“Participants in class actions are the biggest losers in this deal,” the report said. “Courts and civil remedies were not established as novel investment vehicles to deliver handsome profits to innovative financiers or creative lawyers.”
The inquiry heard evidence supportive of class actions as a legitimate tool to “facilitate access to justice, discourage wrongdoing and promote the efficient and effective use of court resources” and found without litigation funders, this legal action might not be possible.
However, it also found there was “virtually unanimous agreement” that the current regulations were too “light touch” and greater oversight was needed.
It recommended the Federal Court be given greater interventionist powers to limit funds paid to litigation funders and threw support behind a proposal to make it compulsory that 70 per cent of proceeds are returned to class members.
Treasurer Josh Frydenberg introduced emergency legislation in May to relieve listed companies from obligations to inform the market of material information to fend off opportunistic shareholder class actions.
The committee dismissed shareholder class actions as “generally economically inefficient and not in the public interest” and called for the weakening of continuous disclosure obligations to be made permanent.
“Even successful actions amount to shareholders effectively suing themselves and in net terms being no better off,” the report said.
Mr Paterson acknowledged the recommendation to water down continuous disclosure obligations would be controversial although said the committee had sought to strike the right balance. “There were some calls to ban shareholder class actions altogether,” Mr Paterson said. “We didn’t decide to go down that road.”
Labor Senator Deb O’Neill labelled the proposal “very dangerous”.
“We know keeping big corporates honest is very difficult,” she said. “This is the Liberal National Party cosying up to those companies that don’t want to be held accountable for breaking the law.”
The committee’s 450-page report also made a number of recommendations to stamp out conflicts of interest – including a court-appointed advocate to represent the interests of class members, to reduce fees and challenge settlements.
It also recommended a standstill period of 90 days, so that competing lawyers for class actions can have time to conduct proper due diligence in an effort to curb the “rush to court” attitude of plaintiff firms.
The report was critical of Victoria’s decision to legalise contingency fee billing – legal fees calculated as a percentage of money recovered – claiming the benefits did not outweigh the potential for exploitation for lawyers’ profits.
“We’ve tried to get the balance right and keep it open but not the smorgasbord that it’s been,” Mr Paterson said.
Charlotte is a reporter for The Age.