Australian class actions reach all-time high despite fall in litigation funder-backed cases

Regulatory pressure on the litigation funding industry has had immediate impact, study finds


A record 63 class actions were filed in Australia between 2020 and 2021, despite increased regulatory pressure on litigation funders, according to research published by King & Wood Mallesons. 

The Review: Class Actions in Australia 20/21 reveals that at least 20 class action settlements were approved in the 12 months to June 30 2021, representing at least $850m in total settlement funds. 

Research showed the three main types of claims were consumer claims (24) related to Covid-19 actions, pharmaceutical products and medical devices, claims against the state (12) for the recovery of wages for indigenous workers and Covid-19 outbreaks in Victoria, and employment claims (11) lodged against public health services relating to wage underpayment. 

Jurisdictionally speaking, Victoria’s decision made last June to allow plaintiff solicitors to claim a proportion of the total award in any class action led to a surge in claims being made in the state. 

Thanks to the rule change, the Victorian Supreme Court overtook the Victorian Registry of the Federal Court in terms of actions filed with 19, compared to the latter’s 16. The New South Wales Registry of the Federal Court clocked in with the third-highest number of actions filed with 13. 

There was a notable drop in new actions involving a litigation funder this year, particularly after the introduction of additional regulatory requirements applying to funders from August 2020. Just 19% of actions were backed by a litigation funder after the new requirements went into effect — the lowest proportion of funded actions since 2013/2014 — compared to 65% prior to the regulatory changes, according to the report. 

The report further highlighted that in the 15 years since the Australian High Courts decided litigation funding was not an abuse of process or contrary to public policy, litigation funders wormed their way into becoming an integral part of the Australian legal market, but substantial questions remain as to how funders are regulated and group member’s interests protected. 

The crackdown on litigation funders took flight in March 2020 when treasurer Josh Frydenberg revealed funders would have to abide by rules set by the Australian Securities and Investment Commission, which has previously maintained that the responsibility for policing lay with Australia’s courts. 

The decision came in the same week that a parliamentary committee announced an inquiry into litigation funding citing concerns the ‘booming industry’ was leading to ‘poor justice outcomes’.

Class actions have been on the rise elsewhere in recent years, as different jurisdictions begin to adopt procedures used to fuel the many class actions filed in the US. Last week, Deloitte's German legal arm teamed up with German boutique firm Frommer Legal to establish a new law firm focused on defending companies against class actions in Münich amid a rise in European class action lawsuits. 

And earlier this year, a study published by CMS revealed that class actions in the EU and the UK grew by 120% from 2018-2018 as a result of the introduction of US-style opt-out procedures in the UK and the Netherlands, with the number of technology cases having increased 15-fold over the last four years.

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