An extensive interview with Levitt Robinson Principal Stewart Levitt was featured in the Legal Affairs section of the Australian on Friday 31 October 2014.
Entitled “Class action ‘mates’ too powerful, says Stewart Levitt“, the interview by the Australian’s Legal Affairs editor Chris Merritt presented strong criticisms by Mr Levitt of the relationship between large class action firms and litigation funding companies.
Mr Levitt argued that an industry has developed around the close relationships between large plaintiff law firms and litigation funders, which drives frivolous actions against large corporations or government agencies with deep pockets, the outcomes of which benefit the lawyers and the funders far more than the class members themselves.
The text of the article was as follows:
PLAINTIFF lawyer Stewart Levitt says the law governing class actions needs to be changed to eliminate what he believes is a bias in favour of large plaintiff law firms and litigation funders.
He says the relationship between large class action firms and litigation funding companies is overly close and this has given them too much influence over this part of the legal sector.
“They are all mates,” said Mr Levitt, who is principal solicitor at law firm Levitt Robinson.
“And the trouble is that the big plaintiff firms and litigation funders all control the game.
“The big losers are the punters.”
Mr Levitt cited the example of the $150 million settlement in the Centro class action.
In that case, litigation funder Bentham IMF received 40 per cent, or $60m, while Maurice Blackburn received about $18m, which left about $72m for clients.
The settlement in a class action Mr Levitt’s firm ran against Macquarie Bank was much smaller — $82.5m — but he said the payout to clients would be larger than the payout from the $150m settlement in the Centro case.
This was because the $7.5m cost of running the Macquarie Bank class action had been financed by some of the plaintiffs who received interest on their outlays on legal fees of 7-8 per cent, Mr Levitt said.
“That means they got about $8.5m, coming off the top of $82.5m,” he said.
Another $1m went on administrative expenses but once interest on the settlement was included, the amount available for distribution from the Macquarie Bank class action would be about $75m, compared with $72m from the Centro case.
Mr Levitt said he was in favour of class actions but it was important that these cases were “genuine” and were being brought in order to address real grievances for the plaintiffs.
He believed the legal and regulatory environment was encouraging big plaintiff firms to “invent” class actions where the members of the class each had a very small stake in the case and little interest in how much money was being made by their lawyers and litigation funders.
“If people never knew they had a claim and will finish up with a couple of thousand dollars, they are not going to give a rat’s arse how much the funder and the law firms are making,” he said.
“Those are the sort of cases that are being brought now — inventive cases with no social utility.”
Mr Levitt’s criticism comes as Attorney-General George Brandis considers a report on the future regulation of class actions and litigation funders.
That report, by the Productivity Commission, is the result of an inquiry into access to justice whose terms of reference were drafted by the Gillard government before it lost office last year.
The report, which Senator Brandis has not made public, is expected to be assessed by an expert panel that will advise him on how to end what he has described as “wildcat and opportunistic class actions”.
Mr Levitt said he believed the dominance of the big plaintiff firms and the litigation funders could be broken by allowing lawyers to charge US-style contingency fees that are calculated as a percentage of the damages awarded to their clients.
While litigation funders currently take up to 40 per cent of class action settlements, Mr Levitt said he favoured a system in which lawyers could charge contingency fees of no more than 20-30 per cent.
He also favours reversing a ruling in a case his firm ran and allowing plaintiffs who help fund class actions to receive the same “uplift” as litigation funders.
However, that uplift would also be capped at no more than 20-30 per cent.
This would reduce the cost of class actions to individual plaintiffs and provide real competition for litigation funders, he said.