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.

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 Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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