"The Opposition's proposed motion to disallow the regulations which require litigation funders to hold an Australian Financial Services Licence (AFSL) from 22 August, for new class actions, is not in the interests of Australian businesses, plaintiffs or the community. The obligations on holders on an AFSL are reasonable and appropriate. Litigation funders should be regulated like any other business which offers financial services," Innes Willox, Chief Executive of the national employer association, Ai Group, said today.
"The level of returns that some funders are currently earning are egregious and some of their practices are unacceptable. The absence of appropriate regulations in Australia has led to many overseas firms entering the market and relying on tax havens such as Jersey, Malta and the Cayman Islands. Foreign funders are taking a vast amount of money away from Australian businesses and from plaintiffs in class actions. Many pay little or no tax in Australia.
"In the Australian Law Reform Commission's final report from its inquiry into Class Action Proceedings and Third Party Litigation Funders (published last year), it was reported that the median return to plaintiffs in funded class actions over the past five years was only 51%, compared to 85% for unfunded class actions. This highlights that litigation funding firms are being enriched at the expense of plaintiffs.
"The largest litigation funding firm that is listed on the ASX, Omni Bridgeway Ltd, has expressed support for regulation, including licensing, minimum onshore capital requirements, disclosure obligations and reporting standards. Omni Bridgeway recently described the new regulation requirements on litigation funders as 'workable' and stated that ASIC has clarified what is required under the new regime (The Australian, 'Omni Bridgeway pivots to litigation funding', 26 August 2020).
"The new regulation requirements only apply to class actions commenced after 22 August 2020. Existing class actions are not required to be regulated and continue unaffected.
"The Supreme Court in Victoria is currently investigating fraudulent conduct by lawyers and funders involved in the Banksia class action. In the Court proceedings, a number of the parties involved have admitted that they engaged in fraudulent conduct.
"The regulation of litigation funding arrangements is long overdue and is finally in operation. It is vital that this is not disturbed. The Australian Industry Group is urging all Crossbench Senators to reject Labor's ill-conceived disallowance motion," Mr Willox said.
