The Federal Government's announcement that it intends to pass legislation clarifying that litigation funded class actions are not managed investment schemes has been met with disappointment by some in the industry.
Middletons partner Stephen Meade told Lawyers Weekly that while the changes will be welcomed, the government's decision to adopt minimalist regulation under the Corporations Act 2001 is a missed opportunity to more appropriately regulate the industry.
"To some degree, [the decision] might be an opportunity lost," said Meade.
"Litigation funders are playing a very important role in class actions, particularly in shareholder class actions, and it seems reasonable to expect that organisations which are playing such pivotal roles would be subject to greater degrees of transparency, particularly when dealing with the financial interests of large classes of people."
Changes to litigation funded class actions have been on the agenda ever since the Full Federal Court's 2009 decision in Brookfield Multiplex Ltd v International Litigation Funding Partners in which it was determined that litigation funded class actions qualify as managed investment schemes, thus attracting heavy prudential and reporting requirements.
According to Meade, this effectively shut out "Mums and Dads" shareholders, or non-sophisticated investors, from bringing class actions due to a reluctance on the part of litigation funders to adhere to the requirements.
"IMF, which is really the dominant litigation funder in this space, notified the ASX that unless things changed, they wouldn't be proceeding with any class actions on behalf of those investors because of the requirements imposed by the judgment," said Meade.
"It was a no brainer. Something had to happen."
While the new legislation is likely to end uncertainty surrounding class actions and remove barriers which were previously hindering the prevalence of shareholder class actions following the Brookfield decision, Meade is unconvinced that minimalist legislation is the preferred outcome.
"We are going to be back to the pre-Brookfield landscape," he said.
"In some ways, we are resuming normal business with respect to class actions but that doesn't necessarily mean we are where we should be. The government should have used this opportunity to look in a more global sense at litigation funding, and class actions more generally, to impose a greater degree of transparency with respect to the involvement of litigation funders."