An overview of Australia’s pioneering third-party litigation funding and class action industry, including a brief examination of the recent regulations imposed on third-party funders and their impact
Since 1992, a sophisticated and dynamic class action market has developed in Australia, which has come to be seen as a global hotspot for third-party litigation funding. Correspondingly, the number of domestic and international funders in the Australian market continues to grow (estimated at approximately 33 in 2020), with funded class action proceedings constituting 78% of all filed class actions in 2018.Beverley Newbold, David Taylor, Julia Avis, Rafael Aiofil, Jacky Wong and Ben McLachlan, ‘Class/collective actions in Australia: overview’, MinterEllison (Web Page, 1 October 2020) … Continue reading Litigation funding is deeply entrenched in the Australian class action market, which has been endorsed by the Federal Court of Australia as “the life-blood ofAustralia’s representative proceeding litigation at [the] federal and state level”.Law Council of Australia / Federal Court of Australia, Case Management Handbook (2014). Furthermore, the well-established status of litigation funding in Australia has been relied on to a certain extent and replicated in jurisdictions such as the United States, the United Kingdom, New Zealand and South Africa.Jarrett Lewis, ‘Third-Party Litigation Funding: A Boon or Bane to the Progress of Civil Justice?’ (2020) 33 The Georgetown Journal of Legal Ethics 687, 689
Litigation funding plays a key role in improving access to justice for representative plaintiffs and class members by assisting them to meet the often prohibitively high costs of running class action litigation. In doing so, third-party litigation funders work to narrow the considerable gap in financial resources between plaintiff and defendant, thus reducing the ability of (usually corporate) defendants in defeating the case through superior economic power.Parliamentary Joint Committee on Corporations and Financial Services, Litigation Funding and the regulation of the class action industry (Report, December 2020) xiv (‘PJC Report). Notably, third-party litigation funders form an essential feature of the Australian class action landscape as in many instances, a proceeding may not be financially viable without the backing of a litigation funder.
An Overview of the Australian Class Action Regimes
Given that Australia is a federation of six states and two territories, it has both a federal court system and a separate hierarchy of courts in each state and territory.Richard Harris, Janet Whiting, Jo Seto, ‘Australia: Law and Practice’, Chambers and Partners (Web Page, 4 December 2020) … Continue reading
In 1988, after an eleven-year inquiry, the Australian Law Reform Commission (‘ALRC’) issued a report which recommended that a class action procedure should be introduced into the Federal Court of Australia. The objectives of this new regime were stated to enhance access to justice by reducing the cost of court proceedings, improving access to legal remedies, promoting efficiency in the use of court resources and making the substantive law more consistent, enforceable and effective.The Hon Justice Bernard Murphy, ‘The Operation of the Australian Class Action Regime’ (Speech, Bar Association of Queensland, 8-10 March 2013) In 1991, the Australian Parliament amended the Federal Court of Australia Act 1976 (Cth) (‘Federal Court Act’) to include a new Part IVA on Representative Proceedings.PJC Report (n 4) 11. These reforms came into effect on 5 March 1992, and largely affirmed the recommendations of the ALRC’s 1988 report.Murphy (n 6). Ultimately, the overarching purpose of civil practice and procedure in the Federal Court also applies to the Australian federal class action regime, which requires the just resolution of disputes as inexpensively and efficiently as possible.The Hon Justice Bernard Murphy, ‘Civil Justice Reforms in Class Actions and Litigation Funding’ (Speech, ALFA Class Action Litigation Funding Reform Conference, 26 October 2018).
Unlike in the United States, there is no certification regime in Australia and this was explicitly rejected by the ALRC in its 1988 report. Instead, a class action may be commenced under s 33C of the Federal Court Act where the following three thresholds are satisfied:
(1) seven or more persons have a claim against the same person;
(2) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and
(3) the claims of all of those persons give rise to a substantial issue of law or fact.
