In December 2016, the Victorian Law Reform Commission (VLRC) was asked to consider measures to ensure that litigants seeking to enforce their rights using litigation funding and class actions were not exposed to unfair risks or disproportionate cost burdens.
Hot on the heels of a Discussion Paper on a similar topic from the Australian Law Reform Commission (ALRC), the VLRC has recently released its Final Report and recommendations for reform,
In an earlier article, we took a closer look at the ALRC’s bold and prescriptive proposals. In this article, we consider the VLRC’s narrower and more cautious approach, and also identify how some of the VLRC’s key recommendations compare with the ALRC’s proposals.
How would the VLRC’s recommendations affect you?
For plaintiffs and group members, the VLRC’s recommendations are aimed at providing more efficient access to justice through a mix of:
- changes to procedural measures to better protect group members’ interests, such as better costs disclosure and more supervision of settlement distribution processes; and
- larger-scale proposed reforms to the class action industry, most notably, recommendations to allow contingency fees in class action proceedings.
While the VLRC’s recommendations appear to provide little, if any, direct benefit to defendants, some measures designed to make class actions more efficient for the benefit of group members may have knock-on positives for defendants.
Except for contingency fees, the VLRC’s Final Report focuses on different issues and makes different recommendations to those in the ALRC’s Discussion Paper. As a result, plaintiffs and defendants will need to stay abreast of both Victorian and Federal changes, because reforms may well involve duplication (or even dislocation) rather than co-ordination.
The VLRC’s narrow, cautious approach
Three elements appear to have influenced the VLRC to take a much narrower and more cautious approach than the ALRC:
- Terms of reference: The VLRC’s terms of reference were focused on better access to justice for plaintiffs, with the VLRC asked to consider specific issues ‘to ensure that litigants who are seeking to enforce their rights using the services of litigation funders and/or through group proceedings are not exposed to unfair risks or disproportionate cost burdens’.
In contrast, the ALRC was asked to take a broader look at industry-wide regulation of class actions and litigation funding – ‘whether and to what extent class action proceedings and third party litigation funding should be subject to Commonwealth regulation’.
- Different cases and less litigation funding: The issues most urgently requiring reform—such as competing shareholder class actions funded by litigation funders—are not so prevalent in Victoria because the Victorian Supreme Court tends to deal with different types of cases. In particular, the VLRC observed that:
- The Victorian Supreme Court deals with more mass tort claims than it does large commercial cases, such as shareholder class actions.
- Litigation funding is not a prominent feature of the Victorian regime like it is in the Federal Court. Of the 85 class actions commenced in Victoria since the regime began in 2000, only ten have been funded by a litigation funder.
- Preserving national consistency: The VLRC expressly rejected any reform that would see the Victorian class action regime depart from the core structure that is common to the Commonwealth, Victoria, New South Wales and Queensland class action regimes. The VLRC believed that national consistency was too valuable to sacrifice because it reduces the incentive for plaintiffs or defendants to ‘forum shop’ and means that decisions by one Australian court can usefully be applied by other courts.
Once these three features were taken into account, the VLRC was left with little scope (or indeed, apparent need) to propose large scale substantive reform.
Three proposed categories of procedural reform
Save for its proposals in respect of contingency fees, the VLRC proposed three categories of modest procedural reforms aimed at protecting the interests of unrepresented group members. These three categories are:
- Recommendations for simpler and clearer disclosure to group members about costs and the class action process, including:
- mandatory disclosure to group members of changes in funding arrangements including a ‘Funding Information Summary Statement’ setting out key litigation funding charges;
- powers for the Court to require that the plaintiffs’ lawyers provide an estimate of legal costs; and
- more high quality information to be displayed on the Supreme Court website, such as plain English opt-out and settlement notices.
- New powers recommended to enable the Court to exert greater oversight over settlement approval and distribution. This is a key example of where the VLRC’s concerns differ from the ALRC’s because of the different types of cases run in their respective jurisdictions.
For shareholder class actions, settlement approval and distribution is less of an issue, because generally all group members have suffered financial loss, which can often be calculated relatively simply. However, in mass tort and consumer claims, the settlement distribution process can take as long as or even longer than reaching trial or a settlement, as the process requires an individual assessment of the type and amount of loss a group member has suffered. These difficulties have seen criticisms of what some have perceived as unfairness or excessive costs in settlement distribution.
The VLRC recommends that the Court more readily appoint contradictors to test the fairness of settlements, and require more detailed disclosure in the affidavits made in support of settlement, including greater disclosure about:
- mechanisms for how the Court will review disputed distribution decisions;
- how group members will be informed about progress of the distributions; and
- measures taken to ensure distribution is efficient, timely and cost-effective.
Further, even after settlement is approved, those administering the distribution scheme would be required to report to the Court regarding:
- the performance of the settlement distribution scheme;
- what distributions have been made and the time taken; and
- the amount charged for the distributions.
- Changes to the Supreme Court Act 1986 (Vic) and Court practice notes to give express form to existing discretionary Court powers. These proposals are not intended to give the Court any radical new powers, but rather make the situation for parties clearer by clarifying or giving statutory expression to existing powers, such as:
- removing the representative plaintiff where their interests do not represent those of the class;
- ordering a common fund for all costs;
- reviewing and varying legal costs and litigation funding fees; and
- statutory enunciation of the principles for approval of settlements.
