Tuesday, 23 November 2021
Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021; Second Reading
I'm pleased to be speaking on this Orwellian named bill, the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021. Once again we see the experience of the government bringing a bill before the House which says it is going to do one thing but in practice does the exact opposite. The bill concerns the funding arrangements for class action litigation. It's a part of what currently amounts to a three-part assault on class action proceedings in the government's obvious attempt to frustrate, limit and minimise the capacity of litigants who would otherwise have very little access to justice and very little access to a redress arrangement from having their day in court. Ordinary Australians are pitted against much larger, deep pockets when seeking nothing more than their capacity to test the strength of their argument to get redress for their loss. The government seems to be, at every angle, taking the side of the defendants in these matters instead of the little people who do so much to deserve a better deal from this government.
The bill is an attack on the capacity for matters to be brought before a court. It will do this in two ways. The first is by providing a mechanism by which the court must approve or vary the distribution of proceeds of a claim, such that the distribution is fair and reasonable. It sets, in effect, a ceiling. Where more than 30 per cent of the proceeds of an award made by a court go to non-members of a class action—that is, in costs, such as for lawyers or class action funders—the bill effectively requires the court to hear legal debate about the distribution of the funds.
It has a superficial attraction to it. Thirty per cent might sound like a big number. However, the operative effect of this provision will be, quite simply, to ensure that certain matters never find their way to court. Simple, straightforward class actions can often have costs which are much less than five per cent, let alone 30 per cent. But there are some matters which are brought before the court in the form of a class action which will be much more costly. Perhaps it's a matter which requires an investigation going back several decades. Perhaps it's a matter which involves a respondent who is a well-heeled, well-represented, lawyered-up, deep-pocketed corporation—perhaps a foreign corporation—with every trick in the book, which will put plaintiffs to the test such that an artificial 30 per cent cap on the proceeds going to costs effectively means that they set a target for the defendant and they know exactly what they've got to do to ensure that the proceeding never gets on, or they know how to run up costs such that there is a forced settlement far beyond what is fair and reasonable on the part of the plaintiffs.
So it has a superficial attraction, but its operative effect is going to limit the ability of ordinary Australians to have their day in court, and it will have perverse effects. The 30 per cent will not be the ceiling; it will become the target for costs. It will become the default provision by which awards are distributed between costs and benefits to the plaintiffs. So, as is so often the case with legislation proposed before this parliament, you have to look to the impact of what this legislation will do, and what we discover is that what might look superficially attractive is something which is going to have a deleterious effect on ordinary Australians.
The second mechanism that the government is applying through this bill is to upend the current opt-out system for gathering plaintiffs into class action groups and turning that into an opt-in system. In other words, rather than being an automatic beneficiary of a successful class action, potential plaintiffs need to formally join the class action before it gets to court.
Labor will be vigorously opposing this bill, and I foreshadow now that I will be moving a second reading amendment at the close of my contribution to this second reading debate. It's clear to us that the changes contained in this bill are part of a pattern of hostility from the coalition to those in our community who seek justice via class action lawsuits. Though the stated intent of the bill is to protect the interests of such plaintiffs, it's clear to us that they haven't thought it through. The setting of limits that I have just described will have the effect of doing the exact opposite. As one submitter to the just-completed inquiry into this bill put it:
That the Government is seeking to present this reform as a consumer protection measure is Orwellian gaslighting.
I could not have put it better myself.
Indeed, the so-called inquiry in which those comments were made reveals much about the serious deficiencies in this bill and the government's attempts to cover them up. It gave just one week of public engagement for members of the community to make submissions. It tried to pass the inquiry off as independent despite the fact that the government had the numbers on the inquiry and used those numbers to ram through a majority but not a unanimous report. When a government engages in these sorts of clumsy attempts to hide its intentions and smother dissent, you know that something's seriously amiss, and that's indeed the case here.
The government's laughably short public consultation period backfired on them, rather than stifling discontent with the changes, because the majority of submissions to the inquiry made clear that the effect of this bill is to jeopardise the interests of both plaintiffs and defendants. I'll get to the defendants in a moment. Let me repeat: it will jeopardise the interests of both the plaintiffs and the defendants, not—as the government's Orwellian title claims it will do—protect them. This was not only the view of the plaintiff lawyers, who many might say have a pecuniary interest, an economic interest, in ensuring that legislation such as this never finds its way through both houses of this parliament. You'd expect them, perhaps, to argue such a case. But it should prick up your interest when the defendant law companies have made exactly the same argument. It was the view not only of the plaintiff law firms who bring class actions but also of those who traditionally represent the defendants, the respondents, in such actions. When you have both of those groups speaking up against these changes, it gets very difficult to find a friend for this legislation.
The fact that the government has an active campaign against class actions is now bleedingly obvious. It doesn't want to protect plaintiffs, and it's actually doing damage to the defendants on the way through. It wants to protect—or it purports to protect—the wealthy and powerful defendants. This will constrict the path to justice for those who have been wronged, for example, by the actions of large multinational corporations, and, where an action is successful, it will limit the financial penalty on those who have been found to be responsible for causing harm. Let me explain in detail how this is the case.
The basis of the current opt-out system was a recommendation from the Australian Law Reform Commission—an exhaustive inquiry such as the ALRC always conducts in these matters. It's not an inquiry over a couple of weeks or even a couple of months. Generally, they go through an exhaustive evidence-gathering exercise and an exhaustive consultation process and then produce a report, as they did, with recommendations. They recommended the retention of the existing opt-out system. It also refers to the system as 'open class actions', which is actually a good way of talking about it because this system opens class actions to anyone who may have been on the wrong end of a particular event or action. It is commonly the case, where there are large numbers of potential plaintiffs in a class action, that identifying each individual at the outset is difficult, if not impossible.
