The final report of the parliamentary joint committee on corporations and financial services’ inquiry into class action regulation was handed down this week, recommending a host of new oversight procedures around fees and funding of actions while stopping short of Treasurer Josh Frydenberg’s proposals to require litigation funders subscribe to the AFSL regime.
Recommendations of the committee included that independent fee assessors could be appointed by the Federal Court to oversee fee arrangements between legal firms, litigation funders and class members, and that the court would also have powers to impose cost orders on litigation funders.
The committee also recommended the Federal Court have oversight of class action settlements and approve arrangements such as who is funding the action and what percentage of settlement funds are being claimed by funders before a settlement can be agreed to.
The report stated that the court currently had “limited powers to regulate litigation funders and intervene in their contractual relationships with representative plaintiffs, even in instances where fees appear unreasonable, disproportionate or unfair”.
“Greater oversight by, and interventionist powers for, the Federal Court are required to constrain the large portions of settlement sums that are obtained by litigation funders by way of reimbursement of fees and commissions”.
The committee noted that Frydenberg’s introduction of rules for litigation funders to comply with the AFSL regime in August had been given a “flexible and facilitative approach” by ASIC and said this should continue, recommending a specific legislative regime for litigation funders be introduced to parliament.
It also recommended temporary relief from continuous disclosure laws applied during the COVID pandemic be made permanent to stem the rising incidence of shareholder class actions centring around disclosure, saying these actions were “generally economically inefficient” and “amount to shareholders effectively suing themselves”.
Returns skyrocketing for class action funders
The news comes following comments from AMP chief executive Francesco De Ferrari earlier in the year that Australia was “the second most attractive” market for class action litigation in the world given the returns available to litigation funders.
“Menzies [Research Centre] research states that in 2016, 59 per cent of settlements went to plaintiffs, that number has dropped to 39 per cent only so litigation plaintiffs are taking a smaller share of settlements,” Mr De Ferrari said at a parliamentary hearing in July.
“That creates an escalating cost of doing business in Australia – it is reflected in the fact that a number of large reinsurers are considering Australia very dangerous to reinsure the risk. That will ultimately result in job losses and higher costs being passed to consumers.”
The committee echoed Mr De Ferrari’s comments in its findings, stating that “Australia’s highly unique litigation funding market has become a global hotspot for international investors to generate investment returns unheard of in any other jurisdiction”.
“This is directly the result of a regulatory regime described by ASIC as ‘light touch’ and under which no successful action by a regulator has ever been taken against a funder,” the report said.
“Mum and dad investors signing up to a litigation funding agreement as part of a class action can never hope to have the sophisticated understanding of corporate law or financial products that their lawyers and funders possess.
“If this asymmetry is not addressed to protect the interests of class members, increasing competition from more funders entering the market will not deliver lower prices for consumers.”
As an adviser I’m often asked by clients whether they should join class actions. I explain how the process works, the hurdle for success and the hurdle for them getting anything. Then I explain how the lawyers charge.
It’s a rort designed by lawyers for lawyers.
The government and ASIC are too dumb to understand. The public has no clue.
The fact there are son many class actions should warrant some attention.
However the case of shareholders effectively suing themselves is absolutely true. It’s why I recommend a much higher percentage of a clients investment money into global equities.
The case of the super fund member suing his not for profit super fund for not considering ethical investments is a classic example. cost his own fund money – under the guise of doing the right thing, however in the process he costs all of his fellow members. This is potentially a reason for people to either only have SMFS’s or put their super fund with a ‘for-profit’ company. At least if they get sued, the funds don’t come from other members.
Lawyers and all the “no win, no fee” legal firms chasing the gravy train noted above are nothing more than hypocritical parasites. It’s bad enough that they’re taking advantage of historical legislation changes that they know financial advisers just can’t keep ahead of (thanks to ASIC); but the fact they also rip their clients off like what’s noted above, that demonstrates perfectly what type of people they are. These parasites must be stopped from continuing this disgraceful behaviour.
It’s been said that 10% of financial advisers are ruining our industry for the 90% of advisers who do do the right thing. In contrast, I’ve heard it said 90% of lawyers and legal firms acting like those noted above are what’s ruining the legal profession for the 10% that are honest, decent legal professionals.
Time for best interest duty for lawyers I think and better start looking into what they are doing with insurance claim same thing happening
It consistently amazes me how long it takes for people to figure this out.
Excellent news – finally something worth cheering for at Christmas.
Now that we have this one ticked off the list, can you please turn your attention to the disgusting amount Solicitors are charging clients for insurance claims as well.
And financial advisers may be required either individually or via their licensee to be approved to manage an insurance claim on behalf of their very own client that has relied upon that adviser to provide personal service,advice and guidance for possibly 20 years and either charge a fair and reasonable fee for service for claim management services or in many cases, nothing at all.
This just makes a mockery of how out of kilter the attack and restrictive pursuit of advisers businesses has been over the last decade and continues unabated.
The leeches that are class action lawyers and litigation funders suck the life blood out of vulnerable people and the financial advisers are persecuted.
….and who are the so called ” professionals” here???…….the lawyers of course, who are only taking on a case they know they will have a high percentage of winning and will generate massive fees.
Best Interest Duty for Lawyers?……not likely.