Ai Group puts forward comprehensive plan to reform litigation funding and class action laws

“Today Ai Group appeared at a public hearing of the Parliamentary Inquiry into litigation funding and class actions and put forward a comprehensive reform plan,” Innes Willox, Chief Executive of the national employer association Ai Group, said today.

“The Inquiry is particularly timely because businesses are being targeted in a class action boom that is being driven by a flood of cash from unregulated overseas litigation funding firms that are pursuing excessive profits at the expense of businesses, plaintiffs and the broader community.

“Insurance costs for businesses, driven by the large increase in class actions in Australia, have risen by up to 600 per cent. These wasted millions would be better spent on employment, investment and R&D.

“The economy has suffered a fast and deep decline in economic growth and a steep rise in unemployment and underemployment due to the COVID-19 pandemic, and there are very real risks in making it even harder to do business in Australia.

“Those opposing reforms to class action and litigation funding laws often dress up their arguments with liberal references to access to justice, in order to take the focus off the excessive profits that they are earning from class actions.

“Implementing carefully considered changes to class action laws to achieve a fairer outcome for plaintiffs and businesses, will not impede access to justice. The current laws are only operating in the interests of litigation funders and the law firms they are partnering with.

“A recent Australian Law Reform Commission report on class actions proceedings and third-party litigation funders reported that in cases involving litigation funders, the median return to plaintiffs was only 51 per cent of the amount awarded, while in cases not involving litigation funders, the median return to plaintiffs was 85 per cent.

“Class actions have a genuine role to play in ensuring that where a large number of parties have suffered common harm or damage, they are properly compensated. However, the current poorly regulated system is allowing litigation funders to take a disproportionate share of any award or settlement.

“At the hearing today, Ai Group will urge the Inquiry to recommend the following 10 key reforms:

  1. The imposition of a duty on litigation funding firms to act in the best interests of plaintiffs at all times.
  2. The introduction of a comprehensive national licensing regime for litigation funders.
  3. A requirement that directors and senior managers of litigation funding firms must pass, on an ongoing basis, a ‘fit and proper person’ test.
  4. A requirement that there be full disclosure of funding arrangements to plaintiffs and the Court.
  5. A requirement that returns to litigation funders be reasonable, having regard to Returns on Invested Capital (ROIC) being earned at the relevant time for other classes of investments with similar risks.
  6. Outlawing opt out arrangements in class actions, and requiring that plaintiffs actively opt in to ensure that class actions are run on behalf of engaged groups of participants.
  7. Prohibiting common fund orders.
  8. Prohibiting law firms from holding any financial or commercial interest in a litigation funder involved in litigation that the law firm is involved in.
  9. Amending section 570 of the Fair Work Act 2009 to exclude non-party funders of class actions from the operation of the ‘no costs’ jurisdiction under the Act.
  10. The banning of contingency fees in all Australian jurisdictions.

“These reforms are designed to provide a fairer and more effective litigation funding and class action system – one that operates in the interests of plaintiffs, businesses and the broader community, rather than one that operates in the interests of litigation funders and plaintiff law firms,” Mr Willox said.

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