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Greater protections for class action members in High Court ruling

"The High Court decision today rejecting claims for common fund orders in class actions is a positive outcome for class action members who stood to lose a very high proportion of any awards in their favour to litigation funders," Ai Group Chief Executive, Innes Willox said today.

"The High Court had been examining the legality of court orders that would force class action members to pay litigation funders. This would have applied even to those who did not agree to the funding arrangements.

"The High Court effectively ruled that it was not the role of courts to guarantee a level of return on investment for litigation funders and to impose their commissions on to class action members without their consent.

"As the ruling was a split decision, this suggests that a degree of legislative uncertainty remains in this area. This highlights the need for reforms which would give greater protection to class action members against litigation funding arrangements that deliver huge windfall payments to largely unregulated, foreign litigation funders.

"Another contentious area relating to class actions is a proposal by the Victorian Government to allow lawyers to charge contingency fees. This would only exacerbate the situation and put the fox in the henhouse by allowing lawyers to be incentivised to earn the type of huge unregulated commissions currently enjoyed by litigation funders.

"The Australian Law Reform Commission found that litigation funders and lawyers are taking around half of any amounts awarded in class actions. Ai Group's proposed reforms would not in any way restrict access to justice; they would ensure adequate protections for class action members and see more of any claims going into their own pockets," Mr Willox said.

Ai Group has previously called for legislative reforms including:

  • 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.

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Tony Melville – 0419 190 347