Insurance in MOtion - Class Actions in the Spotlight

The Australian Law Reform Commission (ALRC) has released a discussion paper into class actions and whether litigation funders are allowing access to justice or merely gouging participants for profit. Submissions are due by 30 July 2018. At the same time, the Federal Court is taking action to manage multiple class actions, permanently staying two of the three class actions against Getswift Limited on the basis of underlying funding models.

In late 2017, Attorney General George Brandis announced an investigation by the ALRC into whether class action proceedings and/or third party litigation funders should be subject to Commonwealth regulation and whether the current legislation is adequate to ensuring the ideals of the Australian justice system were being upheld. Submissions by ay interested parties are due 30 July 2018, with the final report due by 21 December 2018.

The investigation was announced on the back of rising class action proceedings throughout Australia and the associated prevalence of litigation funding by third party financiers to bankroll these actions. There is widespread concern that, rather than providing a means to access justice, the third party funding model is not in the best interests of claimants, particularly where a significant proportion of any judgment/settlement is paid to legal representatives and/or litigation funders.

The ALRC is particularly concerned about the potential for conflicts of interest to arise in class action proceedings. Third party funders are not bound by the usual duties that lawyers or insurers owe to their clients, giving rise to the potential for exploitation. The ALRC has put forward a number of suggestions to cure this problem, including the introduction of licensing requirements for litigation funders and/or alternative fee arrangements for class action proceedings.

Separately, the Federal Court has also weighed in on the issue of class action management. Justice Lee has addressed the issue of competing class actions against GetSwift Limited which was subject to three separate class actions in the Federal Court for similar alleged breaches of continuous disclosure rules.

Justice Lee utilised the often forgotten Part IVA of the Federal Court of Australia Act 1976 (Cth) to give effect to an order permanently staying two of the three proceedings. In doing so, Justice Lee showcased a proactive approach to resolving issues in what he described as using ‘safeguard’ mechanisms to ensure the class action procedure was not being abused. This ruling has significant implications for entities facing competing class actions, such as those filed against AMP following the first stage of the Banking Royal Commission.

While Justice Lee considered a number of factors, the primary determinant was the likely returns to the claimants in circumstances where the qualifications of the legal practitioners were comparable. In allowing the action of Phi Finney McDonald to proceed, Justice Lee concluded that their funding/ costing model, which directly linked the returns to the litigation funder to the amounts it invested into the litigation, was preferred.

The ALRC’s discussion paper can be found here and the Getswift case can be found here.

Please do not hesitate to contact us for class action management or if you would like further information on the current or proposed state of class actions in Australia and how it may affect you or your clients.

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