Productivity Commission supports litigation funding and foreshadows regulation of funders

published Sep 02, 2014
The Productivity Commission has been examining the private funding of litigation in Australia, as part of a wider review into Australia’s civil justice system and access to, and the quality of justice. The Commission has published a draft report which strongly supports litigation funding and recommends a licence regime, a position we have long advocated.

The Productivity Commission has been inquiring into Australia’s civil justice system, with a focus on developing proposals for constraining costs and promoting access to justice and equality before the law.  The Commission has published its draft report and called for further submissions and public consultation.  Bentham IMF Limited (IMF) made submissions to the Commission[1]. We understand that a final report has been provided to the government this month with the government to determine any subsequent release of the report to the public.

The Commission looked at the private funding of litigation in Australia. In its draft report the Commission proposed two key recommendations in this area:

  1. Australian governments should remove restrictions on damages-based billing (i.e. contingent fees) subject to comprehensive disclosure requirements.
  2. Third party litigation funding companies should be required to hold a financial services licence, be subject to capital adequacy requirements and be required to meet appropriate ethical and professional standards.
Overall, the Commission strongly supports litigation funding as it has developed in Australia. It noted that it has not received any evidence that would lead it to believe that funding has the potential to promote frivolous litigation. The Commission considers that litigation funding can play an important role in promoting corporate accountability and it has expressed its support for the activities of litigation funders in facilitating class actions. 

The Commission favours a licence regime for litigation funders. While the Commission accepts that licensing and capital adequacy requirements could create barriers to entry to the litigation funding market, the Commission considers these are justified to ensure that only “reputable and capable funders” enter that market.

IMF welcomes the Commission’s draft recommendation that funders be licensed - a position we have long advocated. However, we also consider it important that if contingency fee billing is to be introduced to Australia, lawyers using such arrangements must be liable to pay any adverse costs orders which might be made if their clients’ litigation is unsuccessful.

The regulation of litigation funding is also front of mind for the Federal Attorney General who announced in May 2014 that he intended to convene an advisory panel to examine conflicts of interest and the role of plaintiff lawyers and litigation funders in class actions.
  

[1] See IMF's ‘Submission to the Productivity Commission: Access to Justice Arrangements’, 18 November 2013 https://www.imf.com.au/docs/default-source/site-documents/bentham-imf-limited's-submission-to-the-productivity-commission-inquiry-into-access-to-justice-arrangements and ‘Response to Draft Report of the Productivity Commission: Access to Justice Arrangements’, 26 May 2014:https://www.imf.com.au/docs/default-source/site-documents/bentham-imf-limiteds-response-to-productivity-commissions-draft-report.