On 24 January 2019, the Australian Law Reform Commission issued a report entitled Integrity, Fairness and Efficiency – an Inquiry into Class Actions Proceedings and Third-Party Litigation Funders. The ALRC report sets out a comprehensive analysis of the current Australian class actions framework and makes 24 recommendations in relation to the regulation of class action proceedings and funding arrangements. Key aspects of the recommendations are set out below.

Case management

The ALRC has made several recommendations in relation to the case management of class action proceedings. In particular:

Commencement on an open class basis: The ALRC has recommended that Part IVA of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) (which concerns class action proceedings) be amended to require that all class actions be commenced on an open class basis. The ALRC has indicated that this recommendation is aimed at returning the class action regime to its “original design”. The ALRC has expressed the view that the commencement of all class actions on an open class basis would facilitate access to justice by allowing all victims of a civil wrong to participate in the relevant representative proceeding rather than only those who take active steps to join it.

Closing the class: The ALRC has also recommended making amendments to the Federal Court of Australia’s Class Actions Practice Note to set out: (a) the circumstances in which it may be necessary to close the class to facilitate early settlement; and (b) the criteria for the limited circumstances in which a class action that has been closed may be reopened.

Competing class actions: The ALRC has recommended amending Part IVA of the Federal Court Act to give the Court an express statutory power to manage “competing” class actions. Depending on the circumstances, this may involve approaches including the Court allowing one proceeding to continue while staying the other(s), consolidating the competing proceedings, or joinder or amendment to create a class action which encompasses common issues drawn from several claims. The ALRC has also recommended amending the Federal Court of Australia’s Class Actions Practice Note to provide for a further case management procedure for competing class actions. The procedure would involve a selection hearing (which would not include the participation of the defendants, except in relation to security for costs).

Common fund orders: The ALRC has recommended that Part IVA of the Federal Court Act be amended to give the Court an express power to make common fund orders (being orders which require all group members to contribute to the cost of the class action irrespective of whether they have entered into any funding agreement).

Settlement approval

The ALRC has made several recommendations in relation to the process of class action settlement approval. In particular, the ALRC has recommended that the Federal Court of Australia’s Class Actions Practice Note be amended to provide for the appointment by the Court of an independent referee to review and assess the reasonableness of the costs charged in a class action prior to settlement approval.

Class action funding

The ALRC has also made several recommendations in relation to the funding of class action proceedings. In particular:

Percentage-based fee agreements: The ALRC has recommended that solicitors acting for the representative plaintiff should be permitted to enter into “percentage-based fee agreements”, subject to: (a) the proceeding not also being directly funded by another funding entity which is also charging on a contingent basis; (b) the percentage-based fee not being recoverable in addition to professional fees for legal services charged on a time-cost basis; and (c) the solicitors who enter into the percentage-based fee agreement advancing the costs of disbursement and accounting for such costs within the percentage-based fee. The percentage-based fee arrangement would be subject to Court supervision and approval.

Supervision of litigation funders: The ALRC has recommended, among other things, that: (a) Part IVA of the Federal Court Act be amended to prohibit a solicitor acting for a representative plaintiff, whose proceeding is funded pursuant to a Court-approved third-party litigation funding agreement, from seeking to recover unpaid fees from the representative plaintiff or group members; and (b) there be a statutory presumption that third-party litigation funders who fund a representative proceeding will produce security for costs in a form that is enforceable in Australia.

Next steps

The extent to which the ALRC’s recommendations will be formally adopted presently remains to be seen. The Commonwealth Attorney-General is reported to have indicated that he intends to conduct further consultations with lawyers, litigation funders and other stakeholders with respect to the ALRC’s proposed reforms before taking any of them to cabinet. Nevertheless, it is to be expected the ALRC’s report will lead to at least some legislative changes to the current class actions regime in Australia.

Please click here to view this article which was originally published in March 2019 on the Commercial Bar website.