Australian Parliamentary inquiry into litigation funding and class actions – getting the balance right

Getting the balance right

Omni Bridgeway’s Chief Executive Officer and Managing Director, Andrew Saker, appeared before the Australian Parliamentary Joint Committee on Corporations and Financial Services on 13 July 2020. The Joint Committee is currently conducting an inquiry into litigation funding and the regulation of the class action industry.

Vocal opponents of the sector have used the inquiry as an opportunity to disparage the industry and spread misinformation, including in written submissions and oral evidence before the Joint Committee. As Australia’s largest and most experienced litigation funder, Omni Bridgeway believes that the inquiry provides an opportunity to improve the class action system in Australia, and the role of litigation funding within it, to ensure fair and equitable outcomes for ordinary Australians.

It is about getting the balance right.

Litigation funding provides the opportunity to access justice

In his opening statement to the Joint Committee, Mr Saker put forward three core propositions:

  1. Litigation in our adversarial system is expensive and beyond the reach of most individuals and SMEs.
  2. The class action regime serves a valuable role in providing an efficient mechanism for the courts, plaintiffs and defendants to resolve disputes with a common set of issues.
  3. Litigation funding provides parties, particularly those who are impecunious, with the opportunity to access justice.

There appears to be almost universal acceptance of these statements, even by the sector’s most vitriolic opponents.

However, as Mr Saker explained to the Joint Committee, there are two key misperceptions in relation to the litigation funding industry, particularly as it intersects with class actions:

  • That there has been an explosion in the number of class actions in Australia.
  • That litigation funders are earning an avaricious return.

In Omni Bridgeway’s view, various submissions to the inquiry have sought to misuse and mischaracterise statistics to validate these assertions.

To the first issue, the independent research clearly proves that there has been no “explosion” in the number of class actions. In fact, after eliminating the many instances of duplicate cases, there were ten shareholder class actions in FY 2018, seven in FY 2019 and three in FY 2020 (to 31 January 2020).

These numbers don’t support the hyperbole of an “explosion”, nor can they be said to be distracting to directors or causing risk aversion or a negative impact on the economy.

To the second issue, Omni Bridgeway, like all commercial litigation funders, is a “for profit” business. However, the returns the company earns from funding cases like these are proportionate to the costs and risks the company accepts. The returns are overseen by the highest independent arbiter in our system, the courts, in a proactive manner. As various judicial authorities have stated, funder returns need to be viewed on a portfolio basis, without hindsight bias and on a net basis, not by cherry-picking individual case returns, after the event, on a gross basis.

Mr Saker explained to the Joint Committee the range of factors that Omni Bridgeway assesses when considering an investment and, if we decide to fund the case, when setting our fee. These factors include the merits of the case, the nature of the legal issues, the estimated budget to prosecute the case – frequently tens of millions of dollars – and the potential adverse costs, which usually represent an additional 70 per cent of the total estimated costs. 

Mr Saker was given the opportunity to correct the record about incorrect statistics and ill-founded analysis about returns to funders made by the Menzies Research Centre (MRC) in its submissions to the inquiry.  When questioned by the Joint Committee about these statistics, the chief of staff of the MRC was not able to produce the underlying data it had cited in its submission. Omni Bridgeway has been advised by law firm Herbert Smith Freehills that this was highly qualified and incomplete data drawn from two years (2016 and 2019), used for a continuing legal education presentation and not authorised for external use.

David versus Goliath

Mr Saker explained to the Joint Committee that most of the class actions that Omni Bridgeway has funded over the years would not be able to be prosecuted without the support of a litigation funder, including three PFAS cases against the Commonwealth Department of Defence and the action relating to the Brisbane floods in 2011 (Wivenhoe Dam). These actions cost many millions of dollars and take years to resolve (and the Wivenhoe Dam case is still running after eight years). Thousands of group members involved in each action would not have had the opportunity to receive any compensation at all.

Mr Saker was questioned by the Joint Committee about part of the settlement approval judgment in the PFAS class actions, in which Justice Lee in the Federal Court said:

“The reality of these cases … is that without funding, the claims of group members would not have been litigated in an adversarial way, but rather the group members would likely have been placed in a situation of being supplicants requesting compensation in circumstances where they would have been the subject of a significant inequality of arms…

It seems to be a testament to the practical benefits of litigation funding that these claims have been able to be litigated in an efficient and effective way, and have produced a settlement.”

Mr Saker explained that, in his view, Justice Lee was referring to the inequality of arms and disempowerment that would be faced by claimants without litigation funding. He said the analogy often used about litigation funding was ‘David versus Goliath’ - litigation funding of class actions levels the playing field and enables these claims to be brought.

Regulation of litigation funding

Mr Saker told the Joint Committee that Omni Bridgeway had long supported additional regulation of litigation funding. We believe this will increase transparency, ensure capital adequacy for the benefit of all stakeholders and enhance public confidence in what we do.

Omni Bridgeway supports the licensing regime proposed by the Treasurer, including the application of the managed investment scheme regime to funded class actions, modified to ensure this framework is fit-for-purpose in a litigation funding context and grandfathers existing cases.

Fair and equitable outcomes

Omni Bridgeway agrees with the views expressed by both the Australian Government and the Opposition that the class action system must deliver fair and equitable outcomes for all participants, particularly claimants. We have advocated for a number of measures that we believe will enhance the integrity of, and improve confidence in, the class action system without compromising the ability of ordinary Australians to access justice.

Any reforms adopted must get the balance right.