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Australia to Address Low and Disproportionate Returns for Class Action Claimants

The Australian Federal Treasurer and Attorney General have announced a government consultation—which allows stakeholders to submit comments to the government—on third party litigation funding and class actions to address the low and disproportionate returns for class action claimants.

The consultation is in response to the Parliamentary Committee investigation into litigation funding and class actions last year. The Committee’s report painted a bleak picture of litigation funding, stating class members see “significantly diminished compensation for their loss, as bigger and bigger cuts are awarded to generously paid lawyers and funders,” leaving claimants as the “biggest losers” in these lawsuits.

The consultation says that “the Committee found that current regulatory arrangements are inadequate and greater oversight of the industry is required to ensure fair and reasonable outcomes for all class members.”

Government oversight would provide significant protection for class members by placing limits on the excessive fees being given to funders in the circumstances where class members have not even been asked – let alone agreed – to those fees.

Among other issues, the government consultation will be looking at:

  • The best way to guarantee a statutory minimum return of the gross proceeds of a class action (including settlements);
  • Whether a minimum gross return of 70 percent to class members, as endorsed by some class action law firms and litigation funders, is the most appropriate floor; and
  • Whether a graduated approach considering the risk, complexity, length, and likely proceeds of the case is appropriate to ensure even higher returns are guaranteed for class members in more straightforward cases.

The announcement of the government consultation is a good step towards reining in the fast-growing, global third party litigation funding industry.

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