The Minister for Corporate Law, Chris Bowen MP, has today announced the Federal Government will draft regulations clarifying that funded class actions, as well as similar arrangements, are not managed investment schemes.
The announcement is in response to the decision by the Federal Court on 20 October 2009, that funded class actions were managed investment schemes as defined in the Corporations Act 2001.
The Court's decision had required all ongoing and new class actions to comply with a wide range of regulatory requirements, including licensing, conduct and disclosure requirements, before they could proceed any further. As a result, ASIC was required to provide transitional relief to allow ongoing class actions to continue.
"There were serious concerns about impeding access to justice for small consumers, if access to funded class actions were to be subject to the same regulatory requirements as managed investment schemes under the Corporations Act." Minister Bowen said.
"Following consultation with a range of key stakeholders, such as legal practitioners, litigation funders, consumer representatives, regulators and other Departments; we have decided that imposing this heavy compliance burden on class actions would be unjustified."
"This is a sensible decision which will allow thousands of ordinary Australians to continue enjoying access to the courts in a convenient and affordable manner. It will also provide certainty to funders of class actions and lawyers that they can continue doing their business in conducting class actions on behalf of their clients", Mr Bowen said.
Class actions are already currently subject to a regulatory regime consisting of Commonwealth and State legislation, court rules, and the rules protecting the clients of legal practitioners.
No evidence has been provided to indicate that consumer rights are being breached under the current class actions regulatory framework or that consumers are suffering losses or other detriments as a result of participating in class actions. As such, the Government considers that imposing a significant regulatory burden cannot be justified in these circumstances.
While the Government will not be imposing this heavy regulatory burden; in order to ensure that the interests of class members are held as paramount, it is considering regulation to manage potential conflicts of interest through guidance issued by ASIC.
"There may be some situations in which conflicts of interest may arise, such as where the class action lawyer and funder are assessing proposed awards or settlements. In such instances, it is important to ensure that appropriate arrangements are in place to protect consumers and ensure that their interests are paramount."
The Government is currently drafting the regulations, to be in place before the expiration of ASIC's temporary exemption on 30 June 2010.
"The Government is seeking to strike the right balance in ensuring that the interests of consumers are protected without imposing an excessive compliance burden on funders of class actions and class action lawyers. Excessive regulation will only make it more difficult and costly for consumers to participate in class actions", said Mr Bowen.
4 May 2010