Just the Facts: Litigation Funding Does NOT Promote Frivolous Class Action Lawsuits

It is human nature to fear the unknown, resist change and cast doubt on new ideas.  Ever since the Federal Court of Australia Act (“FCAA”) was amended by the Federal Parliament in 1992 to allow “representative proceedings” (commonly referred to in the U.S. as class actions), predictions about the proliferation of frivolous class action litigation ensued.  Enter stage left the introduction and growth of the litigation funding industry in 2001 and those initial fear mongers of class action litigation in Australia exploded with anxiety that third party funding would change the Australian litigation landscape into one similar to that of the United States; which has a purported reputation for allowing meritless claims against large corporations for the purpose of obtaining settlements based on nuisance value alone.

Fast forward to the present day - 22 years since the inception of the FCAA amendments and 13 years since the introduction of third party funding in Australia.  If the naysayers were correct in their predictions, the Australian courts would now be overflowing with class action lawsuits on their docket.  Yet, based on a recent report from the Monash Business School on class action claims filed in Federal Court, the number of class actions filed since 1992 have remained constant at an average of 14.9 per year. 

While a recent report on class actions released in July 2014 by King & Wood Mallesons touts the number of class actions in 2013 at 21 and 7 in 2014 – these numbers simply do not justify the fear that such litigation in Australia is on the verge of rising to meteoric proportions.  Perhaps we should look at the real reason the fear being spouted into the legal landscape and determine the basis of these fears.  Perhaps it is the access to justice provided by third party funders to a segment of the population that seeks to hold corporations accountable for their missteps and indiscretion that truly serve as the basis of this fear.
 
Interestingly, in the December 2013 issue of Company Director Magazine, Tony Featherstone stated that “[A] known threat – with unknown consequences – is the rise of shareholder class actions. Corporate Australia can see this threat a mile away and the Australian Institute of Company Directors has lobbied for a regulatory crackdown on litigation funding.  But nobody knows how class actions will play out as greater competition in litigation funding potentially leads to a rise in spurious claims against large and mid-size companies. Greater shareholder activism will also concern boards in 2014.”[1]  This perceived “threat” of shareholder class actions in turn spurns the fear of corporate Australia to project their fear towards the litigation funding industry.  However, in determining what potentially can occur in the future of the class action litigation landscape, one can simply look at the hard numbers and the results spanning 22 years – simply that, on average, 14.9 class action cases are filed in Federal Court every year.

If we let fear of an idea paralyze our actions to progress forward, well…we just as surely would still believe the world is flat.

[1] Tony Featherstone “Making the right moves in 2014”, Company Director Magazine, 1 December 2013.  (Emphasis added.)