Australia: DBAs have worked in state of Victoria
The government has proposed lifting the ban on the use of damages-based agreements (DBAs) to fund opt-out collective actions.
It is also considering whether undistributed settlement sums or damages should go to the Access to Justice Foundation (ATJF) or the Consumers Association (better known as Which?), or be split between both charities.
The Department of Business & Trade (DBT) issued a call for evidence on the opt-out collective action regime in August last year, a decade after it was introduced by the Consumer Rights Act 2015.
A newly published consultation on the future of the regime said responses indicated that claimant budgets were often £20m or more, and “the cost of litigating means that the regime is virtually reliant on support offered by third-party litigation funders”.
The DBT said that since the introduction of contingency fees for class actions in the Australian state of Victoria in 2020, evidence showed that “funding rates have decreased and claimants have received superior returns”.
Access to opt-out collective actions was important to ensure there was “a genuine route to redress” for those that had suffered loss.
“An increase in options for funding claims could increase competition and therefore drive down the cost of litigation finance, mitigating the risk of a justice gap and increasing the resilience of the regime.”
This was particularly important given feedback showing that a claim must now have a quantum of around £500m to receive funder backing, “meaning there may be legally viable but lower value claims that will never make it” before the Competition Appeal Tribunal (CAT).
The risk inherent in DBAs should discourage the growth of “speculative litigation and a litigation culture”, it added.
Revision of the certification threshold would also ward against this. The aim would be for the CAT to consider the “absolute suitability of a claim to be brought as a collective proceeding”, along with the prospect of success and proportionality.
There would also be “greater weight to considering case costs against the benefits that might be returned to a class” and “ensure there is sufficient evidence to assess damages on an aggregate basis”.
The DBT proposed increasing certainty in relation to funder returns by requiring the CAT to give an indication of reasonableness in relation to the return and order of payment at the point of certification.
There will also be a presumption that funders receive their return at the point of a damages award being ordered or a settlement sum approved, without needing to wait for the outcome of distribution and in accordance with waterfall arrangements set out in the litigation funding agreement.
“The CAT would retain the discretion on the order of distribution where there is a demonstrable risk that this approach would result in an unjust outcome.”
On ADR, the government sought views on “empowering the CAT to encourage or require mediation at appropriate stages of proceedings, with failure to engage potentially reflected in costs”.
The DBT said the CAT did not currently charge fees for applications, putting it “out of step” with other forums for private litigation and so it is consulting on introducing them, “initially only for private litigation, linked to the value of claims filed and subject to an upper cap”.
To address concerns about consumer trust, the CAT is working on a new page on its website that would enable class members to confirm the legitimacy of claims websites.
On undistributed settlement sums, the DBT said the government’s position on “the benefits of a designated charity for undistributed damages is unchanged”, but it was considering “other options” for which one it is – the ATJF is the designated charity at present.
The alternative was Which?, which has gained experience as a class representative in the CAT and initiated opt-out proceedings itself to represent consumers.
The consultation said: “Due to its consumer focus and overriding charitable objectives, undistributed sums would always be used to benefit consumer market-related issues, be this through its day-to-day work, the issuing of grants for consumer-focused research, or elsewhere.”
In a summary of responses to the call for evidence, published alongside the consultation paper, the DBT said there was a “clear split” in the 100 responses received between those on the consumer/claimant side stressing access to justice and those on the defence/business side focusing on “perceived economic and investment risks”.
The DBT went on: “There is consensus that the regime has expanded rapidly in recent years, but strong disagreement on whether this is a success.”
Many respondents took the view that the timing of the DBT review was premature, in that only one claim had made it to judgment and there was only one example of a distribution to class members.
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