Plans by Australia’s recently elected Labor government to roll back litigation funding regulations could lead to increased class action funding, according to funders and commentators.
The country’s chief legal officer, Attorney General Mark Dreyfus, released a bill last week to exempt funders from Australian Financial Services License requirements and ensure that class actions are not treated as claims. managed investment schemes (MIS).
The requirements were introduced by the previous government and subjected funders to a more onerous regulatory regime.
“The Albanian government today released a draft settlement that reverses the previous government’s unfair treatment of class action plaintiffs,” Dreyfus said in a statement Friday.
“The proposed new regulations are instead written to facilitate access to justice rather than the previous Treasurer’s cynical efforts to hinder Australians’ access to class action funding, which he introduced under the guise of COVID-19. ”
The changes have been welcomed by foreign and local donors.
Simon Burnett, a London-based partner at Balance Legal Capital, said his firm expects it will now be able to take on more cases, adding that it already has the team in place in London and Sydney. to do it.
“The changes will likely result in more meritorious actions, backed by litigation funders,” he said. “This will improve access to justice for those who would otherwise have no way to seek redress.”
The MIS regime was unsuited to class action regulation and created unnecessary costs with no additional public benefit, he said. Once class actions were considered managed investment plans, they became subject to investment industry regulation.
Ending the treatment of class actions as managed investment plans will enshrine in law a Federal Court ruling last month that regulating them as managed investment plans was “demonstrably wrong.”
Andrew Aakar, chief executive of litigation funder Omni Bridgeway, said the government’s proposed changes will create a more conducive environment for litigation funders to work in the class action environment. “And it can provide us with more opportunities to do that,” he added.
Omni Bridgeway is one of the few funders to hold an Australian Financial Services License, which it has held for several years and which Sakar says inspires consumer confidence.
The previous government introduced tougher lender regulation in a bid to reduce the number of class action lawsuits in Australia, following complaints from business groups that companies were facing too many class action lawsuits from shareholders .
The changes appear to have been successful, according to data gathered by Vince Morabito, a professor in Monash University’s Department of Business Law and Taxation.
A total of 69 class action lawsuits were filed in the year through March 2021. Although this is a record, Morabito says the number can be explained by a rush to file before the entry into force of the new regulations. In fact, in the two days before the new regulations took effect on August 22, 2020, some 28 class action lawsuits were filed.
Morabito pointed out that shareholder class action lawsuits accounted for a much smaller proportion of the total – around a fifth – in the 12 months to March 2020 and the following 12 months to March 2021 than in previous years, suggesting that the new legislation had been effective in its purpose.
“Licensing requirements for funders introduced in August 2020 have made Australian class action regimes less attractive to overseas-based funders,” he said.
Indeed, foreign-based donors have welcomed the changes of the new government.
“Woodsford is pleased to hear that the new federal government plans to take a much more common sense approach to access to justice, particularly with respect to class actions and litigation funding,” said Stephen Freil, managing director of UK-based funder Woodsford.
“We did not consider previous regulatory reforms to be appropriate, but we bowed and were regulated.”
A change proposed by the previous government, that class action plaintiffs receive at least 70% of the damages or settlement, did not become law because it was defeated by the Senate. Judges will therefore continue to consider the fairness of class action distributions.
The current government has said it is considering clarifying and strengthening the powers of Federal Court judges “to ensure fair and reasonable returns to class action members.”
Alexander Morris, commercial litigation partner at King & Wood Mallesons, who describes himself as “don’t like litigation funding”, doesn’t believe changes to the class action funding regime will make a big difference to their numbers.
“The reality is that in class actions, litigation funding of one sort or another is established. He is here to stay,” he said.
Morris explained that Australia effectively has two separate class action funding regimes: a nationwide system involving litigation funders, and another in the state of Victoria, where contingency fees are allowed, which lawyers fund, although there is also the possibility of external funding.
In the longer term, the Labor government could try to rationalize the two separate schemes, Morris said. “It is in no one’s interest that there are differentiated funding arrangements in different Australian courts exercising jurisdiction over federal guidelines,” he said.
The government could also review the entire class action regime, since much of it, such as litigation funding, is not mentioned in federal legislation and has been created incrementally.
“It would be better if we actually had a diet on paper,” he said.