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Law reform body considers regulation for third party litigation funders

June 4, 2018

The Australian Law Reform Commission (ALRC) has released a discussion paper querying whether the Commonwealth should regulate class action proceedings and third party litigation funders.

Premiums for Directors’ and Officers’ insurance have surged by 200% in the last 12 to 18 months as class action payouts have skyrocketed to $1.54 billion to June last year, according to a recent review of class actions in Australia by law firm King & Wood Mallesons (KWM).

Class action payouts were $112 million in 2003, it says.

The inquiry – initiated by the Attorney General – asks the ALRC to consider whether:

There is adequate regulation of conflicts of interest between third party litigation funders, lawyers and class members
Whether the costs of class actions are appropriate and proportionate
How plaintiffs and class members can be protected in the distribution of damages and settlements.
About 66% of class actions were supported by litigation funding in 2017/18, according to KWM.

Third party litigation funders are not bound by professional ethical obligations.

The discussion paper also asks if contingency fee arrangements should be introduced for lawyers acting in class actions, and whether it should be capped at 49.9% of the settlement sum.

A spokesman for the Insurance Council of Australia (ICA) told insuranceNEWS.com.au the ICA is reviewing the proposed reforms and is keen to support solutions that provide a more efficient, cost effective and fairer class action system for class members, respondents and insurers.

The ICA will be providing a submission to the ALRC in the near future, the spokesman says.

The ALRC will report to the government by December.

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