A federal push to change the rules around class action lawsuits will make it more difficult for people to get justice from the courts. By Kieran Pender.

Access to justice threatened by new rules for class actions

Lindsay Clout, who was part of a class action against the Defence Department over PFAS chemicals.
Lindsay Clout, who was part of a class action against the Defence Department over PFAS chemicals.
Credit: Ann Clout

Lindsay Clout still remembers the phone call. It was five minutes past seven, one morning in 2015. On the other end of the line was a journalist from the local radio station. “He said, ‘What’s the story with this PFAS contamination?’ My answer was … ‘I’ve got no idea; you better tell me.’ ”

Clout, 70, and his wife, Ann, have lived on their 30-hectare property in Fullerton Cove, north of Newcastle, New South Wales, for three decades. At first they reared Black Angus cattle, before deciding, 16 years ago, “that wasn’t going to be a retirement project”. So the couple opened a garden centre on the site, which has been in business ever since.

The journalist was calling to ask about perfluoroalkyl and polyfluoroalkyl substances (PFAS) – a label given to a class of manufactured chemicals that have been linked to various health conditions and birth defects. That morning, in 2015, the NSW Environment Protection Authority had announced that the area where the Clouts lived was polluted with PFAS chemicals. Looking back, he says: “No one had ever heard of it.”

The couple live five kilometres from the Royal Australian Air Force’s Williamtown base, where PFAS have been used as a fire retardant. The chemicals have spread across the landscape and seeped into the watertable.

Overnight, land values plummeted. Banks would not provide home loans for those wanting to buy in the area, creating an equity trap for existing residents. While the jury remains out on the exact health implications of PFAS, there are concerns that high levels of exposure could have a lasting, adverse impact. In the general population, PFAS levels in the blood are about 15 nanograms per millilitre; some Williamtown residents have readings above 100.

After the news broke, the community quickly came together, alongside residents in Oakey, Queensland and Katherine, Northern Territory, who were also adjacent to Defence bases. They campaigned in the media and enlisted the support of a local MP. “All of our plans,” says Clout, “were directed towards having this area cleaned up and having our life back.”

Ultimately, they were forced to start a class action against the Defence Department. Defence denied any liability. Agencies blamed each other. It was only after four years of intense legal wrangling that the federal government settled on the courtroom steps, just before the case went to trial. The total settlement – split between the three communities – was worth more than $200 million. The worst-affected households received up to $300,000 each. Clout demurs when asked how much he received: “I’d rather not say.” 

Major litigation is extremely expensive. Clout says that the case was only possible because of the class action mechanism, which enables many individual legal claims to be heard in one consolidated case, and litigation funding, where a company bankrolls the litigation in return for a split of any proceeds. “Our legal bill was $10 million,” he explains.

The Williamtown class action contained about 400 individuals. Without the backing of a litigation funder, Omni Bridgeway, each class member would have had to stump up $25,000 in legal costs – and face the risk of owing the government millions in costs if they lost. “People couldn’t have afforded that.”

Clout’s case is salient as the Morrison government attempts to enact new legislation, currently before the senate, that will curb the ability of litigation funders to support class actions. Critics of the proposal say the changes will diminish the access to justice, leaving ordinary Australians unable to pursue legal compensation and shielding big businesses from liability for their wrongdoing.

The Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill sounds relatively benign. But the confusing, poorly drafted amendments could make it more difficult for plaintiffs to seek justice.

“They claim they want to protect the interests of plaintiffs, but that’s garbage,” says Julian Hill, a Labor backbencher who has served on a parliamentary committee examining the proposals. “They actually want to make it harder for everyday people to band together and get justice in the courts.”

A central part of the scheme will be a floor on minimum payouts to litigants – that is, how much of a payment goes to the people in the case, after fees for lawyers and commissions to litigation funds are taken out. It will become a rebuttable presumption that a class action payout is not fair and reasonable, and therefore not deserving of approval by the Federal Court, unless class members receive at least 70 per cent of the total sum.

