As the birthplace of third party litigation funding (TPLF), Australia has not only become a global center for TPLF, but it has also developed a model of funded, opt-out class actions for the rest of the world. According to a 2010 study by NERA Economic Consulting, TPLF’s rise is a significant contributor to the recent increase in class actions in Australia.
TPLF firms do not just fund class actions in Australia – they often launch and manage the cases as well. Unfortunately, this often leads to the funders profiting at the expense of the class members. A recent example is the 2012 settlement with the Centro retail chain. The initial lawsuit alleged AU$1 billion in economic damages. However, the case was eventually settled for AU$200 million, with more than 30 percent ($62 million) going to Bentham IMF Australia, the funder that funded and managed the lawsuit. After subtracting additional fees, the class members were left with $106 million – just over 10 percent of the $1 billion they claimed was owed to them.
There is also growing concern about the lack of proper oversight for TPLF. In 2012, the Chief Justice of New South Wales told the Commonwealth Law Association that “litigation funders have, as their primary concern, the pursuit of profit by means of litigation (or settlement), while remaining one step removed from the oversight and inherent regulatory jurisdiction of the court.” More recently, the Australian government’s Attorney-General, George Brandis, announced that the regulation of TPLF is “now under active heavy consideration” and he has since continued to publically state his intention to push for sound oversight of the practice.
At the same time, the Australian Productivity Commission, an independent public body, released a report in 2014 finding that TPLF should be regulated, noting a number of important safeguards that would rein in litigation funding.
With the Australian class action system rapidly maturing, largely ignited by third party litigation funding, it is now time for the Australian government to also consider whether improvements can be made to the system to ensure its objectives of compensating victims, not plaintiffs lawyers and third parties. TPLF is intertwined with Australia’s class action system and certain reforms to class action procedures and rules could restrain the use of TPLF in class actions and reduce conflicts of interest and ethical concerns.
More information about third-party litigation financing can be found here.