An example, and a case in point, might be the recent action that was taken on behalf of Aboriginal and Torres Strait Islander people in Queensland for the underpayment of wages. In many cases, wages were underpaid over a considerable period of time; the record-keeping of the firms, the government and the businesses—the respondents—was lacklustre; and tracking down many of those plaintiffs was difficult indeed. They did all the normal things—the advertising, the discussion through community forums, the raising through advocacy groups and Aboriginal and Torres Strait Islander land corporations, and all the regular things that you would do for an action such as this—but it was incredibly difficult to track down all of the people who had a legitimate cause of action through underpayment of wages. It was an incredibly expensive operation to go through for those taking the action, funding it and supporting it. I don't think any member in this place could argue that it wasn't a just cause. Aboriginal and Torres Strait Islanders working in the services industry, working in the pastoral industry, working under conditions which may often be described today as akin to slave labour—nobody in this place, whether you represent a political party or not, would argue this is not a just cause. The capacity to ensure that each and every one of those persons has access to justice and the rewards which flow through that is a good thing. Often these matters are dealt with on a pro bono basis if the action is unsuccessful, but the costs can be considerable.
Under the provision that is before the House today, under the 30 per cent cap rule, that action simply would not have proceeded. It was done on the basis of a litigation funding arrangement but it would not have proceeded, because, due to the risks involved in commencing such an action, nobody would have funded it. A bank wouldn't have funded it. A litigation firm wouldn't have funded it. A litigation funding firm wouldn't have funded it. Nobody would have funded it, because nobody could have quantified at the beginning of the action whether or not the cost would accrue to more than 30 per cent of the potential award. They just wouldn't have done it. And the consequence of that is something that we look back on now as an incredibly just cause and incredibly just action. We can all be proud of the fact that our legal system facilitates the bringing of such actions and redress for intergenerational inequality and injustice. We can all rejoice in the fact that our legal system currently has the processes in place which enabled this to occur. It does not stand alone. I have in mind an action that was commenced against the Morrison government's shameful and illegal robodebt scheme. The action was made up of 430,000 members. The effect of this bill would have required each and every one of them to be identified and to physically opt in to the class action to benefit from the $1.7 billion the Morrison government has paid in restitution.
I want to say something in particular to members of this place who represent regional, rural and remote constituents. These are the constituents who have the most to lose. These are the people who will, quite simply, be beyond the reach and the capacity of lawyers. Let's face it: the plaintiff law firms and the defence law firms will largely be based in large cities or large regional centres, and the costs involved in reaching out to clients and potential plaintiffs who would legitimately form part of a class action in remote and regional areas will be too prohibitive for those matters to be brought on. Members of regional and rural electorates, members who represent the interests of the poor and the under-trodden in regional and rural electorates, should take note of this bill. It will disadvantage the people that they come to this place to represent.
There is a modicum of self-interest in the bill before the House. I have used the robodebt scandal as an example. The government has an immediate and direct pecuniary interest in ensuring that its wrongdoings do not seek redress, or, to the extent they have redress, that it is limited. In essence, the Prime Minister ripped off 430,000 Australians. They took him to court. They won; he lost. And he is now trying to convince us that this bill is about protecting the interests of those 430,000 people to whom the courts just made him pay $1.7 billion because of an illegal scheme he designed when he was the minister responsible. Colour me suspicious, but that's just the way he operates. This is a mean and tricky Prime Minister leading a mean and tricky government. Not everyone in the government—I'm sure there are well-meaning people, including yourself, Mr Speaker, and the minister at the bar table, who are in essence good people. But, if the minister has convinced you that this bill does what its label says it's going to do, he has done to you what he has done to so many other Australians—that is, he has misled you. And the Prime Minister has backed him up, because that's the way the Prime Minister rolls. Look at the detail: it does not do what the label says it's going to do. It actually disadvantages ordinary Australians, particularly ordinary Australians who live in regional and rural and remote Australia.
I have mentioned the robodebt action. Each and every one of those involved has been the recipient of a government payment. Each and every one of them has been, or was, living on a very low income. These are the people who this bill is designed to disadvantage, many of whom not only would have been in remote communities but would have come from linguistically diverse or disadvantaged communities. Their capacity to get the sort of advice necessary to sign up to such a scheme which the government contemplates is simply nonexistent. Clearly reaching all of those 430,000 people from that spread of living circumstances to obtain their written opt-in consent would have been inefficient, unworkable and, most of all, unjust, and that's exactly what the Prime Minister intends.
Let's be clear: this is not an unintended consequence. It's not an unintended consequence; it's a design feature. This is precisely what the Prime Minister intends with this legislation. Open class actions benefit defendants too. It's in their interest to defend a claim as a simple job lot. The alternative is—and let's be very clear about this—that they face a claim by one group of plaintiffs; they settle it, perhaps in court, perhaps out of court or perhaps a combination of both in the shadow of the court, as is often the case. As a former litigant myself, I know a hell of a lot of stuff gets dealt with in the minutes before the first mention comes on. But, if this matter is brought forward, a defendant in one of these big litigations now faces the prospect that they'll be doing that time and time and time again. As each group of individual plaintiffs brings their separate claim, it's going to cost defendants more as well. It's as simple as that. It will cost defendants more because the open versus the closed action is just a more expensive way of doing it—a point that the defendant law firms made in the ever-abridged inquiry.
It is conceivable, if not likely, that under this system defendants will face near identical litigation multiple times over the same single tortious or negligent event. And we've got to ask ourselves: How is this in the interests of the efficient administration of justice? Is it the most efficient use of precious court time and judicial resources? Clearly, in many respects, it's going to be a windfall for both defendant law firms and plaintiff law firms. But it's not the most efficient way to get around business, and we know that. And I suspect the government knows that too.
There's speculation around this place, and I can't confirm it—I certainly don't have the knowledge available; perhaps the minister will respond to these second reading remarks and be able to answer this question—but it has been said that this bill comes before the House arising out of a deal with the One Nation political party. It's been said that it didn't arise out of the Attorney-General's Department and it certainly didn't arise out of the Treasury; it arose out of an agreement between the One Nation political party and the government. God knows what the price of it was. But we do know what the cost will be to plaintiffs, and we do know what the cost will be to the judicial system.
So I'd invite the minister representing the minister, when he comes back into the House, to make this clear: what's the deal they've done with One Nation? No sensible person—nobody who's thought about this for more than 30 seconds—would bring such a bill before the House, so what is the deal that they've done with One Nation? I'd encourage government speakers and other speakers in this debate to be cautious about the comments they make, because so often the deals that are made with that particular political party melt and fall apart quicker than an ice cream in the midday sun. So I'd be cautious about making brave statements in the debate about the virtue or otherwise of this particular piece of legislation, because you don't know the deal that underpins it. The one thing that we can be certain of is that it will be pretty dirty, pretty dodgy and something you don't want to put your name to. We know that it's going to disadvantage people in rural and regional Australia, we know that it's going to clog up and be a burden to our judicial system, we know that it's going to disadvantage plaintiffs and we know that it's going to cost defendants more. So, against that background, it beggars belief that somebody would want to speak in favour of the bill, and it is even more astonishing that somebody would want to vote in favour of the bill.
