Funder fees capped at 30% in draft Australian bill

The Australian government has released its exposure draft of new legislation relating to litigation funding and the regulation of the Australian class action industry.

Under the proposed bill, the payout of fees to litigation funders and lawyers involved in successful class actions will be capped at 30%. The bill also proposes to eliminate Common Fund Orders, which automatically bring all potential claimants under the umbrella of a class action.

The Association of Litigation Funders of Australia (ALFA) has already spoken out in opposition, arguing that the government should shelve the bill and start again. ALFA’s Chair, John Walker, said that while the government claimed the bill would increase returns to claimants its effect would be the opposite.

“The effect of this legislation will be to make many class actions unviable and therefore to limit the number of actions filed. That suits the business lobby but leaves consumers and retail shareholders defenceless in the face of corporate wrongdoing. It is easy to conclude that is actually the Government’s intention,” Mr. Walker said.

ALFA’s position is that if a cap on payouts is to be introduced, it should only be set by reference to net proceeds – that is, after the deduction of all litigation costs – rather than on the basis of gross returns. It should also not apply to wholesale or sophisticated claimants or in closed class actions commenced on behalf of people who have entered into funding agreements on an informed basis.

ALFA’s press release can be found here.