Access to Justice—Litigation Funding and Group Proceedings: Report (html)

Preface

Access to justice is a proper and continuing concern for governments, the courts, the legal profession, litigants and the community. On 16 December 2016, the Victorian Attorney-General, the Hon. Martin Pakula MP, referred to the Commission for inquiry and report three issues under the heading ‘Access to Justice’. Significantly, at the outset of the terms of reference their purpose was stated to be ‘to ensure that litigants who are seeking to enforce their rights using the services of litigation funders and/or through group proceedings are not exposed to unfair risks or disproportionate cost burdens’.

The three issues were:

1. Whether there is scope for the supervisory powers of Victorian courts or Victorian regulatory bodies to be increased in respect of litigation funders.

2. Whether removing the existing prohibition on law firms charging contingency fees (except in areas where contingency fees would be inappropriate, including personal injury, criminal and family law matters) would assist to mitigate the issues presented by the practice of litigation funding.

3. In respect of group proceedings commenced under the provisions of Part 4A of the Supreme Court Act 1986 (Vic) and similar proceedings, whether there should be further regulation of such proceedings.

Each of the three components—litigation funding, contingency fees, and class actions (group proceedings)—does, or has the potential to, contribute to access to justice. Litigation funding reduces the risks to litigants of taking proceedings; removing the ban on contingency fees could introduce another means of doing so; and class actions take advantage of economies of scale.

This report, informed by the overarching issue of access to justice and the aim that litigants are not exposed to unfair risks or disproportionate cost burdens, examines the specified issues in the terms of reference, and makes recommendations in respect of each of them.

In relation to litigation funding, the Commission makes recommendations for national regulation of the industry and greater transparency when a litigation funder is involved in proceedings. The Commission does not recommend fixed caps or limits on funding costs; rather, it encourages appropriate court control.

In relation to the prohibition on law firms charging contingency fees, the Commission recommends that, in principle and in appropriate areas of law, lawyers should be allowed to charge contingency fees. This is also a matter which should be developed nationally, in the interests of consistency.

In relation to class actions, the Commission’s recommendations seek to strengthen the Court’s powers, particularly in ensuring that a successful outcome is not unduly eroded by legal and funding fees. The Commission also makes recommendations to improve efficiency and accountability, which should reduce delays and associated costs, but has concluded that the introduction of a pre-commencement certification requirement is neither desirable nor necessary.

The Supreme Court of Victoria has a crucial role in ensuring the just, efficient, timely and cost-effective resolution of the real issues in dispute. In class actions, it has additional broad powers that can be used to protect the interests of class members. Appropriately, the terms of reference, and the Commission’s recommendations, focus on the powers and practices of the Court.

On 15 December 2017, the Commonwealth Attorney-General announced that he had asked the Australian Law Reform Commission (ALRC) to inquire into class action proceedings and third-party litigation funders. The terms of reference for that inquiry embrace a number of issues that are considered in this report and reflect the Commonwealth’s broader jurisdiction to regulate the litigation funding industry. The inquiry is to be completed by 21 December 2018.

While the Victorian Law Reform Commission has been asked to report on the question of whether lifting the ban on law firms charging contingency fees would assist to mitigate the issues presented by litigation funding, the ALRC has been asked to report on legal costs more extensively, namely ‘the costs charged by solicitors in funded litigation, including but not limited to class action proceedings’.^[1]

Appropriately, the Victorian Law Reform Commission’s terms of reference focus on the powers and practices of the Supreme Court of Victoria. However, in considering reforms, the Commission has taken into account a number of matters that are also specified in the ALRC’s terms of reference, notably conflicts of interest and cost controls, but necessarily has done so from the perspective of Victoria’s jurisdiction.

The common procedural form of Australian class action regimes is a valuable basis on which to ensure they evolve in a broadly consistent way. Consistency provides greater certainty for stakeholders, reduces the likelihood of ‘forum shopping’ and encourages national jurisprudence as to important procedural and other issues that arise.

However, uniformity is not a necessary end in itself; nor is uniformity necessary if there is national consistency. It is important to recognise that there are differences in the degree to which litigation funders are involved in class actions, and the types of class action being filed in each jurisdiction, particularly as between the Supreme Court of Victoria and the Federal Court. While litigation funders are actively involved in class actions in the Federal Court, they have been involved in only 10 of the 85 class actions filed in the Supreme Court of Victoria since their institution in Victoria on 1 January 2000. While mass tort claims, with their onerous logistical requirements and profound human impacts, have been a significant part of the civil jurisdiction in Victoria, the Federal Court receives a preponderance of shareholder class actions.

In this report, the Commission proposes a pathway—one that should improve access to justice; provide appropriate regulation of litigation funders; maintain proper ethical conduct by lawyers; and not involve unfair or disproportionate burdens on litigants.

I acknowledge and warmly thank the many judges, legal practitioners, litigation funders, academics and others who contributed to this review by making submissions and by participating in the Commission’s extensive consultations and roundtables. The reference made to the Commission by the Victorian Attorney-General was not only apposite but timely, as it coincided with the 25th anniversary of the Commonwealth regime of class actions.

As always, I thank my fellow Commissioners who oversaw the inquiry and have authorised this report.

Finally, I especially thank the research team, led by senior Team Leader Lindy Smith and supported by Policy and Research Officers Madeleine Roberts and Michelle Whyte, whose commitment and work were admirable.

I commend the report to you.

The Hon. P.D. Cummins AM

Chair

Victorian Law Reform Commission

March 2018

1. Australian Law Reform Commission, Australian Law Reform Commission Terms of Reference—Inquiry into Class Action Proceedings and Third Party Litigation Funders (15 December 2017) <https://www.alrc.gov.au>.

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