1. Introduction to the Inquiry
Proposal 1–1 The Australian Government should commission a review of the legal and economic impact of the continuous disclosure obligations of entities listed on public stock exchanges and those relating to misleading and deceptive conduct contained in the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) with regards to:
- the propensity for corporate entities to be the target of funded shareholder class actions in Australia;
- the value of the investments of shareholders of the corporate entity at the time when that entity is the target of the class action; and
- the availability and cost of directors and officers liability cover within the Australian market.
3. Regulating Litigation Funders
Proposal 3–1 The Corporations Act (2001) (Cth) should be amended to require third-party litigation funders to obtain and maintain a ‘litigation funding licence’ to operate in Australia.
Proposal 3–2 A litigation funding licence should require third-party litigation funders to:
- do all things necessary to ensure that their services are provided efficiently, honestly and fairly;
- ensure all communications with class members and potential class members are clear, honest and accurate;
- have adequate arrangements for managing conflicts of interest;
- have sufficient resources (including financial, technological and human resources);
- have adequate risk management systems;
- have a compliant dispute resolution system; and · be audited annually.
Question 3–1 What should be the minimum requirements for obtaining a litigation funding licence, in terms of the character and qualifications of responsible officers?
Question 3–2 What ongoing financial standards should apply to third-party litigation funders? For example, standards could be set in relation to capital adequacy and adequate buffers for cash flow.
Question 3–3 Should third-party litigation funders be required to join the Australian Financial Complaints Authority scheme?
4. Conflicts of Interest
Proposal 4–1 If the licensing regime proposed by Proposal 3–1 is not adopted, third-party litigation funders operating in Australia should remain subject to the requirements of Australian Securities Investments Commission Regulatory Guide 248 and should be required to report annually to the regulator on their compliance with the requirement to implement adequate practices and procedures to manage conflicts of interest.
Proposal 4–2 If the licensing regime proposed by Proposal 3–1 is not adopted, ‘law firm financing’ and ‘portfolio funding’ should be included in the definition of a ‘litigation scheme’ in the Corporations Regulations 2001 (Cth).
Proposal 4–3 The Law Council of Australia should oversee the development of specialist accreditation for solicitors in class action law and practice. Accreditation should require ongoing education in relation to identifying and managing actual or perceived conflicts of interests and duties in class action proceedings.
Proposal 4–4 The Australian Solicitors’ Conduct Rules should be amended to prohibit solicitors and law firms from having financial and other interests in a thirdparty litigation funder that is funding the same matters in which the solicitor or law firm is acting.
Proposal 4–5 The Australian Solicitors’ Conduct Rules should be amended to require disclosure of third-party funding in any dispute resolution proceedings, including arbitral proceedings.
Proposal 4–6 The Federal Court of Australia’s Class Action Practice Note (GPN-CA) should be amended so that the first notices provided to potential class members by legal representatives are required to clearly describe the obligation of legal representatives and litigation funders to avoid and manage conflicts of interest, and to outline the details of any conflicts in that particular case.
5. Commission Rates and Legal Fees
Proposal 5–1 Confined to solicitors acting for the representative plaintiff in class action proceedings, statutes regulating the legal profession should permit solicitors to enter into contingency fee agreements. This would allow class action solicitors to receive a proportion of the sum recovered at settlement or after trial to cover fees and disbursements, and to reward risk. The following limitations should apply:
- an action that is funded through a contingency fee agreement cannot also be directly funded by a litigation funder or another funding entity which is also charging on a contingent basis;
- a contingency fee cannot be recovered in addition to professional fees for legal services charged on a time-cost basis; and
- under a contingency fee agreement, solicitors must advance the cost of disbursements and indemnify the representative class member against an adverse costs order.
Proposal 5–2 Part IVA of the Federal Court of Australia Act 1976 (Cth) should be amended to provide that contingency fee agreements in class action proceedings are permitted only with leave of the Court.
Question 5–1 Should the prohibition on contingency fees remain with respect to some types of class actions, such as personal injury matters where damages and fees for legal services are regulated?
Proposal 5–3 The Federal Court should be given an express statutory power in Part IVA of the Federal Court of Australia Act 1976 (Cth) to reject, vary or set the commission rate in third-party litigation funding agreements. If Proposal 5–2 is adopted, this power should also apply to contingency fee agreements.
