Federal Government Attorney-General Christian Porter is continuing to consider class action reforms as the Australian Industry Group (Ai Group) warns increased activity by litigation funders and an explosion in cases presents a “clear and present danger” to the fragile economy.

Ai Group says well over $10 billion was claimed against businesses in class actions filed last financial year, based on conservative estimates, and companies are facing surging insurance costs.

“Overseas litigation funding firms have moved into Australia in a big way due to the fact that class actions in Australia are subject to scant regulation, compared with other countries such as the US and UK,” CEO Innes Willox said.

“Regulation cannot be left to the courts. Litigation funding arrangements are financial products and these arrangements need to be regulated like other financial products.”

An Australian Law Reform Commission (ALRC) report to the Government released in January made recommendations on class actions, but stopped short of calling for litigation funders to be licensed.

“The report raised complex issues which will need thorough consideration and I am carefully considering each of the report’s recommendations. However, it is clear that there is a need for reform in this area,” Mr Porter said today.

“The emergence of overseas litigation funding in the Australian market is concerning and the class action regime needs to be free from actors seeking solely to profit from the circumstances of others.”

Mr Porter says he is actively engaging with stakeholders as part of the process of preparing a response to each of the recommendations from the ALRC report to ensure the class action regime provides “just and effective” outcomes.

Ai Group says legislative amendments should be implemented without delay to ensure litigation funders are regulated through the Australian Securities and Investments Commission, and that reasonable limits on returns to plaintiff lawyers and funders are imposed.

Other recommendations by the group include exposing lawyers and funders to adverse costs orders for unsuccessful actions and increasing the number of minimum plaintiffs for a case to be started.

Litigation funders should also be prohibited from exerting any control over the positions taken and the arguments pursued by lawyers in proceedings, it says.

“Insurers are playing a big role in class actions. This is leading to massive increases in insurance costs generally for businesses, which is money that could otherwise be spend more productively on job creation or investment,” Mr Willox says.

“If the Federal Government does not act quickly to protect the Australian economy from speculative class action claims, it may be too late to prevent substantial damage.”