As such, Australia may be seen as a favourable jurisdiction for both representative proceedings and third-party litigation funders as it is comparatively easy to commence and maintain a class action in Australia as compared with the United States.Ross Drinnan, Peter O’Donahoo, Belinda Thompson, Jenny Campbell, ‘Class actions in Australia’, Allens Linklaters (Web Page, February 2017) … Continue reading
Australian state class action regimes were steadily introduced in the years to follow and are heavily influenced by the federal class action legislation. In summary, statutory class action regimes exist at the state level in Victoria (since 2000), New South Wales (2011), Queensland (2017) and Tasmania (2019). As a result, class actions may be filed and heard in the Supreme Court (being the superior court) of each of these states. In July 2019, Western Australia introduced a bill to establish a legislative representative proceeding regime, however to date this bill is still yet to be passed.PJC Report (n 4) 13 The remaining Australian jurisdictions (South Australia, the Australian Capital Territory and the Northern Territory) all take a rules-based rather than a legislative approach to representative actions.
Additionally, each of the federal and state class action regimes operate on an opt-out basis, which binds all potential claimants who fall within the class definition to the judgment of the Court or any approved settlement unless they choose to opt-out of the proceeding.Ashurst, ‘Quickguide: Class Actions in Australia’ (Web Page, 21 October 2019) <www.ashurst.com/en/news-and-insights/legal-updates/quickguide-class-actions-in-australia>.
Australia may further be seen as a favourable class action jurisdiction as there is no limit on the causes of action which may be brought as a representative proceeding.sights/legal-updates/quickguide-class-actions-in-australia>. 13 Nicholas Briggs, Robert Johnston, ‘Spotlight: class action procedure in Australia’, Johnson Winter & Slattery (Web Page, 16 … Continue reading As such, funded cases brought under Australia’s class action regimes reflect a broad range of both commercial and non-commercial causes of action, including shareholder and investor claims, mass tort claims, claims for the contravention of consumer protection law, in addition to environmental and human rights claims. More recently, novel employment and environmental claims as well as claims for breach of privacy and those relating to COVID-19 have seen some limited success on the Australian class action stage.
Australia as the Birthplace of Third-Party Litigation Funding
Historically, third-party litigation funding was prohibited under the common law tort and criminal offence of maintenance and champerty, which barred a third-party from financially assisting parties to a dispute in return for a share in the outcome of the action.PJC Report (n 4) 14. This was grounded in a public policy rationale which sought to protect parties from exploitation by third-party funders who may seek to bring unmeritorious claims or influence the case in their own interests.Ibid. However, between 1969 and 2002, Victoria, New South Wales, South Australia and the Australian Capital Territory each moved to abolish both the crime and the tort of maintenance and champerty.
Furthermore, in 1996 the Federal Court in Movitor Pty Ltd (receivers and manager appointed) (in liq) v SimsMovitor Pty Ltd (receivers and manager appointed) (in liq) v Sims (1996) 64 FCR 380. held that commercial third-party litigation funding was available in an insolvency context.PJC Report (n 4) 15. Here, the Court found that “a trustee in bankruptcy may lawfully assign any of the bankrupt’s right of actions to a third-party or creditor” thus establishing a recognised exception to the common law tort of maintenance and champerty.Ibid This case is significant in cementing Australia as the birthplace of the third-party litigation funding industry, as in the aftermath of Sims funders moved to assist bankrupt entities with the costs of pursuing legal claims in exchange for a return of the proceeds.Kelly Sze, ‘Litigation Finance Industry: Global Perspective’ (2020) The Bureau of National Affairs, Inc 2 Now, insolvency litigation funding is a well-established area of practice in Australia.
