Tuesday, 2 February 2021
Corporations and Financial Services Committee; Report
On behalf of the Parliamentary Joint Committee on Corporations and Financial Services, I present the committee's report, incorporating a minority report, entitled Litigation funding and the regulation of the class action industry.
Report made a parliamentary paper in accordance with standing order 39(e).
by leave—This report is a clear example of the important work that we do in parliament and the important work that committees do because it reflects the very serious debates and discussions that occur in our committees. This is evident in the minority report of the committee members, which has been tabled as an attachment to the committee's report. It reflects the reservations expressed by the Labor committee members regarding a number of the committee's key recommendations. Over the last three years, the current government's approach to policy-making in relation to class actions and litigation funding has been fairly contradictory and conflicting, to say the very least. An example of this is from December 2017, when the current government commissioned the Australian Law Reform Commission to conduct a comprehensive review of class action proceedings and third-party litigation funders.
After the commission completed its review and made 24 recommendations for reform, the government did nothing, and for almost 18 months the Morrison government uttered barely a word about class actions and litigation funding. Then, in the middle of a global health and economic crisis, the Attorney-General established this supposedly extremely urgent inquiry into litigation funding and the regulation of the class action industry. But in May last year, before this committee had even received its first submission or held its first public hearing, the Treasurer pre-empted the outcome of the government's own inquiry. It did so by announcing two primary requirements: (1) the litigation funders would be required to hold an Australian financial services licence, and (2) they would have to comply with the managed investment scheme regime under the Corporations Act 2001.
I remind the House that these two proposals had already been considered and had already been rejected by the Law Reform Commission, the Department of the Treasury and the Australian Securities and Investments Commission, among others. The opposition members on the committee therefore question why the committee is tabling a report that largely repeats those precise recommendations, and that is all in our minority report. My colleagues and I sought to explain in that report just how irrational the Treasurer's new regulations are. But you don't have to take just the words of the opposition members on this committee. ASIC, for example, the entity tasked with administering the Treasurer's new regulations, has had to spend $60,000 of taxpayers' money to get legal advice about what the regulations even mean. If the regulator doesn't understand the regulations, then what hope do the organisations subject to those regulations have, we ask. Perhaps even more incredibly, ASIC has admitted that it is impossible for some class actions to comply with these rules. ASIC said this, not committee members. It's true that ASIC has said that it won't act against class actions that do not comply with that requirement, but at the same time it's acknowledged that it is powerless to stop other Commonwealth agencies or even private parties from taking legal action against a class action for breaching these obligations. In other words, many Australians will now have to break the law in order to exercise their basic legal rights. So I'd urge those listening and those who are interested to read the minority report by the Labor members, which sets out in detail those objections.
But, despite those objections, there are also areas of agreement. There are many good things in the report as well. Labor members agreed that the Federal Court could and should make better and more regular use of independent fee assessors and contradictors to represent the interests of plaintiffs in class actions. We also agreed that there should be greater transparency around the process of approving settlements, and better processes around managing or prohibiting conflicts of interest.
No-one is arguing that the current system is perfect. But we, in Labor, believe that there is a lot this parliament could do to ensure the best possible returns for plaintiffs in class actions while also improving the access to justice for ordinary Australians. This is a very important matter and we would welcome a bipartisan approach from the other side. But, based on this government's track record, I'm not sure how likely that is.
by leave—In the short time that I have been here in this parliament, I have to say that this inquiry by the Parliamentary Joint Committee on Corporations and Financial Services was definitely the most willing that I have been involved in. It is fair to say that it gave new meaning to the term 'full and frank advice' being given by many witnesses. I have to say that the answers were, in most cases, direct.
I particularly want to single out Omni Bridgeway. That is an Australian litigation funder who, throughout this process, gave the committee what it needed to understand to make its deliberations possible. In a desert of integrity, frankly, it is simply a single oasis, and for that I thank its CEO and its organisation.
