TEXT OF LETTER TO CROSSBENCH SENATORS
Re: Labor motion to disallow litigation funding regulations
We are writing to urge you oppose Labor’s motion to disallow the regulations which require litigation funders to hold an Australian Financial Services Licence (AFSL) from 22 August 2020, for new class actions.
The Senate Notice Paper for Thursday 27 August 2020 indicates that the following Notice was given by Senator O’Neill on 26 August 2020, and that the motion will be considered on 31 August 2020:
Senator O’Neill: To move—That the Corporations Amendment (Litigation Funding) Regulations 2020, made under the Corporations Act 2001, be disallowed [F2020L00942].
The disallowance of the regulations is not in the interests of Australian businesses, plaintiffs or the community. The obligations on holders on an AFSL are reasonable and appropriate, and include:
- doing all things necessary to ensure that the financial services covered by their licences are provided efficiently, honestly and fairly;
- maintaining an appropriate level of competence to provide financial services and ensuring that their representatives are adequately trained and competent to provide the financial services;
- having adequate organisational resources to provide the financial services covered by their licence; and
- having in place adequate arrangements for the management of conflicts of interest.
Litigation funders should be regulated like any other businesses which offers financial services. The level of returns that some funders are currently earning are egregious and some of their practices are unacceptable. The absence of appropriate regulations in Australia has led to many overseas firms entering the market and relying on tax havens such as Jersey, Malta and the Cayman Islands. Foreign funders are taking a vast amount of money away from Australian businesses and from plaintiffs in class actions. Many pay little or no tax in Australia.
In the Australian Law Reform Commission's final report from its inquiry into Class Action Proceedings and Third Party Litigation Funders (published last year), it was reported that the median return to plaintiffs in funded class actions over the past five years was only 51%, compared to 85% for unfunded class actions. This highlights that litigation funding firms are being enriched at the expense of plaintiffs.
In 2013 a decision was made by the former Labor Government to grant an exemption to litigation funders from the requirement under the Corporations Actfor providers of financial products to hold an AFSL. The exemption was granted in July 2013 through the Corporations Amendment Regulation 2012 (No. 6) which amended the Corporations Regulations 2001. In hindsight, the exemption was not appropriate. The regulation that the Opposition is attempting to have disallowed would reinstate the inappropriate exemption.
The largest litigation funding firm that is listed on the ASX, Omni Bridgeway Ltd, has expressed support for the regulation of litigation funders, including licensing, minimum onshore capital requirements, disclosure obligations and reporting standards. Omni Bridgeway recently described the new regulation requirements on litigation funders as 'workable' and stated that ASIC has clarified what is required under the new regime (The Australian, 'Omni Bridgeway pivots to litigation funding', 26 August 2020).
The new regulation requirements only apply to class actions commenced after 22 August 2020. Existing class actions are not required to be regulated and continue unaffected.
The Supreme Court in Victoria is currently investigating fraudulent conduct by lawyers and funders involved in the Banksia class action. In the Court proceedings, a number of the parties involved have admitted that they engaged in fraudulent conduct.
The regulation of litigation funding arrangements is long overdue and is finally in operation. It is vital that this is not disturbed. We would be happy to provide any further information that you may require.
Media enquiries: Tony Melville – 0419 190 347