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Class actions set for federal inquiry

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A Federal Parliamentary inquiry into class actions will examine factors driving their prevalence, potential impacts on the economy and the role of litigation funders.

Attorney-General Christian Porter says a broad terms of reference will allow the Parliamentary Joint Committee on Corporations and Financial Services to investigate all aspects of the class action system, including whether further regulation of litigation funders is needed.

“To quote judges who’ve presided over cases involving litigation funders, the profits they make have been variously described as ‘stratospheric’, ‘arguably excessive’ and ‘not fair and reasonable’,” he said today.

Spiralling class actions have been blamed for huge increases in directors' and officers' insurance premiums.

The inquiry will also look at the potential impact of a Victorian move to abolish a ban on lawyers being paid on a contingency basis, allowing them to claim costs as a percentage of damages. The Victorian proposal is before the state parliament.

Mr Porter says the committee’s work will complement an Australian Law Reform Commission (ALRC) report tabled early last year.

The Government will soon release its response to the report, which made 24 recommendations.

The ALRC proposed greater oversight of litigation funders, without requiring that they become licensed in the same way as financial services providers, and noted their important role in providing access to justice.

But Mr Porter says their “aggressive business model” is impacting on the returns members of class actions receive and the ALRC found that when litigation funders are involved in an action, the median return to plaintiffs is 51% compared to 85% when a funder is not involved.

The Association of Litigation Funders of Australia says the ALRC, the Productivity Commission and the Victorian Law Reform Commission have undertaken extensive and comprehensive reviews of class actions.

“In circumstances where we are not aware of any new evidence or practices which would justify a further inquiry, it is difficult to see how there will be any new or ground-breaking submissions or information presented that wasn’t previously considered,” CEO Pip Murphy told insuranceNEWS.com.au.

The joint committee inquiry will be asked to report back to Parliament on November 9.