Angie Bell (Moncrieff, Liberal National Party) Share this | Hansard source

In rising to speak on the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021, I acknowledge the member for Bruce and his innate talent for theatre and spin on the other side of the chamber. On 28 October 2021 the House referred an inquiry into the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 to the Parliamentary Joint Committee on Corporations and Financial Services, or PJCCFS.

A bit of background on this bill is that class actions enable a representative plaintiff to bring a claim on behalf of a larger group or class. These claims are often complex and costly, and a representative plaintiff may not have the financial resources to fund the action and may be exposed to liability in the event of an adverse finding. Third-party litigation funding schemes can enable inaction by paying the costs of litigation and indemnifying the plaintiff in exchange for a share of any proceeds if the litigation is successful. Litigation funding can therefore play an important role in promoting access to justice by enabling class actions and reducing the risk that plaintiffs face from unsuccessful litigation.

Australia operates an open-class action law, whereby potential claimants are bound by the judgement of the court unless they opt out of the action. Affected individuals may therefore benefit from a successful action or avoid costs from an unsuccessful action, even though they did not sign up to a scheme or contribute to the cost of running that action. Under an open-class action model, individuals who did not opt to join an action, and therefore also did not incur the risks or costs of the representative plaintiff, may still receive a share of any settlement in a successful action. This is the free rider problem.

Courts have used common fund orders, or CFOs, to address the free rider problem and limit windfall profits to funders. CFOs have often been made before trial and require all class members to contribute an equal proportion of their share of the settlement to the litigation funder, whether or not they signed on to the action. CFOs encourage open-class actions and promote certainty and finality for defendants. However, the legislative basis for CFOs remains unclear, leading to uncertainty, procedural contests, delays and increased costs. CFOs may also promote speculative actions that are backed by funders without adequate investigation and may run counter to common law doctrine with regard to informed consent.

Courts have also used funding equalisation orders, FEOs, to address the free rider problem and the issue of disproportionate returns to funders. FEOs require non-scheme members to contribute to the cost of an action borne by scheme members out of any settled funds. Such orders are designed to ensure that all group members contribute equally to the cost of running a class action from which they benefit. In contrast to many CFOs, FEOs are made at the conclusion of a proceeding—meaning that they account for the actual costs incurred during an action rather than expected costs.

This bill amends chapter 5C of the Corporations Act to implement the government's response to recommendations 7, 11, 12, 13, 16, 18 and 20 of the PJCCFS report. The amendments establish a new kind of managed investment scheme, a class action litigation funding scheme, and introduce additional requirements for the constitutions of managed investment schemes that are class action litigation funding schemes. The measure ensures that returns to litigation funders out of the claim proceeds of a scheme are fair and reasonable.

This bill partially implements the government's response to the PJCCFS report and the Australian Law Reform Commission report. I will start to outline the main points, as we go forward. This bill gives rise to a range of regulatory impacts on businesses, as set out in the PJCCFS and the ALRC reports. Those reports have been certified as independent reviews which involved a process and analysis equivalent to a regulatory impact statement. To address the gap in analysis between the reports, inquiries and the government's consideration of options for class action litigation funding reform, supplementary analysis on the costs, benefits and risks associated with the new measures was prepared consistent with the Australian Government Guide to Regulatory Impact Analysis. A number of key impacts were identified in that report:

Debate interrupted.

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