The federal government’s decision to pay back $721 million to people who were wrongly punished by the robo-debt revenue-raising program highlights both the benefits and the risks of the legal process known as class action.
Minister for Government Services Stuart Robert on Friday announced he would make payments to about 373,000 people who had been forced to refund welfare payments when the government used an inaccurate automated checking system to recalculate their benefits.
The government lost a test case brought by one plaintiff last year but it only announced the payouts after law firm Gordon Legal started a class action on behalf of other people. Despite Friday’s announcement, the law firm is still planning to sue for damages and interest.
Supporters say this is the classic case where wronged individuals can use class actions to secure justice that none of them could individually afford.
There are many examples of successful cases. Victims of toxic chemical spills in Williamtown, near Newcastle, were recently awarded $212.5 million from the federal government following three class actions; and Johnson & Johnson has settled out of court dozens of cases worldwide for defective breast implants.
Yet company directors have raised concerns that class actions are becoming so common they are making it impossible to do business without fear of being sued. They cite figures showing a three-fold increase in cases in the past decade.
Too often, they say, class actions earn fees for plaintiff lawyers and for outside litigation funding companies who finance them, but leave next to nothing for the people whose interests they are supposed to represent. The little guys in class actions often have minimal say in the conduct of the case.
The Australian Law Reform Commission found about 28 per cent of litigation proceeds went to funders, 55 per cent to affected shareholders and 15 per cent to legal costs.
There has been a flurry of regulation in the past six months. In general, the Coalition has tended to be more sympathetic to companies that are potential targets of actions and the ALP has supported plaintiff law firms with whom it has close links.
Business fears that a Victorian ALP government proposal to change the way lawyers charge for their services will trigger a new wave of class actions. Victoria wants to legalise so-called “contingency fees” where lawyers take a cut of the settlement if they win.
The federal government, on the other hand, has moved to protect companies from class actions by shareholders who say they should have been warned about events that could affect the share price.
Because of the huge uncertainty caused by the COVID-19 pandemic, Treasurer Josh Frydenberg suspended so-called “continuous disclosure” laws, freeing companies from issuing profit guidance for six months.
He has also proposed requiring litigation funding companies to register with the Australian Securities and Investments Commission, saying this will ensure litigation funders keep all participants in the class action informed and screen out cowboy operators.
Plaintiff lawyers and litigation funders are concerned, however, that the new rules will make it harder for them to bring genuine cases.
It will take time to sort out whether a balance has been struck between fighting vexatious claims by ambulance chasing lawyers on the one hand and giving the wronged access to costly justice on the other.
In fighting the former, the newly proposed oversight measures must not go too far and strangle reasonable cases, such as the robo-debt class action, that give ordinary people a fighting chance in the courts.
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