Victorian government first to move on class action and litigation funding reform
The Victorian Attorney-General announced on 28 November 2019 that the government will introduce legislation to allow lawyers representing plaintiffs in class actions in Victoria to charge contingency fees subject to court approval. The Justice Legislation Miscellaneous Amendments Bill 2019 (Vic) creates an exception to the prohibition on lawyers receiving payment on the basis of an agreed percentage of a successful judgment or settlement.1
While lawyers in Australia have been able to charge clients on a conditional or ‘no win - no fee’ basis in class action proceedings, the amount lawyers charge must be referable to the work done on the proceedings. Currently, only third-party litigation funders are permitted to charge fees based on a percentage of the successful class action judgment or settlement.
The Victorian Bill provides that the Supreme Court may make a ‘group costs order’ in class action proceedings. Legal costs payable to the lawyers representing the plaintiff are to be calculated as a percentage of any successful class action award. The liability for payment of those costs is shared between all group members.
If a group costs order is made, the lawyers representing the plaintiff may be required to provide security for the defendant’s costs. The plaintiff’s lawyers may also be ordered to pay the defendant’s costs if the class action is unsuccessful. The Bill also provides that the Court may amend a group costs order during the course of proceedings.
The change is intended to promote access to justice by removing the financial risk for representative plaintiffs. If implemented, the reform is likely to stimulate class action activity in Victoria, with smaller class action claims that may not have received third-party funding in the past becoming more commercially attractive for plaintiff law firms.
Both the Victorian Law Reform Commission report Access to Justice – Litigation Funding and Group Proceedings released in June 2018 and the Australian Law Reform Commission report Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders released in January 2019 recommended changing the law to allow lawyers to charge contingency fees in class actions subject to appropriate regulation.
If the Bill is passed, Victoria will become the first jurisdiction in Australia to permit class action lawyers to use contingency fee arrangements subject to court approval. That is likely to make the Victorian Supreme Court the forum of choice for the commencement of class action claims.
Federal Government considering reforms as public debate continues
The ALRC’s report made 24 recommendations to reform the Federal class action regime including:
- equipping the Federal Court with enhanced management and oversight powers of class action proceedings;
- increasing regulation of litigation funders (including a requirement to report on compliance to ASIC annually); and
- strengthening requirements for solicitors to manage conflicts of interest.
The Federal Government is yet to announce its response to the Report. In October 2019, Commonwealth Attorney-General Christian Porter stated that “it is clear there is need for reform” of Australia’s class action settings and labelled the emergence of overseas litigation funders in the Australian market as “concerning”.
In November 2019, in hearings of the Standing Committee on Economics, Liberal MP Jason Falinski asked executives from Westpac and Commonwealth Bank about the impact of class actions on their business. Mr Falinski asked especially if the rising number of class actions and the presence of offshore litigation funders were of concern.
With the introduction of the Victorian Bill and the High Court to rule in the Westpac and BMW class action proceedings on the validity of common fund orders on 4 December 2019, announcing federal class action reform is likely to become a priority for the Federal Government in the coming months.
New report downplays claims of class action "explosion"
In the past month, executives from Australian Industry Group and the Australian Institute of Company Directors raised concerns that the current state of class action regulation in Australia is encouraging an “explosion” of class action litigation to the detriment of the economy.
AICD Managing Director Angus Armour also called for an inquiry into Australia’s continuous disclosure regime. The AICD is concerned that the recent decision in the Myer class action will further encourage securities class actions to be brought against Australian companies.
These claims are at odds with a recent report authored by Professor Vince Morabito surveying over 25 years of class action activity in Australia.2 The Report reveals that while total class action activity in Australia has increased over the last decade, claims of a dramatic increase are overstated.
The Report identifies that an average of 23 class actions have been filed each year since 1992, with an average of 46.8 class actions filed each year in the previous five years. Compared to less populous jurisdictions overseas over a similar period, Quebec (50 cases per year; 8 million people) and Ontario (54 cases per year; 14 million people), the level of activity in Australia is relatively modest.
In relation to shareholder class action activity, Professor Morabito identifies that there have been 122 shareholder class actions filed in Australia since 1992 (19.2% of all class actions), with 78 shareholder class actions filed in the last five years (33.3% of class actions in the last five years).
Of these 122 shareholder class actions:
- 63 were unique class action claims and 59 were competing or related class actions based on the same or similar facts;
- directors were the only defendants in 6 (4.9%) of the class actions and directors were one of several defendants in 23 (18.8%) of the class actions; and
- 77 of the class actions have been resolved, with 41 (53.2%) settled and the balance concluded for procedural reasons.
There has been significant attention to class action reform at both the state and federal level in 2019. With the Federal Government’s response to the ALRC report expected later this year or in early 2020, we will continue to provide updates on this important and rapidly developing area of the law.