Ball in Labor’s court on cash-grab ‘lawfare’, says legal think tank
Scrapping the contingency fee model for class actions would fight the ‘increasing commercialisation’ of class action ‘lawfare’, amid calls for Labor to crack down on litigation funders.
You can now listen to The Australian's articles. Give us your feedback.
Labor should crack down on international litigation funders exploiting the nation’s class action provisions, a leading think tank says, arguing firms should have earnings capped, be required to hold official licences and be regulated by the corporate watchdog.
The Samuel Griffith Society, in a paper published on Friday, has also called for Victoria’s contingency fee model for class actions to be scrapped to help fight the “increasing commercialisation” of class action “lawfare”.
The calls come following a report in The Australian showing some of the country’s largest super funds, including Rest and Hesta, are investing millions of dollars in both “vulture” litigation funders and companies they are targeting.
The paper reveals Australia’s class action and litigation funding schemes have resulted in skyrocketing costs for claimants and a huge influx of international profit-seeking litigation funders.
“Changes to the law, particularly around litigation funding, have meant class actions have strayed from their original purposes of improving access to justice and introducing efficiencies in our legal systems,” the report, written by Xavier Boffa and Henry Davis, reads. “While there is a place for class actions in Australia, reforms are necessary to ensure class actions continue to meet these two key principles.”
Australia is the second largest forum for class action litigation behind the US, the report says. While class action regimes emerged over “concerns about improving access to justice”, recent developments have meant “the scales have tipped far too far in favour of the interests of litigation funders and, potentially, law firms”.
“As recently as August 5, the Federal Court approved a new form of funding agreement that Justice Murphy called ‘strange’,” the report reads. “The funding agreement, agreed ahead of a class action against Colonial First State, outlined that litigation funder Augusta would receive 2.5 times its costs, plus 12.5 per cent of settlement amounts over $50m.
“By Augusta’s own counsel’s submission, the structure was to protect the funder in the event of low recovery.”
Victoria introduced a contingency fee scheme in 2020 that allowed solicitors and litigation funders to charge a percentage of settlement funds in class actions. The regime allowed the use of group costs orders, which can include percentage-based contingency fees where both firms and funders can charge a portion of settlement funds.
Supporters of the Victorian system have argued it gives plaintiffs “better access to justice” and increases the “availability of funds for class action cases that cannot be funded by law firms on a ‘no-win, no-fee’ basis because they are uneconomical”. The report says these arguments are “dubious”.
“In Minter Ellison’s submission to the 2020 commonwealth parliamentary inquiry, they argued access to justice ‘may not be practically affected’ by the availability of litigation funding,” the report reads. “The firm claimed contingency fees, rather than leading to a vast increase in claims, would in fact mean firms funding actions would move to entirely minimise their risk. In other words, law firms and litigation funder partners would move to focus entirely on claims that they believed would create the greatest economic yield for themselves, while simultaneously minimising their risk.”
As such, the authors said contingency fees in Victoria “must be removed to address the increasing commercialisation of class action lawfare”.
The former Coalition government sought to crack down on class action suits but did not do so before the 2022 election.
More Coverage
Hypocrisy, bad taste and other follies of 2024
On New Year’s Day 2024, morale was relatively high since the Year of the Dragon was expected to usher in a time of rational thinking. Not quite how it worked out.
Dutton nuclear plan ‘economic madness’
Jim Chalmers has fired the first salvo in what is likely to be a sustained campaign of economic attacks by Labor on Peter Dutton’s nuclear plan, to be driven by the Treasurer himself.