in the interests of justice for matters to be heard piecemeal and that cases should be decided without referrals of constitutional issues wherever possible.^[152]

5.6.16 By analogy, the certification of an action as a class action must be in the interests of justice. This will require at least that the class action is the appropriate method of proceeding with the action. It is therefore recommended that a court must take the interests of justice into account in certifying an action as a class action.

* Commonality^15[3]

5.6.17 Generally class action legislation provides some form of common questions test. Such a test usually provides that the action must raise questions of fact or law common to the members of the class in order to qualify as a class action. The debate centres around whether or not such common questions should predominate over any questions affecting only individual members.^[154]

5.6.18 In Quebec, common questions need not predominate.^[155] Under the Ontario Act the predominance of the common questions is not a factor to be considered by the court. The Act provides merely that the claims or defences of the class members must raise common issues. Despite this, in Abdool v Anaheim Management Ltd^[156] Mr Justice Montgomery appears to import a “common questions predominate” requirement into section 5(1)(c) of the Ontario Act. The phrase “whether or not those common issues predominate over issues affecting only individual members” was included in the British Columbia Act to steer a clear course around such an interpretation of the decision in Anaheim.^[157]

5.6.19 It is implied that the common questions will predominate over any questions affecting only individual members but we see no need to follow US Federal Rule 23(b)(3) by making such predominancy an express requirement. We confirm our provisional view that a criterion for certification should be that the potential litigants are an identifiable group whose claims or defences give rise to common issues of fact or law.

5.6.20 Class actions are unique in that they allow the determination of the rights and interests of individuals who are not parties to the litigation. This means that special provisions are needed to protect the interests of absent class members. One such measure is the requirement that the representative adequately represent the interests of the class.^[158]

5.6.21 Article 1003(d) of the Quebec Code requires that “the member to whom the court intends to ascribe the status of representative is in a position to represent the members adequately”.^[159]

5.6.22 We comprehensively dealt with the responses regarding the representative and the ideological plaintiff above.^[160] We reiterate that it is important to ensure that the representative will fairly and adequately represent the best interests of the class. This implies that the person concerned should be a suitable person, that there should be no apparent conflict of interest with other group members and that one member of the group is not likely to be favoured at the expense of another, and that he or she has the financial resources likely to be necessary to support the litigation and the determination to pursue the litigation to a conclusion. However, the duty of the representative is to represent the class interests only in relation to those issues which are common to the class as a whole.

* The appropriate procedure

5.6.23 Many class action statutes include a requirement that the action be superior to other procedural alternatives in order to be certified. In some jurisdictions, the court may also consider whether the adverse effects of the action on the class members, the court or the public outweigh its benefits.

5.6.24 The Ontario Act requires that the class action be the “preferable procedure for the resolution of the common issues” and does not list any factors the court must consider in making its determination. The Scottish proposal requires that the class procedure be preferable or superior to any other available procedure for the fair and efficient determination of the similar or common issues.^[161] The Quebec Code does not include a superiority test, but merely requires that other specified procedures be difficult or impracticable in order for the class action to be certified. The experience in Quebec has shown that it is often more effective to proceed by means of a class action than by a multitude of individual actions.^[162]

5.6.25 Unlike the Ontario Act, the British Columbia legislation provides the court with a list of factors to consider in determining whether a class proceeding is the “preferable proceeding”. Section 4(2) of that Act reads as follows:

5.6.26 One of the reasons for instituting a class action is that for certain cases it is likely to be a better means of handling the cases than other available procedures. We consider it necessary to make clear that a class action should be resorted to only where it is likely to be the appropriate method of adjudication taking into account all relevant factors.

11. An application for certification as a class action may be granted by the court where:

(a) there is an identifiable class of persons;

(b) a cause of action is disclosed;

(d) a suitable representative is available;

(e) the interests of justice so require; and

(f) the class action is the appropriate method of proceeding with the action.

5.7 What can the court do if the criteria are no longer met, after certification has been granted?

5.7.1 The Commission did not deal with the possibility in the Working Paper that a case which has been certified as a class action may subsequently cease to satisfy one or more of the prescribed criteria. It may therefore be necessary for the court to be able to order that an action be decertified as being no longer appropriate for the procedure.

5.7.2 In this regard the Scottish Law Commission recommended that the court should have the discretion to decertify an action as a class action either on the motion of a party or on the court’s own initiative.^[163]

12. At any time after a certification order has been granted the court should be entitled to order that the action no longer proceeds as a class action because the criteria for certification, or any of them, are no longer satisfied.

5.8 What procedure should be adopted in the application for certification of an action as a class action?

5.8.1 In the Working Paper the Commission suggested that it would be more in keeping with South African procedures to require a preliminary application to be brought before the court requesting leave to institute class proceedings and asking for directions as to procedure.^[164] We further suggested that application should be on notice of motion supported by the particulars of claim and a statement motivating the application for certification, supported by such affidavits and documents as may be necessary.^[165]

5.8.2 On a motion for authorization the Quebec Code requires that an affidavit be filed that supports the allegations of fact in the motion. The rules of practice of the Quebec Superior Court sets out a detailed list of documents that must be filed in support of the motion. In British Columbia, the certification application also proceeds by way of affidavit. Section 5(5) of the British Columbia Act requires that a person filing an application for certification must:

5.8.3 Mr Conradie of Hofmeyr Attorneys proposes that the party seeking to institute a

class action should carry the onus of showing why the case should proceed as a class action. He further argues that certainty must exist regarding whether the case is suited for the class action procedure before the extremely expensive and time-consuming class action machinery is activated.

5.8.4 The incidence of the onus of proof in each issue is a matter of substantive law.^[166] The Commission is therefore very reluctant to impose a statutory onus of showing why the matter should proceed as a class action on the party seeking to institute a class action. The ordinary rules of evidence should apply. Assume, for instance, that the class action is based on contract. The defendant admits the terms of the contract as averred by the plaintiffs, but avers an additional term. In such a case the onus is on the plaintiffs to prove the terms of the contract and there is no duty on the defendant to begin and adduce some evidence in support of the averment of an additional term.^[167]

13. The court should be asked for directions as to procedure as part of the certification process. In this regard the court should have a wide discretion to determine its own procedures.

