Ensuring fair and reasonable returns to class action members

On 30 September 2021, the Attorney- General and the Treasurer jointly announced for consultation exposure draft legislation to promote a fair and reasonable distribution of class action proceeds in proceedings involving a third party litigation funder. This follows public consultation in June 2021 on the best way to guarantee a statutory minimum return of the gross proceeds of a class action, as recommended by the Parliamentary Joint Committee on Corporations and Financial Services in its report, Litigation funding and the regulation of the class action industry.

The draft legislation would enhance court oversight over the distribution of class action proceeds between the litigation funder and plaintiffs who are members of a class action litigation funding scheme. 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.

To further protect plaintiffs, the draft legislation would establish a rebuttable presumption that a return to the general members of a class action litigation funding scheme of less than 70 percent of their gross proceeds is not fair and reasonable.

Finally, the draft legislation would require plaintiffs to consent to become members to a class action litigation funding scheme before funders can impose their fees or commission on them. This will encourage 'book building' and ensure that actions involving litigation funders are commenced with the genuine support of plaintiffs.