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Class action claims total over $10 billion – Government needs to act quickly to protect economy

"The recent explosion in class action claims by plaintiff law firms, typically backed by overseas litigation funders, is a clear and present danger to Australia’s fragile economy.

"Investment and jobs are threatened and business insurance costs are going through the roof. The Australian Government needs to act now to rein in speculative and costly class actions before they materially damage our economy. Ai Group has today released a seven point plan (see below) to address what is an issue of growing concern to Australian industry," Australian Industry Group Chief Executive, Innes Willox, said today.

"It is difficult to calculate the true cost of current class action claims because the cost is not known until the proceedings are over. However, based on the information that plaintiff law firms and litigation funders have publicly released, together with information provided by law firms involved in the proceedings, Ai Group has made a conservative estimate that the amounts claimed against businesses in the class actions filed in the last financial year are well over $10 billion. Nearly all of these class actions are still before the Courts.

"Overseas litigation funding firms have moved into Australia in a big way due to the fact that class actions in Australia are subject to scant regulation, compared with other countries such as the US and UK. Overseas investors should not be permitted to make super-profits at the expense of Australian businesses and jobs. Also, regulation cannot be left to the Courts. Litigation funding arrangements are financial products and these arrangements need to be regulated like other financial products.

"The level of returns which are being sought by litigation funders and plaintiff law firms in some of the current class actions are unconscionable and have been criticised by the Courts. Returns to litigation funders and plaintiff lawyers are extracted from the sum finally awarded or settled for. Therefore, unreasonable returns are unfair to the plaintiffs who the claim is purportedly being pursued on behalf of. Also, workers are being enticed to join some of the class actions through, what many would argue, is misleading and deceptive conduct.

"Insurers are playing a big role in class actions. This is leading to massive increases in insurance costs generally for businesses which is money that could otherwise be spent more productively on job creation or investment.

"The growing threat of class actions adds to business risks and creates a disincentive for those considering setting up new businesses, or taking on board and senior leadership positions. This has potential impacts for leadership and management capability in the long term.

"We urge the Federal Government to introduce legislative amendments into Parliament to implement the following reforms without delay:

  • Regulation of litigation funders through the Australian Securities and Investments Commission – Litigation funding arrangements are financial products and there is no legitimate reason why these arrangements should not be subject to regulation like other financial products.
  • Imposing reasonable limits on returns to plaintiff lawyers and litigation funders – Currently, some law firms and litigation funders are earning excessive profits from class actions, to the detriment of plaintiffs.
  • Exposing plaintiff lawyers and litigation funders to adverse costs orders for unsuccessful class actions – Under the Fair Work Act, costs orders are only able to be made in very limited circumstances and are relatively rare. This makes class action litigation relating to claims under the Fair Work Act very attractive to plaintiff law firms and litigation funders. Current class actions relating to claims under the Fair Work Act include claims that employees engaged as casuals are entitled to annual leave entitlements and claims that persons engaged as independent contractors are employees.
  • Prohibiting litigation funders exerting any control over the positions taken by, and the arguments pursued by, the lawyers in the proceedings – This is important to protect lawyers' duties to the court and their clients. A similar requirement applies in some other countries.
  • Increasing the current minimum number of plaintiffs – Currently in Australia, a class action can be commenced if the lawyer acting for the lead plaintiff believes there are at least six other people who have a similar claim, even if no other person has given consent for a claim to be pursued on their behalf. This minimum number needs to be increased.
  • Implementing a 'predominance rule' like that which operates in the US, whereby the common issues amongst the claims must predominate – At present in Australia, a class action can be pursued if there is one common issue of fact or law.
  • Implementing a preliminary or certification hearing process, like that which exists in the US – This would require the plaintiffs to satisfy the Court that the relevant requirements for pursuing a class action are satisfied, before the defendants are exposed to major costs.

"If the Federal Government does not act quickly to protect the Australian economy from speculative class action claims it may be too late to prevent substantial damage. Virtually every day another class action is announced due to Australia's extremely lax class action laws," Mr Willox said.

Media enquiries: Tony Melville – 0419 190 347