The federal government has commissioned a parliamentary committee inquiry into Australia’s class actions regime. Debate has fired up in recent days, as evidenced by a May 13 column by Janet Albrechtsen in The Australian, which she followed up with a hard-hitting feature on the weekend.
As chair of the pro-market Institute of Public Affairs, you would think Albrechtsen would promote choice, competition and free markets, all of which occur in litigation funding.
But no, she blatantly sings from the song sheet of the US Chamber of Commerce, which has run a global campaign against class actions and third party litigation funders for a decade, particularly taking on the ASX-listed Omni Bridgeway (formerly IMF Bentham), which is the world’s biggest listed litigation funder.
Given that News Corp is a foreign company and Rupert Murdoch is a US citizen with close ties to the chamber, you have to wonder if Albrechtsen isn’t being drawn into what is effectively a corporate foreign influencing operation to change Australian law.
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The same applies to The Australian’s legal affairs editor Chris Merritt, who has written numerous articles over the years supporting the chamber’s attacks on the likes of Omni Bridgeway and Maurice Blackburn, Australia’s biggest class action law firm.
With the class action game recently broadening into areas such as employee underpayments, local groups such as the Australian Industry Group have joined the lobbying which has seen Attorney-General Christian Porter take a similar line.
Porter framed the committee inquiry in the following terms last week:
A parliamentary committee will be asked to examine the extraordinary profits being made by the booming litigation funding industry to determine whether Australians are receiving their fair share of class action settlements.
The parliamentary joint committee on corporations and financial services will be given broad terms of reference to inquire into all aspects of the class action system, including whether further regulation of litigation funders is needed to improve justice outcomes.
Labor opened the floodgates to litigation funders in 2013 when it exempted them from licensing requirements and prudential supervision. In the seven years since that decision, the number of class actions filed in Australia has tripled, with the overwhelming majority bankrolled by litigation funders. Many of those funders are large, multinational organisations that demand up to 30% of settlement funds.”
Class actions have long been common in the US legal system, which allows lawyer-funded no win/no fee litigation, something which the Victorian government is pursuing in what would be a first in Australia.
However, it was Australia which pioneered third party funding of class actions and Omni Bridgeway generates almost half of its revenue in the US.
Shareholder class actions have been an excellent innovation in Australia over the past 20 years, significantly improving disclosure and acting almost like a private Australian Securities and Investments Commission (ASIC), which has been necessary given the relatively poor performance of ASIC as a regulator when it comes to enforcing the law.
Lawyers and litigation funders have changed the culture such that public companies are far less likely to try to hide bad news. They’ve also extracted more than $2 billion in settlements with barely a case going to trial.
Federal Labor has supported the current regime and is right to question the timing of the government’s attack — given the upcoming robodebt class action.
The federal government also shelled out $90 million in 2017 settling a class action brought by Slater and Gordon on behalf of 1900 asylum seekers detained on Manus Island. Defence is facing a class action over PFAS contamination.
Omni Bridgeway has grown to have a market capitalisation of about $1 billion. Its shares have risen from about $1.50 to $4 over the past decade, which is strong but hardly over the top in terms of excessive super profits in what is a genuinely competitive market.
90% success rate
The company has generated about $1.5 billion for clients over the years, about 62% of the value of settlements and judgment.
It has a success rate of about 90%, mainly because it stringently takes on only about 5% of proposals which go before its investment committees.
Omni Bridgeway released this interesting statement last Thursday welcoming the committee inquiry and spelling out its position. It supports a six-month moratorium on COVID-19-related disclosure class actions and a licensing regime that requires minimum levels of capital in Australia and a guaranteed return to class action members of at least 50% of any settlement. This all sounds perfectly reasonable.
Coles was the latest corporate to cop a class action, notifying the ASX late on Friday night that a Federal Court action had been initiated on behalf of underpaid store managers who are seeking up to $150 million.
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