The cost of class actions: How vulnerable people are losing out | Four Corners Documentary

Key Concepts

Class actions, litigation funding, legal fees, commissions, settlements, lead plaintiff, vulnerable clients, power imbalance, regulation, transparency, oversight, social justice, stolen wages, Aboriginal workers, exploitation, fairness, court approval, conflicts of interest.

Banksia Securities Class Action: A Case of Fraud and Exploitation

The Banksia Securities collapse in 2012 left 16,000 investors, many of whom were retirees, with significant losses. A class action was initiated by lawyer Mark Elliot, with his firm acting as both the legal representative and the litigation funder. A $64 million settlement was reached, but Keith Pitman, a member of the investor committee, objected to the proposed distribution, as $19 million (almost a third) was allocated to legal fees and commissions. Pitman, along with Wendy Botszman (another investor) and her son Chris Botsman (a lawyer), challenged the settlement. The lawyers then began a campaign of intimidation against Wendy. The court later found that Elliot and his team had fraudulently backdated invoices to inflate their costs. The court described the lawyers' actions as "dishonorable and fraudulent" and "one of the darkest chapters in Victoria's legal history." Mark Elliot subsequently took his own life. Three other lawyers were struck off. This case highlights the potential for exploitation of vulnerable class members and the importance of scrutiny of legal fees and commissions.

The Rise of Litigation Funding and its Impact

Peter Cashman, a prominent class action lawyer in the 1990s, notes that the landscape changed after a High Court decision allowed litigation funders to invest in class actions. Now, class actions are often initiated by funders and law firms seeking profit, rather than by victims themselves. Australia has become a "honeypot" for overseas litigation funders due to the lack of regulation. John Walker, a pioneer of litigation funding in Australia, defends the industry, arguing that it provides access to justice for those who cannot afford legal costs. However, he acknowledges that legal costs can be too high. He states, "We underwrite the project. We'll pay everybody if we lose, but in return, if we win, then we get a share of the recovery."

The Uber Class Action: A Question of Fairness

Morris Blackburn, a leading law firm, launched a class action against Uber on behalf of taxi drivers whose businesses were negatively impacted by Uber's entry into the market. The case was funded by Harbor Litigation Funding, an offshore firm registered in the Cayman Islands. A $272 million settlement was reached, but Steven Lars, a Queensland taxi owner, felt it was a "slap in the face" because he was never consulted. Harbor received an $81.5 million commission (a 250% return), and Morris Blackburn received almost $39 million in legal costs. Taxi drivers were left with just over half of the payout. Steven Lars expected to receive $43,000 but after fees, he only received a little over $20,000. The details of Morris Blackburn's $39 million legal bill were kept confidential under a court order. This case raises questions about the fairness of the distribution of settlement funds and the lack of transparency in legal costs.

Regulatory Debate and Political Influence

The Morrison government attempted to regulate litigation funders by capping fees and commissions at 30% and requiring funders to be licensed by ASIC. However, the Labor Party opposed these reforms. Critics suggest that Labor's opposition was influenced by its close ties to plaintiff law firms, which are often financial backers of the party. John Walker argues that the coalition, through the Menzies Research Centre, aims to protect large corporations. The lack of regulation in the litigation funding industry is a concern, as it allows for potentially excessive profits without adequate oversight.

Stolen Wages Class Actions: Exploitation of Aboriginal Workers

Shine Lawyers, with funding from Litigation Lending Services, launched class actions in Western Australia (WA) and the Northern Territory (NT) on behalf of Aboriginal workers who were exploited from the 1930s to the early 1970s. Minnie McDonald, a 90-year-old woman who worked at Lake Nash station, was the lead plaintiff in the NT case. She is illiterate and relied on her granddaughter and lawyers to understand the legal documents. The WA and NT class actions were settled for $180 million and $200 million, respectively. Shine Lawyers received at least $41.6 million, and Litigation Lending Services will take a commission of up to $57 million. Aboriginal workers are estimated to receive between $10,000 and $14,000 each. A federal court judge criticized Shine for running up "enormous costs" and charging excessive hourly rates for law clerks. The Chief Justice in the NT case stated that the pursuit of the business model had overshadowed the good intentions of the lawyers. A confidential report revealed that Shine hired numerous barristers at high hourly rates and attempted to claim excessive expenses for meals and alcohol. Minnie McDonald and her granddaughter believe the payout is not fair compensation for the years of exploitation. This case highlights the potential for exploitation of vulnerable Aboriginal workers and the need for greater scrutiny of legal fees and commissions in social justice class actions.

Synthesis/Conclusion

Class actions in Australia, while intended to provide access to justice and compensation for victims, have become a lucrative industry for litigation funders and law firms. The lack of regulation, transparency, and oversight has led to concerns about the fairness of settlement distributions, excessive legal fees and commissions, and the potential for exploitation of vulnerable class members. The Banksia, Uber, and stolen wages cases illustrate these issues, highlighting the need for reforms to ensure that class actions truly serve the interests of justice and provide meaningful compensation to those who have been harmed. The role of judges in overseeing these cases is crucial, but may not be sufficient to address the systemic problems within the industry.