Australian Attorney-General George Brandis (Photo by Neil Duncan & Deutsche Messe/CeBIT Australia)
Big-firm lawyers in Australia have questioned calls from a government committee to introduce contingency fees in litigation, fearing it may lead to a rash of frivolous law suits and potentially compromise the fiduciary responsibility that lawyers have to their clients.
Unlike in the United States and the United Kingdom, Australia does not allow so-called contingency fees, where lawyers collect a percentage of their clients’ winnings in a case. But the Productivity Commission, an independent advisory body that makes policy recommendations to the Australian government, issued a draft report in April recommending that contingency fees be introduced in order to offer claimants another way to bring their cases to court when they otherwise might not be able to afford to do so.
The paper, which focused on access-to-justice issues, also proposed regulation of litigation funding—a now global industry that Australia spawned two decades ago. Litigation funding in Australia is subject to consumer protection laws but is not specifically regulated.
Australian lawyers are currently allowed to take cases on a no-win, no-fee basis, as well as negotiate “uplift fees,” which give lawyers the ability to charge up to 25 percent of a claim’s total legal costs. Taking a percentage of the damages is still off-limits, though.
There’s no guarantee the current government, controlled by the conservative Liberal Party, will act on that recommendation to allow contingency fees, however. Indeed, the issue has already been raised multiple times over the past 15 years, most recently in 2008, when the state-based Victoria Law Reform Commission recommended they be passed into law. But the state government, wary of following the example of the more litigious U.S., never followed through with the necessary legislation. Attorney General George Brandis told The Australian newspaper last November that he didn’t want to see the Australian legal profession “go down the American path.”
“I am not persuaded the essential nature of the remuneration of lawyers on a fee-for-service basis should change,” he told the newspaper.
Even some members of the opposition Labour Party agree. “It would mark a major change for legal practice in Australia,” says Mark Dreyfus, a member of Parliament in the Labour Party and a former Australian attorney general.
Dreyfus is concerned that giving that large a financial incentive to lawyers may prompt them to compromise their ethical obligations to clients. “I’m not saying they compromise those obligations, but the potential for compromise is obvious,” he says.
Stuart Clark, a Sydney-based partner at leading Australian law firm Clayton Utz, says that allowing contingency fees in Australia would drive a new wave of litigation in the country, “some of which will be absolutely unmeritorious.”
“If contingency fees are introduced, I am concerned and convinced that we will see a significant increase in pretty speculative litigation,” Clark adds. Clayton Utz is currently advising the U.S. Chamber of Commerce’s Institute for Legal Reform on its lobbying efforts to advance regulation of the litigation funding industry in Australia, as many of its members are increasingly finding themselves involved in litigation in the country.
Crispian Lynch, a Sydney partner at Australian firm Gilbert + Tobin, doubts that an explosion of litigation would follow the arrival of contingency fees, but he does see a likelihood that riskier claims would be pursued. The potential for a greater return on investment—rather than that received through a fees-based conditional agreement—offers “added incentive for lawyers to bring more speculative cases that they otherwise walk away from,” he says.
John Walker, executive director at Australian litigation funder Bentham IMF, believes that contingency fees are unlikely to be introduced under Brandis.
“My guess is [Brandis will] hold that line whilst the Liberal Party is in power, and they look like they’ll be around for quite a while,” says Walker. “So I wouldn’t be looking for contingency fees anytime soon.”
In addition, all of Australia’s six states have their own ban on contingency fees. Four of those states are currently controlled by the conservative Liberal Party, and a fifth is controlled by the affiliated Liberal National Party, which makes it even more unlikely that contingency fees would be passed into law.
Brandis does support one of the recommendations made by the Productivity Commission in its report, however: the need to regulate litigation funders. In May business newspaper the Australian Financial Review said Brandis planned to review the use of class actions in the country, and as part of that the litigation funding industry, which often finances claims in that space. He will form a special advisory panel to study the issues raised by the Productivity Commission report and make its own recommendations, the story added.
At present, there is no specific government regulation of litigation funding in Australia, outside broad guidelines offered by consumer protection laws. “There’s nothing stopping you from coming to Australia and funding a class action,” says Gilbert + Tobin’s Lynch.
The only matters in which claimants are required to disclose the terms of their funding are class actions and cases involving plaintiffs in liquidation. But that requirement does not exist in litigation overall. Courts may demand that money be posted to cover the costs of an opponent’s legal fees, but costs can often exceed the money posted over the course of a trial.
The Productivity Commission has recommended that funders be required to hold a financial services license, bringing them in line with all other financial services companies in Australia. At the same time, the Australian Securities and Investment Commission, the country’s corporate regulator, would be given oversight of litigation funding.
Also, because in Australia the loser in a case pays the opponent’s legal fees, it also was recommended that funders be subject to capital adequacy requirements in order to ensure that such payments could be met.
“There is support for regulation that encourages open disclosure and a fair and balanced approach to funding arrangements,” says Andrew Stone, president of the Australian Lawyers Alliance, an association of predominantly plaintiffs lawyers that promotes access to justice and equality before the law. “If on the other hand, ‘regulation’ is code for trying to shut down class actions because they are annoying to big business, then that is prohibition of class action lit by the back door.”
Slater & Gordon’s Phi says that any new rules for litigation funding should be “purely directed toward funders meeting their obligations under those funding agreements,” rather than “a Trojan horse for other more fundamental changes” to the industry.
The commission is currently receiving comments and suggestions on the draft from the legal industry and will issue a final report in September. Brandis did not respond to requests for comment, and as of yet there is no indication as to exactly what changes he may seek to make. But Bentham IMF’s Walker says that Australian corporations are registering their complaints with the attorney general’s office.
“Let’s wait and see,” Walker says. “The big end of town is lobbying him, and the big end of town has more money than consumers.”