The tone and findings of this 454 page report by the Parliamentary Joint Committee on Corporations and Financial Services – Litigation funding and the regulation of the class action industry – are revealed in its opening paragraphs, that the purpose of a civil justice system is to ensure a fair and reasonable society, and that when a damage is inflicted upon a person that is unlawful, that they are restored to their previous state.
But, the report goes on to say,
‘courts and civil remedies were not established as novel investment vehicles to deliver handsome profits to innovative financiers or creative lawyers’.
While most people would be ‘comfortable with the idea that profits may be made incidentally while delivering the core objective of access to justice’, they would be
‘rightly horrified to learn that for some participants in our justice system, return on investment and profit from risk-taking has become their primary motivation’.
‘Australia’s highly unique and favourably regulated litigation funding market has become a global hotspot for international investors, including many based in tax havens and with dubious corporate histories, to generate investment returns unheard of in any other jurisdiction – in some cases of more than 500 per cent’.
The report says this is ‘directly the result’ of a regulatory regime described by ASIC as ‘light touch’ and under which no successful action by a regulator has ever been taken against a funder.
It goes on in similar vein, including that ‘participants in class actions are the biggest losers in this deal’.
The report makes 31 recommendations, many involving the powers and jurisdiction of the Federal Court, commencing with recommendation 1, that the government investigate legislative change ‘which promotes procedural proportionality in class actions, with the objective of facilitating the pursuit of class actions where the potential costs and drawbacks are balanced against the potential benefits for the parties to litigation, the class members, as well as the impacts on court resources, regulatory outcomes and the public interest’; through to recommendation 31, that irrespective of whether none, some, or all of the committee’s recommendations regarding the Federal Court of Australia’s class action regime are adopted and implemented, that the ‘federal, state and territory governments work towards achieving consistency in class action regimes across jurisdictions’.
It is an odd report in that it examines in detail the Australian Law Reform Commission’s 2019 report on the same topic – Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC Report 134) – and adopts many of its recommendations, but otherwise goes off on its own. As the minority report says, the government has given no response to the ALRC 2019 report and yet then commissioned this one. [The one outcome of ALRC 134 has been that a Protocol for Communication and Cooperation between Supreme Court of Victoria and Federal Court of Australia in Class Action Proceedings was adopted in June 2019, partially implementing Rec. 6].
And before this PJC had reported, the government decided that litigation funders would be required to hold an Australian Financial Services Licence (AFSL) and comply with the managed investment scheme regime under the Corporations Act?
The government’s response is awaited.
The New Zealand Law Commission may find this report useful.