Regulatory net tightens over litigation funders as Australian parliament launches class action inquiry
Defendant lawyers and business lobby celebrate after double assault on 'booming' class action industry
Australia’s federal government has announced that litigation funders will be subject to stringent new regulatory requirements.
Under the plans, which were unveiled by Treasurer Josh Frydenberg, funders will 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 comes 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’.
The moves follow lobbying by defendant law firms and business groups in Australia which have long called for reforms to the class action rules.
Frydenberg said that funders “do not face the same regulatory scrutiny and accountability as other financial services and products”, adding that it was important that funding was regulated in a consistent manner, similar to other products which sought to provide investment returns to shareholders.
He added: “We want Australian businesses staying in business, and focused on keeping people in jobs, rather than fending off class actions funded by unregulated and unaccountable parties.”
Litigation Capital Management, which transferred its listing from Australia to London’s AIM exchange in 2018, is believed to be the only litigation funder to currently hold a licence, which requires funders to act honestly, efficiently and fairly; maintain an appropriate level of competence to provide financial services; and have adequate organisational resources to provide the financial services covered.
Litigation funder Omni Bridgeway (formerly known as IMF Bentham) welcomed the measure, which it said was in line with long-standing proposals to regulate the sector, although it denied there had been an explosion in the number of class actions.
The Association of Litigation Funders of Australia (ALFA) said it would not oppose the move, but was “surprised by this action”, which it said went against the final recommendations of a 2018 report by the Australian Law Reform Commission (ALRC).
Meanwhile, in announcing the Parliamentary Joint Committee on Corporations and Financial Services inquiry, federal Attorney General, Christian Porter QC MP, said: “There is growing concern that the lack of regulation governing the booming litigation funding industry is leading to poor justice outcomes for those who join class actions, expecting to get fair compensation for an injury or loss."
The decision to hold the inquiry was opposed by opposition spokesman, Mark Dreyfus QC MP, who said it was “a shameless move towards denying justice and fair compensation for ordinary Australians", adding that the government was more interested in protecting its “big business mates”.
Allens litigation partner Ross Drinnan said the move was “a welcome response from the government which is showing a constructive willingness to grapple with the thorny issues concerning class actions which have led to the escalation in claims over recent years".
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