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Funders and Claimants’ Lawyers Continue to Feast on Class Members’ Compensation

Litigation funders have resumed their campaign to try and stop the Australian federal government from reforming their industry.

What reforms are they campaigning against?

First, the funders are fighting against the suggestion that class members – the very people they claim to represent – should receive a fair share of their compensation – rather than have the lion’s share taken by the funders and the claimants’ lawyers.

Second, despite being part of the Australian financial services industry, the funders do not want to be regulated as such. The funders argue they can be trusted to ‘self-regulate’ and do the ‘right thing’, despite a growing body of evidence to the contrary.   

One such example that illustrates exactly why the industry needs reform came recently from a class action before the Federal Court.

The case in question is the Vocation class action – a saga that has dragged on for the past five years. This claim involved allegations that Vocation’s IPO prospectus contained misleading statements and material omissions. 

The case finally settled for $50 million, but only on the basis that $23.65 million would be taken by the funders and claimants’ lawyers.  In other words, the class members received just 52% of the settlement while the funders and lawyers took 48% – strikingly close to the average return to class members identified by the Australian Law Reform Commission (51%) – a figure that is regularly disputed by the funders. It also bears mentioning that the ALRC reports that the average return to group members in unfunded cases is 85% of the settlement award.

In the Vocation class action, the “very substantial” costs order gave the claimants’ lawyers – Maurice Blackburn and Slater and Gordon – $7.5 million and $5.1 million respectively, while funders Omni Bridgeway received $6.5 million and International Litigation Funding Partners received $4.4 million.

The Court allowed the two sets of funders and lawyers in this case, rather than making a decision as to which of the two competing teams should be allowed to run the case. How the Court, lawyers, and funders involved imagined that this was in the best interests of the claimants is anyone’s guess.

Not surprisingly, the Court in approving the settlement said that “… the possibility that the aggregate legal costs and aggregate funding commission might have been materially lower had there been but one litigation funder and one law firm”.

This is not the first example of extravagant costs order, nor will it be the last. Claimants are repeatedly the “biggest losers” in these lawsuits. Government reform of the litigation funding industry is desperately needed.

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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.”

Game Is Up For Litigation Funders

Last week, the Australian Financial Review featured an op-ed written by Stuart Clark, an adjunct professor at Macquarie Law School and former president of the Law Council of Australia, that highlights the need for reforming Australia’s litigation funding industry.

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