Guaranteed Rate of Return for Aussie Class Actions Rankles Litigation Funders

A new government proposal has been met with strenuous objections from litigation funders, lawyers and company directors alike. The proposal would mandate that at least 70% of any payout in a class action must go to the members of that action. Some find it telling that the Law Council of Australia stated that such a limit would make claims financially untenable for litigation funders.

Financial Review reports that the proposal was made after a joint parliamentary committee in 2020 advised that Australia adopt a guaranteed rate of return for class actions. In May of this year, AG Michaelia Cash and Treasurer Josh Frydenberg requested submissions on this idea. It was also suggested that class actions relating to financial products including shareholders class actions be exclusively heard in Federal Court.

These two proposals are intended to ensure that claimants were compensated fairly for their losses, and to prevent funders and legal firms from hoarding a disproportionate percentage of an award. This may seem reasonable from a client’s perspective, but when funders take 100% of the financial risk, surely they deserve a sizable share of the award? There’s also a focus on eliminating so-called ‘forum shopping’ to choose the jurisdiction most favorable to a particular client or case type.

Some say it makes more sense to use a sliding scale approach, wherein the minimum payout to claimants increases as the recovery amount grows. At the same time, 50% of the gross award as a proposed backstop is reasonable, according to the AICD. Funders should be permitted to seek a return on their investment, without being hobbled by inflexible laws that don’t consider all relevant factors.