Litigation funders level the playing field

By Andrew Saker

Why are so many class actions bankrolled by litigation funders? Simple. Because class actions are high risk, highly complex and highly expensive.

Few Australians have the resources, the understanding of the legal process and, frankly, the patience to take on powerful, deep-pocketed defendants in a fight that can last years.

In approving the settlement in a recent Omni Bridgeway-funded class action for those who had suffered damage as a result of chemical contamination of land, Federal Court Justice Michael Lee summed up the reality for aggrieved parties without litigation funding. They would, he said, be the equivalent of “supplicants requesting compensation, in circumstances where they would have been the subject of a significant inequality of arms”.

That is why litigation funding exists. Litigation funders level the playing field. They manage the complexity, pay the bills and take on the down-side risk of losing.

The main beneficiaries are the countless Australians who would have no means of accessing justice and seeking compensation when they have suffered a mass civil wrong. Our firm, Omni Bridgeway, has alone helped more than 300,000 Australians access justice over the last 20 years.

And there are other beneficiaries. Funders help ensure only meritorious class actions are brought before an overworked court system. And a funder can give defendants a degree of comfort their costs will be covered in an event of an unsuccessful class action.  In Australia’s court system, the losing party is required to pay the successful party’s costs, in addition to their own. This meant that, when they first emerged almost 30 years ago, Australian class actions were prohibitively expensive for most claimants to take on the costs and risks of pursuing an action.

The current Australian parliamentary inquiry into litigation funding and the regulation of the class actions system is welcome and has certainly generated a vocal and polarised debate, as seen in the pages of The Australian Financial Review. 

And where there is conflict there are headlines, and yes, when David beats Goliath, there are Hollywood scripts, as Erin Brockovich’s famous U.S. class action against Pacific Gas and Electric attests.

There is legitimate debate about the industry structure for litigation funding and class actions but  all voices agree that this system is an important mechanism for people to access justice.

While we agree there is room for improvement, class actions provide an efficient procedure for the courts, claimants and defendants to resolve disputes with a common set of issues.

The parliamentary inquiry has provided the opportunity to scrutinise the flawed and facile analysis of funded class actions by the Menzies Research Centre. Claims of an ‘explosion’ in class action numbers have been debunked by academic data, mischaracterisation of litigation funder returns has been put in its proper context, and misinterpretation and selective quotation from Federal Court judgments has been set straight.   

Most agree that some form of additional regulation is necessary and desirable, over and above the checks and balances already provided by the court system. Omni Bridgeway has been a consistent advocate for regulatory enhancement.

We strongly support the licensing regime proposed by the Treasurer earlier this year to require all litigation funders operating in Australia to hold an Australian Financial Services Licence (AFSL).

We believe this will increase transparency, ensure the capital adequacy of funders for the benefit of all stakeholders, including defendants, and enhance public confidence in what we do.

Omni Bridgeway (then known as IMF Bentham) applied for and obtained an AFSL in 2005, believing at that time that litigation funding could be a financial product. Once it became clear that it was exempt from a licensing requirement, we gave up the licence in April 2013 but continued to comply with the current regulations overseen by ASIC.

Omni Bridgeway also supports the government’s proposed application of the managed investment scheme (MIS) regime to future funded class actions in Australia, with appropriate modifications. And we think it’s appropriate to ensure a return from any class action of at least 50% to class members after costs, legal fees and the return to the litigation funder.

Litigation funding has enabled many class actions to be pursued and tens of thousands of group members to be compensated for mass wrongdoing such as environmental damage, product liability and corporate misbehaviour. Without funding, it is highly likely these would have received nothing.

In the uncertain environment wrought by the unfolding pandemic, ensuring that Australians still have access to a well-run class action and litigation funding system will be as important as ever.

This article was also published in the Australian Financial Review on 3 August 2020.