Brought to you by:

Parliamentarians press ahead with class action inquiry

Facebook Twitter LinkedIn Google

A parliamentary inquiry into the class action system, targeting litigation funders and regulatory oversight of funding arrangements, has been launched after being delayed by the coronavirus outbreak.

The inquiry comes at a time of rising concern over the increasingly litigious environment in Australia, one that has reduced insurers’ risk appetite and led to a sharp rise in directors’ and officers’ (D&O) premium rates.

Attorney-General Christian Porter announced on Wednesday a motion to refer the inquiry to the Parliamentary Joint Committee on Financial Services and Corporations, which is expected to report back by December 7.

The terms of reference are similar to the one that was outlined in March except for the additional request for the committee to examine how the existing class action climate could affect businesses that are struggling to cope with the pandemic disruption.

The impact of litigation funding on damages and compensation awarded to class action members, the financial relationship between funders and plaintiff lawyers and factors behind the rise in third-party funded lawsuits are among other areas that will be examined by the inquiry.

“In many cases, funders are taking up to 30% of legal settlements, leaving the members of the action to fight over the scraps that remain once legal fees and other costs are paid,” Mr Porter said.

The Insurance Council of Australia (ICA) will consult its members on an industry contribution to the inquiry where required, spokesman Campbell Fuller told today.

“As outlined in previous submissions, ICA is concerned with the impact the securities class actions continue to have on the D&O insurance market in Australia.”

According to previous ICA submissions, the D&O market is no longer profitable as the premium pool is not large enough to cover escalating and costly claims. Insurers have had no choice but to raise premiums substantially or quit the market.

Some class actions cost more than $100 million to settle but the total D&O premium pool in Australia is only about $280 million.

Maurice Blackburn National Head of Class Actions Andrew Watson says the inquiry is “pointless, partisan” action from the Morrison Government.

He told today the Government will use the inquiry to “further the agenda of big business and reduce accountability”.

“The COVID-19 crisis should not be cynically used by big business and the Government to shield corporations from legitimate scrutiny or from being held to account for failures,” he said.

“Australia’s class action regime is one of the best in the world and is closely monitored by the courts.”

Closing date for submissions is June 11.

Click here for more information.