In its submission to the federal parliamentary inquiry into litigation funding and class actions, Omni Bridgeway said it supports enhancing the integrity of the class action regime through legislative change, noting it has “long supported” additional regulation which can increase transparency and confidence in the class action system. 

However, the funder’s submission cautioned that “increased regulation must be carefully designed to avoid jeopardising the availability of litigation funding for the people it protects – ordinary Australians seeking access to justice – and other unintended consequences”, such as undermining the continuous disclosure regime and increasing the cost of capital for Australian-listed companies.

In particular, it warned against applying the MIS regime to class actions retrospectively, saying it “would create significant disruption and uncertainty for ongoing matters involving thousands of individual claimants”.

Omni Bridgeway further called for more sophisticated assessment of litigation funding fees, arguing they cannot be analysed “by [cherry-picking] cases, by ignoring the risks of losing assumed by the funder, or the costs of running the funding business, or by comparing funded cases with non-funded cases or other different types of investments”.

“Omni Bridgeway believes there needs to be a balanced discussion about the adequacy of returns to allow the litigation funding industry to exist and the considerable risks that litigation funders assume,” the submission read.

“Too often, superficial commentary about litigation funders’ returns is based on isolated cases – in some cases, such as the oft-cited Huon Corporation matter, entirely inaccurately. More sophisticated analysis considers returns across a portfolio of cases and recognises that returns calculated for the risk of funding litigation are not comparable with the returns, for example, on a government bond, as the risks are not comparable.”

With litigation, the “outcomes are binary”, the funder continued.

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“The case is either won (judgment or settlement) or lost. The funder only gets paid if the case is won.  If the case is lost, the funder loses its investment and typically has to pay approximately 70 per cent of the costs of the other side. At the time of funding, the funder cannot know with certainty the quantum of these costs or if the case will be won,” it wrote.

“Most importantly, the financial risks assumed by litigation funders – running to tens of millions of dollars in many cases – cannot be examined with the benefit of hindsight once the outcome of a case is known.

“Litigation funders are required to evaluate and then assume these risks upfront, before the first court hearing, when there are material uncertainties in terms of the time it will take to resolve the matter, the legal and other costs of the case and, of course, the outcome.”

Omni Bridgeway’s submission also noted the many checks and balances that already exist in the legal system to regulate and, in some cases, moderate litigation funders’ commissions. Most importantly, it said, all class actions settlements must be approved by the court, and the court will only grant approval if it considers the settlement to be fair and reasonable and in the best interests of group members.

“There are opportunities to improve these (checks and balances), which we support, but taken individually and together they already provide a significant degree of protection for claimants in class actions from unreasonable litigation funding fees,” the funder wrote.

“As such, the accusation that litigation funders are unfettered [price setters] is patently false.”

Earlier this week, Lawyers Weekly reported on the submissions of other litigation funders, who collectively welcomed the inquiry but addressed the key issues highlighted in the submission arguing that funders have been greatly misrepresented and that ultimately access to justice would be significantly impacted.