“Funding changes the economics of litigation,” Scerri said.
When class actions began in 1992, they were mostly funded by law firms on a “no win, no fee” basis.
Then came litigation funders. The global companies, either foreign-owned or locally created but investing on behalf of offshore funds, agree to cover costs for a plaintiff in return for receiving a slice of the settlement. They are now involved in more than 70 per cent of proceedings, according to Monash University law professor Vince Morabito.
It’s lucrative business. Funds usually charge a commission of 30 per cent of proceeds recovered, the Australian Law Reform Commission (ALRC) says, and in the cases where class members received less than half of the settlement they were mostly backed by litigation funders.
IMF Bentham, the first ASX-listed company to fund class actions in Australia, netted $9.1 million funding a class action against South Australian scheme SEAS Sapfor on an investment of $2.8 million in legal fees. A class action against Murray Goulburn raised $9.5 million over legal costs of $3.1 million.
What the Victorian contingency fee reform, to be introduced in the state’s Supreme Court, proposes to do for law firms is to allow them to act like litigation funders. The legislation, waiting to be passed by the upper house in March, will mean firms take a cut of the settlement – instead of charging by the hour plus an uplift on their fee for a win – in return for indemnifying the plaintiff for costs.
The Victorian government says group members will be protected because just how much the lawyers will get will be decided by the Supreme Court judge presiding over the case.
The Productivity Commission and the Australian and Victorian Law Reform commissions have backed the new fee arrangement, saying class actions will become more accessible to the vulnerable, potentially driving down commissions as lawyers compete in the same market as funders.
But its critics in the state opposition called the move the Andrews government’s handshake to big firms, including Slater and Gordon and Maurice Blackburn, which files the most class actions in the country.
“There is no coincidence here – the fact that these major law firms that stand to gain the most out of this happen to be donors to the Labor Party,” shadow minister for police David Southwick told parliament this month.
Maurice Blackburn’s links to the Labor Party and unions are well known – its namesake founder was a socialist lawyer and Labor politician. In the midst of the debate about contingency fees, the firm increased its donations to the ALP, state branches and the Australian Council of Trade Unions to almost $600,000 in the lead-up to the November 2018 state election and May 2019 federal election.
Maurice Blackburn increasing its donations in exchange for the introduction of contingency fees is a premise the firm’s head of litigation Andrew Watson bluntly calls stupid given the firm’s 100-year history of associating with unions and Labor.
“We shouldn’t be surprised that a government that’s had an independent body recommend they implement something decide to implement that recommendation,” Watson says.
Australian Industry Group chief executive Innes Willox said the new law profits lawyers at the expense of plaintiffs, creating a “honeypot” for jurisdiction-shopping legal firms who would file numerous class action claims in Victoria.
“This Bill has enormous unintended consequences and it has the potential to turn law firms into bounty hunters,” Willox said.
“It could create a perverse incentive for firms to abandon ‘no win, no fee’ work in favour of high profits. If this happened, it would reduce access to justice, increase costs and leave the community much worse off.”
But Watson said if Maurice Blackburn charged a 25 per cent contingency fee, fees would reduce and more money would be returned to class members. The legislation also guards against a rush of worthless claims clogging up the court.
“It’s why the bill is making it clear if you’re going to charge a contingency fee, you’ve got to be up for the costs of the defendant,” Watson said.
“It’s a critical safeguard to ensure you don’t have an outbreak of unmeritorious claims.”
Morabito said class actions were under-utilised in Victoria, with an average of almost five filed each year compared to an average of eight in the NSW Supreme Court and 18 federally.
“If you allow solicitors to act like American lawyers, they may take on some of the worthwhile litigation that funders are not touching,” he said.
“Let’s try a different model, but we make [the lawyers] pay if they lose the case. To me, that is a balanced approach.”
Tammy Mills is the legal affairs reporter for The Age.