By Yaël Ossowski 
 
In line with common law tradition, the class action system was set up in Australia to address wrongs and deliver justice for ordinary people.

But because of a lack of action from politicians and policymakers, it has instead funnelled rivers of gold to faceless foreign investors with a stake in gaming the system.

It’s become akin to a casino with lower stakes and high payouts. The high rollers from overseas, flush with capital to bet big and win big, get VIP treatment in Aussie courts, while ordinary Mums and Dads without that cash or influence get pennies.

​​As the Daily Telegraph revealed recently, there’s never been a more lucrative time to be a foreign litigation funder investing in Australian class actions.

Since July 2022, $308 million has been doled out to litigation funders involving themselves class action settlements in Australian courts, with a whopping 82 per cent ($255 million) going to funders from abroad. 
 
Worse still, over the same period $152 million went to litigation funders with accounts registered in the Cayman Islands – a jurisdiction not none for divulging corporate or financial identities.
 
When pressed, many of these funders will say that without their investments, class action claimants would receive no payouts nor have a case at all, and ordinary people would never have a chance against large companies.
 
But a recent lawsuit brought by thousands of Victorian cabbies against the ride sharing platform Uber shows it just doesn’t work this way. 
 
That lawsuit filed in Victorian Supreme Court aimed to compensate taxi and hire car drivers for loss of income and licence values following the arrival of Uber in Australia. In the US and Canada, similar actions have been tried, but haven’t found an audience. 
 
In May, the Court was asked to approve an historic $272 million settlement, the fifth largest in Australian history. While those who may dislike the sharing economy may celebrate, the actual details reveal why consumers ultimately lose.
 
Of the $272 million, $36.5 million will make its way to law firm Maurice Blackburn, while $81.5 million would go to Harbour Litigation Funding, a business with significant assets held in the Cayman Islands. $154 million – or just 57 per cent of the settlement – would go to 8,701 taxi drivers, netting them just over $17,000 apiece or fourteen weeks of the average wage of a Melbourne cabbie. 
 
Fourteen weeks’ pay for decades of lost income, and $81.5 million for a one-off investment. And that’s not even taking into account the consumers who will face higher prices and less competition when they try to book a car from the CBD.
 
With pay-days like these, it’s easy to see why so many litigation funders – backed by investors across the world – have their sights set on Australia. 
 
The latest example is UK-headquartered class action firm Pogust Goodhead, backed by a billion-dollar investment from an American hedge fund, Gramercy. It’s the biggest loan of its type to a law firm in history. 
 
Pogust Goodhead has plans to launch dozens of class actions in Australia out of its newly ordained Sydney office. The firm’s Global Managing Partner, Thomas Goodhead, has even talked about teaming up with green activist groups including the Australian Conservation Foundation and the taxpayer-funded Environmental Defenders Office to pursue firms that power the Australian economy. 
 
Firms like Pogust Goodhead are relentless in their pursuit of payouts. 
 
Pogust Goodhead is ploughing ahead with its $70 billion action in the English High Court against BHP – where it would receive as much as a 30 per cent cut. This follows a $45 billion compensation agreement between BHP and Brazil, where over 500,000 affected people receive payments from early next year. By their own admission, Pogust Goodhead’s English case may not be resolved until 2028.
 
It’s hard to see how the growth of this industry is good news for everyday Australian consumers who rely on affordable energy and good jobs. 
 
Plainly, the class action system, especially the lax laws governing litigation funders, aren’t working.
 
How do you fix it? As ever, sunlight is the best disinfectant. 
 
In the United States, Republicans and Democrats have come together to introduce the Litigation Transparency Act, which forces disclosure of financing provided by third parties. They’ve also worked on legislation to stop sovereign wealth funds from investing in American lawsuits. This is a reasonable approach that allows innovative litigation funding to continue, based on the condition that citizens know who has skin in the game.

So, it’s a good thing LNP Senator Paul Scarr raised these issues in Federal Parliament last week – quizzing officials from the Attorney General’s Department about what they’re doing to stop foreign actors interfering in Australia’s courts.
 
More recently, the European Law Institute – a leading legal think tank – has called on policymakers around the world to do more to “enhance transparency” around litigation funding, including passing laws to require funders to reveal the identity of their investors and disclose potential and actual conflicts of interest.
 
To tilt the scales of justice back in favour of ordinary people, Australia should heed this call. 

Yaël Ossowski is deputy director at the global consumer advocacy group Consumer Choice Center.

This article was published in the Daily Telegraph.