Litigation funders who bankroll class action lawsuits are coming under the microscope amid concerns they claw back too much of the final settlements from successful cases.
Attorney-General Christian Porter says many litigation funders are taking up to 30 per cent of legal settlements, leaving members of class actions to fight over the scraps once legal fees and costs are paid.
"This industry is demonstrating outcomes that cannot be said to be consistent with the interests of justice of the litigants," he told parliament on Wednesday.
A coalition-led parliamentary inquiry will examine the impact of class actions on businesses hit by the coronavirus.
It will also look at the relationship between litigation funders and lawyers acting for class action members, and the impact of a Victorian plan to allow lawyers to charge contingency fees.
Mr Porter said class actions had tripled over the past decade, with median returns to members dropping to 51 per cent when litigation funders were involved.
When funders weren't involved, the median return was 85 per cent.
"Why would we not inquire into that phenomenon?" Mr Porter said.
Shadow Attorney-General Mark Dreyfus said the inquiry was a shameless attempt to protect the government's big business mates.
"The biggest source of new class action cases in 2019 came from consumer actions arising from the banking royal commission," Mr Dreyfus told parliament.
"The same royal commission that the government voted against 26 times."
He said class action suits provided a vital path to justice for ordinary Australians.
Mr Dreyfus said the government had yet to respond to a 2018 Australian Law Reform Commission report on litigation funding
"And why? Because that independent report ... didn't give the government the answers that it wanted," he said.
Earlier this year, pharmaceutical giant Johnson & Johnson and two affiliated companies were ordered to pay $2.6 million in damages to three women at the centre of a class action on faulty pelvic mesh implants.
The federal government will also pay $212.5 million to settle three class actions launched by victims of toxic firefighting contamination.
Mr Dreyfus said it was no coincidence the inquiry was announced just days after victims of the government's robodebt scheme signed up to a class action.
Major employer body Australian Industry Group welcomed the new probe.
"The inquiry needs to investigate the outrageous levels of returns that litigation funders (many of which are overseas firms) are receiving," chief executive Innes Willox said.
Australian Associated Press