A class action enables a group of people to band together and initiate action against an entity collectively. Class actions were introduced in Australia because lawmakers were concerned that individuals harmed by large entities did not have the resources to fund complex legal battles on their own. Class actions allow groups of ordinary Australians to take on complex and costly legal battles against well-resourced organisations with armies of lawyers.
Australia has fewer class actions than comparable nations like Canada and Israel. Class actions rose modestly following the banking Royal Commission, but a company listed on the ASX is 20 times less likely to face a class action than an American company.
Last year there were just 59 class actions, with over 70 per cent being settled or found in the litigant’s favour.
Class actions are hugely expensive and risky because corporates have armies of lawyers and use them to fight for years. Typically millions are required just to cover the legal costs.
But class actions also need backers with deep pockets, because they are risky. If you take on a giant corporation through the courts and lose, you are typically ordered to pay costs which often run into the millions.
Sometimes Australian plaintiff firms can take class actions on a no win-no fee basis, but there’s a hard limit to how much risk they are able to take on because of their size. The big money in the legal sector comes from defending corporations, not attacking them.
If we want all viable class actions to occur there needs to be funding available.
Litigation funders are businesses that fund class actions and accept the risk of losing in exchange for a percentage of any eventual winnings.
The litigation funding sector was actually an Australian innovation to help ordinary people get access to funding. It’s become a model that has flourished around the world.
Some big business interests are highly concerned about litigation funders because they fund class actions that would otherwise not have occurred.
In Australia, around three quarters of the class actions that occur happen because they are backed by litigation funders who accept the risk of losing. The business lobby is aware that if litigation funders are removed from the system or restrained from operating the number of Australian class actions can be reduced.
The US Chamber of Commerce is body that represents powerful US corporations. It has deep links to Donald Trump and the Republican Party.
The US Chamber of Commerce has established the Institute for Legal Reform (ILR), whose mission is to spend millions around the globe to water down class actions that threaten the interests of US corporations.
The ILR has employed former Clayton Utz partner, Liberal Party member, and former Law Council President Stuart Clark as its local lobbyist. Mr Clark is lobbying Australian politicians to convince them to reduce the capacity of Australians to sue corporations through class actions.
Australia has become a key target for the ILR after a series of wins for ordinary Australians against corporations, including a victory against US-based pharmaceutical giant Johnson & Johnson for faulty pelvic mesh implants.
Parts of the big business lobby have argued we should water down or even suspend class actions altogether because of Covid. However it is difficult to see this as anything other than opportunism.
Corporations who continue to obey the law have no reason to fear class actions in the wake of Covid. A strong class action system is more necessary than even in the wake of the current pandemic, because corporations may use the disruption as cover for unethical and illegal acts. Class actions are a valuable watchdog on behalf of ordinary people.