Labor’s win ‘great news’ for class actions (depending on who you ask)

24 May 2022 By Jerome Doraisamy

“Litigation funders and plaintiff law firms will be pleased with the election result. Corporate defendants and their insurers will be disappointed,” said one partner.

Plaintiff firms pleased

The outcome of Saturday’s (21 May) federal election, Maurice Blackburn national head of class actions Andrew Watson said, is “great news” for access to justice and the “proper functioning” of Australia’s class actions regime.

“The new Labor government has made clear it will put access to justice and evidence-based policy at the centre of its approach to class actions, ending three years of culture wars waged by the Coalition and the big end of town against a system that delivers justice to everyday Australians,” he said.

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“We are confident the new government will not just undo the bad work of the previous government, but engage in sensible proactive reform to improve outcomes for those who are the victims of corporate wrongdoing.”

Slater and Gordon head of class actions Ben Hardwick was similarly forthcoming, arguing that the now-former Morrison government had been “deliberately attempting to stymie the rights of Australians to bring a class action, through a raft of changes to litigation funding and continuous disclosure laws”.

“These changes have been unnecessary, and ultimately an attack on the rights of everyday Australians to access the justice system and we hope the new government will unwind these changes,” he submitted.

“In terms of law reform, the current state of uncertainty regarding the operation of common fund orders is unsustainable, and we will be raising this with the government at the earliest opportunity.”

More class actions coming?

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According to a recent report from global firm King & Wood Mallesons, a “record” number of class actions were filed in FY21.

Given the change of government, that trend could continue, said Corrs Chambers Westgarth partner and head of class actions Chris Pagent.

“Litigation funders and plaintiff law firms will be pleased with the election result. Corporate defendants and their insurers will be disappointed,” he mused.

“The Morrison government had applied the brakes to class actions, but we expect that to change under Albanese.”

In line with recent commentary with national firm Sparke Helmore, insurers will indeed be keeping a close eye on the class actions landscape as a prominent issue they will have to grapple with in 2022.

70:30 rule

The controversial 70:30 Bill, which created a presumption of unfairness for settlements where less than 70 per cent was returned to group members, will almost certainly not be advanced by a Labor government, Herbert Smith Freehills partner and global head of class actions Jason Betts – who recently outlined what 2022 will hold for the class actions landscape – told Lawyers Weekly. 

One issue was that the 70 per cent designation was arbitrary and not based on research, and indeed the courts have been directing greater scrutiny to legal costs and funding commissions in recent years without regulatory guidelines, he outlined.

A deeper problem for defendants was that the bill would have encouraged more ‘closed’ class actions, limited to consenting group members. That would have increased the incidence of competing, duplicative claims, which is a retrograde step for dependants already dealing with the costs, uncertainty and delay associated with the modern incidence of copycat class actions.

Mr Pagent added that he also expects the new government to “bin the highly controversial proposal

“That proposal had a chilling effect on investment in class actions, particularly in relation to novel claims and claims where the collective value of the loss was less than, say, $75 million,” he said.

Such reform was vehemently opposed by plaintiff firms, with one labelling the proposed changes as “scrappy vandalism against class actions”.

With that proposal “in the bin”, Mr Pagent continued, there will be more class actions being filed.

“That will be a headache for corporate defendants, their boards, and insurers,” he said.

Allens partner Alex Tolliday utilised a similar analogy when discussing the minimum returns reform, noting that it is “likely to be consigned to the dust bin”.

“The abandonment of this proposed reform will allay concerns from class action promoters that further pressure will be placed on funding commissions, and ensure that the court’s supervisory discretion to approve funding commissions is unaltered,” he said.

Contingency fees

It will also be interesting, Mr Pagent added, to see if Labor will adopt the approach taken by the Andrews government in Victoria, by legislating to allow US-style contingency fee arrangements in the Federal Court.

“If it took that step, we’d see even more class actions being filed, and more filings in the Federal Court in particular,” he said.

