VLRC takes first cut at class action reform

In brief

The Victorian Law Reform Commission has completed its review of Victoria's class action regime, with a particular focus on the effect of litigation funding. The report calls for national regulation of litigation funding, lifting the ban on contingency fees both generally and in class actions (balanced with appropriate regulatory measures) and a greater supervisory role for the Victorian Supreme Court in the management of class actions. Managing Associate Kate Austin, Associate Kelly Roberts and Lawyer Katerina Dandanis discuss.

Introduction

The VLRC's report, Access to Justice – Litigation Funding and Group Proceedings, was tabled in the Victorian Parliament on Tuesday, following a consultation process with stakeholders, the release of a consultation paper and a submission process. The stated purpose of the review was to ensure that litigants seeking to enforce their rights through class actions are not exposed to unfair risks or disproportionate cost burdens. 

Allens participated in stakeholder consultations and made a submission in response to the Commission's consultation paper.

VLRC's recommendations

The VLRC made 31 recommendations, including (among other things) that:

• there be stronger and more transparent national regulation of the litigation funding industry;
• court practice notes require more simplistic and timely disclosure of funding arrangements (and any amendments to those arrangements) to class members;
• there be greater guidance from the court on the management of competing class actions, including the possible establishment of a cross-vesting judicial panel;
• a formal US style certification regime is unnecessary for managing the risk of speculative or 'lawyer driven' claims, but the court should be given own motion powers to order that a proceeding no longer continues as a class action and substitute the representative plaintiff with another class member in appropriate circumstances;
• laws make clear that the court has the power to review and vary all legal costs and litigation funding fees and charges to ensure that they are fair and reasonable and make common fund orders; and
• the ban on contingency fees both generally and in class actions should be lifted, subject to exceptions and regulation.

Key Recommendations

Litigation funding and contingency fees

The VLRC considers that responsibility for regulating the litigation funding industry rests with the Commonwealth Government. Although the VLRC recommends that the Victorian Government should advocate through the Council of Australian Governments for stronger national regulation and supervision of the litigation funding industry, it seems we will need to wait until the ALRC makes recommendations later this year for a law reform commission's view on how this industry is best regulated. Submissions to the VLRC canvassed a number of different regulatory approaches, including a mandatory licensing scheme, other prudential regulation (such as capital-adequacy requirements) and minimum content standards for all litigation-funding agreements. The VLRC does not favour funding fees being subjected to statutory caps.

Notably, the VLRC supports in principle lifting the ban on lawyers charging contingency fees generally and in class actions, subject to appropriate conditions and regulatory measures – the rationale being that doing so would make funding available for people who may otherwise be barred from pursuing proceedings due to cost. The VLRC's view is that lifting the ban on contingency fees generally is a matter that needs to be pursued nationally. However, at the Victorian level it proposes contingency fees in class actions through the use of common fund orders from the court for litigation funding fees payable to lawyers based on a percentage of any recovered amount.

As we have previously submitted, we do not consider that lifting the ban on contingency fees generally will improve access to justice in the areas of greatest unmet legal need. In class actions, while the VLRC's proposal is worthy of further consideration, there is a question as to whether plaintiff law firms would take a different approach to assessing the commercial viability of class action claims, and therefore whether the VLRC's aim of enabling less financially viable claims to be brought will be achieved. Any introduction of contingency fees will need to be accompanied by stringent regulation and consider such matters as statutory caps and appropriateness for different types of claims.

We agree with the VLRC's desire for a nationally consistent litigation funding regime. Consistency on a national level will provide greater certainty, of benefit to all class action stakeholders. Notwithstanding the value of national consistency, the VLRC also recognised the differing funded class action trends in Victoria as compared to a federal level – eg mass tort class actions are more prevalent in the Supreme Court of Victoria as compared to the Federal Court (in which funded shareholder class actions are more prevalent).

Promoting access to justice and efficiency

A number of the recommendations seek to strengthen the court's supervisory role and better promote the class action regime's objectives of access to justice, efficiency and finality. For example, if implemented, the VLRC's recommendations will:

• enhance the supervisory role of the court in class actions by promoting the provision of better information to the court. For example, the VLRC acknowledges that there may be a role for the appointment of a contradictor to assess the terms of settlement on behalf of class members, and to specify the supporting information that must be provided to the court when settlement is sought; and
• strengthen the court's case-management powers and better promote the regime's efficiency objective by giving the court own motion powers to order that a proceeding no longer continue as a class action and to substitute the representative plaintiff for another class member. Consistent with our view, the VLRC does not recommend the introduction of a formal US style certification regime, describing it as 'neither desirable or necessary'. Instead, the VLRC recommends that the court be given express powers, or provide comprehensive guidance, in support of its responsibility to ensure that claims are appropriately brought as a class action. While such guidance or powers might provide class action defendants with some relief, we suspect that practically much of the burden will remain on class action defendants to ventilate the issues and demand appropriate upfront scrutiny of the appropriateness of claims brought as a class action.

Notably, the VLRC makes recommendations that may see the relaxation of the 'loser pays' rule in 'low value claims' that concern a matter of public interest or a novel area of law. To reduce the adverse costs risk for representative plaintiffs in these types of class actions, the VLRC recommends that the court's power be amended to allow it, when making adverse costs orders, to take into account factors such as: the function of class actions in providing access to justice; whether the case is a 'test' case or involves a novel area of law; or whether the action involves a matter of public interest. The loser-pays rule has always been considered a significant deterrent on speculative litigation and an important protection for class action defendants. While the reform may be appropriate in certain limited types of public interest class actions, we do not agree with any broader application of this reform. Further, in our view, this kind of reform only strengthens the need for greater upfront scrutiny by the court of the appropriateness of claims brought as class actions.

Implementation

We also welcome the VLRC's recommendation that the court consider broadening the Victorian Supreme Court class action user group for the purposes of stakeholder consultation on the proposed amendments to practice notes and other changes to the management of class actions.

What's next?

Class action reform will continue to be the flavour of the month, as submissions in response to the ALRC's Discussion Paper on a similar inquiry into representative proceedings and third party litigation funding are due by 30 July 2018. We will continue to monitor this space closely, and keenly anticipate the Victorian Government's response to the VLRC's recommendations.

As a firm, we are carefully considering the proposals made by the ALRC and how they are likely to affect our clients' interests. We will provide a further update on these issues as soon as possible.