5.9 What procedure should be followed in the conduct of a class action?

5.9.1 In the Working Paper the Commission proposed that in the event of the court authorising a class action it should formally appoint the representative, describe the class with as much particularity as is possible and give directions as to the procedure to be followed. As far as the latter is concerned, the court should have an unfettered discretion to devise its own procedures.^[168]

5.9.2 Courts take a much more active role in managing the conduct of class actions than they would do in ordinary actions. This is due both to the complexity of most class actions and the fact that the rights and obligations of those not before the court are being determined. The Quebec Code provides:

5.9.3 The Ontario Law Reform Commission draft bill and the Ontario Act both include a broad general management provision that allows the court to make orders it considers appropriate to ensure a fair and expeditious hearing. While the Ontario Law Reform Commission would have allowed the court to exercise these powers on its own motion, under the Ontario Act the court may exercise its broad general management powers only on the motion of a party or class member. The British Columbia legislation follows the recommendations of the Ontario Law Reform Commission.^[169]

14. The courts should be given broad general management powers exercisable either on the application of a party or class member or on the court’s own motion.

5.10 Is it necessary to give notice of the action to members of the class and, if so, what form should such notice take, etc.?

5.10.1 In the Working Paper the Commission recommended that the court which certifies an action as a class action should give directions as to whether the representative is required to give notice of the action to the members of the class and, if so

5.10.2 When deciding whether notice should be given to the members of the class and, if so, what directions are appropriate in respect thereof, the Commission recommended that the court should take into account -

5.10.3 It is crucial to the effective operation of class actions that potential members of the class know of the existence of the proceedings so that they may be able to elect to join the class. It is also essential, as Mr D L Titlestad, the Manager: Legal Services, Anglo American Corporation puts it, that the Court should define the members of the class in sufficient detail to avoid subsequent argument as to persons who are bound by the judgment of the court hearing that action. Notices to class members may also be necessary at later stages of the litigation. Notices should be effective but, ideally, their cost should not be disproportionate either to the other costs of the litigation or to the benefits of a successful result so that the expense of the notice may even discourage the raising or continuation of the litigation.

5.10.4 Mr P J Conradie of Hofmeyr Attorneys recommends that notice to members of the class should be mandatory in cases where monetary relief is claimed. Moreover, individual notice sent to all known class members should be required as defendants, sued by a plaintiff class, could suffer prejudice with regard to uncertainty pertaining to the number of class members or the amounts that may be claimed. It could also severely prejudice any possibility of settlement as well as the defendants’ ability to plan its strategy with regard to the action effectively. Mr Conradie submits that these prejudicial consequences outweigh any argument against mandatory notice.

5.10.5 In the context of class actions a strict interpretation of the notion of a fair trial would require that adequate notice be given to all the individual members of the class who stand to be affected by the judgment.^[172] The reasoning behind this construction is that the binding effect of a class action judgment would be unfair vis-B-vis class members who had not received notice of the proceedings and, therefore, did not have an opportunity to litigate their own claims.^[173] Professor De Vos, relying on Cappelletti,^[174] feels that the traditional perception of procedural fairness should be reconsidered as an individualistic notion of a procedurally fair trial should give way to, or be integrated with, a social or collective concept of due process, since this is the only possible way to assure judicial vindication of the new rights. Professor De Vos continues:^[175]

5.10.6 When and what type of notice is fair? Who should be responsible for giving notice and who should pay for it? The answers to these questions may differ for notice requirements at various stages of the proceedings.

* Notice of certification

5.10.7 Existing class action legislation offers a number of different examples of notice of certification provisions. For class actions seeking predominantly monetary damages under US Federal Rule 23(b)(3), the court in the United States must direct

5.10.8 Other forms of class actions under US Federal Rule 23 have no specific notice requirements and are subject to the general notice provisions of the Rule. Those provisions give the courts discretion to make orders regarding notice.

5.10.9 The Ontario Law Reform Commission draft bill and the Ontario Act have more flexible notice provisions than those under the US Federal Rule 23(b)(3), but they take slightly different approaches. Under the draft bill, the court may order that notice be given. The Ontario Act provides that the representative party shall give notice. However, the court may dispense with notice having regard to a number of factors, and both the draft bill and the Act provide for criteria to guide the court in its determinations regarding notice.

5.10.10 The British Columbia provision that deals with notice of certification also allows for a flexible approach. However, as with the Ontario Act, the representative party must give notice to class members.

5.10.11 In Quebec and Scotland^[176] notice to class members that the court has authorised a class action is imperative. Article 1006 of the Quebec Code reads as follows:

5.10.12 The mandatory nature of article 1006, in combination with the list of key questions to be addressed collectively, make the notice provisions quite onerous and this resulted in exorbitant notice costs.^[177]

* Costs of notice of certification

5.10.13 The Quebec Code, the Ontario and British Columbia Acts also differ in their treatment of the costs of notice. The Ontario and British Columbia Acts give the court the discretion to make any order regarding the costs of notice, including orders apportioning the costs among the parties. In Quebec, the costs of the notice is always borne in the first instance by the representative plaintiff. However, under Article 1035 of the Code of Civil Procedure, the costs of notice are transferred to the defendant if the class action is successful. The Ontario Act and the British Columbia Act also include a provision that allows, with leave of the court, the notice to include a solicitation for funds to support the class proceeding.

* Notice of judgment

5.10.14 The Ontario Act include specific provisions requiring notice of judgment where the common questions have been disposed of, but further proceedings may be necessary to resolve individual questions. The provisions for notification of individual participants are similar to the notice of certification proceedings. The British Columbia legislation and the Quebec Code are different as they require that notice be given to class members when the court determines common issues for a class, regardless of whether or not further proceedings may be necessary to resolve individual questions. The British Columbia notice of judgment sections otherwise are similar to the Ontario Act and to the notice of certification requirements listed earlier. Both Acts and the Quebec Code include a description both of the judgment on the common issues and of the steps required for class members to take to establish an individual claim.

* General notices

5.10.15 General notice provisions in the Ontario and British Columbia Acts allow the court to require notice to be given when it is necessary for the fairness of the trial. Each gives the court the power to make any order regarding the costs of notice under this section. The Quebec Code allows the court to order the publication of a notice to the members of the class when it considers it necessary for the preservation of their rights.

5.10.16 The British Columbia Act also allows the court to order a party to give the notice required to be given by another party. This provision was included for situations, for example, where the defendants routinely serve documents or notices to class members by way of a routine delivery system.^[178] The intent is that the notice could be included with the regular deliveries and this would minimise the costs of the notice.