Question 5–2 In addition to Proposals 5–1 and 5–2, should there be statutory limitations on contingency fee arrangements and commission rates, for example:
- Should contingency fee arrangements and commission rates also be subject to statutory caps that limit the proportion of income derived from settlement or judgment sums on a sliding scale, so that the larger the settlement or judgment sum the lower the fee or rate? or
- Should there be a statutory provision that provides, unless the Court otherwise orders, that the maximum proportion of fees and commissions paid from any one settlement or judgment sum is 49.9%?
Question 5–3 Should any statutory cap for third-party litigation funders be set at the same proportional rate as for solicitors operating on a contingency fee basis, or would parity affect the viability of the third-party litigation funding model?
Question 5–4 What other funding options are there for meritorious claims that are unable to attract third-party litigation funding? For example, would a ‘class action reinvestment fund’ be a viable option?
6. Competing Class Actions
Proposal 6–1 Part IVA of the Federal Court of Australia Act 1976 (Cth) should be amended so that:
- all class actions are initiated as open class actions;
- where there are two or more competing class actions, the Court must determine which one of those proceedings will progress and must stay the competing proceeding(s), unless the Court is satisfied that it would be inefficient or otherwise antithetical to the interest of justice to do so;
- litigation funding agreements with respect to a class action are enforceable only with the approval of the Court; and
- any approval of a litigation funding agreement and solicitors’ costs agreement for a class action is granted on the basis of a common fund order.
Proposal 6–2 In order to implement Proposal 6-1, the Federal Court of Australia’s Class Action Practice Note (GPN-CA) should be amended to provide a further case management procedure for competing class actions.
Question 6–1 Should Part 9.6A of the Corporations Act 2001 (Cth) and s 12GJ of the Australian Securities and Investments Commission Act 2001 (Cth) be amended to confer exclusive jurisdiction on the Federal Court of Australia with respect to civil matters, commenced as representative proceedings, arising under this legislation?
7. Settlement Approval and Distribution
Proposal 7–1 Part 15 of the Federal Court of Australia’s Class Action Practice Note (GPN-CA) should include a clause that the Court may appoint a referee to assess the reasonableness of costs charged in a class action prior to settlement approval and that the referee is to explicitly examine whether the work completed was done in the most efficient manner.
Question 7–1 Should settlement administration be the subject of a tender process? If so: · How would a tender process be implemented? · Who would decide the outcome of the tender process?
Question 7–2 In the interests of transparency and open justice, should the terms of class action settlements be made public? If so, what, if any, limits on the disclosure should be permitted to protect the interests of the parties?
8. Regulatory redress
Proposal 8–1 The Australian Government should consider establishing a federal collective redress scheme that would enable corporations to provide appropriate redress to those who may be entitled to a remedy, whether under the general law or pursuant to statute, by reason of the conduct of the corporation. Such a scheme should permit an individual person or business to remain outside the scheme and to litigate the claim should they so choose.
Question 8–1 What principles should guide the design of a federal collective redress scheme?The ALRC's Terms of Reference are -
having regard to:
- the increased prevalence of class action proceedings in courts throughout Australia, and the important role they play in securing access to justice;
- the importance of ensuring that the costs of such proceedings are appropriate and proportionate;
- the importance of ensuring that the interests of plaintiffs and class members are protected, in particular in the distribution of settlements and damages awards;
- the role that third party funding entities play in enabling the commencement and maintenance of class action proceedings;
- the role of third party funding entities in enabling the commencement of other classes of legal proceedings, including but not limited to arbitral proceedings;
- the potential for conflicts of interest between the professional obligations of lawyers and the commercial imperatives of third party funding entities;
- the fact that third party funding entities are not bound by professional ethical obligations, such as a lawyer’s duties to the court and the client;
- the absence of a requirement that third party funding entities (or, where the entity is a corporate entity, its officers) satisfy character requirements or meet other antecedent criteria before being permitted to act as third party litigation funders; and
- the absence of comprehensive Commonwealth or State and Territory regulation to address the structure, operation and terms on which third party funding entities participate in the Australian legal system.
the ALRC is to consider whether and to what extent class action proceedings and third party litigation funders should be subject to Commonwealth regulation, and in particular whether there is adequate regulation of the following matters:
- conflicts of interest between lawyer and litigation funder;
- conflicts of interest between litigation funder and plaintiffs;
- prudential requirements, including minimum levels of capital;
- distribution of proceeds of litigation including the desirability of statutory caps on the proportion of settlements or damages awards that may be retained by lawyers and litigation funders;
- character requirements and fitness to be a litigation funder;
- the relationship between a litigation funder and a legal practice;
- the costs charged by solicitors in funded litigation, including but not limited to class action proceedings; and any other matters related to these Terms of Reference