Class Ceiling

Australia is attracting people trying to cash in on our loose class-action laws. It’s time we pulled the reins on this vexatious practice, says Tim James

This week we’ve been discussing another rapidly rising cost of doing business: class actions. Namely, the legal actions in which a group of claimants collectively sue the same business. Class actions are a global phenomenon and have grown rapidly in recent years in Australia in scope, scale and volume of proceedings. 

The Australian Industry Group this week said class actions had become a threat to the Australian economy. "We've become a honey pot to international litigants," said AIG chief executive Innes Willox.

This is not a new area for policy makers. In 2017 then Attorney-General George Brandis asked the Australian Law Reform Commission to look into class actions. The report was tabled early this year with a series of recommendations and it’s now up to Brandis's successor Christian Porter to act on it.

In 2018 the Australian Institute of Company Directors said it feared that “opportunistic claims” were helping drive a “risk averse” business culture in Australia. The AICD noted a tenfold increase in shareholder class action payouts over the decade to 2017 (to $1.5bn in that year) and declared the current class action regime to be a “very light touch regulatory environment”.  

It’s not surprising therefore that the AIG has hit front-page headlines this week with its claim that this year $10bn in class action claims have been made and it is “a clear and present danger” to the economy.  

Consistent with earlier concerns, the AIG’s Innes Willox spoke of “scant regulation” over class actions in Australia compared to other markets that has seen overseas litigation funding firms rush here and create the explosion in claims. A report in The Australian this week noted 54 class actions had commenced in the last financial year. Most were funded from overseas. The $10bn estimate might be a conservative estimate.  

AIG says litigation funding arrangements are financial products seeking high returns and should be regulated accordingly. It presents a seven point plan for reform.

The costs to business of these claims include increased insurance premiums, or even lack of cover, both of which present hurdles to directors and executives.  In July this year, insurer Allianz announced it would cease liability cover in Australia in light of the class ­action surge, stating it was “untenable” to stay in the market.

The claims obviously also occupy considerable company and staff time and resources in addition to the costs to our legal system – courts are increasingly choked with the chorus of class action suits.

These are big, expensive, drawn-out cases that demand extraordinary resources. I recall as a young lawyer in private practice fifteen years ago devoting six months of my life to defending Australia’s then largest shareholder class action. The legal costs, among so many others, were staggering.  

Over a long period of time, reforms to this area of law have focused on access to justice and have relaxed requirements of just cause and public interest which were founded on traditional legal principles of champerty and maintenance.  While access to justice is essential to our legal system, so too is integrity and efficiency, and the current costs to business cannot be ignored.  

It was in turn no surprise this week to see plaintiff law firm Slater & Gordon (where former PM Julia Gillard was a partner) immediately accuse the AIG of running a scare campaign. Slater & Gordon, currently running 17 class actions, claim the current regime is delivering justice to Australians. 

The case for reform is compelling. Lawfare without reasonable limits damages an economy. It curtails enterprise and hurts jobs and investment. The current surge in class actions in Australia cries out for reform.  Let us hope that real reform is realised in 2020.