Defendant firms have supported the inquiry, noting the importance of reform especially in areas of the role of the court and regulations in funding.

However there were divides in views on complex topics such as contingency fees and common fund orders.

Ultimately defendant firms hoped there could be a strong reformation in the processes of class actions for the future.

King & Wood Mallesons said that what has led up to this current state of class actions is a combination of matters including very “light” regulation and structuring that caused it to be the very industry it is today.

KWM stated if this trajectory continues, such inefficiency risks the competitiveness of Australian capital markets in providing public equity funding to enterprises. 

Ashurst said that consideration should be given to the benefits and economic impacts of the class actions regime, and ways to ensure the best balance is struck.

Ashurst also said professor Vince Morabito’s well-known report – which many funders have cited did not identify the quantum of fees, costs and commissions – earned in particular cases.

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Norton Rose Fulbright said the regulation of funders is desirable as a general aim, provided the intention is to lift the standard of conduct and provide an enhanced layer of consumer protection.

Multiple claims

All firms had a common view that multiple class action claims and their increasing prevalence were a problem.

Herbert Smith Freehills focused on the multiplicity in claims where multiple class action proceedings cause unnecessary costs, delay to the interlocutory process and prejudice to the defendant.

Clayton Utz agreed that multiple class action claims cause problems in the form of a “beauty parade”.

“Competing class actions are problematic because they require the courts to conduct ‘beauty parades’ where one or more of the competing class actions is chosen to continue. If more than one is chosen, the problems with multiple class actions arise,” Clayton Utz wrote.  

“If only one is chosen, the court is still required to undertake an expensive and time-consuming beauty parade to select a winner. The decision of the court may then be appealed even as far as the High Court.”

AFSL regime

In terms of the newly introduced Australian Financial Services Licence (AFSL), firms had similar albeit some different perspectives.

NRF strongly supported the implementation of the AFSL instead of a bespoke litigation funding license, saying the ASFL regime is an “appropriate and suitable for extension to litigation funders as a fair balance to ensure the protection of plaintiffs’ interests”.

KWM supported the regulatory regimes too, noting litigation funders to be subject to the regulatory regimes in chapter 5C and 7 of the Corporations Act 2001 (Cth) is a welcome step toward restoring regulatory balance and should be maintained.

Ashurst had different views, saying that a national licensing and regulatory regime should be introduced, however, the existing AFSL regime is not the best vehicle. 

MinterEllison and Clayton Utz also supported the changes but were unclear on the effects of operation which would likely be critical to how effective these changes will be in addressing the regulation requisites for funders.

Contingency fees

Contingency fees were also a topic discussed which provided mixed opinions from different firms.

HSF stated that the prohibition on contingency fees in Australia should be retained considering that the case for contingency fees in Australia is weak.  

“In particular, the proposition that contingency fees will allow greater access to justice, by permitting uneconomical claims presently ignored by third-party litigation funders to be pursued, should be carefully tested,” HSF wrote.

KWM disagreed as well with the implementation of contingency fees saying that in any event, the proposed reform in Victoria would see a situation where different courts that have power to exercise federal jurisdiction operate under different approaches to contingency fees. 

However, Ashurst differed from HSF and KWM, supporting the implementation of contingency fees.

“It is not apparent to us why contingency fees would lead to less financially viable outcomes for plaintiffs,” Ashurst stated.

Most importantly for Ashurst, if contingency fees will lead to an increase in returns to group members, then the proposal is worth considering.  

Minters said that if contingency fees are to be allowed for solicitors, then it would agree with the first part of ALRC recommendation 19 as a sensible safeguard.

Other matters

On class closures, all firms had similar views that class action legislation should be amended in the Federal Court and judges should be given the power to make class closures again.

Clayton Utz said that the Commonwealth class actions legislation should be amended to give the Federal Court the express power to close classes whether through soft or hard closure.

HSF stated that they consider it an important tool for courts to have the discretion to make class closure orders at an interlocutory stage when appropriate to do so consistent with facilitating resolution of proceedings.  

The complex topic of common fund orders was also discussed with NRF, who agreed that courts should be given an express statutory power to make interlocutory CFOs.

Clayton Utz stated that Commonwealth class actions legislation should be amended to make it clear that an application for a common fund order can be made after a proceeding either as part of a settlement approval application or following a judgment.

KWM also agreed saying that it is appropriate that funders – which are profit-driven commercial enterprises – be required to work for their returns.  

HSF stated those motives are being played out right now, with plaintiff firms competing directly with litigation funders by instituting competing class action proceedings that are brought either on a no-win, no-fee basis; and/or on the hope that a court would grant a “common fund”-esque order in favour of the law firm acting for the representative plaintiff.

Meanwhile, Minters had the view that judges are taking an increasingly active role in scrutinising fees and commission rates and requiring them to be justified.