March 2021


Rebalancing the class action pendulum

A new report suggests sweeping changes to Australia’s class action regime.

A federal parliamentary committee has released a mammoth report, Litigation funding and regulation of the class action industry.

The Parliamentary Joint Committee on Corporations and Financial Services released its 450-page report in December 2020 after an extensive consultation period during which the committee received 101 written submissions from a range of industry, government and other participants, and held five days of public hearings in July and August 2020.

Law firm Allens-Linklaters says the report recommends sweeping reforms to the regulation of litigation funders and plaintiff firms and to the class actions regime more broadly. “These recommendations seek to better reflect the original objectives of the class actions regime to restore access to justice, promote the interests of group members, and deter opportunistic entrepreneurialism in the class actions space,” it said.

Allens suggests potential ramifications are:

  • The committee’s recommendations, if implemented by the Federal Government, will significantly increase regulatory and judicial oversight of litigation funders and plaintiff firms, including for funding commissions and agreements and disclosure of potential conflicts of interest. The committee found group members have generally received reduced compensation, compared to ‘generously paid’ plaintiff lawyers and litigation funders.
  • The committee is critical of the limited regulation of litigation funding in Australia. Its recommendations seek to restore the balance between group members and litigation funders. While differing views were presented to the inquiry about the preferable level of regulatory oversight, there was broad agreement current regulatory arrangements are ‘too light touch’.
  • Class action defendants will welcome many of the recommended reforms, including  changes to the continuous disclosure regime announced earlier in 2020 being made permanent, continuing and increased regulation of litigation funders, and limiting class actions for alleged breaches of corporations law to the Federal Court, to avoid additional challenges arising from competing shareholder claims being filed in different jurisdictions.

Law firm Clayton Utz outlined some key recommendations for  legislative and procedural reform to resolve issues such as:

  • to address multiple class actions making the same allegations against the same defendants, introducing a 90-day “standstill” after the first class action is filed to allow any other class actions to be filed and then a “selection hearing” where the court selects the class action(s) that will continue. Also an express power for the court to resolve competing or multiple class actions early in the proceedings (recommendations 2 and 3)
  • improvement to transparency and management of potential conflicts of interest between group members, litigation funders and legal representatives, including appointing contradictors to act on behalf of group members in the settlement process and imposing a statutory requirement that funders act in accordance with the overarching purpose of the class action legislation (recommendations 17, 18, 19, 22 and 23 to 26)
  • proportionality of costs incurred in litigating a class action, considering factors such as potential return to group members, impacts on court resources, regulatory outcomes and the public interest (recommendations 1 and 20)
  • legislation to address the ongoing uncertainty about common fund orders (CFOs) (recommendations 6 and 7)
  • increased regulation, direct court supervision (and, where warranted, court intervention) of litigation funding and contingency fee arrangements, including a presumption that litigation funders provide security for costs and complete protection for lead plaintiffs against adverse costs orders (recommendations 8 to 16, 20, 21 and 28)
  • greater uniformity and clarity across jurisdictions, including for express class closure powers in the Federal Court (recommendations 4, 5, 30 and 31)
  • continuing the relaxed continuous disclosure laws introduced by the Corporations (Coronavirus Economic Response) Determination (No 2) 2020 as a measure to curb the start of unmeritorious shareholder class actions (recommendation 29).

Allens commentary said: “Overall, the committee’s recommendations bring a much-needed dose of clarity and an appetite for rebalancing the relationship between different participants in Australia’s class actions regime, with greater certainty for class action defendants a likely outcome [if] the recommendations are received positively by the Federal Government.”

In the December 2019 issue of Resolve, Joshua Aylward, Special Counsel and practice leader, class actions, with Shine Lawyers, Brisbane, outlined issues with CFOs, which he said enabled litigation funders to recover costs from all group members’ settlement funds. Alternatively, litigation funders could claim commission only from group members who had specifically contracted with them.

An article in the March 2020 issue of Resolve said the High Court had cast doubt on the future of class action funding after finding two of Australia’s most superior courts misinterpreted legislation and wrongly granted early CFOs.
Read the Parliamentary Joint Committee on Corporations and Financial Services full report.

Read the Allens commentary.

Read the Clayton Utz commentary

Image By Thennicke - Own work, CC BY-SA 4.0

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Resolve is the official publication of the Australian Insurance Law Association and
the New Zealand Insurance Law Association.