A fair go for all: Caps on litigation funding proceeds to be introduced

The Federal Government has made good on its promise to ensure a fair and reasonable distribution of class action proceeds in proceedings involving a litigation funder by today introducing the Treasury Laws Amendment (Measures for Consultation) Bill 2021: Litigation funders.

In considering what is “fair and reasonable”, the Bill dictates that a return of class action proceeds to group members that is less than 70% of those group member proceeds is not fair and reasonable.  That rebuttable presumption means that the funder and the lawyers cannot reasonably expect to recover more than 30% of any settlement or judgment.  

Recently in rejecting the first application for a contingency fees order in a class action in Fox v Westpac Banking Corporation; Crawford v ANZ Banking Group Ltd [2021] VSC 573, the Supreme Court of Victoria heard from the plaintiffs’ lawyers that the 25% contingency fee rate they were seeking was far better than the returns to group members of 45%-64% when both lawyers and third party funders are involved.  Thus, a cap of 30% is noticeably less than that range and will doubtless be the “big ticket item” in this legislation.

Other notable elements of the Bill are:

• The Court must also consider factors such as the relative profit of the funder compared with the costs of the funder incurred in funding the proceedings.
• Funders cannot enforce their funding agreements until a Court has made an order to approve or vary the distribution.
• A requirement that plaintiffs consent to becoming members to a funding scheme before funders can impose their fees or commission on them. This will encourage “book building” and ensure that actions involving funders are commenced with the genuine support of plaintiffs.
• The amendments capture funding agreements for litigation in all Australian Courts that have a class action regime.

There will be some consternation about this Bill, with funders and plaintiff lawyers bemoaning the 30% cap, whilst other interests may worry that 30% will become the “tariff” in all funding agreements going forward (despite the Bill saying that other factors must be considered).