Big (and not so big) changes to Australian class actions and regulation of litigation funders could be on the way

25 Jan 2019
All players in the class actions market will be affected if the recommendations in the Australian Law Reform Commission report, Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders, released publicly yesterday, are adopted. Given that more consultation will be undertaken in the next few months, it is important for interested parties to carefully consider the recommendations and engage in the Government's consultation process.

How the ALRC has approached the class action regime

The ALRC said that the Terms of Reference required consideration of two overarching issues of the class action regime: the integrity of third-party funded class actions and the efficacy of the class action system. According to the ALRC its recommendations aim to promote fairness and efficiency in class action proceedings; protect litigants from disproportionate costs; and assure the integrity of the civil justice system.

The ALRC's recommendations

The ALRC Report makes 24 recommendations directed at changes to the Federal class actions regime and the regulation and charging models of litigation funders and lawyers involved in bringing class actions. The Recommendations span:

  • case management;
  • settlement approval regulation of litigation funders;
  • solicitors' fees and conflicts of interest;
  • regulatory redress; and
  • a review of substantive law.

Predictably, the key recommendations closely track the hot topics that have consumed significant Court and party resources in recent times – for example, proposals to give the Court express power to make common fund orders, vary third-party litigation funding agreements and resolve competing class actions.

Further areas of interest include proposals to more closely regulate third-party litigation funders, better manage conflicts of interests between lawyers, funders and those they represent and a significant but still limited change to permit plaintiff class action lawyers to enter into currently prohibited contingency (or percentage-based) fee agreements.

Shareholder class actions – more investigation needed

The ALRC Report also takes the next small step in responding to concerns from the Australian business community about how Australia's demanding continuous disclosure laws have been utilised by the class actions industry.

It's recommending a Government review of the legal and economic impact of the operation, enforcement and effect of federal statutory continuous disclosure obligations and those relating to misleading and deceptive conduct, noting the need for further investigation of how the laws for shareholder class actions and the class action regime interact. This sits alongside an interesting case management recommendation that the Federal Court have exclusive jurisdiction with respect to class actions arising under relevant parts of the Corporations Act 2001 (Cth) and ASIC Act 2001 (Cth).

The nest steps in (possible) class actions reform

Attorney-General Christian Porter welcomed the report and noted that he expected it to "stimulate debate amongst consumer advocates, the legal profession, the business sector, and across the wider community". He plans to hold stakeholder meetings over coming months to "stress test" the report's recommendations.

We will be reviewing the detail of the recommendations and are happy to assist you to consider the possible impact of the proposals on your business.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.