The Australian Parliamentary Joint Committee on Corporations and Financial Services released a report this week calling for more stringent oversight of the country’s “highly unique” litigation funding industry. The report is a watershed moment for civil justice in Australia, the birthplace of third party litigation funding (TPLF), and for the litigation funding industry in general, as the use of TPLF is increasing worldwide.
The committee was formed to investigate the robust litigation funding and class action industry in Australia. Attorney General Christian Porter asked the committee for a report on how these industries are functioning and interacting with one another saying there “is clear evidence that the system is not delivering fair and equitable outcomes.”
The committee released its 454-page report this week, which largely concurs with Porter’s assertion. The report also included recommendations on how to better regulate the industry.
The report says Australia “has become a global hotspot for international investors, including many based in tax havens and with dubious corporate histories, to generate investment returns unheard of in any other jurisdiction – in some cases of more than 500 per cent.” This was the result of a “light touch” approach to regulation, “under which no successful action by a regulator has ever been taken against a funder.”
Due to the “growth in the scale of litigation funding, the participation of international litigation funders in the Australian market, and the frequency of windfall profits,” the committee said a reassessment of whether “representative plaintiffs, class members and defendants are achieving reasonable, proportionate and fair outcomes” was in order.
The results of that reassessment could not be clearer: serious work is needed to rein in the abuses of litigation funders that are giving class members, as the committee says, a “raw deal.”
Among the 31 recommendations offered by the committee are measures to:
- give the court enhanced power to approve, vary, or set aside funding arrangements;
- establish a floor for total returns to class members; and
- create stronger rules relating to conflicts of interest.
The report should serve as a wake-up call to Australian legislators and regulators. Action is urgently needed to clean up a lawsuit system that’s been hijacked by litigation funders.
This blog was cross-posted on the U.S. Chamber Institute for Legal Reform‘s website. The Institute for Legal Reform manages Fair Deal for Consumers.