Class action funders and lawyers face further restrictions under draft legislation that the Federal Government has released following recommendations from a Parliamentary committee inquiry.

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.

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.

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.”

Insurers highlighted the impact of increased class action activity on the directors’ and officers’ insurance market in appearances before the Parliamentary inquiry last year.

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.

The consultation period on the draft bill and regulations closes on Wednesday. Details are available here.