Without class actions, the only alternative for many people who are harmed is to “suck it up”, plaintiff lawyer Damian Scattini told the AILA conference.

The Maurice Blackburn (MB) principal said it was time for Queensland – which has no class action regime – to join other jurisdictions and pass laws to enable class actions to proceed.

He is currently running an equine influenza case in the Federal Court in Sydney and a Qld flood class action, which will be heard in the NSW Supreme Court. “It makes no sense; it’s bad for the court [system] if it is unable to make decisions on cases that literally happen in the backyard.”

Mr Scattini said class actions meant people harmed by the same event could get recompense they normally would not.

Most potential class action cases “self identify” but all needed “the outrage factor”. For example, a case without “outrage” was suggested for claimants who did not win prizes because of errors in scratch cards. “If someone didn’t win a toaster, who cares? They hadn’t lost an opportunity.” MB did not progress the action.

Developing areas for class actions were corporate misconduct, faulty consumer products and natural disasters where the impact was exacerbated by negligence.

Factors Mr Scattini considered in assessing an action’s potential success included:

• Are the prospects of success good?
• Is it a case common to many people or companies?
• Will the case give rise to an entitlement to a recoverable monetary payment, which is severable from other monies that may be in issue between the parties?
• Is the case commercially viable?
• Will the case be attractive to a funder or is it appropriate for no win, no fee?
• Does the case complement existing MB work or practice areas, build on MB’s knowledge, or is it likely to create a favourable precedent?

Ethical considerations were the same as any other lawyer’s. “There’s an inherent risk of conflicts of interest. We have a retainer with group members, not a litigation funder. MB’s obligation is to clients,” he said.

“Professional funders respect that. They are not running the case.”

Mr Scattini said he had seen no frivolous cases run in Australia, nor were plaintiff lawyers “trying to pull the wool” over defence lawyers’ eyes.

From January 2013 to June 2014, 27 class actions were filed in the Federal Court and the Victoria and NSW supreme courts.

There had been an increase in the number of high-value class actions filed but for good reason.  For example, the Black Saturday Kilmore bushfire settlement was $494 million.

Mr Scattini said class actions were a tool for accountability and limiting executive power.

Providing access to justice for large numbers of people encouraged improved standards and behaviour.

“Where a state acts or fails to act, and this causes compensable loss, a class action is the most effective tool to obtain relief for those who suffer loss.” For example, the Qld flood action filed in the NSW Supreme Court on July 8 was seeking compensation for financial loss and damage caused by the allegedly negligent operation of Wivenhoe and Somerset dams during south-east Qld’s January 2011 flood.

Mr Scattini argued class actions were not bad for business, only bad for bad businesses.

He said good businesses benefitted from class actions. They could recover money when they had been the victims of corporate misconduct and the actions established a level playing field so businesses that did the wrong thing were held to account.

Mr Scattini argued in favour of contingency fees, saying they would increase access to justice by helping more people have claims heard and determined.

“Contingency fees will enable the profession to conduct smaller claims that may not be funded on a conditional fee basis at present.  The legal assistance sector is starved of funds and unable to assist any but the most marginalised.

“Consistent with the ‘overarching purpose’ that governs our superior courts,” contingency fees would help “the just resolution of disputes as quickly, inexpensively and efficiently as possible”.

There was no link between charging contingency fees and unmeritorious litigation and it would introduce more competition into the litigation funding market.

Third party litigation funders filled a void in the market, charging a commission on success, typically 30% to 40%.

Mr Scattini said funders took big risks. “They’re not eccentric millionaires; it’s their business. They charge a commission that reflects the risk level.”

Funding remains

DLA Piper partner David Leggatt told the same forum litigation funding “is here to stay and it works well if it’s done properly”.

A key funder, Bentham IMF Ltd, was “a great business model”. It took a lot of risk, but generated $1.36 billion in revenue from when it listed until December 31, 2013. Its return on investment was 298%.

Mr Leggatt said MB principals had attempted to use a co-funding vehicle they had established, Claims Funding Australia Pty Ltd (CFA), for the equine influenza class action against the Federal Government.

But the Federal Court had seen it as “as a back-door way to seek contingency fees for MB principals” that created a potential conflict of interest between MB’s pecuniary interests and its duty to clients. He said CFA discontinued an application to approve co-funding funding in late January.

Mr Leggatt said ill-conceived actions were “few and far between” and the courts had clamped down on marginal actions. Insurance products were more sophisticated to respond to class actions.

 

Meritorious claims

Matthew Kennedy, investment manager with Bentham IMF Ltd, told the forum litigation funders’ business model demanded claims be meritorious.

“We must select cases that will succeed by winning or settling. We need clean, good, simple cases.”

He said funders worked on varied arrangements, it was not as simple as 30%-40% at the end.

Class actions were very expensive and there was significant risk, which justified the funders’ fees. “Our interest is the same as the client. We want the biggest and best result we can achieve.”

Insurers were increasingly becoming claimants and could use funders to pursue their subrogation rights, Kennedy said.

Subrogation rights were an asset that cost time and money to recover. Funders could potentially reduce the cost, risk and management burdens by funding matters on insurers’ behalf.

During the Q&A session, Mr Kennedy said funders could “fill the gap” where regulators could not. Mr Scattini said corporate regulator ASIC was not sufficiently well-funded to take cases on, so if the private market could do it “well and good”.

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