Celia Hammond (Curtin, Liberal Party) Share this | Hansard source

I thank the member for mercifully ending his speech with brief comments. I normally enjoy listening to the member for Whitlam speak, and there were a couple of matters which I agreed with him on in his speech—namely, that there is a role to play for class actions in the Australian judicial system and that there is a role for litigation funders. But that's where the agreement between the two of us would end. Mercifully, he finished his speech with eight minutes left on the clock.

I am happy to speak to the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021, because this bill is designed to ensure that ordinary Australians who seek justice through class actions receive a fair and reasonable proportion of the proceeds of successful class actions supported by a litigation funder. Contrary to some statements, including that made by the previous speaker, this government is not anti class actions, nor is it anti litigation funding. This government recognises that class actions have a vital role to play in our legal system. In some cases, they are the ideal vehicle through which a group of people impacted by the actions or decisions of others can seek recompense. The use of a class action in appropriate circumstances helps both plaintiffs and defendants, as well as the court system in its entirety. When working properly, class actions can facilitate access to justice, discourage wrongdoing and promote the efficient and effective use of court resources.

It's worth noting that the federal class action regime has been in place for almost three decades. In the 25 years from 1992 to 2017, 500 class actions were filed in Australia, and there is no disputing that there are many people who, through those 500 class actions, received access to justice that they wouldn't otherwise have got. Likewise, the litigation-funding mechanism may, in some instances, be the only way that plaintiffs can take their matters to court.

Litigation funding provides a way for representative plaintiffs and class members to meet the costs of litigation. These costs include their own legal costs and, in the event of an unsuccessful outcome, the defendant's legal costs. When litigation funders pay lawyer fees and indemnify representative plaintiffs for adverse costs, it significantly changes the viability of class actions under Australia's loser-pays approach to civil litigation. Litigation funders also potentially close the considerable gap in financial resources between the two sides of the class action, reducing the defendant's ability to defeat the case through superior economic power.

Litigation funding has become more common in recent years. The Australian Law Reform Commission found that litigation funding in class actions has increased significantly since 2008. Between 2008 and 2012, 40 per cent of finalised Federal Court class actions were third-party funded. In 2017 and 2018, 77 per cent of finalised Federal Court class actions were third-party funded.

What concerns this government—and there's no major conspiracy—and what underpins this bill is that there have been numerous documented occasions in the press and in court transcripts in which the current class action litigation funding system has not worked in the interests of justice, where it has not resulted in fair and equitable outcomes. In short, there have been numerous occasions on which the returns made by litigation funders have been disproportionate to the costs they have incurred and the risks they have undertaken in the relevant proceedings. This is not spin. This is not hyperbole. In 2019, the Australian Law Reform Commission found that, when litigation funders were involved in a class action, the median return to plaintiffs was just 51 per cent. Conversely, when a funder was not involved, the median return was 85 per cent. That is a 34 per cent difference.

Last year, the Parliamentary Joint Committee on Corporations and Financial Services, of which I was a member at the time, undertook a review into class actions and litigation funding. While there were a variety of views and opinions expressed through the course of that inquiry, there was virtually unanimous agreement from all submitters and witnesses that the current regulatory arrangements for litigation funders are too light-touch and greater oversight of the industry is required. The only debate was about the nature and extent of that regulation.

I would also state that at the time of undertaking this inquiry the exact number of litigation funders operating in Australia was unknown and impossible to pin down with any precision. The Association of Litigation Funders of Australia submitted that there was no research and no specific evidence with respect to that number. In 2018, the Australian Law Reform Commission indicated that approximately 25 litigation funders operated in Australia and 33 funders operated in either the UK or Australia or both jurisdictions. This number, 33, was the number that the association estimated were operating in Australia.

However, it's very difficult to ascertain the number of foreign litigation funders operating in Australia. Data collected by the Parliamentary Library for the committee's review last year indicated that, as at 18 June 2020, 22 litigation funding companies were known to be operating in Australia—14 were foreign owned or based overseas, six were Australian owned or based in Australia and the information of two funders was unknown. Given the significant role that litigation funders play in the class action process, the fact that there was no clarity at all and no way of knowing exactly how many litigation funders were operating was something that I found extraordinary through the course of that proceeding. It highlighted to me and to the other committee members the lack of a sufficiently robust regulatory environment.

As noted above, the inquiry of the committee concluded that the scale of litigation funding, the growth in the scale of litigation funding, the participation of international litigation funders in the Australian market and the frequency of disproportionate and sometimes windfall-level profits highlighted the need to make regulatory improvements to ensure that representative plaintiffs, class members and defendants are achieving reasonable, proportionate and fair outcomes.