This minimum floor, which has no economic basis, and was proposed without any accompanying modelling, could make it uneconomical for funders to support class actions. Without funding, some of the most high-profile class actions might never have been started.

“While it is a lofty goal to return the maximum amount to group members, what this legislation is highly likely to do is just wipe out class actions – make them unviable for funding,” says Tania Sulan, chief investment officer at Omni Bridgeway’s Australian arm, the funder that supported the PFAS cases. “If you don’t have funding, a lot of them just can’t be pursued.”

While proponents of the bill have decried greedy lawyers and financiers, Sulan says litigation funders are already subject to a strict oversight regime. “We already have a strong supervisory and regulatory framework,” she says. “These class actions are very closely managed by the judges.” Settlements have to be approved by the courts, who consider whether it is fair and reasonable in all the circumstances. “To suggest you can just take a blunt tool and put a number on it,” Sulan continues, “just ignores the complexity of these cases.”

Echoing these concerns is Ben Phi, managing director of Phi Finney McDonald, a class actions lawyer who has achieved almost half a billion dollars in settlements for clients during his career. “There seems to be a suggestion on the government side that unless cases can be performed at a certain cost, at a certain price, then they shouldn’t be brought at all,” he says. “Now that clearly benefits the wrongdoer. It basically says unless there is a guaranteed minimum level of recovery to group members, the defendant – who wronged people – they get to keep 100 per cent.”

Phi says that in recent years greater competition among litigation funders in Australia was having a downward impact on cost. “The vibrant and active competition was significantly reducing the cost to group members already,” he says. “It was broadening access to justice and making cases possible that wouldn’t have been run previously, all while reducing the overall cost. It was exactly what a free market is meant to achieve.”

Even those on the other side of the fence do not offer a ringing endorsement for the legislation. Jason Betts, co-head of class actions at law firm Herbert Smith Freehills, is considered one of Australia’s leading corporate defence lawyers. He says “while the idea that more scrutiny should be placed on the funders’ activities and the comparative returns between class members and funders is solid … the reform approach is a bit underwhelming given the complex commercial, risk and other considerations which go into working out the fair and reasonable distribution of a class action settlement”.

In an extraordinary intervention earlier this month, the Federal Court chief justice James Allsop called on the parliament to “put to one side … personal prejudices and assumed positions from limited experience”. Thanks to class actions and litigation funding, the highly respected judge said, “the administration of justice and society have been brought forward”.

There are also constitutional concerns with the proposed law. During the latest committee review, the Attorney-General’s Department refused to indicate the constitutional basis for the bill. It was revealed that the department had sought seven different pieces of legal advice about constitutional issues, raising concerns it was advice-shopping.

In a submission to an earlier joint parliamentary inquiry, the Association of Litigation Funders of Australia, an industry group, provided an opinion by three barristers, including former solicitor-general Justin Gleeson, SC. “It appears to us that insufficient attention has been given to the source of Commonwealth legislative power to sustain the Bill,” they wrote. “In our opinion, some provisions may be beyond power.”

With just two sitting days remaining in the senate before the election, it is probable the bill will not become law this term. Earlier this month, Attorney-General Michaelia Cash said the reforms, together with a federal integrity commission, would have to wait. A wary Hill warns that, without a significant legislative agenda remaining, anything is possible from the Coalition. “If Josh Frydenberg could sneak this through the senate in the dying days of this parliament, he would.”

Yet even if the changes do not become law during the current parliament, they will be back on the agenda early next term, if the Coalition retains power.

While Lindsay Clout’s PFAS case has long since settled, he tells The Saturday Paper that the issue remains hugely important to him. Without class actions and litigation funding, his community would not have achieved justice. “I feel strongly about this – there will be other people out there that will need this resource,” he says. “And if it’s taken away from them, they will be helpless.”

This article was first published in the print edition of The Saturday Paper on February 26, 2022 as "Cutting class".

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