New rules for litigation funders after jump in class actions
A surge in class-action lawsuits has triggered a crackdown on companies that fund litigation in the pursuit of massive financial settlements, forcing the sector to submit to tougher federal law. Treasurer Josh Frydenberg will impose new rules on litigation funders after a 325 per cent rise in class actions in the Federal Court over the past decade.
Treasurer Josh Frydenberg will announce the changes on Friday and they will take effect three months later through regulation. The move will expose litigation funders to greater scrutiny from the corporate regulator and require them to become licensed financial services providers within three months, ending years of exemptions from the rules. Firms such as Maurice Blackburn, Shine Lawyers and Slater and Gordon have scored major victories against companies in consumer complaints, employment disputes and shareholder claims.
“The number of class actions has tripled over recent years,” Mr Frydenberg said. “It is now even more important that litigation funding activities are regulated in a manner that is consistent with other financial services and products that seek to provide investment returns to consumers.”
Mr. Frydenberg will announce the changes and they will take effect three months later through regulation, avoiding the need for any bill to be put to Parliament to amend the Corporations Act. The only way for opponents to prevent the move would be to try to disallow the regulations in Parliament, requiring Labor to gain support from Senate crossbenchers. The changes will require the litigation funders to hold an Australian Financial Services Licence and comply with the managed investment scheme regime, removing exemptions passed when Labor was in government. This will force them to be licensed by the Australian Securities and Investments Commission and meet requirements to act fairly, maintain an appropriate level of competence and ensure they have adequate resources.
The labor’s legal affairs spokesman, Mark Dreyfus, last week said the government was using the inquiry to protect its “big business mates” from challenges in court.
“The Morrison government’s inquiry into class actions and litigation funding is a shameless move towards denying justice and fair compensation for ordinary Australians,” Mr Dreyfus said.
Topics: Litigation Finance, United Kingdom, Class Action Suits
Work cited: David Crowe, May 22, 2020