So we encourage the government to withdraw the matter. We encourage government members of goodwill—and there are many of them—and all of the members of the crossbench to think about this: it disadvantages members in remote, rural and regional Australia; it will exclude from justice people who would otherwise have had access to justice; it will cost defendants more; it will clog up our judicial system; and it will lead to the most inefficient way of bringing a matter before the courts and adjudicating a matter. Why on God's earth is this government insisting on this bill when there is so much other important business that should be before the House?
With those very brief comments, I formally move:
That all words after "That" be omitted with a view to substituting the following words:
"the House declines to give this bill a second reading and calls on the Government to stop its ongoing attempts to prevent Australian consumers and businesses from being able to access justice through class actions".
I thank the member for mercifully ending his speech with brief comments. I normally enjoy listening to the member for Whitlam speak, and there were a couple of matters which I agreed with him on in his speech—namely, that there is a role to play for class actions in the Australian judicial system and that there is a role for litigation funders. But that's where the agreement between the two of us would end. Mercifully, he finished his speech with eight minutes left on the clock.
I am happy to speak to the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021, because this bill is designed to ensure that ordinary Australians who seek justice through class actions receive a fair and reasonable proportion of the proceeds of successful class actions supported by a litigation funder. Contrary to some statements, including that made by the previous speaker, this government is not anti class actions, nor is it anti litigation funding. This government recognises that class actions have a vital role to play in our legal system. In some cases, they are the ideal vehicle through which a group of people impacted by the actions or decisions of others can seek recompense. The use of a class action in appropriate circumstances helps both plaintiffs and defendants, as well as the court system in its entirety. When working properly, class actions can facilitate access to justice, discourage wrongdoing and promote the efficient and effective use of court resources.
It's worth noting that the federal class action regime has been in place for almost three decades. In the 25 years from 1992 to 2017, 500 class actions were filed in Australia, and there is no disputing that there are many people who, through those 500 class actions, received access to justice that they wouldn't otherwise have got. Likewise, the litigation-funding mechanism may, in some instances, be the only way that plaintiffs can take their matters to court.
Litigation funding provides a way for representative plaintiffs and class members to meet the costs of litigation. These costs include their own legal costs and, in the event of an unsuccessful outcome, the defendant's legal costs. When litigation funders pay lawyer fees and indemnify representative plaintiffs for adverse costs, it significantly changes the viability of class actions under Australia's loser-pays approach to civil litigation. Litigation funders also potentially close the considerable gap in financial resources between the two sides of the class action, reducing the defendant's ability to defeat the case through superior economic power.
Litigation funding has become more common in recent years. The Australian Law Reform Commission found that litigation funding in class actions has increased significantly since 2008. Between 2008 and 2012, 40 per cent of finalised Federal Court class actions were third-party funded. In 2017 and 2018, 77 per cent of finalised Federal Court class actions were third-party funded.
What concerns this government—and there's no major conspiracy—and what underpins this bill is that there have been numerous documented occasions in the press and in court transcripts in which the current class action litigation funding system has not worked in the interests of justice, where it has not resulted in fair and equitable outcomes. In short, there have been numerous occasions on which the returns made by litigation funders have been disproportionate to the costs they have incurred and the risks they have undertaken in the relevant proceedings. This is not spin. This is not hyperbole. In 2019, the Australian Law Reform Commission found that, when litigation funders were involved in a class action, the median return to plaintiffs was just 51 per cent. Conversely, when a funder was not involved, the median return was 85 per cent. That is a 34 per cent difference.
Last year, the Parliamentary Joint Committee on Corporations and Financial Services, of which I was a member at the time, undertook a review into class actions and litigation funding. While there were a variety of views and opinions expressed through the course of that inquiry, there was virtually unanimous agreement from all submitters and witnesses that the current regulatory arrangements for litigation funders are too light-touch and greater oversight of the industry is required. The only debate was about the nature and extent of that regulation.
I would also state that at the time of undertaking this inquiry the exact number of litigation funders operating in Australia was unknown and impossible to pin down with any precision. The Association of Litigation Funders of Australia submitted that there was no research and no specific evidence with respect to that number. In 2018, the Australian Law Reform Commission indicated that approximately 25 litigation funders operated in Australia and 33 funders operated in either the UK or Australia or both jurisdictions. This number, 33, was the number that the association estimated were operating in Australia.
However, it's very difficult to ascertain the number of foreign litigation funders operating in Australia. Data collected by the Parliamentary Library for the committee's review last year indicated that, as at 18 June 2020, 22 litigation funding companies were known to be operating in Australia—14 were foreign owned or based overseas, six were Australian owned or based in Australia and the information of two funders was unknown. Given the significant role that litigation funders play in the class action process, the fact that there was no clarity at all and no way of knowing exactly how many litigation funders were operating was something that I found extraordinary through the course of that proceeding. It highlighted to me and to the other committee members the lack of a sufficiently robust regulatory environment.
As noted above, the inquiry of the committee concluded that the scale of litigation funding, the growth in the scale of litigation funding, the participation of international litigation funders in the Australian market and the frequency of disproportionate and sometimes windfall-level profits highlighted the need to make regulatory improvements to ensure that representative plaintiffs, class members and defendants are achieving reasonable, proportionate and fair outcomes.
The committee presented its report on 21 December 2020, making 31 recommendations. This bill is actually putting in place changes responding to seven of the committee's recommendations. Perhaps the most controversial of the changes being put in place by this bill, and one to which the previous member referred, is that which responds to recommendation 20 of the committee's report. The committee made a recommendation to the government to consult on the best way to guarantee a statutory minimum return of the gross profits of a class action and whether a minimum gross return of 70 per cent to class members, as endorsed by some class action law firms and litigation funders through the course of our hearing, is the most appropriate floor. The government acted on this recommendation and, on 1 June this year, the Treasurer and the Attorney-General released a consultation paper seeking expert views on potential design elements of a guaranteed minimum rate of return to class members. Twenty three submissions were received. In response to these submissions, the government released the exposure draft legislation on 31 September, and 21 submissions were received.
