Art Of Lawfare
Democracy is diminished when litigation is used as a political weapon. By Nick Cater.
Mark Dreyfus’s losing streak remains intact after the Australian Federal Police dropped inquiries into allegations against Angus Taylor.
For the record: the ninth case of alleged ministerial malfeasance raised by the shadow attorney-general and the ninth one to be thrown into the bin.
Hijacking the justice system for political ends is common in less sophisticated democracies than our own. Dreyfus, on behalf of Labor, seems intent on making “lawfare” a feature of ours.
A lawyer of his experience must have known the case against Taylor was never going to fly. His aim was not to put Taylor in the slammer, however; it was to put him in the stocks.
The punishment is in the process, not the verdict.
Environmentalists are pioneers in this caper, mastering the art of dragging out proceedings as long as possible to besmirch the good name of their target and drive away investment.
In recent years a new legal tactic has been adopted that shifts the strategic balance further in the activists’ favour.
Class actions once allowed grievances by people of limited means to be settled at an affordable price. Today they are a cash cow for lawyers, who scour the transcripts of royal commissions, soliciting for business.
Until five years ago, the number of class actions filed each year hovered around the high teens. In the past two years they have been lodged at the rate of one a week.
Forget the heroic narrative of the passionate lawyer acting pro bono for the marginalised and vulnerable. Three-quarters of these are so-called funded cases, investment vehicles for financiers, frequently from the US, who bet their money on a successful court finding and trouser a third of the spoils.
A bushfire victim, for example, awarded $250,000 in a successful class action, would typically receive about $210,000 after legal costs, according to Australian Law Reform Commission figures.
If the case were funded by an investor seeking a return, on the other hand, the victim would receive less than $130,000.
Not everyone in the legal industry is comfortable with this arrangement. A report by law firm Allens Linklaters warned that the tail was wagging the dog. “Justice for class members is often nothing more than a convenient by-product,” it concluded. “The promoters’ pursuit of profits has become an end itself.”
Wrongs like these are what the Labor Party was established to right, since compassion for the downtrodden and an abhorrence of greed is supposedly its thing.
Not in Dreyfus’s home state of Victoria, however, where the Andrews Labor government has introduced legislation that would make class actions easier and more lucrative. The Justice Legislation Miscellaneous Amendments Bill would allow lawyers to loot their own clients by claiming costs as a percentage of damages. Contingency fees are banned everywhere else in the country for good reason.
Justice is ill-served by lawyers motivated to inflate claims of marginal quality and merit. At the same time, lawyers will be inclined to settle deserving but difficult cases quickly to contain their own costs.
Worse, contingency fees will be charged on an opt-out basis. Lawyers will be able to charge every member of the class a contingency fee unless they explicitly opt out of the action.
Maurice Blackburn is by far the largest player in the class action market with a 17.8 per cent share in the business. It was also one of the largest donors to the Labor Party last year, chipping in $554,805 to the ALP and affiliated entities. Of that, $122,887 went to the Victorian branch where it helped re-elect Daniel Andrews.
This is chicken feed, however, when set along the profits Maurice Blackburn stands to make from the introduction of contingency fees. In a submission to the Victorian government, Maurice Blackburn calls for a cut for lawyers of up to 40 per cent of awarded damages. Had such rules been in place when the firm’s Black Saturday bushfires class action was settled, its fees could have taken as much as $315m out of the $794m damages award. As it was, it received $100m.
Labor is using class action as a political weapon. Last September Bill Shorten announced a class action against the federal government’s Centrelink data-matching initiative, as shadow minister for government services.
There were, Shorten brazenly confessed, no plaintiffs as yet, but the Labor-linked legal firm Gordon Legal was trying to find some.
Such is the absurdity of the law that a class action can be launched by a single plaintiff, providing he or she can show reasonable grounds for believing at least seven others are in the same boat.
Maurice Blackburn lawyers are veterans of fighting for the left’s pet causes through their lucrative class action business. The firm has initiated class actions on behalf of Christmas Island detainees, young people mistreated in Northern Territory youth detention centres, and taxi drivers against Uber.
The banking royal commission provided rich pickings. Maurice Blackburn has launched class actions against NAB, MySuper, AMP, Westpac and the Commonwealth Bank. The sheer number of cases puts pressure on the courts and acts as a dead weight on the economy. The burden is shared by the rest of us, either as taxpayers, shareholders or customers.
For litigation funders, however, the returns are huge. Funding firms such as IMF Bentham and Litigation Capital Management have disclosed returns of up to 135 per cent in a little over two years, boasting success rates of 94 per cent.
By standards of ethical investment now being forced upon the banks, such returns are the makings of scandal. Yet they remain outside the boundaries of regulated financial products, thanks to an exemption granted in 2010 by Labor’s then finance minister, Chris Bowen.
Reversing that decision may check the forward march of the self-interested litigators who have become a blight on our democracy. But it will hardly reverse the steady expansion of the empire of the law.