Cth Bill to Improve Outcomes for Litigation Participants Introduced

Friday 5 November 2021 @ 11.27 a.m. | Corporate & Regulatory | Legal Research

On 27 October 2021, the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 (Cth) (‘the Bill’) was introduced to the House of Representatives by Assistant Treasurer Michael Sukkar for the Treasurer Josh Frydenberg.

The Bill was referred to the Parliamentary Joint Committee on Corporations and Financial Services ('the Parliamentary Joint Committee') on 28 October 2021, and is yet to pass the lower house.

The Bill contains amendments which is in response to a 2020 report published by the Parliamentary Joint Committee.

Purpose of the Bill

On 21 December 2020, the Parliamentary Joint Committee tabled its report concerning litigation funding and the regulation of the class action industry ('the Report'). 

The Bill’s Explanatory Memorandum ('EM') states:

“The [Parliamentary Joint] Committee raised significant concerns over the inadequacy of the regulatory arrangements for litigation funders. The Committee was also concerned that the proportion of proceeds obtained by litigation funders is often disproportionate to the cost and risk undertaken by those funders, resulting in a significant reduction of the share to class members.”

The purpose of the Bill is to address these concerns by implementing the Government’s response to a number of recommendations from the Report. 

How a class action litigation funding scheme will be defined and categorised

The Bill seeks to establish a new section 9AAA in the Corporations Act 2001 (Cth) (‘the Corporations Act’), which will define the meaning of a class action litigation funding scheme (‘CALF scheme’).

If passed, a CALF scheme will have to have the following features, following section 9AAA(1)(a):

"(a)  the dominant purpose of the scheme is to seek remedies to which 7 or more persons (the claimants) may be legally entitled arising out of:

(i)  the same, similar or related transactions or circumstances that give rise to a common issue of law or fact; or

(ii)  different transactions or circumstances but the claims of the claimants can be appropriately dealt with together".

The proposed subsections 9AAA(1) and (2) further details other requirements for a scheme to be defined as a CALF scheme.

The Bill also proposes the amendment of Chapter 5C of the Corporations Act to include CALF schemes as a new type of “managed investment scheme”. This classification would mean that CALF schemes would be subject to the regulatory requirements of managed investment schemes in addition to its own specific regulatory requirements.

Who would be a "member" of a CALF scheme?

The Bill proposes that members of a CALF scheme would only be claimants who have agreed in writing to be members of the scheme. Furthermore, these claimants must agree to be bound by the terms of the scheme’s constitution.

The Bill's EM explains that the purpose of this express statutory definition of “member” of a CALF scheme is to ensure:

“that a claimant cannot be co-opted into becoming a member of the scheme litigation funding scheme, and therefore subject to the requirements of the scheme such as contributing to the funder’s fee or commission, without their active consent.”

Moreover, the Bill's amendments would prevent:

“the responsible entity, litigation funder, lawyers and other service providers involve[d] in the legal proceedings (who are not claimants) from being considered members.”

When would a funding agreement be enforceable?

The Bill proposes that the claim proceeds distribution method in a litigation funding agreement for a particular CALF scheme would be enforceable only if:

  • the court approves as “fair and reasonable” the claim proceeds distribution method or varies the claims proceeds distribution method to ensure that it is “fair and reasonable”; and

  • the court does not make a common fund order.

How would a court assess whether a distribution is “fair and reasonable”?

Firstly, the Bill proposes that the court would operate under a rebuttable presumption. This presumption specifies that any distribution, where entities that are not members receive greater than 30% of the total claim proceeds, is unfair and unreasonable.

Secondly, the Bill puts forward an exhaustive list of factors a court can consider when determining whether a distribution is “fair and reasonable”. According to the Bill's EM, these factors include:

“whether the costs incurred in the scheme and the proceedings were reasonable, and the relative profit of the funder compared with the costs incurred by the funder in funding the proceedings.”

Finally, the Bill seeks to require the court to receive and consider a report from a litigation funding fees assessor and representations of a contradictor when assessing a distribution, provided it is in the interests of justice.

What is a common fund order?

The Bill's EM explains that:

"[a] common fund order is any order made by the Court for claimants in the proceeding to contribute to the funder’s renumeration regardless of whether such claimants have agreed to be members or the litigation funding scheme and have signed an agreement with the litigation funder. For the purposes of the Bill, the renumeration of the funder does not include reimbursement for the costs incurred in funding the proceedings. Renumeration only describes the profit sought by the funder in relation to the proceedings."

What is the effect of the jurisdiction of the proceedings?

The Bill's EM states that:

"[t]he procedures and powers introduced in the Bill are incidental to class action proceedings in federal jurisdiction. If a litigation funder is funding an action in non-federal jurisdiction, the Court in which the action takes place must either be able to make the orders proposed in the amendments, or be able to make substantially similar orders, for the proposed distribution method to be enforceable by the funder."

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Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 (Cth) and explanatory materials available from TimeBase's LawOne website

Parliamentary Joint Committee Report: Litigation funding and the regulation of the class action industry (Parliamentary Joint Committee on Corporations and Financial Services, 21 December 2020)

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