As a response to that consultation—not a week's consultation but two inquiries, the Law Reform Commission committee inquiry and two periods of consultation—the bill that the government is putting forward is legislating a requirement that a court approve or vary the proposed distribution of claim proceeds to ensure that members of a class action litigation funding scheme receive a fair and reasonable share. The bill is going to establish a rebuttable presumption that a distribution will not meet this statutory threshold if more than 30 per cent of the claim proceeds in total is to be paid or distributed to non-members of the scheme, such as to the funders or to the lawyers. So it is setting up a rebuttable presumption of a floor—70 per cent of the proceeds must go back to class-action members. This bill will also require the court to consider a number of factors, including the funder's commercial return compared to reasonable costs to the funder incurred for the proceedings.
It has been argued by some that putting in a floor or putting in this 30 per cent figure will somehow dissuade litigation funders and/or impede class actions. To that argument, I stress that this is what is known as a rebuttable presumption, meaning that it can be challenged by a litigation funder and a court does have the opportunity to vary it if the circumstances justify it.
It needs to be noted in this context—sometimes forgotten by those advocating otherwise—that it is the litigation funders who hold the position of power vis-a-vis class-action members, and it is right that they, with their superior resources, should have to justify the additional costs and returns that they seek. A class action funded by a third party litigation funder is a complex scheme which is beyond the experience, if not the understanding, of most group members. Many of the members are not legally or financially sophisticated, and they may be vulnerable depending on the subject of the class action. And let's remember that litigation funders do not do this out of the goodness of their heart; they do it for a return. And, of course—no complaints here—they want to maximise their returns. What this bill is saying is: 'Fine. You can do that. You can seek profit. You can seek to maximise your returns. But if you are going to take more than 30 per cent of any payout for your own costs and profit, then you will have to justify it.' There is nothing outrageous in that.
Further, the argument that having this floor will dissuade litigation funders from perhaps endorsing or following up with supporting some claims also goes against the evidence we received throughout our committee hearings. We heard in those committee hearings that litigation funders already take a very robust risk profile to analysing whether they are going to support a particular class action. One funder admitted that 98 per cent of their cases are successful. To me, that indicates that they are pretty good judges of what they're going to fund, and what they're not going to fund, right at the outset.
In support of the overriding goal of ensuring that members of a class action litigation funding scheme receive a fair and reasonable share, this bill further provides assistance to courts in navigating the complexities of legal costs and funder commissions by ensuring courts consider the reports of independent experts in the representations of people known as contradictors representing the interests of scheme members when appointed. This bill provides that the cost of these experts are borne by funders unless the court determines otherwise. There are other elements of this bill—and I'm sure my colleagues will get up and address a number of the other elements here—but the only other element that I want to pick up on is that this bill also seeks to implement a consistent approach to class actions across all jurisdictions, maximising protection for class members throughout Australia. This avoids the risk of forum-shopping, which is very real, by funders filing in courts which do not have the same level of protection for class members.
By way of conclusion: there is a lot of spin and rhetoric. There will be spin and rhetoric from all sides of the argument here. We heard it through our committee hearings. We heard various parties throwing allegations that litigation funders rip people off, and then you get the other side saying that this side of the parliament was trying to shut down class action law firms and somehow harm rural and regional people, neither of which are true. The truth is that we need our legal system to deliver justice. Class actions and litigation funding have a role in there, but litigation funding needs to be regulated. It's not sufficiently regulated at the moment. It's fine for litigation funders to go out and seek to make profits—that's absolutely acceptable—but we've got to make sure that those profits, those returns that they are making, do not come to the harm of the plaintiffs, all those 430,000 people who are making a claim against the government for this or are making a claim for product liability against another company.
We want to ensure that those people who are the members of the class who might suddenly find themselves signing a complex litigation funding agreement, all the details of which they might not necessarily understand, are given adequate protection. This bill is designed to do that. It's to back in our justice system. It's to ensure that people who are taking class actions are protected. On that basis, I am a friend of this bill. Even though the member for Whitlam said there'd be no members for it, I am a friend of this bill.
The effect of the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 is to make class actions beyond the reach of many Australians and therefore make access to justice beyond their reach as well. It's clear that this bill is primarily aimed at making class actions more difficult for plaintiffs and protecting the interests of wealthy and powerful defendants. It's part of a continued pattern of hostility on the part of this government to the ability of individuals to access justice through class action lawsuits.
This bill is supposed to protect the interests of plaintiffs in class actions by setting limits on litigation funding schemes. The intention is to do this, firstly, by providing that the court must approve or vary the distribution of claimed proceeds as fair and reasonable and, secondly, by imposing a rebuttable presumption that a proposed distribution will not be fair and reasonable if less than 70 per cent of the proceeds go to the plaintiffs.
The bill was subject to a short inquiry through the Parliamentary Joint Committee on Corporations and Financial Services, but it was rushed and it wasn't adequate consideration of the details and the effects of this proposed law. Firstly, members of the public were given less than one week to review an exposure draft of this complex legislation and make submissions to the Treasury. Secondly, after ignoring most of the feedback Treasury received from those submitters, the government introduced the bill into parliament on 27 October and gave this government-controlled committee three weeks to conduct its inquiry.
The committee gave members of the public only seven days to make submissions, citing the three-week time frame for the inquiry as the reason. The government controlled committee held one public hearing, on 12 November, and gave witnesses less than two business days to respond to questions on notice. Throughout the inquiry process the majority of submitters, including lawyers who specialise in representing plaintiffs and defendants in class actions, made it clear that the bill could jeopardise the interests of both class action plaintiffs and defendants. It would do this by discouraging plaintiffs and defendants from settling disputes, thus delaying the resolution of a particular court action and making class actions more expensive. It will also promote uncertainty around the availability of common funds orders. By requiring class action members to agree in writing to be members of a funded class action, the proposed approach would lead to increases in closed actions, potentially increasing the number of multiple class actions for any given event. It's for these reasons that Labor is strongly opposed to this bill.
