Third party litigation funding (TPLF) has been running rampant across the globe for more than a decade. But in the last few years, policymakers around the world have started to scrutinize this practice that allows hedge funds and financiers to fuel litigation in exchange for a piece of the settlement or judgment.
Over the past few years, some states in the U.S. have passed or considered laws requiring these funding arrangements to be made public. Now, a new report has Australian policymakers teed up to take bolder action. The report is a watershed moment for TPLF oversight, and even more important coming from Australia, where TPLF was born.
Earlier this week, the Parliamentary Joint Committee on Corporations and Financial Services issued a report on TPLF and its influence on the country’s growing class action industry. The comprehensive, 450+ page report found “unanimous agreement [among committee members that] the current regulatory arrangements are too light touch and greater oversight of the industry is required.”
The report, which was produced after a public investigation led by the Committee this summer, paints a rather damning picture of litigation funding. Australia “has become a global hotspot for international investors, including many based in tax havens and with dubious corporate histories” to invest in lawsuits. These funders sometimes reap “investment returns unheard of in any other jurisdiction – in some cases of more than 500 percent.”
This Committee also affirmed something we’ve long known: the “biggest losers” in this scheme are the class members seeking redress. The members see “significantly diminished compensation for their loss, as bigger and bigger cuts are awarded to generously paid lawyers and funders.”
Funders say this is about access to justice. But the evidence is clear: it’s about boosting their profits.
Action in Australia would signal a major shift in the litigation funding landscape. The Land Down Under is the birthplace of the practice, after all. Thankfully, the Committee’s report offers 31 recommendations to help rein in runaway litigation funding. These recommendations span critical topics, including:
- Compensation of class members, which are carved away by funders.
- Conflicts of interest between the direction of the lawsuit and those funding it.
- Government regulation of litigation funders.
- Reining in contingency fee litigation.
- Securities class action litigation, which the committee found to be “economically inefficient and not in the public interest.”
Regulators and lawmakers in Australia would be wise to heed the advice of the Committee’s report. The country has experienced major growth in the amount of class action litigation in recent years. This report offers a look under the hood of that growth and offers solutions to ensure a fair system for all involved, from class members to defendants.
But the lessons from this report could have far-reaching implications. TPLF is a global industry. Its tentacles have already gripped major actions in the U.S., and the fallout of one of its most notorious cases was felt in both South and North America. A recent decision from the UK Supreme Court could open the floodgates to questionable litigation there and create the perfect environment for litigation funders looking for paydays.
It will take a global effort to safeguard against a global problem. Thankfully, this report from Australia provides not just its own policymakers with a path forward to rein in TPLF, but the rest of the world’s as well.