Until recently, class actions, litigation funders and continuous disclosure were debated largely in corporate and legal circles.

But in the past few months, the attack has become more pointed and spilled into the political arena, which has raised the stakes.

The debate has intensified due to the perception that there will be an increase in the number of class actions as a result of the ensuing economic crisis.

Ashurst partner Ian Bolster told Lawyers Weekly that he doesn’t think the new disclosure law changes will scare anyone off.

“While ‘knowledge’ and ‘recklessness’ are high bars, it is enough to show ‘negligence’ (i.e. lack of reasonable care). In practice I’m not sure the ‘negligence’ requirement adds anything to what was already needed and I don’t think it will scare off too many funders,” Mr Bolster said.

But Mr Bolster says waves of cases about earnings guidance not being accurate during COVID-19 would face serious hurdles. 

“For potential coronavirus disclosure claims it would be a case of ‘who could seriously say that the market didn’t already know’ and hadn’t already priced in that COVID-19 meant all bets were off?” he said.

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The litigation funding industry has continued to grow in Australia at unprecedented levels. Between 2014 and 2019, the industry grew almost 25 per cent, with more than 30 companies in the market.

It is said that litigation funders are now behind three-quarters of all class actions in Australia. However, no longer does the industry only fund class action proceedings, with funding now readily available for more standard civil litigation or arbitration claims with quantum as low as $500,000.

The federal government had introduced an Australian Financial Services Licence and managed investment scheme requirements on funders to impose tighter regulations on funding processes.

However, Mr Bolster said that the new AFSL/managed investment scheme regime doesn’t fit well with the class action funding landscape. It was designed to deal with people who invest money in funds, not people who have similar legal claims.

“It will mean having a responsible entity that owes best [interests] duties to group members,” Mr Bolster said.

“How does that fit with funders looking to get ‘common fund’ orders that would reduce the overall return to members who have not ‘signed up’?”

Mr Bolster said that the government measures seem a “make-do” job whereas what is really needed is a specific regime to deal with things like funding commission, conflicts, capital requirements, and common fund orders.

Mr Bolster said that a better approach would be to introduce a due diligence/good faith defence.

With the implementation of a “managed investment scheme” this will also mean ASIC will have a big role to play.

If the "managed investment scheme" requirements are going to have a real impact then ASIC will be set to play an important role to monitor and enforce compliance with best interests duties.

“But that won’t be easy for ASIC, given so much of what happens involves judgment calls in the context of legal advice,” Mr Bolster said.

It is also important to know that the corporate cop didn’t want a bar of a proposal by the Australian Law Reform Commission to license funders and subject them to regulatory oversight.

“Ultimately, one of the key pinch points for best interests’ duties would be around settlement – whether it really is in the interests of members, and things like common fund orders,” Mr Bolster said.

“But class action settlements are approved by courts – which would usually put the settlement itself beyond the reach of ASIC.

“Furthermore, ASIC has a lot on its plate already, especially implementing its ‘why not litigate’ approach following the banking royal commission.”