Productivity Commission - Access to Justice Arrangements report and recommendations

In brief

The Access to Justice Arrangements report proposes broad-ranging reforms to our civil justice system, with the aim of improving access to justice. Partner Belinda Thompson and Lawyer Annie Santamaria highlight some recommendations, which also have the potential to impact more broadly on Australia's legal landscape.

Background

On 3 December 2014, the Productivity Commission released its report, Access to Justice Arrangements¹, after a 15-month inquiry into Australia's system of civil dispute resolution.

Since June 2013, the Productivity Commission has investigated, sought submissions and held public hearings on a variety of aspects of the civil justice system.² These have included the accessibility of the justice system, alternative dispute resolution avenues and the role of ombudsmen, as well as the regulation of the legal profession, private litigation funding and the provision of legal aid.

The Productivity Commission has sought to address the widespread concern that Australia's civil justice system is 'too slow, too expensive and too adversarial'.³ The overall aim of the inquiry and resulting report is to investigate and provide recommendations around problems within the civil justice system, 'with a view to constraining costs'⁴ and making it easier for people to resolve their disputes. A wide range of issues within the civil justice system have been examined, and we do not purport to address the Report in its entirety here. Instead, the summary below highlights the issues and recommendations that are likely to be most relevant to you and your business.

Key recommendations

Lifting the prohibition on contingency fees

The Commission has recommended the removal of the general prohibition on the charging of contingency fees by the legal profession. Contingency fees are where a lawyer's fee is calculated as a percentage of any amount recovered for the client. Essentially, contingency fees give the lawyer a direct financial interest in the outcome of the litigation, and are currently banned in Australia largely on the basis of the perceived risk of giving rise to a conflict of interest between the lawyer and client.

The Commission was 'unconvinced' that 'perverse incentives' or conflicts of interest exist to justify the wholesale prohibition on contingency fees.⁵ Rather, the Report states that such risks may be managed by the implementation of protections for vulnerable consumers, including:

• comprehensive disclosure requirements at the outset of the fee agreement;
• the capping of the contingency fee percentages on a sliding scale for 'retail clients' (no such restrictions are recommended for 'sophisticated clients'); and
• that additional fees are not to be used with contingency fees (for example, contingency fees could not be used in addition to a lawyer's usual hourly rate)⁶.

The Commission has not provided guidance as to who is to be considered a 'retail' client and who is to be a 'sophisticated' client. Further, no recommendation has been made as to the percentage limits at which contingency fees should be capped. It is stated that governments should determine these percentages and the scale through transparent consultation and evaluation⁷.

Licensing of third party litigation funders

The Commission has endorsed the call for regulation of third party litigation funders. It has recommended that third party litigation funding companies be licensed, with the overview of the ethical conduct of litigation funders remaining the function of the courts⁸. The licencing requirement is to be designed to:

• ensure that the funder holds adequate capital relative to its financial obligations;
• ensure that the funder makes appropriate disclosure to its clients of the funder's obligations and its systems to manage risks and conflicts of interest; and
• require the funder to be a member of the Financial Ombudsman Scheme.

The recommendation for greater regulation and oversight of third party litigation funding is welcomed. Appropriate regulation of litigation funding will promote transparency, minimise conflicts of interest and protect the interests of consumers.

Promoting alternative dispute resolution and other complaints mechanisms

Access to avenues other than courts as a way of resolving disputes is recognised as an important means of enhancing access to justice. The Commission has made several recommendations to encourage the use of alternative dispute resolution procedures and to ensure consumers are aware of the availability of other avenues to pursue complaints.

In particular, the Commission has recommended that both industry and government organisations associated with ombudsman complaint schemes, such as banks, financial services and telecommunication companies, be required to inform those who make a complaint (whether the complaint is oral or written) about the availability of external review by the ombudsman⁹. It is also recommended that governments remove the requirement for complaints to the ombudsman to be made in writing¹⁰.

Reducing time and expense in court processes

The Commission makes several recommendations to build on recent measures to improve case management and the efficiency and cost-effectiveness of court processes. In particular, the Commission has called for:

courts to consider whether elements of the Federal Court's Fast Track model should be applied more broadly¹¹;

closer scrutiny of the scope of discovery, and employing measures, such as justification for applications for discovery, to facilitate tailored and proportionate discovery¹²; and

courts to have greater oversight in respect of expert evidence to ensure costs are not unnecessarily incurred, including a requirement for parties to seek directions before adducing expert evidence, and for the court to have broad powers to make directions about expert evidence, including the appointment of a single expert or a court appointed expert¹³.

Implementation of these recommendations may promote increased efficiency and decrease costs. However, ultimately whether these objectives are achieved will depend on the detail of any reforms introduced and how they are applied in practice.

Conclusion

The Commission's recommendations aim to reduce the time and expense associated with litigation, and to promote the efficient resolution of civil disputes, so as to increase access to justice. Such aims are to be welcomed and supported. However, many of the recommendations also have the potential to impact more broadly on Australia's legal landscape. The scope of that impact and whether the recommendations will improve access to justice, is likely to depend on the detail of any reforms actually implemented.