The committee presented its report on 21 December 2020, making 31 recommendations. This bill is actually putting in place changes responding to seven of the committee's recommendations. Perhaps the most controversial of the changes being put in place by this bill, and one to which the previous member referred, is that which responds to recommendation 20 of the committee's report. The committee made a recommendation to the government to consult on the best way to guarantee a statutory minimum return of the gross profits of a class action and whether a minimum gross return of 70 per cent to class members, as endorsed by some class action law firms and litigation funders through the course of our hearing, is the most appropriate floor. The government acted on this recommendation and, on 1 June this year, the Treasurer and the Attorney-General released a consultation paper seeking expert views on potential design elements of a guaranteed minimum rate of return to class members. Twenty three submissions were received. In response to these submissions, the government released the exposure draft legislation on 31 September, and 21 submissions were received.

As a response to that consultation—not a week's consultation but two inquiries, the Law Reform Commission committee inquiry and two periods of consultation—the bill that the government is putting forward is legislating a requirement that a court approve or vary the proposed distribution of claim proceeds to ensure that members of a class action litigation funding scheme receive a fair and reasonable share. The bill is going to establish a rebuttable presumption that a distribution will not meet this statutory threshold if more than 30 per cent of the claim proceeds in total is to be paid or distributed to non-members of the scheme, such as to the funders or to the lawyers. So it is setting up a rebuttable presumption of a floor—70 per cent of the proceeds must go back to class-action members. This bill will also require the court to consider a number of factors, including the funder's commercial return compared to reasonable costs to the funder incurred for the proceedings.

It has been argued by some that putting in a floor or putting in this 30 per cent figure will somehow dissuade litigation funders and/or impede class actions. To that argument, I stress that this is what is known as a rebuttable presumption, meaning that it can be challenged by a litigation funder and a court does have the opportunity to vary it if the circumstances justify it.

It needs to be noted in this context—sometimes forgotten by those advocating otherwise—that it is the litigation funders who hold the position of power vis-a-vis class-action members, and it is right that they, with their superior resources, should have to justify the additional costs and returns that they seek. A class action funded by a third party litigation funder is a complex scheme which is beyond the experience, if not the understanding, of most group members. Many of the members are not legally or financially sophisticated, and they may be vulnerable depending on the subject of the class action. And let's remember that litigation funders do not do this out of the goodness of their heart; they do it for a return. And, of course—no complaints here—they want to maximise their returns. What this bill is saying is: 'Fine. You can do that. You can seek profit. You can seek to maximise your returns. But if you are going to take more than 30 per cent of any payout for your own costs and profit, then you will have to justify it.' There is nothing outrageous in that.

Further, the argument that having this floor will dissuade litigation funders from perhaps endorsing or following up with supporting some claims also goes against the evidence we received throughout our committee hearings. We heard in those committee hearings that litigation funders already take a very robust risk profile to analysing whether they are going to support a particular class action. One funder admitted that 98 per cent of their cases are successful. To me, that indicates that they are pretty good judges of what they're going to fund, and what they're not going to fund, right at the outset.

In support of the overriding goal of ensuring that members of a class action litigation funding scheme receive a fair and reasonable share, this bill further provides assistance to courts in navigating the complexities of legal costs and funder commissions by ensuring courts consider the reports of independent experts in the representations of people known as contradictors representing the interests of scheme members when appointed. This bill provides that the cost of these experts are borne by funders unless the court determines otherwise. There are other elements of this bill—and I'm sure my colleagues will get up and address a number of the other elements here—but the only other element that I want to pick up on is that this bill also seeks to implement a consistent approach to class actions across all jurisdictions, maximising protection for class members throughout Australia. This avoids the risk of forum-shopping, which is very real, by funders filing in courts which do not have the same level of protection for class members.

By way of conclusion: there is a lot of spin and rhetoric. There will be spin and rhetoric from all sides of the argument here. We heard it through our committee hearings. We heard various parties throwing allegations that litigation funders rip people off, and then you get the other side saying that this side of the parliament was trying to shut down class action law firms and somehow harm rural and regional people, neither of which are true. The truth is that we need our legal system to deliver justice. Class actions and litigation funding have a role in there, but litigation funding needs to be regulated. It's not sufficiently regulated at the moment. It's fine for litigation funders to go out and seek to make profits—that's absolutely acceptable—but we've got to make sure that those profits, those returns that they are making, do not come to the harm of the plaintiffs, all those 430,000 people who are making a claim against the government for this or are making a claim for product liability against another company.

We want to ensure that those people who are the members of the class who might suddenly find themselves signing a complex litigation funding agreement, all the details of which they might not necessarily understand, are given adequate protection. This bill is designed to do that. It's to back in our justice system. It's to ensure that people who are taking class actions are protected. On that basis, I am a friend of this bill. Even though the member for Whitlam said there'd be no members for it, I am a friend of this bill.

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