In 2020, Australia began requiring litigation funders to register and submit to regulatory oversight as “managed investment schemes” for class actions. In October 2021, the government introduced a bill proposing further reforms purporting to improve transparency and protection for class action group members. Many worry the bill is ill-suited to its intended result.

The bill would require court oversight and approval of distribution of claim proceeds. Funding agreements would need to set out the proposed proceeds distribution method and would be unenforceable against class members who have not signed it.

The court would need to determine whether any proceeds distribution is “fair and reasonable,” considering specific factors (which the government can amend):  the (expected) amount of claim proceeds; the legal costs covered by the funder; whether the proceedings have been managed to minimize legal costs; the complexity and duration of the proceedings; the commercial return to the funder compared to the funder’s costs; the risks accepted by class members who signed a funding agreement; class members’ sophistication and bargaining power in negotiating the agreement; and any other compensation or remedies available to class members.  

Courts would also have to consider a litigation funding fees assessor’s report and a contradictor’s arguments, all at the funder’s expense, and change any distribution methods found not fair and reasonable. Any method giving less than 70% of proceeds to group members would face a rebuttable presumption of not fair and reasonable.

A transparent and fair distribution method to which class members must explicitly agree and a cap on fees for lawyers and funders both sound like legitimate public policy measures. But in effect, they threaten to disadvantage Australian consumers by impairing their rights to contract freely and, in pairing capped funder returns with increased oversight costs, by eliminating funding and rendering many class actions economically unviable.

The International Legal Finance Association (ILFA), a trade organization for commercial legal finance, noting general a lack of government openness to meaningful discussion of the proposal, responded that the reforms would add barriers, delays, and costs to the legal system, making it harder for class members to seek redress against defendants who can endure costly and protracted litigation.  

Arguing that the proposed cap would reduce both settlement amounts and the number of class actions filed, ILFA cited a report indicating that a 30% cap would not even have covered costs in 36% of past class cases. Observing that class action stakeholders, from courts down to consumers and their lawyers, had not complained of unfair or unreasonable results, ILFA suggested it was more likely that corporations, insurers, and possibly government defendants were unhappy paying out larger amounts to well-funded and represented class members. ILFA further alleged that the bill would alter the jurisdiction of Australian courts and invite litigation to resolve ambiguities and contradictions.  

The bill has not yet passed into law, so it will be interesting to see what happens next in Australia. Stifling investment from third parties seems an odd way to level the playing field for legal consumers, especially considering vastly different approaches to improving consumer access to legal resources in Arizona and Utah. Here at LevelEsq, we have our own solutions for removing barriers to litigation.