5.10.17 In the Working Paper the Commission dealt extensively with the various notice regimes.^[179] We favoured the discretionary approach of the Ontario Law Reform Commission but recommended that the court’s discretion should be further extended by providing a choice between opt-in notice (in limited circumstances), opt-out notice, and no notice at all.^[180] This recommendation found application as clause 5(3) of the draft bill. It reads as follows:

5.10.18 The recommendation of the Commission and the resultant clause elicited a varied but lively response.

5.10.19 While the South African National Consumer Union favours opt-out notice, Mr P J Conradie of Hofmeyr Attorneys recommends that the opt-in procedure should be included as an option in the draft bill. This recommendation can be accommodated.^[181]

5.10.20 Judge B R du Plessis, with whom Judge President Eloff agrees, argues that provision should be made in the bill for the possibility that members of the class who after judgment can demonstrate that they were unaware of the action will not be bound by that judgment. Obviously, some class members will raise such a defence after an unfavourable judgment. Conversely, the numbers of the class will tend to swell once a favourable judgment is given. These aspects were dealt with in the Working Paper^[182] and influenced us in recommending a discretionary approach.

5.10.21 Professor De Vos^[183] prefers the flexible approach proposed by the Commission in terms of which the court would have a wide discretion in regard to the giving of notice. He believes it would enable the court to devise an appropriate notice scheme for each class action, according to the exigencies of each given case. This approach would also obviate the problems encountered in the United States in cases involving large groups. Professor De Vos explains:^[184]

5.10.22 The Deputy Chairman of the Zimbabwe Law Development Commission, Mr A R McMillan raises a difficulty in clause 5(3)(b) of the draft bill. He comments as follows:

5.10.23 There is considerable merit in this comment. If the court is of the opinion that class members may be prejudiced by the fact that they will be bound by the judgment in a class action which may not have come to their notice, then the court should order that notice be given to the members of the class. This should be the general rule. If, however, the members of the class do not know of the action or judgment, then notice will serve no purpose.^[185]

15. The Act should deal with the questions of when, by whom, to whom, and how notice should be given. As a general rule, notice to class members and prospective class members should always be given. The court should have the discretion to make opt-in, opt-out or no notice orders. In all cases it should be necessary for the court to consider whether notice of the application for certification should be given to all persons eligible to elect to join the class.

5.11 Should class members be required to opt in to the class proceedings in order to be subject to any judgment or settlement? In other words when will judgment in a class action be binding (res judicata) on the members of the class?

5.11.1 The main perceived justification for a class action procedure is that it readily enables a binding determination to be obtained on issues common to the members of the class. But how is class membership determined? Is it proper that a person’s rights may be determined without his or her express consent to participate in the litigation? Do the arguments in favour of aggregation in a class action - such as access to justice and judicial economy and efficiency - outweigh the absence of an express mandate from each of the class members? This has been described as “one of the most controversial issues in the design of a class action procedure”.^[186]

5.11.2 Support for an opting in procedure is based largely on the belief that individuals who have no knowledge of a lawsuit should not be bound by its outcome.^[187] Opting in requires litigants to make the choice to join an action in order to have their legal rights determined. Advocates of this procedure argue that opting out presupposes a significant level of sophistication by class members to know that their rights are being determined and to assess whether their interests are being adequately addressed in the proceedings. Supporters of the opt in procedure also suggest that class members ought to be required to show some minimal interest in the litigation in order to benefit from it.

5.11.3 Those who favour opting out argue that an opt in procedure is based on the assumption that failure to opt in reflects a deliberate, informed decision by an individual class member not to participate in the litigation.^[188] They suggest that, because many of the psychological and social barriers to bringing individual actions could underlie a failure to opt in, such a requirement could undermine the access to justice goals of class actions. This could be particularly true with respect to class actions involving small individual claims. Supporters of the opt out procedure also claim that it is fairer to defendants, who know exactly how many class members they may face in subsequent individual proceedings.^[189]

5.11.4 The general approach should be that the court’s judgment in a class action binds all the members of the class.^[190] If any of them brings a further action against the defendant(s) in regard to the same subject matter and raising the same questions, the court should dismiss the action on a plea by the defendant(s) of res judicata, that is that the action is excluded by the judgment in the class action. There may, however, be circumstances where such an approach would not be appropriate and we believe the court should have the discretion to state that in such circumstances opt-in or no notice is required.

5.11.5 While the doctrine of res judicata prevents parties from relitigating matters arising from the same cause of action, it is not clear that the doctrine allows non party class members to rely on a judgment to prevent an unsuccessful party from relitigating issues determined in the first case.^[191] To clarify any uncertainty, the Ontario Law Reform Commission recommended, and the Quebec Code and the Ontario and British Columbia Acts incorporate, explicit provisions dealing with the binding effect of judgments in class actions.

5.11.6 The Ontario Law Reform Commission recommended that judgment on the common questions should bind every member of the class who has not opted out. The judgment will be binding to the extent that it determines the common issues and relief specified in the certification order. This means that issues that could have been determined by the class action, but were not, can be litigated individually by class members. This recommendation is incorporated into the Ontario Act and the British Columbia Act and is consistent with the approach in Quebec that provides:

5.11.7 The British Columbia Act also states that a judgment on common issues does not bind a party to the class proceeding, in any subsequent proceeding, between the party and a person who opted out of the class proceeding. This provision prevents a class member from opting out of a class proceeding and then, at some later date, benefitting from a judgment on the common issues.

5.12 How should the common questions and individual questions in a class action be determined?

5.12.1 In the Working Paper we suggested that the conclusions of the Ontario Commission with regard to common and individual questions are sound and that a similar approach should be adopted in South Africa.^[192] We further recommended that the Act should specifically provide that the court shall not refuse to authorise a class action merely by reason of the fact that there are issues pertaining to the claims of some or all of the members of the class which will require individual determination or that different relief is sought for different class members.^[193] Lastly we recommended that the Act should expressly empower the court to determine whether there are issues to be determined individually and to give directions as to the procedure to be followed.^[194]

5.12.2 The Ontario Act and the British Columbia Act adopt the recommendation of the Ontario Law Reform Commission in providing that common issues shall be determined together and that issues requiring the participation of individual class members shall be determined individually. Both Acts give the court a broad discretion to require the participation of individual class members and to determine the procedure by which individual questions may be resolved.^[195]

5.12.4 Mr P J Conradie of Hofmeyr Attorneys strongly recommends such a two stage resolution process where common issues are resolved in the class action and the individual issues are resolved afterwards in separate actions or separate trials within the class action.

