Report backs Victoria class action funding model

Class action members in Victoria have kept more money in their pockets after a key rule change in the state.

Class action members in Victoria have kept more money in their pockets after a key rule change in the state.

Class action members in Victoria have kept more money in their pockets after a key rule change in the state, and the model should be adopted across all Australian jurisdictions, a report has argued.

Following a change to Victoria’s Supreme Court Act in 2020, law firms have been allowed to receive a “proportional” or “contingent” amount of the final settlement of a class action under a so-called group costs order in some circumstances.

Progressive think tank McKell Institute policy analyst Max Douglass wrote a report published on Thursday and said since it started in July 2020, “the Supreme Court of Victoria has seen a much larger number of filings indicating it is now the jurisdiction of choice for claimants”.

“Better yet, the GCO regime in Victoria seems to have engendered much greater competition between law firms and litigation funders, with funding rates ­dropping across the country after the commencement of (the change),” he said.

In other states and territories, independent litigation funders are typically the only way plaintiffs can afford expensive class actions. Law Council of Australia president Greg McIntyre SC said that, since the introduction of the federal class actions regime in 1992, “class actions have been established as an effective, reliable and, in some circumstances, essential procedure to deal with multiple claims”.

However, he said contingency fees “create undesirable ethical risks”.

“As the Parliamentary Joint Committee on Corporations and Financial Services concluded in its report “Litigation funding and the regulation of the class action industry”, the benefits of contingency fees are outweighed by the risk,” he said. “The Law Council notes the McKell Institute report and will continue to monitor evidence regarding the outcomes of the Victorian model. As the McKell report states: ‘Victoria’s GCO regime is still relatively young and comprehensive data is not yet available’.”

Four class actions were filed in Victoria’s Supreme Court in the first year after the rule change, but that increased to 23 last year, according to the report.

Based on current data, median commission funding rates for class actions has fallen 2.2 per cent since July 2020.

Since the regime began until April, 19 group costs orders have been made. Before the group costs order rule was implemented, median funding commission rates were 24.5 per cent. After the rule was implemented, median funding rates fell to 22.7 per cent.

The report said overall, for the 19 examples of GCOs available, the median commission rate was 24.9 per cent. But it compared to a total deduction of 39.7 per cent if the traditional litigation funding model applied, which included legal fees plus the commission.

The report argued the model should be applied across Australia. “Claimants would have almost nothing to lose, and plenty to gain by having access to another option for pursuing mass wrongs,” the report said.