I have been involved in financial services for many, many years now, particularly when I started in the parliament, through the Trio Capital collapse and the inquiry that was undertaken into that particular financial scandal. The Parliamentary Joint Committee on Corporations and Financial Services inquiry heard some harrowing evidence from victims of financial fraud and misconduct, people who were encouraged to spend their life savings in particular managed investment schemes and, not only that, were encouraged to mortgage their homes that they had paid off already to buy further shares into these managed investment schemes, after people had retired—absolutely crazy financial advice that was given to working people—and, when the scheme collapsed, they lost the lot. Not only did they lose their life savings and their house; they also squandered their kids' inheritance.
There were criminal prosecutions that came from the collapse of Trio Capital. I think one person went to jail. A number of people were disqualified and a number were suspended from providing financial advice and auditing. But there are many people who, because they had invested through a self-managed super fund and therefore were not in a regulated superannuation scheme, lost the opportunity to make a claim against the scheme that the government has set up to ensure that people who are the victims of financial fraud through the regulated superannuation system can recover in circumstances where there is misconduct and fraud, as there was in Trio Capital.
Many of those people were in self-managed super funds—they weren't in the regulated superannuation industry—and they lost the lot. Sending someone to jail doesn't help them, when they lost their life savings. They can't access the regulated compensation scheme because they are not part of a regulated superannuation fund. They were the ones who were, if you like, swimming outside the flags—and they lost the lot. Why would you want to make it harder for people like that to be involved in a class action, when that's all that they have left? That is all they potentially have left to try and get some justice. When all of the other systems—ASIC, other regulators, what is now AFCA, but the preceding bodies that were set up to investigate financial fraud and look at complaints on behalf of applicants—couldn't give them justice, all that is left is the court system. But we know that the court system is quite expensive. And let's face it: taking a matter to the Federal Court around a financial fraud is not an easy thing to do. You need legal representation if you are going to be effective in recovery. The effect of this particular bill is to make it harder for those people to be involved in a class action—the only way people like that can get justice for the wrongdoings that are perpetrated on them, when all of the other government bodies that have been established to assist people in making complaints through this system have failed.
The point about Trio Capital was that there was no money left, so there was nothing for them to recover. Sure, you could have gone to AFCA and AFCA could have said, 'Yes, you've been wronged. It was fraud. There's a claim that you have'—but there was no-one there to pay it. There's no money for them to recover. That is why people like that need access to the justice system and need the protection of being able to be involved in class actions and to have access to litigation funders. There's no way in the world they would be able to fund and be involved in legal matters on their own. That is why this is particularly important.
I suspect that this government has an ideological bent, particularly against people who take matters to court associated with environmental issues and protection of the environment. It will be hardworking Australians who end up in situations of financial fraud and lose the lot who will be disadvantaged by this proposal and, once again, left in the lurch by this government. It won't affect big corporations or wealthy individuals, who'll be able to afford to take matters to court on a solo basis, who'll be able to pay expensive lawyers and barristers to do their work. It will be the poor Australian worker who doesn't have the financial means to support action in the court who will be disadvantaged by this proposal. That is why it is bad law. It removes access to justice for people who rely on class actions to get access to justice. In that respect this proposal is unfair; and in that respect it should be opposed by this parliament.
Before I begin my substantive remarks on this bill I want, once again, to express my complete and utter disgust at the Labor Party's ongoing game playing in this chamber, with moving second reading amendments which are designed for one reason and one reason only—to use them with OpenAustralia Foundation and theyvoteforyou.org.au, to misrepresent and—let's be clear about this—to lie about what members of this parliament have been doing in their voting. The fact that they would partner with such dubious characters as this lot says more about them than it will ever say about anyone on this side of the chamber.
I say to you, opposite: if this is the way you want to carry on; if this is the way you want to reduce Australia's democracy to the lowest common denominator, and below that; if this is the sewer you want to take Australian democracy into; don't think for a minute that Australians will not see through you and your behaviour. Don't think for a minute that they won't know that you called them extremists and neo-Nazis because they had the temerity to disagree with what Daniel Andrews wanted to do. That goes to the core of their objection to this bill. They say that they're in favour of justice. They can't even spell the word.
The fact of the matter is that what they are doing is standing up for a group of people who have been making 500, 600, 700 per cent returns on equity and capital invested. It's not because they invested in a buy-now pay-later company, or Afterpay, or Atlassian, or they picked Microsoft or Amazon at the nadir and helped create value that helped millions of people around the world. No, they're making their money off the suffering and misery of their fellow Australians. They're hiding it in offshore tax havens.
It always amazes me that there are some journalists who can't help but say: 'You know, BHP, they don't play their fair share of tax. Rio Tinto, they don't do not pay their fair share of tax. Atlassian, they don't pay their fair share of tax.' But they don't mind covering up the fact that Maurice Blackburn has a litigation funder that operates out of Singapore, is incorporated in Ireland, operates a trust in the Netherlands and has an accountant and lawyer based in London. As the tax commissioner said, 'Well, that's like the triple bogey, isn't it?' That ticks all the boxes for tax evasion. They just left out Cyprus along the way. The bank account in Cyprus, that's what they left out.' But those same journalists so concerned about publicly listed companies that paid billions of dollars in tax in Australia have nothing to say about Maurice Blackburn. They'll have nothing to say about the indefensible defence and support that the Labor Party is providing to these shonks. They'll have nothing to say.
Maybe it's got something to do with the fact that on the day that Jill Hennessy, the Victorian Attorney-General—or the then Victorian Labor Attorney-General—announced contingency fees, delivering a multimillion-dollar bonanza to these vultures of justice, she met with directors of Maurice Blackburn, according to her diary that she released, the very same day. Imagine: 'A coincidence, I tell you! Deirdre, imagine finding you here!' Clearly the meeting went very well because that very same day the directors clearly went back from the meeting with Jill Hennessy and decided to donate $100,000 to the Labor Party—mind you, not to the state Labor Party but to the federal Labor Party. That's a distinction that I'm sure most Australians understand is very important.
On that very day that the Victorian Government delivers a multimillion-dollar bonanza to these bottom feeders who make money off the suffering and misery of their fellow Australians, they turn around after a meeting with the Attorney-General and give the Labor Party $100,000. I just ask you, Deputy Speaker—there's no doubt you've heard about this story because it's been on the front page of the Sydney Morning Herald. If BHP, Rio Tinto, Atlassian, et cetera, had done something similar with this government, you wouldn't stop reading about it. There's not been a single story. Not once.