Despite this, arguably the most significant development in Australia’s thirty-year class action history arose in 2006 when the High Court in Campbells Cash and Carry Pty Ltd v Fostif Pty LtdCampbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386. , applied these considerations to a litigation funding agreement. In particular, the High Court held that litigation funding agreements with third-party funders are enforceable (notwithstanding the fact that they involve maintenance and champerty) as long as they are in no other way illegal or against public policy.PJC Report (n 4) 15-16. This decision was fundamental to the development of Australia’s third-party litigation funding industry, as it provided certainty to the validity of third-party funding and legitimated the role of litigation funders in funding class actions and exercising a broad influence over how they are conducted.Ibid 16. Ultimately, the Fostif ruling worked to both entrench third-party litigation funders as an essential feature of the Australian class action system and to encourage new funders to enter the Australian market.Dirk Luff, Jason Geisker, ‘In Review: third party litigation funding in Australia’, Maurice Blackburn Lawyers (Web Page, 10 January 2021) … Continue reading
Key Developments in the Regulation of Third-Party Litigation Funding
The Australian third-party litigation funding industry has historically been subject to a relatively light-touch regulatory regime. However, there are indications that this is changing. There have been a variety of regulatory enquries into third-party funding within the last 10 years, but little actual reform has materialised. Recently, the Federal government referred a
further review of the litigation funding and class action industries to the Parliamentary Joint Committee on Corporations and Financial Services which delivered its report on 21 December 2020. Most recently, a joint consultation by the Treasurer and Attorney-General is presently underway and is considering implementing a guaranteed minimum rate of return for class action members.The Hon Josh Frydenberg MP, ‘Consulting on the recommendations of the Parliamentary Joint Committee report on litigation funding and class actions’ (Media Release, 28 May 2021) … Continue reading
Two notable recent reforms include the implementation of a Victorian contingency fee regime and the regulation of funded class action proceedings under the Corporations Act 2001 (Cth) (‘Corporations Act’), both of which occurred over the course of last year.
The Victorian Contingency Fee Regime
In June 2020, Victoria became the first and only jurisdiction in Australia to permit class action lawyers to charge for legal costs on a ‘contingency fee’ basis, by way of a Court order (known as a “Group Cost Order”). This United-States style development involves the payment of legal fees in the event of a successful outcome to be calculated as a percentage of the total quantum received from the class action.PJC Report (n 4) xix. In addition, the amended Victorian Supreme Court Act 1986 (Vic) also explicitly provides that the law firm must both indemnify the plaintiff and provide security for costs of the defendant in the proceeding.Marcus O’Brien, Nicole Wearne, ‘Victoria: First Australian State to Permit Contingency Fees in Class Actions’, Clyde & Co (Web Page, 2 July 2020) … Continue reading While the full implications of the new Victorian contingency fee regime remains to be seen, Victoria is currently an outlier on the Australian class action stage as the charging of contingency fees for any type of litigation work remains prohibited in all other Australian jurisdictions.
Regulation of Third-Party Litigation Funders Under the Corporations Act
Early last year, the Federal Government announced that it would regulate third-party litigation funders under the Corporations Act and require operators of litigation funding schemes to hold an Australian Financial Services Licence and for each litigation funding scheme to be registered as a Managed Investment Scheme (‘MIS’).Australian Securities & Investments Commission, ‘Litigation funding’ (Web Page) < https://asic.gov.au/regulatory-resources/funds-management/litigation-funding>. The Corporations Amendment (Litigation Funding) Regulations 2020 (‘Regulations’) began to apply from 22 August 2020 but do not impact litigation funding schemes entered into prior to this date. This dramatic policy change represents a reversal of regulations implemented in 2009 which had exempted third-party litigation funding from the definition of a MIS under the Corporations Act.Luff (n 21). Notably, the Regulations apply only to third-party funding of class actions and does not extend to the funding of single-party cases.
