Over the past two decades litigation funding has become an increasingly critical component of the class action regime in Australia, so it's no surprise that its regulation (or lack thereof) has garnered increasing attention. We recently touched on this issue in an earlier blog, and now seek to expand on the issues raised therein and look at what is currently being done to reform the current state of play.

In late 2017 the Australian Law Reform Commission (ALRC), announced it was commencing an inquiry into litigation funding and the fees charged by lawyers in funded class actions, with a focus on access to justice and ensuring that litigants are not exposed to unfair risks and disproportionate costs.

In mid April, the ALRC chair, Justice Sarah Derrington, announced some of the Commission's preliminary ideas and proposals which included:

  • increased regulation of the litigation funding market
  • the requirement that litigation funders obtain and maintain a licence from ASIC, the preconditions of which will include sufficient financial, technological and human resources, and the holding of adequate arrangements to manage conflicts of interest together with annual audits
  • the introduction of contingency fees for class actions, subject to a number of limitations, including that the law firm acting on contingency must also indemnify the funded party against adverse costs orders
  • increased judicial oversight of fees including giving the Federal Court an express statutory power to reject or amend the rate or percentage of fees charged by funders and introducing statutory caps preventing contingency fees and other costs exceeding 50% of the proceeds available to class members
  • ending the practice of funding "closed class" actions and instead initiating all class as open classes
  • addressing the issue of multiple class action proceedings by requiring that competing open class actions be resolved early by a court in an expedited case management process during which the court will determine "the most appropriate representative plaintiff, plaintiff law firm, and funder (if any) and which funder (if any) provides the best value for the class". In addition to this, a no "mover advantage" to be given to the first law firm / funder to file, although the court will be able set a cut-off date by which all competing matters must be filed.
  • Courts to approve costs agreements and funding agreements so that they are legally enforceable as a common fund
  • The introduction of specified settlement criteria for judges to take into account in approving a settlement

The above proposals are the first steps in the inquiry which is expected to progress to the formal submission stage in June / July of this year followed by the preparation of a final report in December.

The extent to which the above proposals will be incorporated into the current regulatory framework remains to be seen. We will keep you updated on what are sure to be exciting developments in the regulation of litigation funding and the class action framework.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.