IMF Bentham’s CEO Andrew Saker responds to ALRC reform recommendations

Inquiry into Litigation Funding

The Australian Law Reform Commission’s (ALRC’s) review of the class action regime and litigation funders in 2018 was timely. It was over 25 years since the class action regime was introduced into Australia and almost 20 years since third-party litigation funding became available.

The ALRC’s final report was made public on 24 January. It includes 24 recommended reforms intended to “promote fairness and efficiency; protect litigants; and assure the integrity of the civil justice system”. Here is IMF Bentham’s view.

As Australia’s pioneer of commercial litigation funding and leading funder, IMF Bentham has a particular insight into the current system. Class actions are particularly complex and costly. Each action involves different circumstances, considerations and issues. We think that some of the ALRC’s recommendations will benefit class members and improve the existing class action regime.

The ALRC has recommended that the Court be given express power and a new procedure to resolve competing class actions. IMF Bentham welcomes a principles-based approach to how the Court chooses which action “best advances the claims and interest of group members in an efficient and cost-effective manner” over set criteria that may not be relevant to the circumstances.

Also welcome is the ALRC’s decision not to recommend that claimants must seek Court approval to commence a class action. This would have provided defendants with additional opportunities to object to class actions and add cost and delay

However, in IMF Bentham’s view, some of the ALRC’s recommendations have the potential to reduce the flexibility of the Court to address issues on a case by case basis, will increase costs for class members and provide procedural barriers that will inhibit access to justice.

  1. The ALRC has recommended that all future class actions be commenced as ‘open’, ie including everyone affected. This would remove the ability of a claimant to choose to represent some, and not all, affected persons and reduce flexibility. By contrast, a ‘closed’ class (eg restricted to those who sign a funding agreement or to particular claims) provides the funder and lawyers an opportunity to carefully investigate the claims and ascertain the level of interest of potential class members, and the merits and viability of proceeding before incurring significant costs and court time. This proposal may lead to a “race to the Court”, which will waste resources of all involved, including the Court and defendants.
  2. The ALRC has recommended allowing lawyers to charge “percentage-based” or contingency fees in class actions. Lawyers owe fiduciary duties to clients (the litigants) and there is a fundamental conflict of interest when lawyers have a financial interest in the outcome of the case. The current system allows lawyers and funders to act as a check on each other, with both subject to Court supervision.
  3. Contrary to earlier indications, the ALRC has not recommended that funders operating in Australia be licensed. This was recommended by the Productivity Commission several years ago and IMF Bentham has long called for licensing. Third-party funding arrangements generally include obligations to pay significant sums. Prudential regulation would ensure those promises can be met and would offer valuable consumer protections, particularly where the funder is foreign-based or a private company (as opposed to an ASX-listed funder where regular financial information about the funding entity is public).
  4. In lieu of a licensing regime, the ALRC has recommended greater Court oversight of litigation funding arrangements of class actions. Proposed measures include Court approval to enforce third-party litigation funding agreements and an express statutory power to reject, vary or set their terms, including funding fees. The proposed power is reasonable if the Court is making a ‘common fund’ order. However, where an agreement has been reached between a funder and a claimant, and no common fund order is sought, then Court intervention in a commercial contractual arrangement is not appropriate. The recommendation requiring Court approval to enforce a funding agreement would also introduce significant uncertainty for funders if they could not rely, with certainty, on being able to enforce the contract until leave were given. Both proposals represent a fundamental departure from freedom of contract and an overly paternalistic approach to the relationship between funder and lawyer, and lawyer and client.
  5. The ALRC has recommended a review of continuous disclosure laws and the statutory prohibitions on misleading or deceptive conduct. This reaction to pressure from the corporate and insurance sectors comes at a time when significant corporate misconduct is being revealed to the Australian public. Rather than review these laws, steps should be taken to make their enforcement less costly and more efficient. IMF Bentham has suggested Court supervised costs budgeting for both sides. This has been successfully implemented in the UK and an Australian Federal Court judge has expressed interest in trialling it here.

Before implementing any changes, the Government must be satisfied that reform is necessary and would benefit litigants. The Attorney-General has announced there will be further consultation with stakeholders and IMF Bentham would be happy to be part of that process.

A version of this article appeared in The Australian on 1.02.19.