Access to Justice—Litigation Funding and Group Proceedings: Report (html)

7. Conclusion

7.1 Victoria’s class action regime has improved access to justice. Thousands of Victorians have benefited from the procedures introduced in 2000 by Part 4A of the Supreme Court Act 1986 (Vic). Combined, they have received more than one billion dollars in compensation that they would have been unable or unwilling to recover in separate claims. Eighty-five class actions have been filed on behalf of a wide variety of claimants, from vulnerable individuals to institutional investors and insurers. Two in every three class actions settled.

7.2 Crucially, the regime affirms the Supreme Court’s role in ensuring that the procedures are fair and that the outcome takes into account the interests of all class members.

7.3 The recommendations contained in this report aim to further improve access to justice. They build upon changes in how class actions are now being managed—particularly by the Supreme Court of Victoria but also by the Federal Court of Australia and the Supreme Courts of New South Wales and Queensland—in response to the activities of litigation funders and entrepreneurial law firms. This report, and the reference, are directed at Victorian processes. The recommendations relate to the Victorian Supreme Court while advancing a nationally consistent approach.

7.4 A number of significant features of class actions today were not envisaged when the regime was first established and have been developed by the courts in exercising broad discretionary powers. For legal certainty and procedural clarity, the Supreme Court of Victoria should be given express powers, or consider providing comprehensive guidance, in support of its responsibility to: ensure that the claim is appropriately brought as a class action; review costs; approve settlement, and supervise the distribution of settlement proceeds. For reasons discussed in Chapter 4, a pre-commencement certification process is not necessary or desirable.

7.5 The Commission’s consultations with judges, law firms and litigation funders revealed a marked consensus that class action practices and procedures should be consistent across Australian jurisdictions. Although there is a high degree of commonality, the Victorian Supreme Court’s practice note on class actions is not as prescriptive as the practice note issued by the Federal Court of Australia. It does not refer to litigation funders and provides less guidance to law firms about their obligations to class members.

7.6 The differences reflect the limited involvement of litigation funders in class actions in Victoria, and the greater caseload of mass tort proceedings, which often present unique characteristics that are best managed when the Court can respond flexibility. However, to avoid ‘forum shopping’ and other tactics that exploit actual or perceived differences at the expense of efficiency, the Supreme Court Practice Note should align more closely with its Federal Court equivalent.

7.7 While the Court has a role in ensuring that class members are not exposed to unfair risks or disproportionate cost burdens, there is an inherent disparity in the class action regime because the representative plaintiff carries the financial risk of losing as well as being liable for the costs of bringing the proceeding. In most class actions it creates an insurmountable barrier or risk unless some or all of the costs are contingent on a successful outcome.

7.8 Litigation funders have enabled class actions and other litigation to be pursued by meeting upfront costs and removing or reducing the financial risk of losing. They have become integral to the legal system and increasingly pervasive and should be regulated nationally. The court, the parties, and any persons on whose behalf funded litigation is conducted should made be aware that a litigation funder is involved and the nature of its involvement. In addition, the Court should have an express power to review and vary litigation funding charges or costs in class actions.

7.9 Within Victoria, the impact of litigation funders in enabling litigation other than class actions to proceed is unknown although, as discussed in Chapter 2, the involvement of a litigation funder in a claim made on behalf of former employees of Huon Corporation Limited attracted controversy.

7.10 Litigation funders clearly have had little impact in enabling class actions to be brought in the Supreme Court of Victoria. By far the most prevalent form of financial assistance to representative plaintiffs in Victoria has been the provision of legal services by law firms on a ‘no win, no fee’ basis. However, charging on a ‘no win, no fee’ basis usually does not relieve the representative plaintiff of liability for disbursements or reduce their exposure to the risks of being ordered to provide security for costs or pay adverse costs.

7.11 There are cogent reasons for permitting lawyers to charge contingency fees in appropriate areas of law. Previous reviews, including the Commission’s 2008 Civil Justice Review, have recommended it. There is also persistent concern that lifting the ban would increase the risk or incidence of unethical conduct because of conflicts of interest. However, existing rules and ethical guidelines for the legal profession are comprehensive and more robust than those that apply to litigation funders, and the Commission recommends further guidance on the recognition, avoidance and management of conflicts of interest in class actions.

7.12 The Commission has concluded that, in principle, lawyers should be able to charge contingency fees because it would provide another funding option for litigants who are unable to bring proceedings without financial assistance. It would increase competition. It may reduce costs in some cases and enable the pursuit of claims that are not financially viable investment opportunities for litigation funders. The challenge of how to improve access to justice by permitting lawyers to charge contingency fees, with appropriate regulation, should continue to be pursued nationally.

7.13 In the meantime, more class actions may be pursued, at lower cost, and at less financial risk to the representative plaintiff, if lawyers could apply to the Court to charge a percentage of any settlement or judgment amount. Concerns that have been raised in the general debate about contingency fees can be controlled and managed within the limits of the class action regime, where the Court has a strong supervisory role in ensuring that costs are fair and reasonable.

7.14 While not disturbing the general ban on contingency fees, or changing the common procedural form of class actions in Australia, a percentage of the recovered amount could be sought by lawyers acting for the representative plaintiff in class actions in the Supreme Court of Victoria. As discussed in Chapter 3, an application would need to be made for a common fund order, subject to conditions that address concerns about costs and conflicts of interest.

7.15 The conditions would include that the lawyers provide security for costs if ordered, indemnify the representative plaintiff for adverse costs and cover the cost of disbursements, as well as provide legal services. This would overcome the disadvantage of charging on a ‘no win, no fee’ basis, and be comparable to the services provided by litigation funders. The fee would be decided by the Court when approving settlement, or if awarding compensation or damages at the conclusion of a trial.

7.16 The importance of ensuring that the costs of bringing the proceedings, and the financial risk of losing, do not unreasonably prevent meritorious class actions from being pursued was identified in 1988 by the Australian Law Reform Commission when developing the procedural model on which Australia’s class action regimes are based.^[61] Litigation funders have since provided a means of overcoming the cost barrier, although the extent they do so is necessarily the result of commercial decisions.

7.17 With the knowledge gained over the years during which the class action regime has operated, combined with the perspectives of the current era, it is now possible to address the need for a more comprehensive solution to provide better access to justice. The Commission proposes in this report a pathway towards that solution—one that should improve access to justice; provide appropriate regulation of litigation funders; maintain proper ethical conduct by lawyers; and not involve unfair or disproportionate burdens upon litigants.

61. Law Reform Commission (now Australian Law Reform Commission), Grouped Proceedings in the Federal Court, Report No 46 (1988).

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