The Morrison government has flagged possible class action reform by the end of the year including heavily scrutinising the huge profits of litigation funders.
Attorney-General Christian Porter yesterday formally began the process for a parliamentary committee inquiry, which will examine all aspects of the class action system. The committee will report by December 7.
There are concerns litigation funders are fuelling the volume of class actions and restricting the payouts to ordinary Australians caught in situations such as the summer’s bushfires.
Australian business is facing an unprecedented surge in class actions with fears from organisations including the Ai Group that these actions will increase as a result of the pandemic.
“There is growing concern that the lack of regulation governing the booming litigation funding industry is leading to poor justice outcomes for those who join class actions expecting to get fair compensation for an injury or loss,” Mr Porter said.
“In many cases, funders are taking up to 30 per cent of legal settlements, leaving the members of the action to fight over the scraps that remain once legal fees and other costs are paid.
“The Australian Law Reform Commission found that when litigation funders were involved in a class action, the median return to class members was just 51 per cent, compared to 85 per cent when a funder was not involved.
“That is clear evidence that the system is not delivering fair and equitable outcomes for those mums and dads who join class actions, and it demonstrates why an inquiry into all aspects of the system is needed.
“Justice is not a business and the primary focus of those who work in the legal system should always be on getting the best outcomes for their clients, not on maximising returns for hungry shareholders.”
Parliament’s joint committee on corporations and financial services is expected to investigate what evidence is available regarding fees, costs and commissions earned by litigation funders.
It will also look at the impact of litigation funding on the damages and other compensation received by class members in actions paid for by litigation funders.
It will examine the financial and organisational relationship between funders and lawyers acting for plaintiffs in funded actions to see whether they have the capacity to impact on plaintiff lawyers’ duties to their clients.
Ai Group chief executive Innes Willox told The Australian last week that global litigation funding firms were earning “outrageous’’ returns 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.
He 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.