Australia: Australian product liability trends: Class actions & litigation funding

A lively class action market

The Australian Federal class action regime is one of the world's most liberal and plaintiff friendly. As a consequence of this, and our active litigation funding market, Australia is second only to the United States in respect of class action activity.

A recent study revealed that over the past 17 years, 22.4% of all Australian class actions have been product liability related. 1 This trend is set to continue with the Australian Consumer Law (ACL) fortifying existing consumer protection laws and giving rise to a broader array of possible avenues for class action litigation. The ACL is still relatively new, coming up to its second birthday. Relevantly, the ACL has placed more onerous obligations on manufacturers and suppliers with the introduction of mandatory reporting of product associated injury or illness, a broader test for bans and recalls and increased prescribed requirements for warranties against defects.

This year alone a number of large scale product liability class actions have taken place, the largest three of which involve Bonsoy soy milk, DePuy Hip Implants and Aspen Pharmacare.

Many other recent high profile class actions have been driven by the alleged failure of listed companies to comply with statutorily prescribed continuous disclosure obligations. As a consequence, companies are facing class action claims alleging that they have engaged in conduct that was misleading or likely to mislead.

Trends in class actions – contingency fee arrangements and litigation funders

Funding remains a critical issue in the future development of product liability class action proceedings given the significant costs associated with running such claims and the difficulty of having to prove claims of reliance and loss on the part of all plaintiffs. Australia has a 'loser pays' costs regime whereby, in general, the costs of the litigant who prevails are borne by the litigant who 'loses' (or gets a worse outcome than already offered). Traditionally, litigation funding by third parties was prohibited by the doctrines of maintenance (where a third party encourages a plaintiff to pursue litigation) andchampetry (where a third party agrees to finance litigation for a cut of any recovered proceeds). However, these doctrines have been abolished in most Australian jurisdictions. 2

Class action proceedings are now financed primarily by way of 'no win-no fee' cost arrangements and, increasingly, by way of litigation funding which had its genesis in Australia in the early 2000s. Typically, where a person or group of persons lack the requisite funding to bring a matter to court, litigation funders step in and charge fees whereby they agree to finance the costs of litigation, assume the risk of any adverse costs orders and put up any amount required as security for costs in return for a cut of the profits if the case is successful. 3 The litigation funder then engages lawyers to conduct litigation on its behalf in accordance with the rules governing the legal profession.

Litigation funding of class actions is economically attractive to third party litigation funders as it allows for the accumulation of potential claims and therefore a multiplication of potential returns. However, it is also attractive to potential class action litigants insofar as it enables access to justice for meritious claims which could otherwise not be pursued given the cost of bringing proceedings is often too great to be borne by an individual claimant. 4

The practice of third party litigation funding was legitimised by the High Court in 2006 in Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd 5 where, by a 5:2 majority, the High Court found that it was neither an abuse of process nor contrary to public policy for proceedings to be orchestrated by a third party litigation funder.

At approximately the same time, the Federal Court, in QPSX Ltd v Ericsson Australia Pty Ltd (No 3), 6 recognised the important role played by litigation funding in providing access to justice, improving the efficiency of litigation due to its focus on commercial considerations and spreading the risk of large scale litigation.

The Australian Government has also jumped on the litigation funding bandwagon. The Explanatory Statement to the Corporations Amendment Regulation 2012 (No.6) (Cth), states:

This regulation promotes access to justice by providing an alternative mechanism for claimants to pursue their rights in court. This permits claims to be brought that might not otherwise have been brought in the absence of this reform.

However, despite Australia being such a fertile ground for product liability class actions and our litigation funding model having been adopted by other nations including the United States, Canada and the United Kingdom, Australia lags behind the rest of the world in the numbers of product liability class actions due to the continued prohibition on lawyers and law firms from entering contingency fee arrangements with their clients and the relatively lower value of damages awarded in such proceedings. As a consequence, the litigation funding market in Australia is dominated by a number of large third party funders who, in the context of class actions, typically seek to retain between 20% and 70% of any damages or settlement sums awarded in a given case.

