The Federal Government has released draft legislation that would limit the proceeds class action litigation funders receive as it pushes ahead with increased regulation of an industry that has expanded rapidly in Australia.

The proposed laws would establish a “rebuttable presumption” that a return to class action members of less than 70% of gross proceeds is not fair and reasonable.

Treasurer Josh Frydenberg and Attorney-General Michaelia Cash say the draft bill aims to ensure class action participants are adequately compensated as well as preventing litigation funders and law firms from taking disproportionate fees in the process.

Rule changes would also require people to consent to becoming members of a class action litigation funding scheme before fees or commissions could be imposed.

Marsh Head of Financial and Professional Liability Craig Claughton says the bill is positive from an insurance perspective, with the number of overseas-based litigation funders operating locally surging in recent years as they have benefitted from high returns.

“I think it will curb the enthusiasm of litigation funders,” he told insuranceNEWS.com.au. “They will be very careful about which cases they choose to put their capital towards.”

The draft bill follows recommendations made a Federal Parliament Joint Committee inquiry, which heard from insurers about soaring directors’ and officers’ (D&O) premiums. Mr Claughton says a percentage cap may not necessarily be the best approach, but there’s a need for an improved processes around funder proceeds.

Listed company continuous disclosure rule reforms that limit civil proceedings to cases where there has been “knowledge, recklessness or negligence” have also been among changes introduced following inquiries into litigation funding.

D&O rates have surged by more than 100% in recent years, but eased to well below that level in the second quarter of this year.

“Premiums are continuing to rise, but the rate of increase is coming down,” Mr Claughton said. “It is still a significant cost.”

The Association of Litigation Funders of Australia (ALFA) says plans to limit fees will threaten access to justice for millions of people as it would make many class actions unviable and limit the number of actions filed.

“To be clear, this bill is about making life easier for company directors and executives by shielding them from the legal consequences of negligence or wrongdoing resulting in financial or physical harm to Australians,” ALFA Chairman John Walker said.

ALFA says fees attached to class actions are reducing naturally as a result of heightened competition among funders and law firms in class actions.

“This competition is serving the market and bringing about the outcome the Government says it wants, but without undermining the viability of the industry overall,” he said.

Maurice Blackburn National Head of Class Actions Andrew Watson also says the proposed bill will cripple the capacity of “everyday Australians” to take legal action against corporations and governments.

“The Morrison Government wants class actions de-clawed and de-fanged so corporations can use their power and size to get away with hurting people,” he said.

"Class actions are hugely expensive, because you are invariably taking on a giant with deep pockets and a lot to lose. They need funding options to survive.”

The consultation period on the draft bill and regulations opened today and extends to next Wednesday.

Details are available here.