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Focus: Productivity Commission – Access to Justice Arrangements report and recommendations

5 December 2014

In brief: The Access to Justice Arrangements report proposes broad-ranging reforms to our civil justice system, with the aim of improving access to justice. Partner Belinda Thompson (view CV) and Lawyer Annie Santamaria highlight some recommendations, which also have the potential to impact more broadly on Australia's legal landscape.

How does it affect you?

  • The Productivity Commission's recommendations include the lifting of the general prohibition on lawyers charging contingency fees, the licensing and greater regulation of third party litigation funders, and reform of court processes to promote the efficient resolution of disputes.
  • If implemented, these reforms may significantly affect not only the way parties engage in litigation, but Australia's legal landscape more generally.

Background

On 3 December 2014, the Productivity Commission released its report, Access to Justice Arrangements1, after a 15-month inquiry into Australia's system of civil dispute resolution.

Since June 2013, the Productivity Commission has investigated, sought submissions and held public hearings on a variety of aspects of the civil justice system.2 These have included the accessibility of the justice system, alternative dispute resolution avenues and the role of ombudsmen, as well as the regulation of the legal profession, private litigation funding and the provision of legal aid.

The Productivity Commission has sought to address the widespread concern that Australia's civil justice system is 'too slow, too expensive and too adversarial'.3 The overall aim of the inquiry and resulting report is to investigate and provide recommendations around problems within the civil justice system, 'with a view to constraining costs'4 and making it easier for people to resolve their disputes. A wide range of issues within the civil justice system have been examined, and we do not purport to address the Report in its entirety here. Instead, the summary below highlights the issues and recommendations that are likely to be most relevant to you and your business.

Key recommendations

Lifting the prohibition on contingency fees

The Commission has recommended the removal of the general prohibition on the charging of contingency fees by the legal profession. Contingency fees are where a lawyer's fee is calculated as a percentage of any amount recovered for the client. Essentially, contingency fees give the lawyer a direct financial interest in the outcome of the litigation, and are currently banned in Australia largely on the basis of the perceived risk of giving rise to a conflict of interest between the lawyer and client.

The Commission was 'unconvinced' that 'perverse incentives' or conflicts of interest exist to justify the wholesale prohibition on contingency fees.5 Rather, the Report states that such risks may be managed by the implementation of protections for vulnerable consumers, including:

  • comprehensive disclosure requirements at the outset of the fee agreement;
  • the capping of the contingency fee percentages on a sliding scale for 'retail clients' (no such restrictions are recommended for 'sophisticated clients'); and
  • that additional fees are not to be used with contingency fees (for example, contingency fees could not be used in addition to a lawyer's usual hourly rate)6.

The Commission has not provided guidance as to who is to be considered a 'retail' client and who is to be a 'sophisticated' client. Further, no recommendation has been made as to the percentage limits at which contingency fees should be capped. It is stated that governments should determine these percentages and the scale through transparent consultation and evaluation7.

Licensing of third party litigation funders

The Commission has endorsed the call for regulation of third party litigation funders. It has recommended that third party litigation funding companies be licensed, with the overview of the ethical conduct of litigation funders remaining the function of the courts8. The licencing requirement is to be designed to:

  • ensure that the funder holds adequate capital relative to its financial obligations;
  • ensure that the funder makes appropriate disclosure to its clients of the funder's obligations and its systems to manage risks and conflicts of interest; and
  • require the funder to be a member of the Financial Ombudsman Scheme.

The recommendation for greater regulation and oversight of third party litigation funding is welcomed. Appropriate regulation of litigation funding will promote transparency, minimise conflicts of interest and protect the interests of consumers.

Promoting alternative dispute resolution and other complaints mechanisms

Access to avenues other than courts as a way of resolving disputes is recognised as an important means of enhancing access to justice. The Commission has made several recommendations to encourage the use of alternative dispute resolution procedures and to ensure consumers are aware of the availability of other avenues to pursue complaints.

In particular, the Commission has recommended that both industry and government organisations associated with ombudsman complaint schemes, such as banks, financial services and telecommunication companies, be required to inform those who make a complaint (whether the complaint is oral or written) about the availability of external review by the ombudsman9. It is also recommended that governments remove the requirement for complaints to the ombudsman to be made in writing10.

Reducing time and expense in court processes

The Commission makes several recommendations to build on recent measures to improve case management and the efficiency and cost-effectiveness of court processes. In particular, the Commission has called for:

courts to consider whether elements of the Federal Court's Fast Track model should be applied more broadly11;

closer scrutiny of the scope of discovery, and employing measures, such as justification for applications for discovery, to facilitate tailored and proportionate discovery12; and

courts to have greater oversight in respect of expert evidence to ensure costs are not unnecessarily incurred, including a requirement for parties to seek directions before adducing expert evidence, and for the court to have broad powers to make directions about expert evidence, including the appointment of a single expert or a court appointed expert13.

Implementation of these recommendations may promote increased efficiency and decrease costs. However, ultimately whether these objectives are achieved will depend on the detail of any reforms introduced and how they are applied in practice.

Conclusion

The Commission's recommendations aim to reduce the time and expense associated with litigation, and to promote the efficient resolution of civil disputes, so as to increase access to justice. Such aims are to be welcomed and supported. However, many of the recommendations also have the potential to impact more broadly on Australia's legal landscape. The scope of that impact and whether the recommendations will improve access to justice, is likely to depend on the detail of any reforms actually implemented.

Footnotes
  1. Productivity Commission 2014, Access to Justice Arrangements, Inquiry Report No. 72, Canberra.
  2. We have previously reported on the proposals contained in the draft interim report released by the Productivity Commission in April 2014. See Allens Focus: Productivity Commission – third party litigation funding and contingency fees.
  3. Access to Justice Arrangements, page 2.
  4. Ibid, page 3.
  5. Ibid, page 22.
  6. Ibid, recommendation 18.1.
  7. Ibid, page 627.
  8. Ibid, recommendation 18.2
  9. Ibid, recommendation 9.1.
  10. Ibid, recommendation 9.2.
  11. Ibid, recommendation 11.1.
  12. Ibid, recommendation 11.4.
  13. Ibid, recommendation 11.6.

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