SHAREHOLDER CLASS ACTIONS REMAIN IN THE SPOTLIGHT DESPITE RESISTANCE FROM INDUSTRY LEADERS; ACADEMICS; LAW FIRMS; AND INDUSTRY BODIES.
The Parliamentary Joint Inquiry on Litigation Funding and Regulation of the Class Action Industry, Enquiry by Parliamentary Joint Committee on Corporations & Financial Services has been inundated with submissions from:
- the Australian Competition and Consumer Commission (ACCC);
- the Australian Law Reform Commission (ALRC);
- the Australian Securities and Investment Commission (ASIC);
- leading academics; and
- plaintiff class action firms and solicitors,
all of which gave Australia’s class action regime a “clean bill of health”, recognising the importance of class actions in providing redress for consumers and businesses that are otherwise unable to obtain compensation for harm caused by breaches of the competition or consumer laws.
Despite the increase in submissions, in May 2020 the Parliamentary Joint Committee on Corporations and Financial Services launched an inquiry into Litigation Funding and the regulation of the class action industry.
- Under the changes, litigation funders will now be required to hold an Australian Financial Services Licence, strengthening scrutiny from the corporate watchdog, the Australian Securities and Investments Commission.
- Corporate litigation backers will also have to comply with Australia's managed investment scheme rules.
- The Australian Institute of Company Directors has called for tougher licensing of litigation funders, hitting out at opportunistic legal claims and a light-touch regulatory environment. It argues lax rules for class action funding have helped drive a "risk averse" culture at the top levels of corporate Australia.
In addition to the above licensing requirements, their inquiry appears directed towards the interests of the Business Council of Australia.
- “It would represent an entirely false economy and result in profound injustice if Parliament sought to legislate to restrict or the executive to regulate, access to Litigation Funding in a way that stymied public, including consumer access, to the agitation and vindication of legal claims through the courts.” – Stewart A. Levitt.
This contention is supported by the Government’s disregard for the following ALRC Recommendations:
- Recommendation 23: The Australian Government should review the enforcement tools available to regulators of products and services used by consumers and small businesses (including financial and credit products and services), to provide for a consistent framework of regulatory redress. The large corporations deriving substantial profits in the financial services sector must also be held to account for civil and criminal breaches of the law.
- Recommendation 8.75: Combination of law reform and civil litigation (both collective redress and ADR through industry bodies and ombudsmen) is the most effective.
The Treasurer should be looking to treat the underlying condition, not simply mask the symptoms.
Stewart A. Levitt comments on the effect of law reform,
- “Law reform would be better served by lifting standards in the corporate and banking sector, so that they are less vulnerable to suit.”
- “Probity in business is the best defence. A cooperative and constructive attitude to commercial accountability will minimise litigation risk.”
- “The suggestion that ASIC should be engaged in overseeing litigation funders rather than devoting more of its energies to addressing the wrongs which Class Action litigation has been intended to redress, appears to be a potential misallocation of resources…Law reform would be better served by lifting standards in the corporate and banking sector so that they are less vulnerable to suit.”
The Treasurer seems to ignore that the findings of the Hayne Royal Commission, which brought to light the “depredations of the banking and financial Services industry”, also led to the increase in Shareholder Class Actions.
- “The current enforcement settings in Australia have been shown to be deficient. The Banking Royal Commission has highlighted the need for systemic reform of law enforcement in the financial sector. There is no doubt that business as usual is not an option.”– ASIC Commissioner Shaun Hughes
- The large corporations deriving substantial profits in the financial services sector must also be held to account for civil and criminal breaches of the law. The obtaining of judgments and the imposition of penalties against companies reinforces the message that complying with the law is not a choice, but a legal obligation.” – ASIC Commissioner Shaun Hughes