Class action wave poses significant profit potential for new legal players

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A wave of securities class actions that relate to financial products and services has caused an increasing number of firms to recognise the growing profit potential in class action suits.

Top tier firm King & Wood Mallesons (KWM) has just released a report, The Review: Class Actions in Australia 2013/2014, which shows class action filings are on the rise.

In the 18 months to June 2014, Australia has seen 27 new filings. This is well above the long-term average of 14 proceedings per year.

Directors, corporate officers and professional advisors have been targeted not only by class action plaintiffs but by the defendant companies, as they seek to spread any liability. Securities, financial products and other investments form the majority of new proceedings, but event-related, consumer and public interest class actions are also increasing in number.
 
Co-author of the report, KWM partner Peta Stevenson, says some firms are recognising the growing profit potential in class action suits.

“Entrepreneurial companies who haven’t traditionally appeared in the market are seeing the potential for large windfalls, and a number of new players have entered the plaintiff class action space, with differing levels of success,” she told Australasian Lawyer. “The area with greatest activity is, however, litigation funding, with a number of new local and international funders supporting proceedings in Australia in the past 18 months.”

Stevenson puts the rise in class action down to aspects of the Australian legal system, combined with low barriers of entry for litigation funders.

All listed companies are exposed to litigation and with this increasing trend, directors and corporate officers can no longer be complacent about the risk of a suit, she says.

“We expect that the class actions space will continue to be lively over the next year, particularly in relation to securities and financial products. They are popular targets for litigation as they enable litigators and funders to use an established model based on indirect causation, with a higher chance of a successful outcome. These actions are the most economically efficient to run and are therefore the most attractive to target.”
 
The appropriate level of regulation for litigation funders has remained a hot topic over the past year, Stevenson says.
 
And with at least one law firm acting as both litigation funder and legal representative for a class action in 2013, Attorney-General George Brandis has convened an advisory panel to consider conflicts of interest and “moral hazards” between lawyers and litigation funding companies.
 
At the time he commented that he considers such arrangements to be ripe for abuse because they promote opportunistic litigation.
 
“Regulation needs to be tightened, but it needs to be reviewed for law firms as well, not just litigation funders. Finding the right regulatory balance is not however going to be an easy task, as it cannot occur to the detriment of legitimate claims,” says Stevenson.
 
 The report was co-authored by partners Peta Stevenson and Moira Saville, along with Partner Alexander Morris and Special Counsel Patricia Matthews.

 

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