Funders respond to recent government actions to impose regulation
With recent government actions ramping up on litigation funding industry, funders have responded to the recent government efforts to impose control on funders.
Government efforts began in the start of May when Attorney-General Christian Porter pushed for a new class action inquiry. Last week Treasurer Josh Frydenberg announced a crackdown on litigation funding by requiring an Australian Financial Services Licence. This week, the long-awaited reprieve to continuous disclosure obligations was announced.
Litigation funders have welcomed these new efforts by the government but say that these actions could drive a response that will harm the people they purport to protect – ordinary Australians seeking access to justice.
John Walker, chairman of the Australian Litigation Funders Association said the government had been influenced by the BCA, AIG, AICD and insurance lobbies who simply want fewer class actions that enable enforcement of Australia’s existing laws.
“The simple truth is that without corporate misconduct, which ought to be the focus of policy going forward, there would not be a need for litigation funding,” Mr Walker said.
Neill Brennan, managing director of Augusta Ventures had a similar view.
“It appears that the “big end of town” – insurers, business counsel etc are prevailing on the Liberal-Coalition government to have a new report with the aim of providing justification for limiting class actions,” he said.
“It is possible a negative perception is being created by big business interest groups that are seeking support to limit class actions.”
It is important to understand that the Australian Law Reform Commission made a comprehensive inquiry lasting a year. The ALRC delivered its comprehensive report which was tabled on 24 January 2019.
The final report made 24 recommendations for reform of class action law and procedure in Australia.
However, the ALRC did not recommend a significant tightening of regulation around litigation funding or class actions and recommended the courts play a major role in oversight for funders.
Mr Walker expressed his surprise by recent announcements when the government had not consulted all stakeholders and made moves that didn’t reflect what was brought by the ALRC report.
“We are led to believe that the previous inquiries didn’t ask the right questions to enable the federal government “to develop policies that will ensure the interests of Australians are better protected,” Mr Walker said.
Doug Hayter, managing director of Ironbark Funding told Lawyers Weekly that by announcing a fresh enquiry, it suggests that the Attorney-General either doesn’t trust the findings of those commissions or wasn’t happy with the conclusions.
“Either way it brings into question the impartiality and independence of the government’s position not to mention the potential waste of taxpayers money with yet another review of the area,” Mr Hayter told Lawyers Weekly.
“We can only hope this new enquiry is independent and not unfairly influenced by vested interests.”
Mr Brennan added that in their view as a funder, they do not understand the rationale for yet another costly enquiry.
Recent Federal Court data has shown the number of class actions in Australia has tripled over 10 years.
Australian Law Reform Commission (ALRC) data showed about 28 per cent of litigation proceeds went to corporate backers, with 55 per cent going to affected shareholders.
About 15 per cent was spent on legal costs. In cases without a corporate funder, plaintiffs received about 85 per cent of proceeds.
This includes funders like Omni Bridgeway which has funded more than 300 class action suits in Australia, including against the country’s major banks.
Funding giant Omni Bridgeway had welcomed the inquiry but CEO Andrew Saker said those whose real aim to make class actions immeasurably more difficult would cause ordinary Australians to lose access to justice.
Mr Saker said that there is definitely “room for improvement in Australia’s class action system and for greater oversight of the litigation funding industry that supports it.”
But the funding boss said that opponents of litigation funding find themselves pursuing somewhat contradictory aims: to curtail the number of class actions by cutting off a critical source of funding yet to ensure those ordinary Australians who participate in a funded class action receive a bigger slice of any settlements or court-ordered damages.
Woodsford Litigation CEO Steven Friel said that litigation funders operate in the bright glare of the legal system and no other area of law or finance is subjected to this level of constant scrutiny and oversight.
“Time and time again, the attacks against litigation funding fall short, and there is widespread recognition of the vital access to justice benefits that we provide,” Mr Friel said.
“Yes, we are profit-making enterprises, as are most of the other participants in the litigation process. However, unless lawyers start offering their services for free, or national governments start making significant sums available for the public funding of public interest litigation, businesses like Woodsford fulfil a vital public good.
“I have no problem with public scrutiny, I welcome it, but any process that causes a chilling effect on litigation funding will lead to worse outcomes for meritorious claimants.”
Litigation Capital Management, who believes they are the only litigation financier in Australia that currently holds and maintains an AFSL however has had a more restrained stance on the regulation of funders.
“LCM fully supports the move to increase regulation in our industry,” Patrick Moloney, CEO of LCM, said.
“Regulation of litigation funding insofar as it concerns class actions is something that is not only welcomed by LCM but could provide it with a strategic advantage as the cost and compliance issues are likely to create further barriers to entry and restrict the numbers of financiers that can fund class actions.”