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Client Update: Attorney-General announces class action inquiry

18 December 2017

In brief: The Attorney-General has announced that he has asked the Australian Law Reform Commission to inquire into class action proceedings and third party litigation funders. The inquiry presents an important opportunity to take stock of how the class actions landscape has evolved, particularly whether entrepreneurialism among promoters is inappropriately traversing on the rights of class members. Partner Jenny Campbell (view CV) and Lawyer Jerome Squires report.

What has been announced?

The Federal Attorney-General has announced an Australian Law Reform Commission (ALRC) inquiry into class actions and third party litigation funders.

The aim of the inquiry is 'to ensure that the costs of [class actions] are appropriate and proportionate and that the interests of plaintiffs and class members are protected.'

It has been launched in circumstances in which the Attorney-General says that there 'is a significant risk, in such proceedings, that members of plaintiff groups may be required to pay lawyers' fees which are exorbitant and unjustifiable'.

The terms of reference require the ALRC to consider whether and to what extent class action proceedings and third party litigation funders should be subject to Commonwealth regulation, and in particular whether there is adequate regulation of a range of matters including:

  • conflicts of interest between litigation funders, lawyers and plaintiffs;
  • the prudential, character and fitness requirements for litigation funders;
  • distribution of the proceeds of litigation; and
  • the legal costs associated with class actions and whether there should be a statutory cap on the proportion of settlements or damages awards that may be retained by lawyers and litigation funders.

Haven't we been here before?

In December 2014, the Productivity Commission released its report, Access to Justice Arrangements, after a 15-month inquiry into Australia's system of civil dispute resolution. Among other things, the Commission recommended:

  • a licensing regime for third party litigation funders which focused on capital adequacy, disclosure, systems for managing risks and conflicts of interest and requiring funders to be members of the Financial Ombudsman Scheme; and
  • lifting the prohibition on charging contingency fees by the legal profession.

There has not, however, been any steps taken to implement these recommendations.

The Victorian Law Reform Commission is currently conducting an inquiry into Victoria's class action regime. Our submission to the VLRC, which makes a number of suggestions aimed at achieving an appropriate balance between competing interests, can be viewed here: a submission.

Is this a positive development?

While it is disappointing that the Productivity Commission's recommendation in relation to the regulation of litigation funding has sat on the shelf for three years, we think this is a positive development that we hope will shine a light on some concerning developments in the class action landscape. While class actions and third party funding do facilitate access to justice in some cases, we have become increasingly concerned that the interests of class action promoters are taking increasing priority over the interests of class members. This caused us to ask in a paper earlier this year whether the 'tail is wagging the dog'.

The terms of reference, while broad ranging, focus squarely on the interests of class members. Given that the terms describe the inquiry as an 'inquiry into class action proceedings', it is disappointing that they do not extend to considering whether the class action regimes are meeting other objectives including bringing certainty for defendants. We will continue to advocate for these interests in other forums.

What's next?

The ALRC has been asked to consult widely with institutions and individuals with experience in the conduct of class actions and access to justice issues. We will, of course, seek out opportunities to present the views of our clients to the Commission.

The ALRC is due to report to the Attorney-General by 21 December 2018.

For further information, please contact:

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