Released on Friday (2 September) by the Assistant Treasurer and Minister for Financial Services Stephen Jones and Attorney-General Mark Dreyfus, the draft Corporations Amendment (Litigation Funding) Regulations 2022 follows a June 2022 decision by the Full Federal Court that held that the notion that funded class actions are managed investment schemes is “plainly wrong”.

In October last year, former treasurer Josh Frydenberg and Attorney-General Michaelia Cash published a draft exposure bill that capped returns to litigation funders to 30 per cent — which was subsequently called nothing but “scrappy vandalism against class actions”, with plaintiff lawyers arguing that the caps “threaten access to justice”.

Despite this, the 70:30 bill, which created a presumption of unfairness for settlements where less than 70 per cent was returned to group members, was ushered in by the Treasurer in the midst of COVID-19. Following the federal election in May, a number of litigation funders and plaintiff firms celebrated Labor’s win — as the Albanese government “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”.

According to a statement from the Assistant Treasurer and Attorney-General Mark Dreyfus, “the draft regulations would reinstate the longstanding exemptions from the Australian Financial Services Licence (AFSL), managed investment scheme (MIS) and other corporate regulatory regimes for litigation funders that existed prior to the August 2020 changes”.

“The Albanese government is also considering recommendations by the Australian Law Reform Commission to clarify and strengthen the powers of the Federal Court to ensure fair and reasonable returns to class action members,” he said.

In a statement to the ASX, litigation funder Omni Bridgeway said that it welcomed the proposed regulation changes and would be entering a submission.

“The proposed changes include the confirmation that the managed investment scheme (MIS) regime is not applicable to the funding of Australian class actions. This is in line with the recent Full Federal Court decision in LCM Funding Pty Ltd v Stanwell Corporation Ltd [2022] FCAFC 103,” the funder said.

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“The draft Corporations Amendment (Litigation Funding) Regulations 2022 (Regulations), announced on Friday 2 September 2022, are open for comment until the end of the month. Omni Bridgeway will participate in this regulatory process. Whilst the MIS regime should never have been applied to the financing of class actions, consistent with our prior submissions to the federal government, Omni Bridgeway believes that litigation funders in Australia should hold an Australian Financial Services Licence and be subject to an appropriate regulatory capital regime.”

The decision has been welcomed by plaintiff law firms Shine Lawyers and Slater and Gordon, as well as BigLaw firm Corrs Chambers Westgarth.

Shine Lawyers head of class actions Jan Saddler told Lawyers Weekly that the firm welcomed “the decision to undo what were unnecessary changes to regulations surrounding class action litigation funding introduced by the Coalition government”.

“Litigation funders are often an integral part of the justice process, and provide vital capital needed to stand up to corporate giants.

“We also welcome the decision to review the recommendations and findings of the Australian Law Reform Commission inquiry undertaken in 2018. This report was effectively mothballed by the last government and it is now time, almost four years after the report was delivered, for it to be properly and fully considered,” she said.

“Class actions affect all Australians and are run on behalf of thousands, or tens of thousands, of people who otherwise may not have the means to pursue justice on their own.”

The proposed changes, however, will be “poorly received” by corporate defendants, directors and their insurers, according to Corrs Chambers Westgarth.

“Without having so many regulatory hurdles to clear, funders and plaintiff law firms will be able to get claims up and running faster, and with less expense. We may well see increased competition in the funding market, and lower commissions. That will be seen as a good thing by group members,” the firm told Lawyers Weekly.

“Funders are hopeful the proposed exemptions will be enacted swiftly following the short consultation period. In the meantime, funders need to seek advice on managing the residual effects of the current regulations.”

Having always been a “vocal critic” of the previous government’s changes, Slater and Gordon has welcomed this proposed unwinding.   

“We will take the time to consider the detail and impact of the proposed regulatory changes and make submissions to Treasury for consideration. Slater and Gordon have always been a vocal critic of the former Morrison government’s regulatory changes, which sought to capture litigation funding arrangements within the managed investments regime in the Corporations Act,” a spokesperson told Lawyers Weekly. 

“We look forward to contributing to the federal treasury consultation process and continuing to advocate for the millions of Australians seeking access to justice through class actions.”