Why is the Australian media so afraid to tell the truth? They don't even have to make it up. It's all there in the public record. What are they so afraid of? We know what the Labor Party is afraid of. We know why they won't stand up for ordinary Australians. We know why they won't stand up for the hardworking men and women of this nation. It's because they are shills. They are fully captured shills of litigation funders, industry super and litigation lawyers. They don't represent organised labour anymore; they just represent organised capital. So they can come in here and they can accuse us of somehow trying to stop people from getting access to justice.
But I noticed one thing they haven't done. They haven't critiqued at any point the amount of money that litigation lawyers charge their clients. If they were so concerned about people having access to justice, you'd think that they'd be critiquing the $3 million or $4 million the partners at Slater and Gordon or Maurice Blackburn take home every year—and that, by the way, is after their donations to the Labor Party. You'd think they'd be more concerned about the 500 or 600 per cent that these litigation funders get in return on invested capital when they send them off to tax havens in Singapore, Cyprus, Gibraltar, Ireland and the Netherlands. They should send all of us a postcard every time they go there. You'd think they'd be concerned about that, but not a single time have I heard a member of the Labor Party and all the people that they rely on ever once say, 'Hey, guys; do you think it's a good idea that we're charging people who are going through suffering and misery $300, $600, $800 or $900 an hour?' That's what they charge them an hour so they can take home $3 million or $4 million in their pay packets.
The member for Kingsford Smith talks eloquently about the Trio disaster, and he is right and proper to talk about that, but I notice he ignores the Banksia case. The Banksia case is an incredibly interesting case. It's interesting because, in the middle of this, one of the favoured justices of the Federal Court signed off on a payout to the law firm which he understood to be 350 per cent of their return on invested capital. He thought that was a reasonable return. If the Commonwealth Bank lent money or issued a credit card where the interest rate was 350 percent, those opposite would be coming in here and calling on those executives to be sent to jail. But apparently it is okay to get returns on invested capital of over 500, 600 and 700 per cent and funnel them through a tax haven, as long as you donate to the Labor Party.
In the Banksia case, fortunately—well, unfortunately for him, but fortunately for us—one of the lawyers died. Before he died he didn't have the good sense to lock his BlackBerry. It was at that point that one of the plaintiffs in the class action who had complained and been worried about some of the charges that had been coming through was able to gain access to his emails—not the emails he had handed up to the court but emails that were secretly being passed between the funder and the lawyer on Gmail. They talked about what rubes they were representing, how no-one would notice how much money they were taking from them and how they could just put more and more charges through to ensure that they kept more of the payout. These are the types of people that the Labor Party are seeking to support.
The justice that oversaw that case has now literally banned four of some of Victoria's most prominent lawyers. If there is a justice system that needs a royal commission, it must be the Victorian justice system. It turns out that the QC who was involved in that case was the same QC that ASIC had been using to get corporate and legal advice from externally when they made decisions on these matters. That's the other big thing. The member for Curtin said, 'We on the committee were all shocked to find that the regulation was so light touch.' I think the member for Curtin, in one of the only examples I can think of, is guilty of understatement. It wasn't shock. It wasn't light touch. There were no regulations.
Up until September of last year—and those opposite tried to have this regulation, once again, disallowed—there were literally no regulations covering off the litigation funding sector in this country—none. The reason there were none is that the member opposite, when he was the Treasurer in the dying days of the Rudd government, moved an amendment to the Corporations Act to ensure that they were in fact exempt from it. Can you imagine if the Australian financial planners association donated $100,000 to the Liberal Party and then we came into this place and the Treasurer moved a piece of law and regulation through this chamber on that day that exempted them from the Corporations Act? Can you imagine what Australians would think of us? But, fortunately for those opposite, they don't have very much to worry about, because no-one in the media seems that concerned about it.
It could be that Michael West gave the game away when Senator Paterson asked him: 'We have all this evidence in front of us, Mr West, showing that all of these litigation funders are based overseas in what appear to be tax havens, but you don't seem very interested. In all of the work you do for Greenpeace, the Greens, the Labor Party and others, you don't seem to want to investigate these tax-haven-dwelling litigation funders. Is there a reason for that?' To that, Michael West said: 'Oh, yes. I don't like criticising litigation funders and litigation lawyers, because they provide me with a lot of good material that I can use in my column.' So there you have it. The ecosystem of injustice that is present at the moment in this country that is stacked against people who genuinely need justice from our justice system is so great, so manifest, it makes Mount Everest look like a molehill. I say to this parliament, I say to this chamber, the question before us is a very simple one: do you believe that the justice system should be about justice, or do you believe that it is about providing profit to offshore tax-haven-dwelling litigation funders who are already charging those people suffering loss, suffering pain, hundreds and hundreds of per cent of interest that they are demanding for their return on invested capital?
The other thing, of course, that litigation funders are doing that this bill seeks to change is that it is undermining the very precepts of how our justice system is meant to work, because a lawyer has an obligation to the court and to their client, but, because of litigation funders, their client is no longer the plaintiff, is no longer that class seeking justice. It is, in fact, the funder. We have seen the Banksia case. The decision on the Banksia case used the word 'egregious' 18 times. Deputy Speaker, I don't know if you know that much about common parlance amongst lawyers and judges, but the word 'egregious' is used rarely and judiciously. For it to be used 18 times in one judgement I suspect is a new record. To have four senior lawyers on the Victorian bar given lifetime bans is pretty serious. That is what our current regulations have ended up providing, and those opposite wish to defend these people, wish to allow this to continue, to keep going on while they move their silly and stupid second reading amendment speeches designed to— (Time expired)
r HILL () (): I'll finish with about five seconds of agreement with the previous speaker: that Banksia case was a disgrace. That was discussed in the hearing, was ventilated extensively, and what happened there was utterly unacceptable. As all the lawyers who presented said, it was also the only case that anyone can point to out of the hundreds of class action cases where that kind of conduct was found to occur. The court system did pick it up, and it underscores the role of contradictors and cost assessors that they can play. So, I will start with that.