Contingency fees involve lawyers charging fees calculated as a percentage of the amount successfully recovered by a plaintiff. Litigation funders can do this, but currently, lawyers in all Australian jurisdictions are prohibited from doing so. The ALRC proposed that contingency fees be allowed in class actions, subject to certain conditions.
The VLRC goes further, and is in favour of contingency fees across the legal profession, but only as a national change. It recommends that Victoria propose to the national Council of Attorneys-General the national adoption of contingency fees for all matters throughout the legal profession. It acknowledges that reform of such magnitude should only be done nationally, and that Victoria should not introduce such fees unilaterally.
The process of agreeing a uniform national approach to contingency fees would likely be a long and drawn out one, with low prospects of delivering meaningful reform quickly. This is particularly the case given the difficulty in agreeing a uniform law for other aspects of the legal profession, to which only Victoria and New South Wales have signed up currently.
As a fall-back position, the VLRC recommends that lawyers acting for plaintiffs in class actions in the Victorian Supreme Court be permitted to charge contingency fees, subject to lawyers indemnifying the representative plaintiff and also paying disbursements. This fall-back position closely mirrors the ALRC’s proposal for also allowing contingency fees, in that it is limited to class actions and requires the lawyers to bear the risk of disbursements and adverse costs orders.
Importantly, however, the VLRC specifically contemplates Victoria going it alone on contingency fees in class actions, even if national reforms for contingency fees across the legal profession do not go through. The VLRC suggests that Victorian class actions procedures are currently ‘underutilised’, which contingency fees might remedy. Further, it considers class actions are particularly appropriate for contingency fees because:
- the representative plaintiff generally takes on a disproportionate exposure to the financial risk of an unfavourable outcome, compared to the value of their claim; and
- the Court already closely scrutinises the proposed terms of any settlement, allowing the Court to supervise and control the percentage fees charged.
The VLRC’s proposal raises the possibility that, unless the ALRC’s national proposal is also adopted, then lawyers in class actions in the Victorian Supreme Court could charge contingency fees, but lawyers in other jurisdictions could not. This could lead to Victoria becoming a jurisdiction of choice for lawyers seeking to bring actions funded on a contingency basis, and draw a greater proportion of class actions in Australia towards the Victorian Supreme Court.
Issues of lesser concern to Victoria
A number of the proposals in the ALRC report were not addressed in great detail in the VLRC report because the VLRC decided that the issues were not as pressing for the Victorian jurisdiction. Therefore, the VLRC made either no recommendations or more limited recommendations in relation to the following:
- Competing class actions: The VLRC’s view is that competing class actions have not been a problem in Victoria to date. Therefore, unlike the ‘selection hearing’ process proposed by the ALRC, the VRLC believes that the Court already has sufficient powers to deal with competing class actions and that there needed only to be greater guidance for the Court set out in the Court’s practice note.
However, the VLRC did propose that there be a ‘cross-vesting judicial panel’ to deal with the more difficult circumstance where competing class actions were commenced in different jurisdictions. This standing panel would have judicial members from each jurisdiction, and would make a decision about which court was most suitable to run a particular class action proceeding.
- Licensing of litigation funders: The VLRC’s view was that industry-wide regulation of litigation funding was appropriate but that ‘industry-wide issues require national responses’. Accordingly, the VLRC recommended that Victoria not seek to license or regulate litigation funders alone but instead advocate for strong national regulation through the Council of Australian Governments (COAG). This is in line with the ALRC proposing national regulation of litigation funders through a licensing regime administered by ASIC.
- Economic impact of continuous disclosure laws: One of the ALRC’s more controversial proposals was for the Federal Government to commission a review of continuous disclosure and misleading or deceptive conduct laws, given the ‘economic and legal impact’ these laws and shareholder class actions were having on Australian companies. The VLRC did not venture into this territory, most likely because shareholder class actions are not a prominent feature of Victoria’s class action regime.
As far as the VLRC is concerned, there appears to be only minor cause for reform in relation to class actions in Victoria. This view seems out of step with seemingly routine calls for major overhauls of the system, particularly in respect of shareholder class actions.
However, there is much to be said for the VLRC’s incremental approach, especially where current issues around competing funded shareholder class actions do not affect Victorian class action practice. The incremental, cautious approach also seems to be supported by recent figures from Professor Vince Morabito, which suggest that the number of class actions in Australia has not substantially increased compared with earlier periods in Australia’s recent history, and is not out of step with a country of Australia’s population size.
Reform proposals in the class action area will be in a state of flux for some time yet.
The ALRC is not due to deliver its final report until 21 December 2018, and given the VLRC’s focus on co-ordinated national reform on a number of issues, detailed proposals or reform legislation are unlikely to be forthcoming until well into 2019.
However, many of the VLRC’s smaller scale recommended changes to Victorian practice notes and practitioners’ guidelines provide sensible mechanical responses to particular issues, and could be adopted sooner rather than later, and separately, to the larger-scale national reform.