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Integrity, Fairness and Efficiency-An Inquiry Into Class Action

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Integrity, Fairness and Efficiency-An Inquiry Into Class Action Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders FINAL REPORT ALRC Report 134 December 2018 Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders FINAL REPORT ALRC Report 134 December 2018 This Final Report reflects the law as at 30 November 2018. The Australian Law Reform Commission (ALRC) was established on 1 January 1975 by the Law Reform Commission Act 1973 (Cth) and reconstituted by the Australian Law Reform Commission Act 1996 (Cth). The office of the ALRC is at Level 4, Harry Gibbs Commonwealth Law Courts Building, 119 North Quay, Brisbane QLD 4000. Postal Address: PO Box 12953, George Street QLD 4003 Telephone: within Australia (07) 3248 1224 International: +61 7 3248 1224 Email: [email protected] Website: www.alrc.gov.au ALRC publications are available to view or download free of charge on the ALRC website: www.alrc.gov.au/publications. If you require assistance, please contact the ALRC. ISBN: 978-0-6482087-3-0 Commission Reference: ALRC Report 134, 2018 © Commonwealth of Australia 2018 This work is copyright. You may download, display, print and reproduce this material in whole or part, subject to acknowledgement of the source, for your personal, non- commercial use or use within your organisation. Requests for further authorisation should be directed to the ALRC. Printed by Fineline Print & Copy Service, NSW The Hon Christian Porter MP Attorney-General of Australia Parliament House Canberra ACT 2600 21 December 2018 Dear Attorney-General Inquiry into Class Action Proceedings and Third-Party Litigation Funders On 11 December 2017, the Australian Law Reform Commission received Terms of Reference to undertake an inquiry into Class Action Proceedings and Third-Party Litigation Funders. On behalf of the Members of the Commission involved in this Inquiry, and in accordance with the Australian Law Reform Commission Act 1996, I am pleased to present you with the Final Report on this reference, Integrity, Fairness and Efficiency—An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (ALRC Report 134, 2018). Yours sincerely, The Hon. Justice SC Derrington President The Honourable Murray Wilcox AO QC 1937—2018 Murray Wilcox’s personal contribution to Australia’s class action regime, like his contribution to the intellectual rigour of the law and to life in general, was multi-faceted. He was a Commissioner of the Australian Law Reform Commission when Report No 46, 1988 “Grouped Proceedings in the Federal Court”, was released. As a judge of the Federal Court of Australia, he presided over some of the very first class actions commenced in that Court following the introduction of Part IVA into the Federal Court of Australia Act 1976 (Cth). Some of Murray’s own philosophies and passions, and his practical style of humanity, are echoed in the recommendations made by Report No 46. The introduction of an “opt out” rather than “opt in” model was considered preferable both to enhance access to justice, but also to eliminate the need for extra work and expense.1 To both encourage persons to assume the responsibilities of a principal applicant and to protect that person from an adverse costs order, the report proposed that the government establish a public fund. Indeed, the report itself was titled “Grouped Proceedings…” to try and navigate the politics of the day, which included some wariness of the introduction of a US style system of class actions.2 Murray’s continuing legacy is a now well established representative procedure, which includes machinery designed to deliver justice to those in need, within the protections offered by the Australian legal framework. Report No 46 described a stated objective of a class actions regime as being both to enhance access to justice and to save costs and judicial resources by facilitating one common, binding decision. The best way in which to implement this objective has continued to be a focus of the judiciary, including as they grapple with the increasing emergence of litigation funders, and more recently vigorous competition between service providers to conduct class actions. Murray would have embraced the current reference and the ALRC’s rigorous examination of the adequacy of existing class action machinery in light of contemporary conditions. Elizabeth Collins SC 1 Murray Wilcox, ‘Class Actions in Australia: Recollections of the early days’, in Damian Grave and Helen Mould (eds), 25 Years of Class Actions in Australia (Ross Parsons Centre of Commercial, Corporate and Taxation Law, 2017). 