Litigation funders in the UK will be nervously eyeing developments in Australia, where the government places limits on returns from class actions.
The jurisdiction is already one of few in the world to have imposed regulation on the sector, with most businesses involved in a litigation funding scheme required to have a licence.
The federal government today published a consultation on draft legislation to restrict returns to no more than 30% of the gross proceeds of a class action litigation.
Attorney general Michaelia Cash pledged the reforms will ‘promote a fair and reasonable distribution’ of damages from group litigation.
She said: ‘Courts would be empowered to approve or vary the share of proceeds to which members of the scheme are entitled to ensure the distribution is fair and reasonable. In making this determination, courts would be supported by independent experts at the funder’s expense.’
The legislation would establish a presumption that any return to the claimants of less than 70% is not fair and reasonable. Claimants would also have to consent to becoming members of a class action litigation funding scheme before funders could impose their fees or commission on them.
‘This consultation reflects the government’s continued commitment to ensuring successful class action plaintiffs are adequately compensated as well as preventing litigation funders and law firms from taking disproportionate fees in the process,’ added Cash.
Litigation funders in the UK have successfully rebutted any attempts to limit their returns or impose regulation, despite this source of finance becoming much more common in recent years and creating an estimated £2bn market. A growing number of firms have entered direct agreements with funders to back their litigation.
Supporters of the sector say financial investment from litigation funders can ensure important cases are allowed to run, including the recent quashing of wrongful convictions of dozens of sub-postmasters, whose appeal was backed by the funder Therium.
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