What you need to know
- The Australian Law Reform Commission has published a discussion paper setting out a number of proposals for the regulation of third-party litigation funders and increasing the role of the Court in supervising class actions.
- The proposals include: a regulatory regime for litigation funders; Court supervised contingency fees for class actions; and new rules to prevent competing class actions, a problem dealt with in the recent decision Perera v GetSwift Limited [2018] FCA 732 (read our update here).
- In the context of shareholder class actions it is also proposed that the Australian Government should commission a review of the legal and economic impact of the continuous disclosure obligations of listed companies and the misleading or deceptive conduct provisions of the Corporations Act and the ASIC Act.
What you need to do
- Submissions in response to the discussion paper are due by 30 July 2018.
What does the discussion paper say?
Thirty years after the Australian Law Reform Commission (ALRC) published the report which led to the introduction of the current Australian class action regime, the ALRC again is looking at some of the most controversial issues in class actions.
In December 2017, the Attorney-General asked the ALRC to inquire into class action proceedings and third party litigation funders.
The ALRC has now published a Discussion Paper which makes a series of proposals summarised in the table below, and raises a number of questions for consideration.
| ALRC Proposals |
|
|---|
| Shareholder class actions | Commission a review of the legal and economic impact of continuous disclosure and misleading or deceptive conduct laws
|
| Litigation funding licenses | - Require third-party litigation funders to have a licence
- Services to be efficient, honest and fair
- Communications with class members to be clear, honest and accurate
- Adequate arrangements for managing conflicts of interest
- Sufficient financial, technology and human resources
- Adequate risk management
- Compliant dispute resolution systems
- Annual audit
|
| Alternatively, enhancement to current regulation | - Funders to report annually to ASIC on compliance with Regulatory Guide 248
- Make sure all varieties of litigation funding are covered by the current MIS exemption
- Specialist accreditation for class action lawyers
- Lawyers acting in a matter not to have financial interests in third-party funders
- Third-party funding to be disclosed
- Class members to be told of conflict rules and issues affecting lawyers and funders
|
| Commission and legal fees | - Allow contingency fees for class action plaintiff lawyers only
- Make contingency fees subject to Court approval
- Empower the Court to modify the commission rate in funding agreements
|
| Competing class actions | - Only allow open class actions
- Where two or more competing class actions, the Court to choose one to proceed unless satisfied that efficiency or the interests of justice require more
- Funding agreements for class actions to be enforceable only with Court approval
- All funding agreements and solicitors' costs agreements be on the basis of a common fund order
- A new case management procedure to choose the applicant, lawyer and funder and approve the costs and funding agreements
|
| Settlement approval and distribution | Court appointed referees to assess the reasonableness of costs and efficiency of work before a settlement approval |
| Collective redress scheme | Consider establishing a collective redress scheme to enable class members to access a remedy without litigation of general law or statutory claims |
Why is class action law reform on the agenda?
The discussion paper recognises a level of disquiet in the Australian market about the economic impact of shareholder class actions, including the increasing cost of D&O insurance.
The proposals to regulate litigation funders and class action lawyers, permit contingency fees and have referees assess the reasonableness of costs echo themes recently canvassed by the Victorian Law Reform Commission, whose report has been delivered and is due to be released when tabled in Parliament. That review was commissioned following public discussion of a settlement that was said to benefit a third-party funder and law firm more than class members.
Recent instances of multiple open security class actions may have reduced the cost of third-party litigation funding due to competition, but overlapping class actions are currently causing delay, inefficiency and greater overall costs. The decision in Perera v GetSwift Limited [2018] FCA 732 promises to alleviate these problems to some extent. Given the existence of equivalent class action regimes in New South Wales, Victoria and Queensland, the ALRC's proposals may necessitate co-operation between State and Federal governments.
What will happen next?
The ALRC has invited stakeholders to meet with it to discuss these issues and requires that any written submissions be made by 30 July 2018.
The ALRC's report is due by 21 December 2018.
Authors: John Pavlakis, Partner; Andrew Westcott, Senior Expertise Lawyer.