Let's be clear: what the government wants the parliament to do today, in the last two weeks of this year, is to rush through a manifestly apparently unconstitutional bill to deny millions of Australians in the future their ability to sue big corporations and rich and powerful individuals. There are serious concerns that have been raised about the constitutionality, by the Law Council of Australia, by QCs who practise in this area and, indeed, by Justin Gleeson SC, the former Solicitor-General of the Commonwealth. One of the nation's leading constitutional lawyers has given advice publicly to the committee about the number of ways in which this bill is almost certainly unconstitutional. That means, in plain English, the parliament doesn't even have the power to pass these laws, yet the government, pig-headed, wants to rush them through in the last two weeks of parliament as a favour to their corporate mates. This is a dog of a bill. It would be difficult to overstate how truly bad it is, both in its aims to deny justice in the courts to everyday Australians, harmed in their ability to fight big corporations, and also in its execution; it's not even executed competently. I mean, they want to help their big corporate mates, but they can't even do it properly.
It's also appalling in its dishonesty in the spin from the government. The stated objective, which we agree with, is to protect the interests of plaintiffs—that's victims—in class actions. It's real objective is to protect the interests of powerful defendants by making it harder for people to bring class actions. What are class actions? In plain English, they're lawsuits where everyday Australians can come together to take on big corporations and powerful defendants who've done wrong. Think robodebt, where the government was found to have acted illegally. But this is a testament to the government's monumental incompetence that they've failed to achieve either objective, to help victims or to protect their mates. I'll quote from one of the submitters:
That the Government is seeking to present this reform as a consumer protection measure is Orwellian gaslighting.
Further highlighting the idiocy of this legislation is that it is opposed by leading class action defendant lawyers from Herbert Smith Freehills. So the people who represent the big end of town are saying this is bad law. Superficially it sounds nice: the government is professing concern to get more money out of the judgements to go to victims, instead of those nasty old lawyers charging too much and the greedy litigation funders about which we heard in the previous unhinged rants.
So what are litigation funders? We heard that they are bottom feeders and people who make money from human misery. They're private businesses that fund the cost of big lawsuits. That's what they do: they assess the risks and they offer to fund litigation. If the case is successful, they get a percentage return. If they lose, they pay all the legal costs, possibly the other side's costs, and victims pay nothing. That's what they do. The government pretends to be concerned that litigation funders take too much. In some instances, yes, but you've got two competing objectives. The policy question is: how do we maximise the return to victims and maximise access to justice while driving down legal costs and litigation costs and funding costs? You've got to try and do those together. The answer, clearly, is competition. That's what the ALRC has said. That's what every sensible expert has said. That's what the evidence and experience show. If you get competition, you drive down funding costs, and that's what we've seen in the last few years. New entrants come to Australia—they're all evil and overseas according to the previous speaker. They're businesses prepared to lend and take risks. They come to Australia, and we've seen the average cost of funding already decrease in the last few years from about 30 per cent down to close to 20 per cent. Competition is working.
What's the government's response? A rebuttable presumption is they say it will cap returns to litigation funders and lawyers at 30 per cent. The sting in that is that that includes the legal fees. It means that victims pursuing justice would have their legal fees effectively capped by the government. Victims couldn't hire the best QCs. They'd be down the road looking for cheaper lawyers like Dennis Denuto—although, poor Dennis Denuto did actually do a reasonable job in the movie. But big corporations would have no limit on the amount they could spend on their lawyers. They could have the top QCs. They could bleed the victims dry by playing games in the court, and that's exactly what would happen. That's what all the lawyers told us would happen. It's what any basic sense of economic principles tells you would happen, and it won't be a fair fight. The evidence we heard in the committee was absolutely clear: this 70-30 notional formula will drive up litigation costs. It will discourage plaintiffs from settling, providing perverse incentives for litigations to just roll on and on. It will make the law 'worse for everyone,' said John Emmerig QC, of the Law Council of Australia. It will raise the risks for funders. There would be fewer dollars around for many meritorious claims where people have been harmed, and the costs for all claims are likely to be higher. That's the evidence which the committee received all day, with a couple of exceptions.
With the new rules about sign ups—this is astounding—everyone admitted that there would be an increase in the number of lawsuits lodged because there would be multiple closed class actions, so the big companies that the government is trying to help would actually have them subjected to more lawsuits. That's why even the top end of town lawyers who help the big corporations have said this is a stupid idea. They cannot even help their mates properly—face palm emoji, if we could insert that into Hansard. So let's be clear: to deal with the costs, this government, the free marketeers over there, are choosing regulation, not competition—Soviet style price caps, as one of the submitters said. So much for market forces! The hypocrisy is astounding coming from this mob of free enterprise.
The rush process was also a clue. Even the Financial Reviewyou know, that left-wing socialist rag—published an article yesterday analysing the whole thing, saying that this is rushed and should not proceed. The members of the public were given one week—less than one week actually; it was four working days when you take out the public holiday across most of the country—to comment on the exposure draft. The government ignored the feedback and introduced the bill pretty much the same. The government controlled committee had three weeks. The public had seven days to put in their submissions. There was one public hearing, two business days to get back to us, and the only people who didn't get back to us were the government's own departments, who didn't meet the time lines. If only the government felt the same sense of urgency about—I don't know—responding to the banking royal commission or—
An honourable member interjecting—
Yes, the federal ICAC. Whatever happened to the corruption commission? Anyone? We still have no corruption commission. It's been over three years, 1,000 days. There's no urgency about that. Yet this bill to deny access to justice to millions of Australians is suddenly the most urgent thing on the agenda and we've got to shove it through before the election.
The inquiry showed the bill is a deeply flawed bill in every respect. The overwhelming evidence, even from the people who support some of the propositions, is that it's badly drafted. The report, frankly, is pathetic. To be fair, it's probably the best you can do in a few days; I feel for the secretariat! Labor members had less than 24 hours to respond to the report and deal with it on this most complex of issues.
The government struggled to find anyone to submit in support of the bill. The Australian Industry Group loyally turned up—I suppose they had to!—and said some stuff, but they couldn't really engage in the detail. The Business Council hadn't put in a submission when they appeared, and they couldn't engage in the detail. The poor AICD didn't put in a submission; they seemed almost embarrassed to be there. To their credit they put in a supplementary submission after the hearing reversing their position on some aspects, which was good.