17. Common issues should be determined together and issues requiring the participation of individual class members should be determined individually. The term "common issues" should be defined. The court should not refuse to authorise a class action merely by reason of the fact that there are issues pertaining to the claims of some or all of the members of the class which will require individual determination or that different relief is sought for different class members.

5.13 How should damages in a class action be determined?

5.13.1 In class actions for the payment of money the question of liability will normally be a common question.^[196] The alternative would have been to require separate mini-trials with individual proof from each class member. In some cases, this process would render the class action so unmanageable that it would not meet the test for certification.^[197] Many other barriers could prevent individuals from pressing their claims for damages after liability has been determined and this could result in the unjust enrichment of the defendant.

5.13.2 If the court finds the defendants liable it will have to determine how much is due to the class members in respect of the defendants’ breach of their obligation to the class members. In this regard, the question has been raised whether there are circumstances in which it is appropriate for the court to calculate the total amount due but to leave it to other arrangements (such as negotiation among the class members) to determine what amount each member of the class should receive. An example of such aggregate assessment is a consumer claim where a public utility has overcharged its customers for services over a specified period: the court may be able to calculate the total amount which the defendants should repay their customers, but it may not be able to quantify how much would be paid to each since the size of the class and the identity of its members (other than the representative) are not known.^[198]

5.13.3 Such an aggregate assessment of damages is the most widely accepted mechanism and is in principle acceptable. The question remains, however, as to what the appropriate test for the court is to apply in assessing the aggregate award. Both the Ontario Act and the British Columbia Act adopt a more flexible requirement and allow the court to determine the aggregate or part of a defendant’s liability to class members where all or part of the defendant’s liability to some or all class members can reasonably be determined without proof by individual class members. The Ontario Law Reform Commission draft bill, on the other hand, includes a condition that the monetary relief awarded as part of an aggregate assessment must be capable of assessment “with the same degree of accuracy as in an ordinary action”. This phrasing is not included in the Ontario Act or the British Columbia Act.

5.13.4 In the draft bill the Commission provided for the appointment of a commissioner for the purposes of collating evidence and making determinations, including the determination relating to individual issues or the individual assessment of monetary claims in a class action.^[199]

18. In determining the amount of damages to be awarded the court may make an aggregate assessment or individual assessments. In this regard the court may appoint a commissioner to assist the court. When an aggregate assessment is made the court should give directions regarding distribution of the award to class members and may, where appropriate, require the defendant to distribute the damages directly to the class members. The Act should contain an express provision with regard to the aggregate assessment of monetary awards and the disposal of any undistributed residue of an aggregate award.

5.14 Which courts should be designated by the Minister to adjudicate class actions?

5.14.1 In the Working Paper we suggested that the Act should authorise the Constitutional Court, the Supreme Court (now the High Court) and any other court designated by the Minister of Justice in terms of the Act.^[200] We noted in the Working Paper that the question whether the lower courts should be empowered to hear public interest actions and class actions is likely to be controversial^[201] and advised the deferment of the extension to the lower courts to hear class actions until such time as the procedure had been in operation in the High Court (the old Supreme Court) and the Constitutional Court for a few years and a body of case law has been established.^[202] In terms of our proposal the Minister obviously has the discretion to designate the lower courts at the outset as being entitled to adjudicate public interest actions.^[203]

5.14.2 Mr P J Conradie of Hofmeyr Attorneys believes only the Constitutional Court and the High Court should be able to hear class actions and actions in the public interest. He suggests that it is not desirable to grant the Minister any discretion to extend this type of actions to any other courts. Alternatively, if the Commission decides to retain the Minister’s discretion, he suggests that the Act includes a provision providing for jurisdictional amount requirements to be satisfied by the aggregation of the claims of all the class members. This will ensure that huge compensation claims be adjudicated by the more able and competent High Court judges.

5.14.3 The Society of Advocates of Natal believes that an application for certification of a class action must in all cases be brought in the High Court. The High Court would then be required to give directions as to the court in which the class action, if authorised, should be brought. The Society also believes it should be the aggregate value of the claims of the members of the class which should be taken into account in deciding which court should have jurisdiction to hear the action.

5.14.4 Since the publication of the Working Paper a new labour law dispensation was introduced and the Labour Court^[204] was established as a superior court with the authority, inherent powers and standing, in relation to matters under its jurisdiction, equal to that of the High Court.^[205] The Restitution of Land Rights Act, 1994 established the Land Claims Court^[206] with similar authority, inherent powers and standing. Both these structures are ideally suited to adjudicate class actions and actions in the public interest and the Commission has no hesitation in recommending that the Act should authorise both procedures in these Courts.

19. It should eventually be possible to institute class actions in any court. Initially, however, only the Supreme Court of Appeal, the Constitutional Court, the High Courts, the Land Claims Court, and Labour Court should be designated by the Minister of Justice to adjudicate class actions. The Minister should, however, have the discretion to designate other courts in which class actions may be prosecuted. The appropriate procedure in the different courts should be prescribed by the authorities empowered to make rules for those courts.

5.15 Which specific division or court should have jurisdiction in a class action where the cause of action arose within more than one jurisdiction?

5.15.1 In the Working Paper we indicated our preference for giving the court certifying the action as a class action the power to give directions as to the appropriate forum in which the action should be instituted.^[207]

5.15.2 Only one respondent objected to this suggestion. Mr P J Conradie of Hofmeyr Attorneys contends that it is undesirable to give the court the discretion to determine an appropriate forum in which a class action should be instituted as only the High Court and the Constitutional Court are sufficiently equipped to attend effectively to class actions. We dealt with the appropriate forums to hear class actions above.^[208] The objection does not address the issue of which particular division of the High Court should hear a class action where the cause of action arises in more than one division.

5.15.3 In the United States, national class actions, referred to as “multi district litigation”, are conducted under special rules and have been legitimized in court decisions. These actions are not based on an opting in system, but rather follow the same opting out procedure as for any other class member. In the class case on this issue, Phillips Petroleum Co v Shutts,^[209] the United States Supreme Court decided that there was no need for non-resident class members to have any form of contact with the state where the class action had been commenced. All that was required was that the non-resident class members be adequately represented, receive appropriate notice and be given the right to opt out. This position is based on the full faith and credit clause in the American Constitution.

5.15.4 However, the availability of an expanded class action procedure in a number of provinces could result in several class actions involving the same defendant and the same issues being commenced in each jurisdiction. In some cases, this could undermine the goals of judicial economy that underlie class actions.

20. The court hearing the application for certification as a class action should have the power to give directions as to the appropriate division or court in which the action should be instituted.

5.16 Should any value limits be placed on the jurisdiction of the court’s empowered to hear class actions?

5.16.1 In the Working Paper^[210] the Commission discussed two possible approaches to determine the value limits on jurisdiction. The one possibility is to use the aggregate or total value of the claims of the members of the class as the determining factor which will have the effect that most class actions will be brought in the High Court. If, however, the value of the individual claims is to be the determining factor then most class actions will fall within the lower courts’ jurisdictional limits should the Minister decide to designate also the Magistrates’ Court.^[211]

5.16.2 The Society of Advocates of Natal suggests that, ordinarily speaking, it is the aggregate value of the claims which should be taken into account in deciding which court should have jurisdiction to hear the action.

21. In determining whether a particular class action falls within the jurisdiction of the Magistrates' Courts the individual value of the claims should be the deciding factor. In this regard it must be borne in mind that in terms of section 50 of the Magistrates' Courts Act, 1944, the defendant may apply for the removal of any action from the Magistrates' Courts to the High Court.

5.17 Who is liable for costs?

5.17.1 The broad effect of the application of the general rule that “costs follow success” in class actions is shown in the following table.^[212] The table shows how the liability for expenses would differ depending on whether the class action succeed or fail. It also shows that, in the absence of an arrangement to the contrary, the class members will have no entitlement to, or liability for, the expenses of the action.

Result of action	Representative	Other members of the class	Defendant(s)
Action succeeds (Class wins)	Entitled to party and party costs from defendant(s) Liable for own attorney’s fees on attorney client scale	Entitlement: none Liability: none	Entitlement: none Liable for (a) own attorney’s fees on the attorney client scale and (b) the representative’s costs on the party and party scale
Action fails (Class loses)	Entitlement: none Liable for (a) own attorney’s fees on the attorney client scale and (b) the costs of the defendant on the party and party scale	Entitlement: none Liability: none	Entitled to party and party costs from the representative Liable for own attorney’s fees on the attorney client scale

5.17.2 Faced with a similar situation, the Scottish Law Commission expressed the view that the degree of financial risk a representative party in a class action would be required to undertake would be unreasonably high.^[213] On the other hand, other class members would be over-protected. They would be entitled to benefit from the action without assuming any financial responsibilities at all. So fas as the defendants are concerned, the particular risk which they bear is that even if they win the action they may be unable to recover the costs awarded in their favour because the representative pursuer has no funds. The Scottish Law Commission accordingly recommended that in awarding costs in group proceedings the court should retain its discretion to apply the general rule that costs follow success.^[214]

5.17.3 We also note that the Australian Law Reform Commission has recently recommended the retention of the general rule in civil and judicial review proceedings that the loser pays the winner’s costs.^[215]

5.17.4 Mr D L Titlestad, the Manager: Legal Services, Anglo American Corporation draws attention to clause 9(1)(d) of the draft bill. He argues that it is wrong that “those persons who elected to give written notice in terms of § 5(3)” should be ordered to contribute towards costs, because such persons are those who will have given written notice that they “do not wish to be bound by the judgment” and who will be excluded as members of the class concerned. Mr Titlestad is of course right. Only those members who decide to opt-in should be ordered to contribute towards costs. We believe our reformulation of clause 5(3) will settle the matter.^[216]

22. In awarding costs in class actions the court should retain its discretion to apply the general rule that costs follow the result. The court may refuse to order the representative to provide security for costs. The court may also authorise a class action on condition that the Legal Aid Board grants the necessary funds or indemnifies the defendant(s) for his or her costs. Those members of the class who opt-in may be ordered to contribute towards costs and, where appropriate, to provide security for costs.

5.18 Should contingency fees arrangements be allowed in class actions?

5.18.1 In the Working Paper the Commission recommended the introduction of a contingency fee arrangement for class actions.^[217] We noted that this view was provisional as the Commission was, at the time, also considering speculative and contingency fees. This investigation has since been completed and the Commission’s main recommendation is that contingency fee agreements should be legalised in South African law.^[218] In particular the Commission recommended that legal practitioners, in the event of successful litigation, should be entitled to receive, in addition to their normal fees for the case in question, an uplift to a maximum of 100% of their normal fees. On the basis of the Commission’s recommendations, the Contingency Fees Act 66 of 1997 was enacted.

5.18.2 The recommendation of the Commission to allow for contingency fee arrangements in class actions elicited a lively and varied response.

5.18.3 Judge B R du Plessis, with whom Judge President Eloff agrees, argues that the regulation of contingency fees should fall outside the scope and ambit of this Act. He believes it should be dealt with separately. On the other hand the Securities Regulation Panel believes contingency fees arrangements should not be limited to class actions but should also include public interest actions and the derivative action. Of a similar opinion is Professor De Vos. He argues that “there can be no doubt that the contingency fee mechanism would make a significant contribution towards the success of class actions in South Africa”.^[219]

5.18.4 Mr P J Conradie of Hofmeyr Attorneys in turn believes contingency fees should be strictly regulated to prevent litigation becoming discredited. He therefore recommends that contingency fees arrangements in class action be approved by the court and that the actual fees either be approved by the court or taxed by the Taxing Master as payable between attorney and client. The Council of Southern African Bankers likewise suggests that consideration should be given to capping contingency fees at a maximum which would have been earned according to a standard tariff.

5.18.5 Some respondents express the opinion that clause 10 of the draft bill should be extended to cover counsel also.^[220] One respondent went further. Mr D L Titlestad, the Manager: Legal Services: Anglo American Corporation believes that in the event that a representative does not provide security for costs or the Fund does not do so, then the attorney (and counsel) acting on a contingency basis, should, in the event that costs are awarded to the defendant, be jointly and severally liable for such costs.

23. A legal practitioner may, subject to the Contingency Fees Act 66 of 1997, make an arrangement with the representative stipulating for the payment of fees, or fees and disbursements, only in the event of success in the class action.

5.19 How should class actions and public interest actions be funded?

5.19.1 In the Working Paper we recommended the establishment of a statutory fund along the lines of the Ontario Class Proceedings Fund.^[221] There are, however, various other means by any of which, or by a combination of which, class actions and public interest actions can be financed. For present purposes we concentrate on a contingency legal aid fund, a class action fund and legal aid.

* A contingency legal aid fund

5.19.2 A contingency legal aid fund is essentially a fund which takes a proportion of the money received by a successful pursuer to meet claims on the fund by unsuccessful pursuers. It may be seen as a form of mutual insurance. Usually, the initial funding is provided by the Government while the administration costs of the scheme are met by charging a registration fee to all applicants. A successful applicant would have to pass a test, as in legal aid, of probabilis causa, i.e. that he or she has an apparently good case. In theory, the fund would become self-financing in due course. In practice, it is open to doubt whether this would happen.^[222]

5.19.3 The only working example of a contingency legal aid fund is in Hong Kong.^[223] It appears to have had a remarkable success rate; in 95 of 97 concluded cases damages have been obtained. The scheme was set up in 1984 as an adjunct to legal aid, backed by a one million dollar loan facility from the State Lotteries Fund. The scope of the scheme is limited to plaintiffs in personal injury cases (excluding medical negligence) claiming in excess of the High Court lower limit of HK$60 000. Successful plaintiffs are required to pay 10% of the first HK$50 000 they recover, 12,5% of the next HK$200 000 and 10% on any excess. These percentages are reduced if the case is settled, depending on the stage reached.

5.19.4 Such a fund would have certain attractions in that it would widen access to justice in the areas in which it applied. However, the most serious drawback is that such a scheme could only be effective in cases where substantial sums of money are involved. “Even there, the evidence is that the proportion of the winnings that would be payable to the fund to make it viable would have to be very high. There is also a difficult problem of principle where successful litigants are effectively financing unsuccessful cases out of the award of damages which have been judged fair.”^[224]

* A class action fund

5.19.5 A “class action fund” denotes simply an arrangement for third party financial assistance to class action litigants, other than legal aid or a contingency legal aid fund. All the features of such a fund can be adjusted to suit the policy requirements of the body which sets it up. We described the main features of the Quebec Fonds^[225] and the Ontario Class Proceedings Fund in the Working Paper and on the basis of the developments there recommended the establishment of a Public Interest Action and Class Action Fund.^[226]

5.19.6 Of the respondents who commented on this matter only Society of Advocates (OFS Division), the Securities Regulation Panel and the South African National Consumer Union were unequivocally in favour of the establishment of such a fund. The last mentioned believes the fund should make it possible to assist even the State or a parastatal organisation. The Union is, however, concerned that the composition of the Board of Control of the Fund is open to some doubt in this respect.

5.19.7 Professor Wouter de Vos expresses his support in favour of a statutory fund in no uncertain terms:

5.19.8 Mr P J Conradie of Hofmeyr Attorneys believes the powers of the Fund should be limited. He argues as follows:

* Legal aid

5.19.9 Judge B R du Plessis, with whom Judge President Eloff agrees, is not in favour of a separate Class Action and Public Interest Fund. He proposes that the public monies available for such purposes be administered by the Legal Aid Board. He believes that by centralising the administration of public monies available for legal aid, priorities for its use can be determined better. We are persuaded by this argument and will give effect thereto in our draft bill.

5.19.10 The stated objects of the Legal Aid Board is to render or make available legal aid to indigent persons and to provide legal representation at State expense as contemplated in the Constitution, 1996.^[227] The term "legal aid" is not defined in the Legal Aid Act, 1969. We believe it can be argued that "legal aid" includes, besides obtaining the services of legal practitioners, the indemnification of the litigant in a class action or a public interest action for the defendants' legal costs. Perhaps this needs to be spelled out in the Legal Aid Guide that is still to be published.

5.19.11 In their report the Scottish Law Commission came to the conclusion that legal aid is the most suitable means of providing financial assistance for group proceedings and other multi-party actions.^[228] This recommendation is based in part on the recent developments in England and Wales in the Benzodiazepine litigation.^[229]

5.19.12 For its future, class actions and public interest actions in part depend upon a Legal Aid Board that is adequately staffed, managed, and funded. Legal aid is, however, in very high demand and the Legal Aid Board continuously faces manpower shortages and experiences financial difficulties.^[230]

24. Contrary to our recommendation in the Working Paper, we no longer recommend the establishment of a separate public interest action and class actions fund. We believe the existing Legal Aid Board should be utilised as the mechanism to provide legal aid to indigent litigants in class actions and public interest actions.

5.20 Is prior approval of the court necessary before a class action can be settled, discontinued or abandoned?

5.20.1 In conventional civil litigation, the pursuer is entitled to abandon or settle the action at any time before a final order is made or judgment is rendered, without obtaining the prior approval of the court. The theory of class action procedure, however, is that the representative conducts the litigation both on his or her own behalf and on behalf of all the members of the class (i.e. those who have opted-in or not opted-out). It is therefore argued that it is wrong for the representative to be entirely free to abandon or settle the litigation as he or she wishes.^[231]

5.20.2 We recommended in the Working Paper^[232] that the Act should contain a provision which requires any settlement of a class action or a public interest action to be approved by the court. We did not deal with the possibility of the representative discontinuing or abandoning the class action or the public interest action and will rectify the omission.

5.20.3 Professor De Vos argues that it is unlikely that a plaintiff acting in the public interest would be inclined to settle a public interest action to the detriment of the public concerned.^[233] In most instances such a plaintiff is a champion of the public cause, without the same personal interest in the matter as in the case of the representative in class action proceedings. He concedes, however, that the representative might overlook important aspects relating to the public interest or misconceive what the public interest demands. He agrees, therefore, that the court should also approve settlements in public interest actions.

5.20.4 Under the current British Columbia Rules of Court that deal with representative actions, the settlement or discontinuance of an action requires neither the approval of the court nor notice to other class members. The interests of absent class members are not protected under this Rule and representatives are in a position to use representative proceedings to enhance their own bargaining positions to settle their individual claims.

5.20.5 Both the Ontario Act, the Quebec Code and the Ontario Law Reform Commission draft bill attempt to remedy this by providing that proceedings may only be settled, abandoned or discontinued with the approval of the court. This provision applies to the pre and post certification stages of the proceeding. The Ontario Act and the British Columbia Act^[234] directs the court to consider the issue of notice. The Quebec Code makes notice mandatory for settlements, but not for discontinuance.

5.20.6 The Scottish Law Commission, however, recommended that the rules for the new procedure should not require the court to consider proposals for the abandonment or settlement of a class action and not make abandonment or settlement competent only with the court’s prior approval.^[235]

5.21 Can appeal proceedings be brought and, if so, by whom and when?

5.21.1 We did not deal with appeals in the Working Paper. It was, however, implicit that we thought that a class action or public interest action should proceed in the same way as a conventional action for the same remedy raised by a single pursuer subject only to such modifications as were considered appropriate.^[237] The problem is that our rules of court provide that only final orders can be appealed against, but not interlocutory orders.^[238]

(a) Are specific appeal provisions needed? In particular is it necessary specifically to provide which interlocutory orders of a kind pronounced only in class action proceedings can be appealed against? And should they be appealable with, or without, leave of the court?

(b) If the representative fails to appeal, should it be competent for another member of the group or class to do so?

* Appeals against certification orders

5.21.3 The Ontario Law Reform Commission draft bill and the Ontario Act take slightly different approaches to the question of whether certification orders should be subject to appeal. Under the draft bill, appeals from certification orders lie, as of right, to the Divisional Court. Under the Ontario Act, a right of appeal exists from a refusal to certify a class action, while an appeal of an order certifying an action can be brought only with leave. The British Columbia legislation follows the Ontario Law Reform Commission recommendations and grants a right of appeal to either party. Under both the Ontario Law Reform Commission draft bill and the Ontario and British Columbia Acts, if a representative party does not appeal, any class member may seek leave from the court to act as the representative party for the purposes of bringing an appeal.

5.21.4 Under the Quebec Code, an order refusing to authorise a class action may be appealed by the representative party or, with leave of a judge of the Court of Appeal, by any class member. An order certifying an action as a class action cannot be appealed. The limitation of this right of appeal was introduced in 1982 for a simple reason: until them, every ruling that authorised a class action was systematically appealed by the defendants.^[240]

5.21.5 The Financial Services Board recommendation relates to appeal against class certification orders. On the suggestion of Professor N J Williams^[241] the Financial Services Board recommends that an order certifying an action as a class action be deemed to be interlocutory while an order denying certification of an action as a class action be deemed to be a final order. Professor Williams further suggests that provision should be made in legislation on class actions for a separate section governing this aspect so as to remove any ambiguity and thus making it clear whether and when certification orders are subject to appeal.

* Appeals against the judgment on the common issues

5.21.6 Under the Ontario Law Reform Commission draft bill, the Quebec Code and the two provincial acts either party has a right to appeal judgment on the common questions, including an aggregate assessment, to the Court of Appeal. Where a representative party does not appeal, another class member may seek leave of the court to act as the representative party for the purposes of bringing the appeal.

* Appeals against the judgment on the individual issues

5.21.7 The Ontario Act includes a complicated set of rules respecting the appeal of orders distributing aggregate awards and determining individual issues. Class members, representative plaintiffs or defendants may, with leave, appeal any order dismissing a claim for monetary relief. Representative plaintiffs may appeal any order related to the distribution of an aggregate award if it is for $3 000 or more. Any class member may appeal an order distributing an aggregate award or determining an individual issue where the amount involved is more than $3 000. If the amount involved is less than $3 000, leave is required.

5.21.8 In British Columbia, an appeal of individual issues requires leave of the court regardless of the amount of the award. The Quebec Code does not provide for an appeal of individual issues. The Uniform Law Conference of Canada also recommended that class action legislation should provide for an appeal from an order refusing certification.^[242] It further recommended that from an order granting certification, either an appeal should not lie or should require leave. Class members other than the representative should have the right to apply for leave to launch an appeal. An appeal should lie from a judgment on common questions and aggregate assessments. It lastly recommended that judgments on individual issues and individual assessments should be subject to appeal either with leave or where the amount at issue exceeds a fixed amount.

5.21.9 Certification of an action as a class action is the first hurdle to be crossed. It is therefore imperative to get finality on the nature and status of the proceedings as soon as possible. We believe there is considerable merit in providing in the Act that non-certification of an action as a class action should be subject to appeal. This does not constitute an automatic right to appeal and leave of the Court will be necessary.^[243] Equally, the fact that an action was certified as a class action should not be appealable. Overseas experience has shown that where this was allowed, every decision to certify an action as a class action will be appealed against. This would defeat the purpose of a class action and hinder access to justice.

26. The decision to certify an action as a class action is only the first step in the proceedings and should not be subject to appeal. The Act should, however, specifically provide that non-certification of an action as a class action is subject to appeal. If the representative does not appeal, or does not proceed with an appeal, it should be competent for another member of the class to do so with leave of the court.

5.22 Should the statutory rules of prescription of obligations and limitation of actions be amended to cope with the introduction of class actions?

5.22.1 The general principle is that after a specified period of time a right or obligation either prescribes^[244] or becomes unenforceable by court proceedings through the limitation of actions rule.^[245] The question was raised whether the aggregation of claims in a class action is compatible with the efficient operation of these rules of prescription and limitation.^[246] If not, some provision would be needed.

5.22.2 Generally, statutory limitation periods stop running when an action is commenced. In most jurisdictions, the filing of a certification application suspends the running of time for all members of the class. If the limitation periods continue to run against class members until after certification, they may be forced to file individual actions to preserve their causes of action.

5.22.3 Section 28 of the Ontario Act suspends the running of time for all class members when a proceeding is commenced under the Act. Time begins to run against a class member when he or she opts out or is excluded from the class, a decertification order is made, or the class action is dismissed, abandoned or settled with the approval of the court. This provision of the Ontario Act is closely modelled on the Quebec Code and the Ontario Law Reform Commission draft bill and adopted in the British Columbia Act.^[247]

5.22.4 The Scottish Law Commission, on the other hand, recommended that the statutory rules of prescription of obligations and limitation of actions need not be amended to cope with the introduction of a Scottish class action procedure.^[248]

27. The certification of an action as a class action should suspend limitation periods for all class members until the member opts out, the member is excluded from the class, or the action is decertified, dismissed, abandoned, discontinued or settled.

5.23 Should the scope of the proposed Act not be broadened to include ‘organisational actions’ and the derivative action?