Mr Betts supported this: “Since contingency fees were introduced into the Victorian Supreme Court, the majority of class actions have been filed in that court, with relatively few in the Federal Court of Australia. Contingency fees are attractive, and create potentially significant returns for class action lawyers. The problem is that class actions involve all Australians, and an essentially uniform procedure nationally, so it is unsatisfactory that the choice of jurisdiction in which they are filed should be determined by how lawyers get paid in a particular state.”

But there is, he warned, a deeper problem.

“Contingency fees are commonly supported on the basis that they promote access to justice. That argument is flawed,” he espoused.

Almost all of the class actions filed in Victoria since the introduction of contingency fees have been shareholder class actions, a type of claim that is already frequently filed in Australia, and for which it can hardly be said that an access to justice problem exists. In fact, the opposite is true – most shareholder class actions these days involves multiple, duplicative claims being filed on behalf of the overlapping group of shareholders – so there is actually an oversupply of class actions in this space.

The argument that contingency fees would promote a greater diversity of class actions in areas that have traditionally been ignored by the funding market has simply not materialised at this point. That is intuitive – why wouldn’t lawyers with the ability to charge a contingency fee pursue lucrative shareholder class actions rather than less valuable social justice proceedings. Yet, it is the latter where access to justice issues arise.

Continuous disclosure reforms

Looking more broadly, Mr Tolliday reflected that several recently enacted and proposed reforms to the class action regime “hang in the balance” following the change of government. “The incoming government is poised to shift gears and adopt a renewed class action reform agenda, which will see an easing of the sustained pressure which the former government placed on litigation funders over recent years,” he said.

On the topic of continuous disclosure reform, Mr Tolliday said, Labor may “seek to dismantle” reform introduced by their predecessors during the pandemic, which the then-opposition “stridently” opposed at the time.

“While these reforms have not dealt a major blow to shareholder class action activity, if the reform is undone, it will represent a backwards step – placing companies at risk of opportunistic claims under a watered-down continuous disclosure regime,” he said.

Managed investment schemes

Both Mr Pagent and Mr Tolliday expect that the Albanese government will “reconsider, and potentially reverse”, changes introduced by the Coalition that require class actions to comply with the laws regulating managed investment schemes (MIS).

This will involve, Mr Tolliday explained, reintroducing the exemption provided to litigation funding schemes from complying with the MIS regime, “which will be welcomed by litigation funders who argued that the reform was unworkable”, he said.

If that occurs, Mr Pagent suggested, “another constraint on class actions will be loosened – it will be easier and less expensive for funders to get new claims up and running”.

Mr Tolliday agreed: “If implemented, the potential reform will remove some of the red tape and regulatory issues that funders presently need to navigate prior to the commencement of proceedings, making claims easier to launch and potentially reducing the ‘lag time’ between the announcement and commencement of class actions.”

ALRC recommendations

Shine Lawyers head of class actions Jan Saddler said that the firm is “confident” that the new Attorney-General will “very carefully consider” the 24 recommendations of the Australian Law Reform Commission’s 2018 report on class actions and litigation funding, which she said was “effectively ignored by the last government”, including legislating common fund orders and of course, group costs order as were recently permitted in Victoria.

Mr Tolliday said that Allens expects that the Albanese government will revisit those recommendations and take steps to enact changes to the current regime.

“While a number of the potential reforms arising from the ALRC report may resolve uncertainties which continue to plague the class actions regime (including the court’s power to make common fund orders at settlement), if the ALRC’s recommendation to lift the prohibition on contingency fees is implemented it will likely have a significant impact on the preferred jurisdiction for the commencement of proceedings, generating competition between the Supreme Court of Victoria and the Federal Court for the commencement of claims by plaintiff lawyers seeking a contingency fee structure,” he warned.

Moving forward, Ms Saddler said, lawyers will “continue to have the responsibility to lobby for clients, potential group members and for class actions as a legal practice area, to ensure legislation protects the rights of individuals and victims of wrongdoing above that of big businesses and corporate entities with deep pockets”.

Labor’s win ‘great news’ for class actions (depending on who you ask)
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