Class Actions, Litigation Funding and the Law

01/06/2016 13:01 | Updated 01 June 2016

Class actions, or 'representative proceedings' as they're more formally known, have emerged from being a little used legal mechanism to a significant and growing area of litigation. The procedure itself has existed in English court rules since 1883(1) and emerged in their current form in Australia in 1992 at the Federal level (2). Class actions in the USA are firmly established whilst other jurisdictions such as Singapore have handed down decisions indicating that class actions are becoming more readily accepted there(3).

In a Nutshell

A class action is a legal mechanism in which one or more members of a 'class' (or group) of people bring a claim that they and other members of that class share a common interest in(4). The rights of all class members relating to that claim are determined by the claim brought by the group's representative or lead applicant. So, if the claim succeeds, all the claimants will succeed and any judgment handed down is binding on all represented members. However, people who share a common interest don't have to participate and can 'opt out' of a proceeding if they so wish.

Accessing Justice

Whilst mention of class actions may evoke scenes of high-stakes litigation and are sometimes perceived as encouraging 'US style litigation', they are now accepted as being key mechanisms to allow access to justice and as a form of 'private regulation' that regulatory bodies such as the Australia Securities and Investments Commission have cautiously welcomed as a 'self-help' mechanism(5). In Australia, the Bill that introduced the current class actions regime at the Federal level specifically outlined that the regime was to assist 'access to the courts to those in the community who have been effectively denied justice because of the high cost of taking action'(6). In other words, class actions are seen to allow potentially large groups of people who have all suffered the same wrong or loss seek redress where their individual loss is small and the cost of righting that wrong is too high for any one individual.

In Australia, this has been seen in over 30 such proceedings being filed as of 30 June 2015(7). Nearly half of these proceedings related to securities, financial products and investment claims. The causes of actions included breaches for misleading or deceptive conduct and continuous disclosure obligations. These are just some examples of class actions being used by private citizens enforcing their rights where they may not otherwise have been able to do so. Other areas include large scale environmental actions such as the Wivenhoe Dam class action that had over seven thousand class members.


In many jurisdictions, the loser of a case has to pay the costs of the other side. Countries such as the UK, Canada and Australia follow this practice whereas the USA does not. Such rules present real obstacles to individuals and groups wishing to pursue an action against a larger and often better funded defendant. Other obstacles include the cost of lawyers, counsel and the complexity of large scale of litigation that often takes a long time to resolve or settle. The problem this presents has been addressed by the emergence of large and small litigation funders who agree to fund the costs of running a case in return for an agreed upon fee, often a percentage, from any recovery or settlement.
When pitted against large and sometimes multi-national companies, members of a class action often turn to third party litigation funders to help them level the playing field. In this way, funding can help 'rebalance' the scales between two parties where formerly one party would have a potentially quite large advantage in access to both legal expertise and finance.

Under the common law such funders ran the risk of breaching the doctrines of maintenance and champerty - in effect 'stirring up litigation' without just cause or doing so for a 'share of the proceeds'(8). However recent decisions have affirmed these concerns have diminished over time, comparing them to a 'receding tide' and that funding provides a valuable tool in ensuring access to justice in the face of the rising costs of litigation(9). In Australia, the High Court case of Fostif sanctioned the use of third party funding in 2006. Since then, fears of entrepreneurial or US style litigation emerging have failed to materialise. Class actions are expensive to run and the normal rule that costs follow the event means the unsuccessful side pays most of the winner's fees. As such commercial funders such as IMF Bentham have no reason to back unmeritorious claims. This accepting attitude towards funding is also spreading into Asian jurisdictions such as Singapore(10).

Looking Forward

It is clear that courts in common law jurisdictions are growing increasingly accepting of class actions. Acceptance of litigation funding and the benefits it can bring to legal systems that struggle with costs and timely access to justice is also spreading. In the face of an ever expanding economy where large companies dominate, ensuring mechanisms exist that allow individuals to pool together and protect their rights against large foes in an efficient manner is vital. Law firms, insolvency practitioners and individuals are becoming much more ready to accept class actions and litigation funding as a useful legal mechanism and product to pursue meritorious claims that might otherwise have not been viable.

References/Further Reading
1. Rules of the Supreme Court 1883 (UK) O 16 r 9.
2. See Part IVA of the Federal Court Act (1976).
3.See for example the case of Koh Chong Chiah and others v Treasure Resort Pty Ltd and another
[2012] SGHC 239.
4. See s. 33C Federal Court Act (1976) for the criteria in Australia setting out what constitutes a 'class' of people in such a proceeding.
5. Per Jeremy Cooper, Deputy Chairman, ASIC - 'Corporate Wrongdoing: ASIC's Enforcement Role' (Paper presented at the International Class Actions Conference, Melbourne, 2 December 2005).
6. Commonwealth Parliamentary Debates, House of Representatives, 14 November 1991, 3174, Michael Duffy, Attorney General.
7. See 'Getting the Deal Through: Securities Litigation 2016', Australia, C Pagent, K Sleiman and S Soueid, available at:
8. See Lord Denning's judgment in Re Tripeca Mines Ltd (No 2) [1963] CLY 2009 at [219].
9. Gore v Justice Corporation Pty Ltd [2002] 18 ALR 717 at [733].
10. See Re Vanguard Energy Pty Ltd [2015] SGHC 156.