President’s Message

Getting the model right on litigation funding

JUSTIN STEWART-RATTRAY, PRESIDENT

Given the scale of the data breach, it is almost certain some readers of this column will have received an email from Optus informing them that their personal details were now in the hands of a cyber thief.

With millions of Optus customers being affected by the cyber-attack, Slater and Gordon has announced it is considering a class action against the telco.

Class actions are increasingly being used as a legal tool to settle disputes, especially in consumer protection matters involving a large volume of affected consumers.

Class actions are often bankrolled by litigation funders, and there has long been a philosophical debate about the role that litigation funding plays in access to justice.

Since 2006, litigation funding for class actions have significantly increased, and this has caused State and Federal Governments to grapple with how to deal with this emerging legal funding model.

Litigation funders would generally fund matters that have a high chance of success, and take a portion of the overall proceedings.

On one hand, litigation funding can be extremely beneficial as it enhances access to justice, enabling claimants to take action where they otherwise would not be able to, and achieving some sort of remedy for one’s losses is surely better than no remedy at all.

On the other hand, the compensation to litigants is obviously diminished by the proportion that the litigation funder usually receives. There is very little regulatory oversight of litigation funding, meaning there is no real effective mechanism to evaluate the reasonableness of a litigation funding arrangement. In addition there is also often a lack of transparency for claimants around the details of settlements.

Many adversely affected consumers have relied on litigation funders to advance their rights. The value of litigation funders in enabling claimants to be justly recompensed is well recognised, but it is important that claimants are not exploited by these models.

The Federal Government is consulting on proposed Regulations that would reverse measures that were introduced by the previous Government which removed exemptions under the ‘managed investment scheme’ (MIS) provisions of the Corporations Act and required litigation funders to hold an Australian Financial Services License.

On 23 September 2022, the Society provided a submission to the Law Council of Australia with regards to the exposure regulations, arguing that it was appropriate that litigation funders be exempt from MIS obligations, noting a recent Federal Court judgment that a third party funded class action was plainly not a managed investment scheme.

However, the Society made some further points about ensuring that the legal funding landscape prioritised access to justice and did not unfairly disadvantage the legal profession. The key points included: • There needs to be some appropriate oversight of litigation funders; • The Courts should have suitable powers to regulate class action funding; • Law firms that bear the costs of litigation, thus effectively providing the same service as a litigation funder, would be subject to the same regulations and apply the same uplift fees as matters financed by litigation funds; and • Non-profit litigation funders such as the Society’s Litigation Assistance Fund, should be exempt from the regulation of litigation funders.

It is clear that litigation funding is here to stay, and it plays an important role in facilitating access to justice. If we get the model right, we can maximise just outcomes for deserving claimants. B October 2022 THE BULLETIN 5