5.23.1 In its memorandum the Securities Regulation Panel raises the possibility of using the proposed legislation in the fight against insider trading. The Panel proposes an action of the nature of a derivative action substantially different from that set out in section 266 of the Companies Act, 1973,^[249] where conversely the Panel is authorised to bring a civil action for the recovery of any profit made by the insider, or payment of any loss avoided by the insider for the benefit of the counter parties to the insider dealing. The Panel accepts that the proposed derivative action does not quite fit comfortably within the proposed definitions of a class action or a public interest action.^[250] It therefore recommends the amendment of the definition of ‘public interest action’ to encompass the proposed derivative action. In the alternative a new category of action - the proposed derivative action - could be added as a separate type of action.

5.23.2 This proposal leads to the question of whether the scope of the proposed Act should not be broadened. In this regard we considered using the term ‘multi-party actions’ in imitation of the Scottish Law Commission. The Scottish Law Commission divides multi-party actions into three categories.^[251] These are public actions, organisation actions and class actions.

5.23.3 The Scottish Law Commission defines public actions as those brought by a public official who seeks redress for the public at large or for a group.^[252] Organisation actions are brought by an organisation, such as a consumer organisation or environmental protection organisation, on behalf of its members and the public at large. Class actions are brought by a named plaintiff, who is typically the self-appointed representative of a class (or group) of persons, and who seeks redress for himself or herself and for the other class members.^[253]

5.23.4 Our proposed public interest action is not the same as the Scottish public action. The circumstances covered under the Scottish public actions cause no hardship in South Africa as is evident from the numerous actions instituted and defended by government ministers and officials on their behalf. Such action might obviously benefit a lot of people, but it is not always an action in the public interest. In South Africa the problem addressed by organisation actions can be resolved by public interest actions and the broadening of standing.^[254] The Commission’s proposals regarding class actions also go further. This dovetails with the old Constitution of 1993 and the new Constitution of 1996 and broadens access to justice.

5.23.5 The Society of Advocates (OFS Division) is of the opinion that the draft bill fails in its objectives as it does not define a ‘group’. The Society furthermore objects to the draft bill as its theoretical framework does not envisage language, cultural or religious groups. The Society concludes:

5.23.6 The Society seems to confuse the issues of ‘group rights’ and class actions. Nothing in the draft bill would prevent a language, religious or cultural group from instituting either a class action or an action in the public interest. Nor does the Commission believe that the old Constitution, 1993 or the new Constitution, 1996 protect group rights, at least not in the way the Society seems to suggest.

5.23.7 As for the proposals by the Securities Regulation Panel, the answer seems clear. Nothing prevents the Panel from instituting either a public interest action or a class action. Indeed, as the Financial Services Board puts it, regulatory and supervisory authorities, with limited enforcement powers, will with the introduction of public interest and class actions be able to approach the court in order to claim relief in the public interest or on behalf of others who would not be able to enforce their rights themselves. As for the proposed derivative action, the Panel supplies its own answer:

^[103]Australia Law Reform Commission Access to the Courts II - Class Actions. See also Australia Law Reform Commission Grouped Proceedings in the Federal Court; Beyond the door-keeper; Swedish Commission Group Actions 59.

^[105]See, for instance, the Canadian case Naken v General Motors of Canada Ltd (1979) 92 DLR (3rd) 100 (Ontario Court of Appeal); (1983) 144 DLR (3rd) 385 (Supreme Court of Canada).

^[110]See also McBryde and Barker 1991 New Law Journal 484 for the way in which English lawyers handled ‘ambulance chasers’.

^[113]The South African National Consumer Council considers this requirement as redundant.

^[115]The possibility of granting representative status to certain legal persona may enable these groups to have negotiating power that benefits consumers and occasionally avoids the need for lawsuits. One example from Quebec illustrates this principle. In a letter addressed to the Fonds d’aide aux Recours Collectifs, the Automobile Driver Protection Association (APA) confirmed that the threat of a class action in Quebec had let to the resolution of two problems affecting many Canadian consumers. As of the fall of 1989, the Honda corporation stopped levying the $35 warranty transfer fee on its models. The APA showed that the resulting savings to consumers amounted to between $500 and $1 million per model-year. Similarly, in the summer of 1991, the Ford motor company introduced a program that saved owners of 1988 and 1989 Ford Tempo’s and Mercury Topazes with defective fuel pumps approximately $1 million. This program provided for an extension on the warranty on the pump as well as reimbursement for the repairs already undertaken by the consumer.

^[116]Uniform Law Conference of Canada Class Actions Discussion Paper p. 12.

^[117]Uniform Law Conference of Canada Class Actions Discussion Paper p. 12.

^[119]Scott’s remark in the 1973 Harvard Law Review 674 in this regard is to the point: “[T]he idle whimsical plaintiff, a dilettante who litigates for a lark, is a spectre which haunts the lega

South African Law Commission

CHAPTER 5

CLASS ACTIONS

5.1 Introduction

5.2 How should a class action be defined?

5.3 What are the characteristics of a class action?

5.4 Who may apply for leave to institute a class action?

5.5 Is certification as a class action necessary?

5.6 What criteria should be adopted in certifying an action as a class action?

* Numerosity13[0]

* The preliminary merits test13[5]

* The interests of justice

* Commonality15[3]

* The appropriate procedure

5.7 What can the court do if the criteria are no longer met, after certification has been granted?

5.8 What procedure should be adopted in the application for certification of an action as a class action?

5.9 What procedure should be followed in the conduct of a class action?

5.10 Is it necessary to give notice of the action to members of the class and, if so, what form should such notice take, etc.?

* Notice of certification

* Costs of notice of certification

* Notice of judgment

* General notices

5.11 Should class members be required to opt in to the class proceedings in order to be subject to any judgment or settlement? In other words when will judgment in a class action be binding (res judicata) on the members of the class?

5.12 How should the common questions and individual questions in a class action be determined?

5.13 How should damages in a class action be determined?

5.14 Which courts should be designated by the Minister to adjudicate class actions?

5.15 Which specific division or court should have jurisdiction in a class action where the cause of action arose within more than one jurisdiction?

5.16 Should any value limits be placed on the jurisdiction of the court’s empowered to hear class actions?

5.17 Who is liable for costs?

5.18 Should contingency fees arrangements be allowed in class actions?

5.19 How should class actions and public interest actions be funded?

* A contingency legal aid fund

* A class action fund

* Legal aid

5.20 Is prior approval of the court necessary before a class action can be settled, discontinued or abandoned?

5.21 Can appeal proceedings be brought and, if so, by whom and when?