Lifting the prohibition

Given the High Court has found that there are no longer any public policy considerations justifying the prohibition against litigation funding, and the Australian Government accepts that it promotes access to justice, lawyers ought rightfully query why the prohibition remains in place. However, make no mistake, as the Victorian Civil and Administrative Tribunal confirmed in January 2013, as the law presently stands a lawyer who charges a client by way of contingency fees is engaging in professional misconduct. 7

This gives rise to a particularly curious situation. There is nothing to prevent a law firm establishing an associated funding company for the purposes of directing clients to the firm and circumventing the prohibition on lawyers charging contingency fees. We are beginning to see this occur with the close relationship between law firm Maurice Blackburn and litigation funder Claims Funding Australia.

Maintaining the status quo and allowing litigation funding to remain the sole domain of third party litigation funders is worrying as the funding market is largely unregulated in respect of class actions, despite the Australian Standing Committee of AttorneyGenerals having recommended regulation since 2006. 8 The Courts and the Federal Government have stopped short of imposing any meaningful boundaries in respect of third party litigation funders, despite recognising that such parties likely exercise a degree of control over litigation. Current regulations require only that third party litigation funders manage conflicts of interest. They do not address other concerns such as the need for capital adequacy, the need for litigation funders to owe duties to their clients and the court, and the need for disclosure obligations to ensure that these duties are enforced.

Allowing law firms to enter the litigation funding arena would provide much needed regulation in the funding market given lawyers are governed by ethical considerations and owe duties to the court and their clients. Further, lifting the prohibition on lawyers charging contingency fees would arguably increase competition in the litigation funding marketplace, force third party litigation funders to reduce their charges, ensure more capital is available to fund class actions, and increase the availability of litigation funding products in the market.

In a 2008 report, the Victorian Law Reform Commission (VLRC) recommended that the prohibition on lawyers charging contingency fees be reconsidered provided that adequate regulatory safeguards be implemented. 9 In particular, the VLRC recommended that:

  • law firms offer clients the choice between percentage based fee agreements and other methods of calculating fees;
  • percentage fee agreements be approved by the court at the conclusion of proceedings;
  • there be a means for percentage fee agreements to be varied where there is a material change in circumstances in connection with the proceedings;
  • there be a cap on the maximum percentage fee charged or a sliding scale of permissible fees which decreases as the amount of the recovery increases;
  • the existing legislative right of clients to have a costs agreement set aside where it is not fair or reasonable be retained; and
  • percentage fee agreements be regulated by the Law Society, Bar Council and/or Legal Services Commissioner.

These recommendations have not been implemented to date.

Silencing the critics

Critics of litigation funding argue that contingency fee agreements would open the proverbial floodgates of litigation to levels comparable to the United States. However, this did not occur as foreshadowed following the advent of third partly litigation funding after Fostif some seven years ago and is unlikely to occur should the prohibition on lawyers charging contingency fees be lifted. Australian cost rules provide a formidable hurdle to speculative law suits with costs ordinarily following the event. By contrast, in the United States parties ordinarily bear their own costs with the only cost being that of running litigation.


Given third party litigation funding has gained widespread acceptance as a mechanism for increasing access to justice, the justification for restricting lawyers from charging contingency fees, whilst allowing third party funders to operate without meaningful regulation, is difficult to maintain.

Advocates strongly argue that allowing law firms to enter the litigation funding arena would increase available levels of funding, promote competition, provide parties with a regulated choice of funder and assist in developing Australia's product liability class action market by allowing law firms the opportunity to take on the risk of funding proceedings that are inherently expensive and difficult to run.

It is likely that Australia will soon see a further liberalisation of regulation regarding such funding, and that this will have a flow-on effect of increasing product liability (and other) litigation.


1 Morabito, Chris, 'An empirical study of Australia's class action regime - Class Action Facts and Figures', 2009.
2 Namely, New South Wales, Victoria, South Australia and the ACT.
3 Legg M, Travers L, Park E & Turner N, Litigation Funding in Australia (University of New South Wales, Faculty of Law Research Series, Faculty of Law, Research Series 2012, Working Paper 12, p.2.
4 Standing Committee of the Attorneys-General's Discussion Paper into Litigation Funding, May 2006.
5 (2006) 229 CLR 386 (Fostif).
6 (2005) 219 ALR 1.
7 Legal Services Commissioner v Barrett (Legal Practice) [2012] VCAT 1800 (23 November 2012).
8 Standing Committee of the Attorneys-General's Discussion Paper into Litigation Funding, May 2006.
9 Victorian Law Reform Commission, Civil Justice Review Report (2008), p.686.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Worrells Solvency & Forensic Accountants
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Worrells Solvency & Forensic Accountants
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions