The Federal Government will draft regulation that will in effect reverse a Federal Court decision made in October last year that funded class actions are managed investments schemes.
The Federal Court found that according to the Corporations Act 2001, funded class actions and other similar arrangements are considered to be managed investments schemes. As such, all ongoing and new class actions were required to comply with various regulations such as licensing and requirements around conduct and disclosure.
The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, said as a result there were serious concerns that justice for small consumers would be impeded.
The Australian Securities and Investments Commission (ASIC) provided a temporary exemption to allow ongoing class actions to continue, which expires at the end of June.
“Following consultation with a range of key stakeholders, such as legal practitioners, litigation funders, consumer representatives, regulators and other departments, we have decided that imposing this heavy compliance burden on class actions would be unjustified,” Bowen said.
The Federal Government will draft regulations clarifying that funded class actions are not managed investment schemes, which is due to be released before the expiry of ASIC’s temporary exemption.
The Government felt the area was already well regulated and that any further regulation would create further burden that was not justified.
Bowen stated, however, that the Government was considering regulation to manage potential conflicts of interest through guidance issued by ASIC.
“There may be some situations in which conflicts of interest may arise, such as where the class action lawyer and funder are assessing proposed awards or settlements,” he said. “In such instances, it is important to ensure that appropriate arrangements are in place to protect consumers and ensure that their interests are paramount.”
Ken Fowlie of law firm Slater & Gordon said the decision was “a huge win for common sense” that would give consumers access to affordable justice.
“Going down the managed investment scheme path for class action was always going to cause untold difficulties for both lawyers running the cases and their clients,” he said.
He added that in November 2009, Slater & Gordon lawyers had started 21 class actions representing 35,000 class members. The estimated value of claims was $2.6 billion. A further 16 funded class actions were proposed with claims totalling $810 million.
