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31 January 2019

 

The recently released ALRC Report “Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders” which spans over 300 pages contains 24 recommendations.

Augusta views the majority of recommendations as being helpful to the funding industry and access to justice. However, some of those recommendations may, in their current form, curtail the appetite of litigation funders to fund representative proceedings in Australia. Careful consideration will need to be given by a variety of stakeholders to whether such recommendations should be enacted into legislation, especially if access to justice is the primary goal.

The ALRC recommendations which appear to allocate greater risk to funders and may result in higher pricing to compensate for the risk or through reduced competition includes:

  • Recommendation 11 which seeks to prohibit the solicitors acting for a representative plaintiff from seeking to recover unpaid legal fees where the action is funded by a litigation funder. This approach is contrary to many current funding arrangements, including common fund orders, which permit (subject to court approval) the solicitors to recover the gap in unpaid fees from the resolution sum. This recommendation places the risk on the funder as some of the solicitors’ fees may ultimately be seen as unreasonable by the court or a costs assessor and the funder will not be reimbursed the full expense, or the funder is placed in a position where the solicitor is not paid and refuses to continue acting.

 

  • Recommendation 12 which seeks to impose a statutory presumption that litigation funders who fund representative proceedings will provide security for costs. If this recommendation is to be implemented, it would need to consider a situation where costs do not automatically follow the event such as Fair Work Act claims. The requirement for funders to provide security, capable of being released without taking action outside of Australia, fails to take into consideration the practical consequences of the vast majority of ATE insurance providers being overseas insurers. Whilst it may be possible to agree to a deed of indemnity being subject to an Australian jurisdiction most insurers will require service of demands in their own jurisdiction. Any proposal which makes it more difficult for ATE insurance to be used is likely to result in a return to higher commission rates to offset the increased risk to litigation funders, which is not in the interests of group members.

 

  • Recommendation 14 which seeks to make litigation funding agreements only binding with the approval of the court, which would also have the express power to reject, vary or amend the terms of such agreements. It is unlikely that litigation funders will provide funds in circumstances where there is no binding contract in place or any certainty regarding the terms on which funding is being provided. Given the existence of unfair contract legislation and the power of the court to approve settlements (which may include varying the commission rates), it is not clear why this extraordinary step would be necessary. A funder cannot properly assess the risk of funding a proceeding without knowing the terms on which that funding is being offered and would have no rights to terminate or seek reimbursement of funds deployed without express court approval.

Augusta looks forward to the robust discussions which are sure to take place on the recommendations in the ALRC Report.

Augusta Contact:
Neill Brennan (Australia/Far East)
T: +61 2 8311 0555
E: [email protected]