The funniest moment, the moment of levity, was the Rule of Law Institute. They had no submission but they turned up; the government invited them. They had no ability to engage in the bill; it was kind of the vibe of the thing. The presenter had no expertise. He was unwilling or unable to engage in any substantive discussion. I asked whether I could join the Rule of Law Institute, because I like the rule of law, and they said, 'No, it's not a membership organisation.' They wouldn't tell us who funded it. But they love to write op-eds in right-wing newspapers. They were later accused of misstatements by other submitters who listened to their evidence. But the government, in their wisdom, are relying on their evidence in this report to back in this bill.
We also had Stuart Clark QC, who paraded himself around on paper as the former president of the Law Council and an adjunct professor at Macquarie University. He didn't turn up, which was a pity because we had some good questions for him like, 'Did you plagiarise your evidence?', because, mysteriously, the evidence he had put in was identical to the submission from the United States Chamber of Commerce on the exposure draft—just a Deidre Chambers style coincidence, no doubt! It was sad that he didn't appear, although last time he appeared I don't think he had a great experience; I think he had to register as an agent of foreign influence in the end, just to be prudent.
I want to make some very serious remarks on the constitutionality of the bill. There are serious doubts as to whether we can even pass this bill. Let that sink in. The former Solicitor-General of the Commonwealth gave compelling evidence that this bill is not constitutional. Justin Gleeson SC said there were serious concerns about whether the corporations power in the Constitution or the referral powers to the Commonwealth support the provisions we're now being asked to vote on, whether the provisions would amount to an inconsistency with state class action provisions so as to override them pursuant to section 109 of the Constitution, and whether there were potential issues arising in respect of overriding the power of state courts or directing state legislatures. Despite this, the explanatory memorandum from the geniuses over there, the government, doesn't mention constitutionality at all—not a word. We spent an hour or more grilling the Attorney-General's Department—nothing. They could not rebut one single proposition from the former Solicitor-General. Nothing—absolutely nothing.
I can't go into what we discussed at the committee, but let's just say that I'm confident there are members of the government who share these concerns and that this is not the end of the constitutionality question. As everyone from the legal profession said clearly, if this bill goes through it will tie up the profession in years of litigation in the High Court to pull this legislation to bits, because everyone knows large swathes of it are not constitutional.
This all sounds very esoteric, but in the real world it means that, if these laws are passed, numerous cases where victims in Australia have suffered harm and have a meritorious case will not proceed in the future. This is best illustrated by examples of recent cases that could not or would not have proceeded had these laws been in place. I will give you five. There is the Domino's Pizza case; a class action by delivery drivers and in-store workers about underpayment of their wages could not have proceeded under these laws. There is the stolen wages case for Indigenous Australians; the reason it couldn't have proceeded under this regime is that it's one of the most complex of cases. It's expensive to fight. You can't just go out to remote Aboriginal Australia and sign up defendants all over the country. You need the open class action system to get justice for vulnerable people. The big banks, like Westpac, allegedly overcharged their life insurance customers; that class action couldn't proceed under these rules. There is the case against the Commonwealth Department of Defence for contamination of Army land in Queensland. There is the robodebt case. There is a long list.
There is a lot to say on this, but I recommend the government's own report recommending a change to the bill. I don't think it can pass the House in its current form. They should withdraw the bill or at the very least send it to a Senate inquiry.
In rising to speak on the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021, I acknowledge the member for Bruce and his innate talent for theatre and spin on the other side of the chamber. On 28 October 2021 the House referred an inquiry into the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 to the Parliamentary Joint Committee on Corporations and Financial Services, or PJCCFS.
A bit of background on this bill is that class actions enable a representative plaintiff to bring a claim on behalf of a larger group or class. These claims are often complex and costly, and a representative plaintiff may not have the financial resources to fund the action and may be exposed to liability in the event of an adverse finding. Third-party litigation funding schemes can enable inaction by paying the costs of litigation and indemnifying the plaintiff in exchange for a share of any proceeds if the litigation is successful. Litigation funding can therefore play an important role in promoting access to justice by enabling class actions and reducing the risk that plaintiffs face from unsuccessful litigation.
Australia operates an open-class action law, whereby potential claimants are bound by the judgement of the court unless they opt out of the action. Affected individuals may therefore benefit from a successful action or avoid costs from an unsuccessful action, even though they did not sign up to a scheme or contribute to the cost of running that action. Under an open-class action model, individuals who did not opt to join an action, and therefore also did not incur the risks or costs of the representative plaintiff, may still receive a share of any settlement in a successful action. This is the free rider problem.
Courts have used common fund orders, or CFOs, to address the free rider problem and limit windfall profits to funders. CFOs have often been made before trial and require all class members to contribute an equal proportion of their share of the settlement to the litigation funder, whether or not they signed on to the action. CFOs encourage open-class actions and promote certainty and finality for defendants. However, the legislative basis for CFOs remains unclear, leading to uncertainty, procedural contests, delays and increased costs. CFOs may also promote speculative actions that are backed by funders without adequate investigation and may run counter to common law doctrine with regard to informed consent.
Courts have also used funding equalisation orders, FEOs, to address the free rider problem and the issue of disproportionate returns to funders. FEOs require non-scheme members to contribute to the cost of an action borne by scheme members out of any settled funds. Such orders are designed to ensure that all group members contribute equally to the cost of running a class action from which they benefit. In contrast to many CFOs, FEOs are made at the conclusion of a proceeding—meaning that they account for the actual costs incurred during an action rather than expected costs.
This bill amends chapter 5C of the Corporations Act to implement the government's response to recommendations 7, 11, 12, 13, 16, 18 and 20 of the PJCCFS report. The amendments establish a new kind of managed investment scheme, a class action litigation funding scheme, and introduce additional requirements for the constitutions of managed investment schemes that are class action litigation funding schemes. The measure ensures that returns to litigation funders out of the claim proceeds of a scheme are fair and reasonable.
This bill partially implements the government's response to the PJCCFS report and the Australian Law Reform Commission report. I will start to outline the main points, as we go forward. This bill gives rise to a range of regulatory impacts on businesses, as set out in the PJCCFS and the ALRC reports. Those reports have been certified as independent reviews which involved a process and analysis equivalent to a regulatory impact statement. To address the gap in analysis between the reports, inquiries and the government's consideration of options for class action litigation funding reform, supplementary analysis on the costs, benefits and risks associated with the new measures was prepared consistent with the Australian Government Guide to Regulatory Impact Analysis. A number of key impacts were identified in that report: