Submission to Productivity Commission on Litigation Funding and Class Actions

  • Date:04 Nov 2013
  • Type:Policy submission

On 4 November 2013, Company Directors lodged a submission with the Productivity Commission in relation to its inquiry into Access to Justice. Our comments to the inquiry were confined to matters relating to litigation funding and class actions.

Company Directors’ submission recognises that access to justice, including ensuring that the law is applied and enforced and that disputes are resolved fairly and effectively, is critical to ensuring the preservation of the rule of law in Australia. However, we are of the view that access to justice must be appropriately balanced against the economic and productivity consequences which flow from allowing third party funders to be involved in extensive, time consuming and costly litigation against corporations and directors for the purpose of obtaining a profit.

The approach taken to the regulation of litigation funding in Australia to date, has been one that provides little or no regulation for litigation funders. In large part this approach has sought to be supported by access to justice arguments.

Our submission notes that the access to justice arguments which support minimal regulation of litigation funders fail to recognise that in recent class action litigation access to justice has been limited or undermined by:

  • the use of closed classes in class actions which require group members to sign an agreement with a litigation funder to participate (and exclude those that do not);
  • the fact that many class actions are now promoted by plaintiff’s lawyers and litigation funders, not by aggrieved persons seeking to commence a proceeding to quell a real controversy;
  • the high level of control exercised by the litigation funder over the proceedings; and
  • the lack of data available to determine the returns (if any) to group members who are successful, when at least 25-35% of the return is commonly taken by the funder and a percentage of the remaining amount is used to cover the costs of the legal representatives.

We remain of the view that litigation funders should be subject to an appropriate regulatory regime that, at least:

  • provides certainty for participants in litigation that involves litigation funding;
  • protects potential members of a group intending to enter into a litigation funding arrangement and prescribes specific common safeguards and procedures;
  • prevents law firms from establishing related litigation funding providers;
  • requires litigation funders to meet certain prudential requirements so that funders have sufficient assets to meet any relevant costs orders made against them or the members of the plaintiff group; and
  • ensures that foreign litigation funders who finance actions in Australia have sufficient assets to satisfy costs orders and that those cost orders and the funding agreements entered into with persons located within Australia, can be enforced.

The submission also recommends that the Government undertake a detailed analysis as to whether a regulatory regime which encourages the proliferation of funded class actions against corporations is in the best interests of the Australian economy.

Download the policy submission (PDF 4 MB).