Improving justice outcomes for class action members

Ensuring Australians get their fair share of legal settlements will be the focus of a parliamentary committee inquiry which will examine all aspect of the class action system, including the enormous profits being made by litigation funders.

“There is growing concern that the lack of regulation governing the booming litigation funding industry is leading to poor justice outcomes for those who join class actions, expecting to get fair compensation for an injury or loss,” Attorney-General Christian Porter said.

“In many cases, funders are taking up to 30 per cent of legal settlements, leaving the members of the action to fight over the scraps that remain once legal fees and other costs are paid.”

“In fact, the Australian Law Reform Commission found that when litigation funders were involved in a class action, the median return to class members was just 51 per cent, compared to 85 per cent when a funder was not involved.”

“That is clear evidence that the system is not delivering fair and equitable outcomes for those mums and dads who join class actions, and it demonstrates why an inquiry into all aspects of the system is needed.”

The Parliamentary Joint Committee on Corporations and Financial Services will be given broad terms of reference, which include examining the consequences of Labor’s decision in 2012 to exempt litigation funders from licensing requirements and prudential supervision. In the seven years following that decision there has been a threefold increase in the commencement of class action cases.

A motion to refer the inquiry to the Committee will be considered by the House of Representatives today. Other issues to be examined include:

  • the potential impact of Australia’s current class action industry on vulnerable Australian business already suffering the impacts of the COVID-19 pandemic;
  • the likely future impact on the broader economy if class actions cases continue to grow at their current rate;
  • the financial and organisational relationship between litigation funders and lawyers acting for class action members, and;
  • the potential impact of a Victorian plan to allow lawyers to charge contingency fees.

“Justice is not a business and the primary focus of those who work in the legal system should always be on getting the best outcomes for their clients, not on maximising returns for hungry shareholders,” the Attorney-General said.

“I hope this inquiry will generate useful insights that will enable us to develop policies that will ensure the interests of Australians are better protected.”

The Committee will be asked to report back to Parliament by 7 December and its work will complement the work already done in this area by the Australian Law Reform Commission.

The Government will shortly release its response to the ALRC inquiry.

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