The present class action system in Australia is an attractive model to potential plaintiffs compared with other jurisdictions around the world, yet a government review of the Australian civil litigation regime will examine a number of key areas specific to class actions and the funding vehicles that finance them.
Government Review – The Productivity Commission
The Commonwealth Government Productivity Commission’s “Access to Justice Arrangements” will broadly consider Australia’s justice system, however, the Commission’s Issues Paper released on 16 September 2013 canvasses specific inquiry into the litigation funding arrangements that finance class actions, such as:
- What risks are posed by litigation funding arrangements and how do these differ from the risks posed by contingent and other billing practices? What proportionate and targeted regulatory responses are required to manage these risks, and more uniform regulation required across jurisdictions on this matter?
- What are the benefits of litigation funding? In what areas of civil justice is it appropriate to consider use of litigation funding2
The review coincides with a recent increase in Australian class actions in the area of securities and product liability law and also the Federal Court’s ruling that Standard & Poor’s participated in misleading and deceptive conduct over its rating issuing in November 2012 which was a global first and a watershed judgment for securities class actions following the global financial crisis.
Balancing conflicts and bottom lines
Public commentary on the issue has been led by the new Commonwealth Attorney-General, George Brandis, who has identified clear concerns with lawyers who may, indirectly, financially benefit from a stake in the very litigation funders financing the litigation in which they act. Six weeks after assuming office, Senator Brandis told The Australian newspaper, "I am by no means satisfied about the way this is dealt with at the moment by rules of court or by self-adopted protocols by those practitioners…in the near future it is my intention to give some indications about the way I think those conflicts of interest and moral hazards should be addressed."3
The potential divergence of a litigation funder’s interests and the interests of those whose litigation is being funded is of paramount concern; the fear that the commercial sensibilities of the litigation funder may run counter to those of the client, and the independence of the legal advice being delivered, may ultimately become a question of public policy.
Is greater regulation the answer?
Whilst some recently enacted controls4 discretely deal with conflicts of interest, litigation funders themselves are not expressly regulated and are not subject to the same levels of prudential oversight as investment schemes. In its submission to the Productivity Commission, the Australian Institute of Company Directors called for greater regulation of litigation funders by seeking the creation of a separate licence for funders under the Corporations Act 2001 (Cth).5 Major Australian litigation funder IMF, which has collected $1.3 billion for clients since 1999, agrees, submitting to the Productivity Commission that licensing and greater supervision of litigation funders is warranted.6 However, in a riposte delivered to IMF in its own submission to the Productivity Commission, major Australian plaintiff firm Maurice Blackburn opined that“…IMF is not concerned about barriers to entry in the litigation funding market,”7 noting that the present competition amongst funders resulted in Maurice Blackburn recovering for plaintiffs a combined $268.5 million from class actions that IMF declined to fund.
The Federal Court no longer to decide
The Productivity Commission has received 148 submissions in relation to the inquiry and is scheduled to release a draft report to the Commonwealth Government in April 2014. A judgment of the Full Federal Court of Australia was to be handed down prior to release of the Productivity Commission’s report. Maurice Blackburn is presently representing group members in the Equine Influenza class action8 before the Federal Court. An application was before the Court for Claims Funding Australia Pty Ltd (CFA) to co-fund the class action. CFA is the trustee of Claims Funding Australia Trust, the beneficiaries of which are Maurice Blackburn’s principals. The Federal Court was to consider expressly whether or not any conflicts of interest arise, or are likely to arise, between CFA (if permitted to fund the class action) and Maurice Blackburn having regard to its own professional legal obligations to its clients and to the Court. . However on 29 January 2014 CFA withdrew its application to jointly fund the litigation, citing comments made by the Attorney General. Maurice Blackburn recently informed group members that even if the court approved the funding arrangements that the Attorney-General has plainly stated that he is proposing to introduce further regulation of litigation funding and that he is strongly opposed to litigation funding companies that are owned by the principals of law firms.
The regulation of lawyers in all Australian States prohibits contingency fees. The CMA application was an attempt by Maurice Blackburn to legitimately circumvent that prohibition. That attempt has been thwarted. It is clear that the Attorney General is opposed to lawyers funding litigation. However at the moment anyone other than a lawyer can fund a class action without being required to be licensed, or satisfy capital adequacy requirements to meet adverse costs orders or have sufficient assets to meet legal costs of prosecuting the claim.
Other countries, including the United Kingdom9, have embraced contingency fee arrangements. With the globalisation of legal practice it is only a matter of time before regulators in Australia are forced to revisit the position. Whilst the need to manage conflict of interest is an important matter requiring consideration by the Productivity Commission, professional conduct rules already provide proper protection to ensure that lawyers comply with the conflict obligations. In the context of litigation funding, it is also important for the Commission to investigate other solutions for ensuring that the funding of class actions balances the interests of those who are regulated and those who presently are not: contingency fees may provide a solution.