Coronavirus: ‘Locusts’ cash in on COVID-19 misery

The economic misery wrought by COVID-19 in Australia is being targeted by global litigation funding firms.

Federal Liberal MP Jason Falinski describes litigation funders as a ‘plague of locusts’.

The economic misery wrought by COVID-19 in Australia is being targeted by global litigation funding firms, described as a “plague of locusts” using the legal system as a “money-making machine” by backing class actions against government and business.

The booming industry of litigation funding — which sees global firms absorb most, or all, of the costs of legal action on behalf of clients in exchange for up to a third of the proceeds if the action is successful — has sparked calls from the local business community for protection during the coronavirus crisis.

Global litigation funding giant Omni Bridgeway’s latest report to the ASX says funding applications for legal cases such as class actions have soared almost 18 per cent compared with the same time last year.

The company has reported returns on its investment capital of more than 300 per cent on two Australian-linked funds, boasting in its promotional material that it can “finance disputes and enforcement proceedings throughout the world’’.

“There has been a significant increase in the volume of funding applications since the onset of the COVID-19 pandemic, across all markets,’’ the company said.

But the behaviour of such companies has attracted the ire of both politicians and the Australian business community.

Liberal MP Jason Falinski has described litigation funders as a “plague of locusts” that had “turned our justice system into a casino”.

Ai Group chief executive Innes Willox said global litigation funding firms were earning “outrageous’’ levels of return in Australia at the expense of claimants, businesses and the broader community.

“Plaintiff law firms and overseas litigation funders are clearly gearing up for a raft of COVID-19 class actions against businesses and governments,’’ he told The Australian.

“The last thing that businesses and the community need during this crisis is to be forced to divert scarce time and funds to defending speculative class actions pursued by overseas litigation funders.’’

Mr Willox is urging the Morrison government to use emergency powers under the Coronavirus Economic Response Package Omnibus Act to prevent new class actions being filed during the COVID-19 crisis.

The parliamentary joint committee on corporations and financial services will investigate the extraordinary profits reaped by litigation funders to determine whether ordinary Australians are getting their fair share.

Attorney-General Christian Porter said last month that in a recent case a litigation funder yielded a 390 per cent return on its investment.

“There is something clearly wrong with this situation because the mums and dads who are members of class actions are ultimately the ones who are missing out,’’ he said.

Major Australian law firms including Maurice Blackburn and Slater & Gordon have used litigation funders for class actions.

Committee chairman James Paterson, a Liberal MP, said the committee would soon call for submissions to the inquiry, adding that he was restricted to what he could say while preparing to start the investigation.

Senator Paterson asked: “The fact that they are making what are extraordinary profits out of our legal system raises real questions about what’s the purpose of our legal system, what’s the primary purpose.

“It was never intended to be a money-making machine.’’

His parliamentary inquiry is expected to call for submissions this month.

Omni Bridgeway is a global force in litigation funding, spanning Australia, the US, Europe and Canada, having recently merged with the Australian-based company IMF Bentham.

Former Law Council of Australia president Stuart Clark said the two funds run by Omni Bridgeway and linked to Australia were performing more than 90 times better than its US fund.

He said that Australia had become a country of global interest for the litigation-funding community.

“They are just ripping money out of the Australian economy which will inevitably affect jobs,’’ he told The Australian.

“The Australian returns are so much bigger even than the US.’’

One of IMF’s funds launched less than a year ago was incorporated under the laws of the Cayman Islands.

Omni Bridgeway claimed last year it had more than $2.2bn to finance legal cases. Its recent class actions in Australia include matters relating to combustible cladding, ANZ Bank fees and against Facebook for breach of privacy, and looming cases include claims over the Tathra bushfire and firefighting foam.

Angus Armour, CEO of the Australian Institute of Company Directors, is calling for a six-month moratorium on class actions while the COVID-19 crisis is under way.

“(Our members) are tremendously worried about the liability and the level of cost that goes into defending yourself in this environment,” Mr Armour said.

“Without protection, it’s going to be harder to restart the economy.

“But with protection, for a short period of time, it’s going to give companies and directors the confidence to take a chance and take more risks.”

Mr Willox said the parliamentary inquiry would shine a light on the “excessive returns being earned by litigation funders and the problems caused by the current scant regulation’’.

“Of the current class actions that are being funded by a litigation funder, Ai Group has calculated that 60-80 per cent of them are funded by an overseas, unregulated litigation funder,’’ he said.

“In the Australian Law Reform Commission’s final report … it was reported that the median return to claimants in funded class actions over the period 2013-18 was only 51 per cent, compared to 85 per cent for unfunded class actions.

“This shows that litigations funders are profiting at the expense of claimants.’’

Omni Bridgeway was unable to comment on Wednesday to a series of questions put to it by The Australian.

They included whether the company believed that litigation funders were getting excessive returns and whether emergency powers should be invoked to stop class actions during the pandemic.