Law reform in class actions and litigation funding in Australia
17 November 2022
Following the recommendations of a report issued by the Australian Law Reform Commission in 1988, class actions first made their way onto the Australian landscape in 1992.
Most class actions are filed in the Federal Court of Australian and are brought by one representative plaintiff on behalf of a class of members, all of whom must have a common issue of law or fact.
The Australian model is an “opt-out” one and both “open” and “closed” member class actions are permitted. The vast majority of class actions in Australia have been shareholder class actions, focused on alleged breaches of the continuous disclosure obligations imposed on listed entities. The majority of these class actions have been settled and courts are required to approve settlements, having regard to whether the settlement is fair and reasonable. There have only been three shareholder class actions that have run to judgment.[1]
Competing class actions
Particularly in the case of securities class actions, multiple class actions are often commenced against the same defendant in respect of similar conduct or claims.
Over the years, the courts have provided guidance as to how to deal with competing class actions, with some courts opting to stay all bar one of the actions and others opting to consolidate competing proceedings.[2]
In 2021, the High Court of Australia confirmed that when considering whether to order a stay of competing class actions, a multiplicity of factors were to be considered and there was no presumption that the proceeding that was filed first would be allowed to continue over those subsequently filed.[3]
Regulation of litigation funders
As in other jurisdictions, class actions in Australia are most commonly funded by litigation funders that pay the upfront costs of a class action in return for a percentage of the settlement if the case is successful. There is currently no cap on the percentage of settlement funds available to litigation funders and although in 2021 the Federal Government produced draft laws which would cap any proceeds to 30%, there have been no changes to the law.
Litigation funding has been permitted in Australia since 2006, when the High Court of Australia held that litigation funding was not an abuse of process and nor was it contrary to public policy.[4] Since then, litigation funders have become entrenched in the class action landscape, particularly in the Federal Court. However, the position in some states and territories is less clear than others.[5]
The approach to the regulation of litigation funders has been inconsistent and unpredictable, with the prevailing line often determined by the Federal Government in power at the time.
In 2009, the Full Court of the Federal Court of Australia held that litigation funding was a managed investment scheme.[6] This meant that litigation funders were required to be registered with the Australian Securities and Investments Commission and were subject to various provisions of the Corporations Act 2001 (Cth) (Corporations Act). However, following this decision the Federal Government quickly legislated so that litigation funders were exempt from the managed investment scheme regime.
In 2020, a subsequent Federal Government increased the regulatory burden on litigation funders by reinstating Corporations Act obligations and requiring that litigation funders hold Australian financial services licences (AFSL).[7]
In 2022, the saga continues as the Full Court of the Federal Court of Australia has recently reversed its previous position and ruled that litigation funding is not a managed investment scheme and that its 2009 decision was wrongly decided.[8] While the full effects of the recent decision remain to be seen, we expect that the reduced regulatory burden on litigation funders may result in increased funding activity in the future and will off-set the reduced number of class actions filed in 2021, as compared to previous years.
Such increased activity will likely also be bolstered by the Federal Government’s recent announcement that it also intends to reverse the regulatory changes introduced by the previous Government. The draft Corporations Amendment (Litigation Funding) Regulations 2022 (Regulations) will once again exempt litigation funders from the managed investment scheme regime, AFSL requirements, and product disclosure and anti-hawking provisions of the Corporations Act. Interested parties had until 30 September 2022 to make submissions on the draft Regulations and we are awaiting the next steps from the Federal Government.
The position in Victoria
The legal framework in Victoria is somewhat different to the rest of the country. Since 2020,[9] the Supreme Court of Victoria has had the power to make group costs orders in class actions filed in the Court, which effectively overturned previous prohibitions on contingency fee arrangements. Such arrangements remain prohibited in the rest of the country.
The first award of a group costs order was made in March 2022 when a plaintiff law firm was permitted to charge a contingency fee of 27.5% of any settlement.[10] Interestingly, this is less than the 30% cap suggested by the Federal Government last year.
It remains to be seen whether any other states and territories pass similar legislation to Victoria, or whether the recent successful application results in an increasing number of applications being made in Victoria.
What is evident, however, is that the class action and litigation funding landscape across Australia varies greatly, even between the states and territories. It is ever-changing and we think is likely to remain so in the future given Australia’s federal system and the resulting patchwork quilt of political influences which, together with the approach by different courts, results in a complex and dynamic system.
If you have any questions or require any assistance regarding class actions law reform, please contact Partner Patrick McGrath.
[1] TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Limited [2019] FCA 1747; Crowley v Worley Limited [2020] FCA 1522; Bonham v Iluka Resources Ltd [2022] FCA 71.
[2] See for example Perera v Getswift [2018] FCAFC 202; Impiombato v BHP Billiton Limited [2018] FCA 2045; McKay Super Solutions Pty Ltd (Trustee) v Bellamy's Australia Ltd [2017] FCA 947; Bellamy's Australia Limited v Basil [2019] FCAFC 147; Wigmans v AMP Ltd [2019] NSWSC 603; lemweb Nominees Pty Ltd v BHP Group Limited [2019] FCAFC 107; Kuterba v Sirtex Medical Limited (No 3) [2019] FCA 1374.
[3] Wigmans v AMP Limited [2021] HCA 7.
[4] Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41.
[5] In Queensland, Western Australia, Tasmania and the Northern Territory the torts of maintenance and champerty have not been abolished and typically jurisdictions upholding these do not permit litigation funding. However, the Courts in Queensland have on occasion held that litigation funding was permitted, despite the continued existence of these torts: see Murphy Operator v Gladstone Ports Corporation (No 4) [2019] QSC 228.
[6] Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd [2009] FCAFC 147.
[7] Corporations Amendment (Litigation Funding) Regulations 2020.
[8] LCM Funding Pty Ltd v Stanwell Corporation Limited [2022] FCAFC 103.
[9] Justice Legislation Miscellaneous Amendments Act 2020 (Vic).
[10] Allen v G8 Education Limited [2022] VSC 32.
