April 2023: Professor Morabito reports on 21 years of funded class actions in Australia – what are the trends?

In his latest report, Professor Vince Morabito analysed some of the key trends in?funded Australian class actions?over the last 21 years.?We set out below 3 key takeaways from his analysis, and what it might mean for funded class actions in Australia going forward.?

1.???????????Litigation funders are supporting a greater variety of class actions

Professor Morabito found that in the past 31 years, shareholder, consumer protection, and investor class actions comprised 72% of funded class actions.?This is unsurprising – these have historically been the engine room of class actions in Australia.?While the specific facts in each class action differ, it is our observation that these types of class actions typically involve a similar pattern of allegations which provided some degree of comfort to, and certainty for, litigation funders when considering their potential returns.

In the past 6 years, Professor Morabito found that while litigation funders were still staunch supporters of shareholder class actions, the backing of investor class actions had significantly reduced. ?Instead funders were now increasingly considering product liability, employment and mass torts class actions as avenues for new funding opportunities.?Based on recent developments in the Australian class action landscape, we foreshadow a continued expansion in areas of interest for litigation funders, including in the areas of cybersecurity breaches and ESG-related claims.?

Relevantly, one takeaway of this data is that class action risks continue to grow in Australia as a result of the expanded focus into new litigation funding opportunities.

2.???????????Litigation funders' commission rates are decreasing

Professor Morabito analysed litigation funders' commission rates in the past 6 years.?In that period, the median commission rate decreased from 23.9% to 22.25%.?

Further, he compared median commission rates before and after June 2020, being the month in which the Victorian Supreme Court permitted plaintiff lawyers to receive a percentage of the monetary compensation recovered on behalf of group members, in exchange for funding the case – known as a Group Costs Order (GCO).?In this 3 year period, the median commission rate decreased from 24.9% to 22.25%.?In his view, this data is most relevant as it is derived from the current class action landscape.

The decrease to litigation funders' commission rates may not necessarily result in a decrease in class action settlement sums. ?It is expected that group members will likely benefit from this trend by receiving a greater percentage of any settlement sum or judgment award (consistent with the objectives of the Australian class action legislative regime). That being said, the Victorian GCO regime is still in its (relative) infancy, and how that impacts the litigation funding landscape overall remains to be seen.

3.???????Funded class actions typically settle more often, for a higher amount, and last longer than unfunded class actions

Finally, Professor Morabito undertook a comparison between funded and unfunded class actions in terms of settlement rate, settlement sums, and duration.?In summary:

• the settlement rate for funded class actions was 67.6%, whereas the settlement rate for unfunded class actions was 48%;
• the median settlement sum for funded class actions was $32.45M, whereas the median settlement sum for unfunded class actions was $5.2M; and
• the median duration of funded class actions (which resulted in settlement) was 1,226 days, whereas the median duration of unfunded class actions (which resulted in settlement) was 808 days.

For further queries or if you would like to discuss the implications from Professor Morabito's report in more detail, please contact us.?