Litigation Finance under review

1st February 2018

Two separate reviews are currently underway concerning the litigation funding industry in Australia.
The first of these was launched in January 2017, when the Victorian Government asked the Victorian Law Reform Commission (VLRC) to review litigation funding practices in Victoria and report on potential areas for reform and regulation.

The more recent inquiry was announced in December 2017 by the Federal Government, who have requested the Australian Law Reform Commission (“ALRC”) report back on very similar terms of reference to the VLRC review.

It is perhaps no coincidence that both of these inquiries have been commenced within 12 months of each other – as the litigation finance industry in Australia and abroad remains largely unregulated, and the acceptance and usage of funding is growing rapidly across the board.

Regulation of the industry has been under consideration for some time at the federal level. In 2014 the Productivity Commission produced a report (“Access to Justice Arrangements”) that recommended, among other things, the establishment of a licensing system for litigation funders to ensure that they maintained adequate capital reserves relative to their funding commitments.
Interestingly, this specific recommendation was not implemented. This might be because the same report found that:

  • Litigation funding does not promote unmeritorious claims or exploit plaintiffs.
  • The size of funding fees (commissions) were not disproportionate to the services offered or the risks taken by funders.
  • The Courts were actively involved in overseeing litigation funding and were equipped to deal with any potential risks.

At LCM we are adopting a proactive approach and contributing positively to the process. Our response to the VLRC consultation paper can be found on their website – along with the responses from other organisations prepared to share their point of view.
Perhaps the best way to view the success, or otherwise, of the litigation financing industry is through a statistical lens. For example, one key statistic shows that the involvement of litigation funders improves access to justice, with over 90% of funded class actions settling versus less than 50% of unfunded actions. Bearing in mind that it is not in the interests of a litigation financier to take on a spurious claim, this statistic alone demonstrates that the litigation finance industry is supporting improved efficiency and effectiveness in our justice system.

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