Michael Sukkar (Deakin, Liberal Party, Assistant Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 will ensure that ordinary Australians who seek justice through the class actions system receive a fair and reasonable portion of the proceeds of successful class actions supported by a litigation funder.

Australia's class action regime and litigation funding regimes must provide fair and equitable outcomes for all Australians. Yet, all too often, the current system does not meet these benchmarks. The recent decision of the Victorian Supreme Court in the Banksia Securities Ltd case is a stark reminder of the egregious conduct that can occur when those who work in the legal system lose sight of the best interests of their clients. As the Victorian Supreme Court noted, such conduct 'corrupted the proper administration of justice.'

The government has long been concerned by the returns being made by litigation funders at the expense of class members. In 2019 the Australian Law Reform Commission found 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. Last year, the Parliamentary Joint Committee on Corporations and Financial Services concluded that in many cases litigation funders appear to be making windfall profits that are disproportionate to the costs incurred and the risks undertaken in the relevant proceedings.

These findings are echoed by judgements of the courts. Just this year, in the case of Cheryl Wittenbury v Vocation Ltd, together the lawyers and funders received nearly 50 per cent of the settlement sum. Such a state of affairs runs counter to the compensatory nature of the class-action system, which is primarily designed to vindicate the rights of class members.

This bill achieves a number of key objectives therefore. First, the bill requires claimants to agree in writing to be members of a scheme and to be bound by the scheme's constitution. This requirement for active consent will incentivise book building by litigation funders and ensure that claimants who do not want to participate in a class action do not need to actively opt out.

Second, the bill requires a court to approve or vary the proposed distribution of claim proceeds to ensure that members of the class-action litigation funding scheme receive a fair and reasonable share. In assessing this, the bill will establish a rebuttable presumption that a distribution would not meet this statutory threshold if more than 30 per cent of the claim proceeds in total is to be paid or distributed to nonmembers of the scheme, such as distributed to the funders or lawyers. It will also require the court to consider a number of factors, including the funders' commercial return compared to the reasonable costs to the funder incurred for the proceedings. This provides a clear signal that the community expects that the primary purpose of the class-action regime is to vindicate the rights of ordinary Australians. At the same time, the flexibility of the court to do justice in a particular matter will be preserved.

Third, to assist courts in navigating the complexities of legal costs and funder commissions, the bill ensures that courts consider the reports of independent experts in the representations of contradictors representing the interests of scheme members when appointed. This bill provides that the costs of these experts are borne by funders, unless the court determines otherwise.

Fourth, this bill will reduce the use of common fund orders as a way of funders to expand their portion of the settlement by extending their commission rate to all members of a class, including those that have not agreed to sign a funding agreement. The bill does not bar the court from making an order to share the costs of a proceeding amongst all members who benefit from the action though. The use of common fund orders by courts is a mechanism to amend the funding commission rate has now been superseded by the bill's express power to vary the funding agreement. Jointly, the proposed bill and current court orders provide a solution to the free-rider problem but, at the same time, preventing those windfall gains to litigation funders.

Finally, the bill seeks to implement a consistent approach to class actions across all jurisdictions. This will maximise protection for class members throughout Australia. The bill adopts an expansive approach seeking to extend protection to class-action litigation funding schemes for class actions in any Australian court. This avoids the risk of forum shopping by funders filing in courts which do not have the same level of protection for class members.

This bill and its reforms will ensure that Australia's class-action system operates as originally intended whilst ensuring the viability of litigation funding agreements that provide ordinary Australians with access to justice. The Legislative and Governance Forum on Corporations was consulted in relation to the bill, as is a requirement of the Corporations Agreement 2002, and, as always, full details of these measures are contained in the explanatory memorandum.

Debate adjourned.