Australia’s pioneering third-party litigation funding and class action industry has developed into a mature and sophisticated market over the last thirty years. In doing so, third-party litigation funders have established themselves as a cornerstone of the Australian class action system and are essential to improving access to justice outcomes for class members. While recent regulatory developments will bring about changes to the funding market, they are unlikely to significantly alter the important function of third-party litigation funding in facilitating the running of class actions in Australia.
|↑1||Beverley Newbold, David Taylor, Julia Avis, Rafael Aiofil, Jacky Wong and Ben McLachlan, ‘Class/collective actions in Australia: overview’, MinterEllison (Web Page, 1 October 2020) <https://uk.practicallaw.thomsonreuters.com/3-617-6440?transitionType=Default&contextData=(sc.Default)&firstPage=true>.|
|↑2||Law Council of Australia / Federal Court of Australia, Case Management Handbook (2014).|
|↑3||Jarrett Lewis, ‘Third-Party Litigation Funding: A Boon or Bane to the Progress of Civil Justice?’ (2020) 33 The Georgetown Journal of Legal Ethics 687, 689|
|↑4||Parliamentary Joint Committee on Corporations and Financial Services, Litigation Funding and the regulation of the class action industry (Report, December 2020) xiv (‘PJC Report).|
|↑5||Richard Harris, Janet Whiting, Jo Seto, ‘Australia: Law and Practice’, Chambers and Partners (Web Page, 4 December 2020) <https://practiceguides.chambers.com/practice-guides/litigation-2021/australia>.|
|↑6||The Hon Justice Bernard Murphy, ‘The Operation of the Australian Class Action Regime’ (Speech, Bar Association of Queensland, 8-10 March 2013)|
|↑7||PJC Report (n 4) 11.|
|↑8||Murphy (n 6).|
|↑9||The Hon Justice Bernard Murphy, ‘Civil Justice Reforms in Class Actions and Litigation Funding’ (Speech, ALFA Class Action Litigation Funding Reform Conference, 26 October 2018).|
|↑10||Ross Drinnan, Peter O’Donahoo, Belinda Thompson, Jenny Campbell, ‘Class actions in Australia’, Allens Linklaters (Web Page, February 2017) <https://data.allens.com.au/pubs/pdf/class/papclassfeb17-01.pdf>.|
|↑11||PJC Report (n 4) 13|
|↑12||Ashurst, ‘Quickguide: Class Actions in Australia’ (Web Page, 21 October 2019) <www.ashurst.com/en/news-and-insights/legal-updates/quickguide-class-actions-in-australia>.|
|↑13||sights/legal-updates/quickguide-class-actions-in-australia>. 13 Nicholas Briggs, Robert Johnston, ‘Spotlight: class action procedure in Australia’, Johnson Winter & Slattery (Web Page, 16 April 2020) <https://www.lexology.com/library/detail.aspx?g=7beea267-44fa-416d-a154-8617e317d0d4>.|
|↑14||PJC Report (n 4) 14.|
|↑16||Movitor Pty Ltd (receivers and manager appointed) (in liq) v Sims (1996) 64 FCR 380.|
|↑17||PJC Report (n 4) 15.|
|↑19||Kelly Sze, ‘Litigation Finance Industry: Global Perspective’ (2020) The Bureau of National Affairs, Inc 2|
|↑20||Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386.|
|↑21||PJC Report (n 4) 15-16.|
|↑23||Dirk Luff, Jason Geisker, ‘In Review: third party litigation funding in Australia’, Maurice Blackburn Lawyers (Web Page, 10 January 2021) <https://www.lexology.com/library/detail.aspx?g=c013b996-019b-47e4-8c49-5a9649002518>.|
|↑24||The Hon Josh Frydenberg MP, ‘Consulting on the recommendations of the Parliamentary Joint Committee report on litigation funding and class actions’ (Media Release, 28 May 2021) <https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/consulting-recommendations-parliamentary-joint>.|
|↑25||PJC Report (n 4) xix.|
|↑26||Marcus O’Brien, Nicole Wearne, ‘Victoria: First Australian State to Permit Contingency Fees in Class Actions’, Clyde & Co (Web Page, 2 July 2020) <https://www.clydeco.com/en/insights/2020/07/victoria-first-australian-state-to-permit-continge>.|
|↑27||Australian Securities & Investments Commission, ‘Litigation funding’ (Web Page) < https://asic.gov.au/regulatory-resources/funds-management/litigation-funding>.|
|↑28||Luff (n 21).|