Key recommendations from the Final Report of the ALRC into class action proceedings

On Friday 25 January 2019, the Final Report of the Australian Law Reform Commission (ALRC) inquiry into class action proceedings and third-party litigation funders was tabled in Federal Parliament.

The 339 page report made a number of recommendations that reflect the current class action landscape where shareholder claims have come to dominate the number of class actions commenced and also the role that third-party litigation funders play in funding such actions. The terms of reference of the inquiry required a focus on the adequate regulation of conflicts of interest between litigation funders, lawyers and plaintiffs, the desirability of imposing prudential requirements on litigation funders and the adequacy of regulation around the costs charged by solicitors in funded litigation.

The report contains a number of recommendations that deal with much of the uncertainty that has arisen with the class action regime in recent years:

  • the Federal Court (the Court) should have exclusive jurisdiction for shareholder class action matters;
  • class actions must be initiated as open class, thereby enabling all victims of the civil wrong to participate, however, criteria is to be provided where it is appropriate for the Court to order class closure;
  • aligned to the above recommendation, the Court be provided with power to make common fund orders where all class members share in the cost of the claim;
  • the Court be given power to resolve competing class actions to ensure wherever possible there is a single class action to litigate a claim;
  • while the ALRC has not recommended the licensing of litigation funders, it has recommended that they be required to report annually to ASIC on their compliance with the requirement to implement adequate practices and procedures to manage conflicts of interest;
  • in addition to the above, some of the other recommendations enable the Court to take greater supervision of litigation funders;
  • there be a statutory presumption that litigation funders will provide security for costs;
  • the Court has powers to award costs against third-party litigation funders and insurers directly;
  • third party litigation funding agreements are subject to the approval of the Court, who also has powers to reject, vary or amend the terms of such agreements.  In addition, such agreements are required to provide for a complete indemnity against an adverse costs order;
  • solicitors acting for the representative plaintiff should be allowed to enter into ‘percentage-based fee arrangements’ (contingency fees) subject to the approval of the Court, however, such arrangements would be subject to a presumption that the solicitors would provide security for costs;
  • there be specialist accreditation for class action lawyers overseen by the Law Council of Australia;
  • solicitors and law firms be prohibited from acting in a matter where the matter is being funded by a litigation funder that they have a financial interest in; and
  • potential class members be provided with details of any conflicts of interests by legal representatives.

Importantly, the ALRC has also recommended that a review be undertaken of the economic impact of the operation, enforcement and effects of the continuous disclosure obligations and misleading and deceptive conduct laws having noted similar regimes in other jurisdictions.

It is now up to the government to decide whether it will introduce any of these recommendations prior to the upcoming Federal Election.