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Australia Proposes Regulation of Litigation Finance to Address Class Action ‘Feeding Frenzy’

The Australian Federal Government is looking to put an end to the excessive fees charged by class action litigation funders and lawyers. On September 30, the government released its long-awaited proposals for the regulation of the litigation funding industry.

“Class action funders and lawyers will be restricted to a maximum 30 percent of any payout under new laws the federal government hopes will curb ‘disproportionate’ returns at the expense of ordinary Australians involved in claims,” reports the Australian Financial Review.

The proposed legislation “will give judges enhanced power to approve or vary the share of proceeds to ensure the distribution is fair and reasonable, with funders to pick up the bill for any independent expert used by a court.”

Under the draft law, plaintiffs would also need “to consent to being members to a class action litigation funding scheme before funders can impose their fees or commission on them.”

The Australian Attorney General and Treasurer said the draft legislation “would establish a rebuttable presumption that a return to the general members of a class action litigation funding scheme of less than 70 percent of their gross proceeds is not fair and reasonable.”

The floor of 70 percent for class members was suggested by the Parliamentary Joint Committee on Corporations and Financial Services in their final report on litigation funding and regulation of the class action industry.

“The committee reported that 41.4 percent of gross settlements of funded class actions until 2020 had gone to lawyers and funders,” reports the AFR. “The median return to plaintiffs was 51 percent in funded claims and 85 percent when a funder was not involved.”

Australian Senator Cash said, “[t]his legislation effectively deals with the feeding frenzy that has been taking place in class actions.”

The proposed legislation would also make permanent the licensing system for litigation funders that was set up temporarily by the government last year.

These changes will ensure that plaintiffs are protected from the excesses of litigation funders, who have been taking disproportionate fees and charges from class members’ compensation. Australia has a chance to reign-in this wild-west  industry and set a standard for the world. 


More to explore:

Australian Class Action Lawyers Face Criminal Investigation Over “Grossly Unethical Behaviour”

A group of class action lawyers in Australia “are facing a criminal investigation and a damages bill of more than $11.7 million for ‘dishonourable’ and ‘fraudulent’” conduct, reports the Australian Financial Times. The lawyers and litigation funder involved attempted “to claim more than $19 million in legal and funding fees from a group of elderly investors in the Banksia class action.”




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