Changes to class action funding requirements raise questions

Lawyer class action

Federal treasurer Josh Frydenberg last week announced a crackdown on external funding of class action lawsuits in an effort to improve transparency and accountability in the sector.

The change will require any litigation funder to hold an Australian Financial Services Licence and to comply with the managed investment scheme regime, Frydenberg said in a statement, and will take effect on 22 August 2020. 

The changes will complement an inquiry into litigation funding and regulation of the class action industry, which is due to report in early December.

Business Council of Australia chief executive Jennifer Westacott said that the move was welcomed by employers. 

“Every dollar spent defending against opportunistic class actions is a dollar that is not spent on creating a new job or saving an existing one,” Westacott said. 

“Of course businesses must follow the law and act responsibly but keeping markets well informed and protecting Australians from opportunists are not mutually exclusive.”

Australian Institute of Company Directors chief executive Angus Armour said business leaders should be working hard to save jobs and companies from collapsing, according to AAP, and shouldn’t be “looking over their shoulders for lawyers and funders looking to capitalise on the uncertainty created by the pandemic”.

Two sides of a coin

The changes will undoubtedly have a major impact on the accountability in the class action sector, but could also have the opposite effect on larger corporate entities which may end up facing fewer legal challenges.

Several large retailers have been subject to class actions over the last few years, and these changes could make holding business to account for underpayments, abuse of workers’ rights and unfair dismissal too difficult for many.

Law firm Adero Law told Inside Retail it supported the parliamentary inquiry, but that it also believes there is a real need to ensure access to justice.

“Adero can’t forsee a situation where litigation would not exist in the marketplace,” Adero Lawyer Ashley Cutchie said.

“Were it that funders didn’t exist, Adero believes you would witness a dramatic decline in legal services and a closing or narrowing of legal service providers to very large plaintiff law firms who may charge fees disproportionate to the work completed.”

The firm’s wish, Cuthie explained, is that litigation funders take on shared risk with both law firms and barristers, while reducing the cost for class action members in order to ensure “full access to justice is obtained”.

Shadow attorney-general Mark Dreyfus said the inquiry was a shameless attempt to protect the government’s big business mates from public oversight.

“The Morrison government’s inquiry into class actions and litigation funding is a shameless move towards denying justice and fair compensation for ordinary Australians,” Dreyfus said. 

And the sudden push to clean up this industry is seen by some as an effort to deny justice against the government itself.

Labor spokesperson for government services Bill Shorten said class actions like the one surrounding the government’s “robo-debt” initiative is the only way the underdog Australian can get justice against the rich and powerful, according to SMH.

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