Class action reform update: ALRC releases discussion paper

The Australian Law Reform Commission (ALRC) has released its much-awaited discussion paper as part of its inquiry into class actions and litigation funding. A copy of the document is available here.

The discussion paper contains a suite of proposed changes to the class action regime and invites public comment by industry participants by 30 June 2018.

In April 2018, the ALRC provided a preview of the reforms it was contemplating proposing. In addition to the proposed reforms that were foreshadowed at the time, the discussion paper has suggested further proposals for reform. The key proposals are summarised below.

A review into the operation of continuous disclosure and misleading and deceptive conduct laws and their applicability to class actions

The ALRC has observed that shareholder class actions have caused "unintended adverse consequences" to listed entities, their shareholders, and their insurers. The paper notes that the D&O premium pool is "thoroughly inadequate" to meet the expected losses arising from shareholder class actions and that premiums have increased by more than 200% in the last 12 to 18 months.

Responding to these concerns, the ALRC proposes that the federal government commission a review of the legal and economic impact of the statutory provisions that underpin shareholder class actions. This review would specifically consider:

• the value of the investments of shareholders of the corporate entity at the time when that entity is the target of the class action; and
• the availability and cost of D&O liability cover in the Australian market.

An end to competing class actions

As foreshadowed in April, the ALRC has proposed that the Federal Court of Australia Act 1976 (Cth) is amended to require that, in the event of competing class actions, the Court must, at an early stage, determine which proceeding should progress and to stay the other class actions.

The ALRC has proposed that:

• at the first case management conference of a class action, the Court would set down a deadline for any competing class actions to be filed; and
• if a competing class action is filed in that window, the Court would then hold a "selection hearing" at which the Judge would determine which class action should proceed and approve any funding agreement and costs agreement on a common fund basis.

A statutory prohibition on competing class actions in most circumstances would be a welcome reform for defendants (and their insurers). It has been estimated that competing class actions can cause an increase of more than 30% in defence costs and result in significant delay in achieving a resolution. This accords with Lander & Rogers' experience.

Allowing plaintiff class action lawyers to charge contingency fees

The ALRC has proposed that plaintiff class action lawyers be given an exemption to the current laws that prohibit contingency fees, which would allow them to charge legal fees in the form of a percentage of any settlement or judgment sum.

The ALRC has suggested the following limitations to contingency fee arrangements:

• a class action where contingency fees are charged cannot also be funded by a litigation funder that is also charging on a contingent basis;
• a contingency fee cannot be recovered in addition to professional fees for legal services charged on a time-cost basis;
• under a contingency fee agreement, the lawyers must advance the cost of disbursements and indemnify the representative class member against an adverse costs order; and
• leave of the Court would be required to enter into a contingency fee arrangement.

The ALRC has sought comments from the public on what statutory caps should apply to a contingency fee arrangement, if any.

Other proposed reforms

In addition to the suggestions summarised above, the ALRC has proposed the following reforms:

• a requirement that third-party litigation funders obtain and maintain a ‘litigation funding licence’ to operate in Australia;
• conferring exclusive jurisdiction on the Federal Court of Australia for shareholder class action proceedings (to prevent forum shopping);
• a specialist accreditation program to be developed by the Law Council of Australia for lawyers in class actions law and practice, which would require ongoing education on practitioner duties, and identifying and managing conflicts of interest;
• the establishment of a federal collective redress scheme that would enable corporations to provide appropriate redress to those who may be entitled to a remedy because of that corporation's conduct.

Next steps

The ALRC has invited public submissions regarding the proposals contained in the discussion paper by 30 June 2018. Following receipt of submissions, the ALRC will engage in consultations with interested bodies prior to making its formal report to the Attorney General by 21 December 2018.

Lander & Rogers is continuing to consider the Discussion Paper, with a view to having a follow-up meeting with the ALRC, and welcomes feedback from our clients on matters that they wish to comment on.