But the one thing that this did show is that the adversarial nature of our justice system—and, indeed, this inquiry—did provide some very good information for this parliament to consider. The first is that our justice system is not meant to be about profit. Our justice system is meant to be about justice. Many years ago, and for many centuries, the concept of champerty and maintenance was maintained in the legal system—that people were not allowed to be part of an action that they were not part of and that they were not meant to profit from legal action. But many reports by the same people that the deputy chair spoke of made this point over and over again—that we need access to justice. The Australian Law Reform Commission, ASIC, the Australian Law Council—all of them talk about the prohibitions and the barriers to access to justice. But always in the fine print is the fact that the greatest barrier to entry is the cost of the lawyers themselves, and not a single one of them—not the Productivity Commission, not the ALRC, not the Law Council—ever speaks to the fact that maybe lawyers should consider reducing their fees. It's a bit hard for this parliament to cop having millionaire partners of class-action law firms coming before this parliamentary joint committee inquiry claiming that they represent impoverished individuals and impoverished Australians just seeking access when they themselves will not consider reducing their fees to do so. No-one ever talks about lawyers reducing their fees.
What we know is that some of these boutique investment products—otherwise known as litigation funders—are making returns of over 500 per cent. When the committee asked one of the litigation funders: 'Could we invest in one of these funds?'—given that its returns are over 500 per cent—they informed us that we would need a minimum investment of a million dollars. When a committee member said that they thought that, at 500 per cent, they could rustle up a million dollars, the reply came back: 'Oh no, that's in US dollars.' Then, when the reply came that this person could get to a million US dollars, it was: 'All our funds are oversubscribed.' Most of them are in places like Gibraltar, Malta, and, of course, the Bahamas.
Those opposite are constantly lecturing this parliament about overseas tax-evading corporations. But, when it comes to litigation funders, the only thing they did when they were in government was give them a free pass and absolve them from the Corporations Law. The idea that litigation funders should be regulated as managed investment schemes came from the Federal Court itself. When those opposite were in government, they moved heaven and earth to make sure that that would never apply to litigation funders. Is a litigation fund managed? Yes. Is it an investment? With returns of over 500 per cent, it clearly is. Is it a scheme? Absolutely. Should it be managed? Yes, it should be.
In all of this, we found the hopelessly conflicted nature of the regulators. We found consumers and class members being ripped off and being given misleading and deceptive information. When reported to the ACCC—who will prosecute a toy store if the store doesn't have the right warning labels on a toy—the ACCC, after nine months, actually decided it was an investment product and it should be the job of ASIC. ASIC—who will pursue real estate agents because it thought that they might have been giving people false or incorrect information or information about people withdrawing early from their super funds, even though it had no evidence other than an internal email from a subordinate to a manager—wouldn't take up this cause, where the very same people, who, apparently, are only seeking access to justice, are seeing themselves being ripped off through misleading and deceptive information.The ACCC and ASIC had no interest whatsoever in pursuing this in the interests of ordinary Australians and consumers. That's why we are determined that Australian consumers be given the protections people have when they're opening a savings account.
But, apparently these tax-haven-dwelling, litigation-funding investment vehicles that are bespoke should be absolved from the laws of this parliament. It is absurd. As we heard in evidence, it undermines the very pillars of our justice system—where the responsibilities and obligations of lawyers to their clients are subverted by their obligations to the people funding the action. There have been court cases in London that have made it very clear that lawyers now have no obligations to clients, but rather to their funders. This has all been reflected in the explosion in class actions, in the explosion in insurance premiums and in international investors saying that they are not seeking to make investments in Australia because of the nature of class actions in this country and the funding vehicle in litigation funding.
That's before we get to shareholder class actions, where we have the absurd idea that suing yourself, as an owner of the firm, is somehow going to punish people who didn't disclose information. That became well and truly clear. We had HESTA come to us and say, 'We think that's a good idea, that we should be allowed to sue ourselves,' and then, halfway through their evidence to the committee, admit that they're an investor in Omni Bridgeway. It's okay, though, they're only a passive investor! We have the situation where the Victorian government announced that they would introduce contingency fees against the advice of the Australian law council. On the very same day that they made that announcement, the Attorney-General in Victoria, Jill Hennessy, had a meeting with the directors of Maurice Blackburn, who, later that afternoon, made a $100,000 donation to the federal Labor Party. This whole system—unregulated, unseen, operating in the darkness, with people refusing to come before a committee and give us straight answers to straight questions—is undermining the very pillars of our justice system and is perverting so much of the policymaking in this place and in other places. I highly recommend the recommendations in the report.