The Claim
“Created red tape which will make it harder for individuals to take class actions against companies which have broken the law. This goes directly against the Coalition's stated values, which include slashing red tape, and relying on free market solutions (such as class actions) to minimise bad corporate behaviour (as opposed to direct regulation).”
Original Sources Provided
✅ FACTUAL VERIFICATION
The Coalition government did introduce new regulations affecting litigation funding in class actions. On 22 May 2020, the government announced changes to litigation funding regulation, and the Corporations Amendment (Litigation Funding) Regulations 2020 were enacted, with effect from 22 August 2020 [1]. These regulations required litigation funders to hold an Australian Financial Services Licence (AFSL) and comply with the managed investment scheme regime under the Corporations Act, subjecting them to regulation by ASIC [1].
Treasurer Josh Frydenberg justified the regulations by stating: "Litigation funders currently do not face the same regulatory scrutiny and accountability as other providers of financial services and products" [2]. The regulations were presented as ensuring "greater transparency and accountability" [2].
However, the characterization of these regulations reflects a significant shift in Coalition policy, not consistency with stated deregulatory values. The critical fact is that Labor had previously introduced exemptions from these very same regulations in response to the 2009 Brookfield Multiplex court decision [3]. When the Federal Court held that litigation funding was a "managed investment scheme" requiring regulation, the Labor government quickly moved to exempt funders from the MIS regime to facilitate access to justice [3]. The Coalition government reversed this exemption in 2020, reinstating regulatory burdens [3].
Missing Context
The claim omits crucial historical context that fundamentally changes the interpretation of Coalition consistency:
Labor pioneered deregulation: After the 2009 Brookfield Multiplex decision imposed regulatory burdens on litigation funders, the Labor government explicitly exempted them from the managed investment scheme regime [3]. This was done to promote access to justice and encourage litigation funding for class actions [3].
This was successful policy: The exemption led to significant growth in class action activity, particularly third-party funded class actions, which created opportunities for individuals to pursue corporate accountability without personal financial risk [4].
The Coalition reversed Labor's deregulation: Rather than continuing Labor's pro-access-to-justice policy, the Coalition reintroduced regulatory requirements in 2020, effectively reinstituting the burden that Labor had removed [3].
The regulations were implemented before evidence gathering: Critically, Parliament's Joint Committee on Corporations and Financial Services was still investigating the issue, with its report due months after the August 2020 implementation date [2]. The government accelerated regulation ahead of evidence.
Policy reversal was temporary: The Full Federal Court overturned the legal basis for the 2020 regulations in June 2022 in LCM Funding Pty Ltd v Stanwell Corporation Limited [2022] FCAFC 103, finding that the earlier Court decision in Brookfield Multiplex was "plainly wrong" and that litigation funding schemes are not managed investment schemes [5]. The newly elected Labor government subsequently wound back the regulations [5].
Source Credibility Assessment
The original source (ABC News article from August 2020) is a reputable mainstream news outlet that accurately reported the government's policy announcement and included perspectives from legal professionals expressing concerns [2]. The ABC is generally considered reliable for factual reporting, though like all news sources, editorial choices about which voices to include affect framing.
The article appropriately quotes both government justification (Treasurer Frydenberg on regulatory oversight) and professional concerns from lawyers (Tom Marland on access to justice impacts) [2]. The reporting appears balanced in presenting multiple perspectives on the regulatory change.
Labor Comparison
Did Labor do something similar?
This is where the claim's logic breaks down. Labor did not create red tape on litigation funding—Labor removed it. When faced with the same regulatory situation, the Labor government took the opposite approach:
- 2009: Federal Court ruled litigation funding was a managed investment scheme requiring regulation (Brookfield Multiplex decision) [3]
- Labor's response (2009-2010): Quickly introduced exemptions to remove regulatory burden on litigation funders, explicitly to promote access to justice [3]
- Coalition's response (2020): Reintroduced the regulatory burden that Labor had removed [3]
The Coalition government did not introduce new red tape by their own initiative—they reversed a Labor deregulation. This is a critical factual distinction that makes the claim's internal inconsistency argument more complex than presented [4].
Balanced Perspective
The government's rationale:
The Coalition government justified the 2020 regulations as necessary consumer protection. Treasurer Frydenberg argued that litigation funders operating as "managed investment schemes" should face the same regulatory scrutiny as other financial services providers, citing the need for transparency and accountability [2]. This represents a legitimate regulatory philosophy—treating similar financial activities similarly.
The legal/professional concerns:
Legal professionals, including rural lawyers like Tom Marland, genuinely feared the regulations would restrict class action activity by creating compliance costs that would particularly burden smaller litigation funders serving smaller communities [2]. This concern has historical support: the original Brookfield Multiplex regulation in 2009 created significant uncertainty, which Labor resolved through exemptions [3].
The actual impact:
The practical impact was relatively short-lived. The regulations were implemented in August 2020 but were effectively overturned in June 2022 when the Full Federal Court determined the legal basis was faulty—Brookfield Multiplex was "plainly wrong" [5]. By June 2022, the newly elected Labor government was already signaling it would wind back the regulations, which became unnecessary after the court decision [5].
