Australian Parliamentary Inquiry: Litigation Funding and Class Actions


minutes reading time

DATE PUBLISHED: January 21, 2021

The Federal Parliamentary Joint Committee into litigation funding and class actions in Australia released its very lengthy report on Monday 21 December 2020.

The recommendations mostly impose further checks and balances on plaintiff law firms and litigation funders, to protect class members and ensure their returns are not unreasonably diminished in the event a class action is successful.  If implemented, this will likely reduce and moderate shareholder class actions (by increasing regulation of previously “generously paid” plaintiff lawyers and litigation funders).  However, this is yet another report and not action.  We hope that many aspects of this report are introduced this year (without any further inquiries prior).

  • Continuous Disclosure Regime: The Committee has recommended permanently legislating the changes to the continuous disclosure laws introduced last year, which introduced a fault element requirement for a breach of continuous disclosure.  Directors and officers are now only liable for failing to disclose market-sensitive information where they knew or were reckless or negligent as to whether the information was market-sensitive.
  • Litigation Funders: In July 2020 the Federal Government introduced regulations requiring litigation funders operating in Australia to hold an AFSL and comply with the Managed Investment Scheme regime under the Corporations Act (as previously foreshadowed by us).  The Committee endorsed these changes but recommended there be a legislated fit for purpose managed investment scheme regime tailored for litigation funders and also recommended:
    1. increased disclosure obligations on funders and plaintiff law funds regarding conflicts of interest;
    2. only litigation funding agreements approved by the Court should be enforceable and the Federal Court should have the power to reject, vary or amend the terms of any litigation funding agreement where the interests of justice require;
    3. requiring litigation funders to indemnify representative plaintiffs;
    4. a presumption that litigation funders will provide security for costs;
    5. that there be more frequent use of assessors and contradictors in respect of plaintiff lawyers’ fees and litigation funding commissions, to further protect class members;
    6. considering a statutory minimum return to class members.
  • National Consistency: The Committee recommended consistency in class action regimes of the Commonwealth, State and Territories.
  • Common Fund Orders: The Committee did not recommend the prohibition of common fund orders, but recommended legislation addressing uncertainty regarding common fund orders and suggested common fund orders be permissible at settlement or following judgment. 
  • Class Closures: The Committee has recommended that the Federal Court have express power to make class closure orders (similar to currently under the Supreme Court Act of Victoria, which expressly permits the making of an order requiring group members to take a positive step, such as responding to a class closure notice, before receiving the benefit of a judgment or settlement.  This provides some certainty for both group members and defendants in relation to quantum.  However, it does not finalise the possibility of other claimants later bringing claims.
  • Competing Class Actions: The Committee recommended that the Federal Court have legislated powers to resolve competing and multiple class actions. 

On balance, these recommendations are positive for class action participants, directors and officers and insurers and are likely to reduce presently very generous returns for litigation funders and plaintiff lawyers.  However, we await these recommendations being introduced before the positive impact flows through to the market.


How to Avoid Paying Compensation to Your Principal Contractor as a Small Business
Defining a Dangerous Recreational Activity in Light of the Court of Appeal’s New Category
Queensland – The Must-Visit Location For Fishing Expeditions?
Razorback Road Strikes Again – Injured Driver Awarded Over $450k In Damages

August 3, 2021

Commercial, Financial Lines Insurance

The High Court Affirms A COVID-19 Remedy For Business Interruptions
Cooking up an Insurance Claim: Why Insurers Should Not Rely On Wilful Act Exclusions
Insurers’ Subrogation Issues in Class Actions

March 3, 2021

Financial Lines Insurance

AFCA Insurance Broker Decisions 1/1/19 to 31/12/20