Speaking to InvestorDaily, Herbert Smith Freehills partner Luke Hastings said class action firms are often focused on the regulatory ‘treasure chest’ that is built up in the course of an ASIC investigation.
But this could have an adverse effect on the state of corporate regulation in Australia, says Herbert Smith Freehills Hong Kong-based partner William Hallatt.
“That’s a massive issue for [our] clients,” said Mr Hallatt. “Clients are weighing up the risk of voluntarily disclosing information and documents to regulators in the context of potential class actions where this information might be passed on.
“That’s something you see in the US. In that context you have to ask: Are these class actions leading to better regulation? In some ways they’re stifling it,” Mr Hastings said.
“They are a very significant private regulatory threat in the Australian context,” he added.
Class action law firms exhibit a degree of entrepreneurialism in identifying a potential action, aggregating a class, and finding a funder for the action, Mr Hastings said, adding that Herbert Smith Freehills is currently defending a number of class actions in the financial services industry.
Bentham IMF is the sole listed Australian litigation funder, while unlisted Litigation Lending Services is another big player – along with a growing number of offshore funders, he said.
“That funder will take a significant clip at the end of the day – somewhere between 25 to 35 per cent of the ultimate proceeds of the class action will need to be remitted to that funder,” he said.
There have been two major changes in the way class action litigation operates in Australia in recent years, he said.
First, the model has effectively changed from ‘opt out’ to ‘opt in’.
“If [a firm] commences a class action, [they] can now make a term of that action that you sign up to [a particular] litigation funder,” he said.
“That’s because litigation funders don’t want to have free riders. They want to make sure they get the class members signed up for their 25 to 35 per cent of whatever is received,” said Mr Hastings.
Second, there are some early signs of a trend reflecting a US phenomenon known as a ‘race to the registry’.
“This is the sort of conduct you see in the US, where very quickly people commence an action just to get onto the court file. Once they stand as gatekeepers for the class they can potentially deal with other class action lawyers or funders who wish to be involved,” said Mr Hastings.