The consistency issue:
The claim that this contradicts Coalition values regarding deregulation has merit, but requires context:
- The Coalition did not introduce novel red tape—they reversed Labor's deregulation
- However, given that class actions are a recognized "free market mechanism" for corporate accountability (as the claim notes), the decision to reregulate funding sources does appear to contradict stated deregulatory values
- The regulation was presented as financial services regulation (ASIC oversight) rather than litigation regulation, which provided an alternative justification
- The regulatory burden created by the 2020 changes proved temporary and was reversed by court decision within two years
Comparative analysis:
When faced with the same regulatory challenge (Brookfield Multiplex court decision), Labor chose deregulation (exemptions), while the Coalition chose reregulation. This represents a genuine policy difference between the parties, not a case of the Coalition introducing novel red tape contrary to values—rather, it's the Coalition reversing Labor's pro-deregulation position.
The claim's broader point—that the Coalition's regulation of litigation funding contradicts stated values about slashing red tape and relying on market mechanisms—is not without merit, though the historical context shows Labor had already solved this problem through deregulation, which the Coalition chose to reverse.
PARTIALLY TRUE
6.0
out of 10
The Coalition did introduce regulations on litigation funding that added compliance requirements and regulatory scrutiny through ASIC, which legal professionals credibly argued would restrict class action activity [1][2]. However, the claim's framing is incomplete and somewhat misleading:
The "red tape" claim is accurate - The 2020 regulations did impose additional regulatory burden on litigation funders through AFSL requirements and managed investment scheme compliance [1].
But historical context matters - These regulations reinstated requirements that Labor had explicitly removed in the post-2009 period to promote access to justice [3]. The Coalition did not introduce novel red tape; they reversed Labor's deregulation [3].
The consistency criticism has merit - If class actions are recognized as "free market solutions" to corporate accountability (as the claim states), then restricting access to litigation funding through regulation could be seen as contradicting deregulatory values [1][2].
The impact was time-limited - The regulations proved problematic and were effectively superseded within two years when the Federal Court overturned the legal basis for them in 2022 [5].
The fundamental tension is real: the Coalition did reregulate litigation funding in a way that contradicts stated values about cutting red tape. However, this required reversing Labor's prior deregulation choice, not creating new red tape from whole cloth. The claim would be more accurate if it stated: "Reversed Labor's deregulation of litigation funding by reintroducing regulatory requirements," which more precisely describes what occurred.
Final Score
6.0
OUT OF 10
PARTIALLY TRUE
The Coalition did introduce regulations on litigation funding that added compliance requirements and regulatory scrutiny through ASIC, which legal professionals credibly argued would restrict class action activity [1][2]. However, the claim's framing is incomplete and somewhat misleading:
The "red tape" claim is accurate - The 2020 regulations did impose additional regulatory burden on litigation funders through AFSL requirements and managed investment scheme compliance [1].
But historical context matters - These regulations reinstated requirements that Labor had explicitly removed in the post-2009 period to promote access to justice [3]. The Coalition did not introduce novel red tape; they reversed Labor's deregulation [3].
The consistency criticism has merit - If class actions are recognized as "free market solutions" to corporate accountability (as the claim states), then restricting access to litigation funding through regulation could be seen as contradicting deregulatory values [1][2].
The impact was time-limited - The regulations proved problematic and were effectively superseded within two years when the Federal Court overturned the legal basis for them in 2022 [5].
The fundamental tension is real: the Coalition did reregulate litigation funding in a way that contradicts stated values about cutting red tape. However, this required reversing Labor's prior deregulation choice, not creating new red tape from whole cloth. The claim would be more accurate if it stated: "Reversed Labor's deregulation of litigation funding by reintroducing regulatory requirements," which more precisely describes what occurred.
📚 SOURCES & CITATIONS (4)
-
1
Fears class actions will be deterred under new funding regulations
Legal professionals fear David and Goliath-style battles in court will become more difficult with new changes to litigation funding being introduced by the Federal Government.
Abc Net -
2
Regulation of Class Actions in Australia Revisited — Again
The Full Federal Court recently determined that third-party funded class actions are not managed investment schemes.
Jonesday -
3
Class action funding revisited – litigation funding schemes held to not be Managed Investment Schemes
The Full Federal Court has held that litigation funding agreements are not 'managed investment schemes' (MIS), overturning its own more than decade-old decision in Brookfield Multiplex.
Allens Com -
4PDF
The Rise and Regulation of Litigation Funding in Australian Class Actions
Classic Austlii Edu • PDF Document
Rating Scale Methodology
1-3: FALSE
Factually incorrect or malicious fabrication.
4-6: PARTIAL
Some truth but context is missing or skewed.
7-9: MOSTLY TRUE
Minor technicalities or phrasing issues.
10: ACCURATE
Perfectly verified and contextually fair.
Methodology: Ratings are determined through cross-referencing official government records, independent fact-checking organizations, and primary source documents.