The federal court has removed a barrier to class actions imposed by the former Coalition government, a decision the new attorney general, Mark Dreyfus, has welcomed as a “victory for ordinary Australians” seeking to pursue justice against big corporations or governments.
In 2020, the former government imposed a costly regulatory burden on litigation funders – entities that bankroll notoriously expensive class actions – to define them as managed investment schemes.
The new definition forced litigation funders to comply with added and costly regulatory requirements for managed investment schemes, as required by the Corporations Act.
The move was part of a broader crackdown on class actions pursued by the Morrison government, including its attempt to limit funding for class actions, compel litigation funders to obtain licences and its watering down of rules governing what companies have to tell the stock market.
The crackdown prompted a backlash from major law firms and litigations funders, including Slater & Gordon, Shine and Maurice Blackburn, who formed the Keep Corporations Honest campaign.
The crackdown against litigation funders prompted fears that future class actions would be hobbled due to a lack of financing. At the time, Slater & Gordon’s head of class actions, Ben Hardwick, said the 2020 crackdown was driven by a concerted campaign by the business lobby.
“Litigation funders provide an efficient means of protecting litigants from risk, shielding the taxpayer from expense and keeping corporations honest,” Hardwick said. “But you’ll never hear big business put forward a viable idea for an alternate source of class action funding, because their real agenda is for class actions to wither and die.”
On Thursday, the full bench of the federal court ruled that one aspect of the government’s added regulations on litigation funders was “simply wrong”.
It ruled that funded class actions cannot be considered as managed investment schemes, meaning they fall outside the regulatory scheme for such schemes in Australian corporate law.
Dreyfus and the assistant treasurer, Stephen Jones, welcomed the decision on Friday, saying litigation funding and class actions were vital in achieving justice for ordinary Australians wronged by wealthy companies and powerful governments.
They said the decision called into question the “legal basis for the former treasurer’s ill-conceived and absurd attempt to regulate funded class actions out of existence”.
“The ruling is a victory for ordinary Australians who have been harmed by misconduct by large companies or governments,” the ministers said in a statement.
“The government will now consider the full implications of the full federal court’s decision.”