2 Ibid at [2.2]. Contents Terms of Reference 5 Participants 7 Recommendations 9 Figures and Tables 13 Executive Summary 15 The Inquiry 15 Class action proceedings in the Federal Court 16 Guiding principles 16 Clarifying the powers of the Federal Court 17 Regulation of third-party litigation funders 18 Legal costs 18 Conflicts of interest 18 Areas for further inquiry 19 1. Framing the Inquiry 21 The Inquiry 21 The impetus for reform 22 Process of reform 24 Overarching Principles 25 Related inquiries 34 2. Evolution of Class Action Proceedings and Third-party Litigation Funding 47 Class action proceedings in Australia 47 Overview of the litigation funding market 49 Regulation of litigation funders 62 3. Incidence 69 Introduction 69 About the data 70 Part IVA proceedings in the Federal Court 73 Characteristics of Part IVA proceedings 74 Outcomes of Part IVA Proceedings 81 Qualitative data 87 2 Inquiry into Class Action Proceedings and Third-Party Litigation Funders 4. Powers of the Federal Court: Case Management 89 Introduction 89 Open class actions 90 Closure and reopening of the class 94 Common fund orders 96 Certification 99 Competing class actions 102 5. Powers of the Federal Court: Settlement Approval 129 Introduction 129 No need to legislate the application of s 33V 129 The Court may refer legal costs to a referee 136 The Court may tender settlement administration 141 Settlement confidentiality 146 Report of the settlement administrator 151 6. Regulating Litigation Funders 153 Introduction 153 Existing regulatory requirements 154 Reducing the financial risks to consumers of litigation funding services 163 Overarching purpose of civil practice & procedure provisions 165 Court approval of the litigation funding agreement 169 Managing conflicts of interest 177 7. Solicitors’ Fees and Conflicts of Interest 185 Introduction 185 Methods for billing legal costs in class action proceedings 186 Managing conflicts of interest 217 Early communication of conflicts of interest to group members 229 8. Regulatory Collective Redress 235 Introduction 235 Is there a need for enhanced redress powers? 236 How regulatory redress works in England and Wales 242 Regulatory redress 246 Conclusion 255 9. A Review of the Substantive Law that Underpins Shareholder Class Action Proceedings? 257 Introduction 257 Contents 3 Continuous disclosure obligations 259 The call for a review 263 Matters within the ambit of a review 264 Concluding observations 284 Appendix A. Preliminary Consultations February–June 2018 285 Appendix B. Consultations July–December 2018 289 Appendix C. Proposals and Questions from DP85 291 Appendix D. Submissions 297 Appendix E. ALRC Dataset 301 Appendix F. ALRC Snapshot 317 Appendix G. Table of Third-Party Litigation Funders 325 Appendix H. Suggested Legislative Amendments 327 Terms of Reference Inquiry into Class Action Proceedings and Third Party Litigation Funders I, Senator the Hon George Brandis QC, Attorney-General of Australia, having regard to: y the increased prevalence of class action proceedings in courts throughout Australia, and the important role they play in securing access to justice; y the importance of ensuring that the costs of such proceedings are appropriate and proportionate; y the importance of ensuring that the interests of plaintiffs and class members are protected, in particular in the distribution of settlements and damages awards; y the role that third party funding entities play in enabling the commencement and maintenance of class action proceedings; y the role of third party funding entities in enabling the commencement of other classes of legal proceedings, including but not limited to arbitral proceedings; y the potential for conflicts of interest between the professional obligations of lawyers and the commercial imperatives of third party funding entities; y the fact that third party funding entities are not bound by professional ethical obligations, such as a lawyer’s duties to the court and the client; y the absence of a requirement that third party funding entities (or, where the entity is a corporate entity, its officers) satisfy character requirements or meet other antecedent criteria before being permitted to act as third party litigation funders; and y the absence of comprehensive Commonwealth or State and Territory regulation to address the structure, operation and terms on which third party funding entities participate in the Australian legal system. REFER to the Australian Law Reform Commission (ALRC), pursuant to s 20(1) of the Australian Law Reform Commission Act 1996 (Cth), consideration of whether and to what extent class action proceedings and third party litigation funders should be subject to Commonwealth regulation, and in particular whether there is adequate regulation of the following matters: 6 Inquiry into Class Action Proceedings and Third-Party Litigation Funders y conflicts of interest between lawyer and litigation
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