Certain elements of Australia's legislative and regulatory regime are producing unintended consequences for business by enabling an activist climate for shareholder class actions.

In its inquiry into Class Action Proceedings and Third-Party Litigation, the Australian Law Reform Commission (ALRC) proposed that the government should "commission a review of the legal and economic impact of the continuous disclosure obligations of entities listed on public stock exchanges and those relating to misleading and deceptive conduct contained in the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) with regards to:

• the propensity for corporate entities to be the target of funded shareholder class actions in Australia;
• the value of the investments of shareholders of the corporate entity at the time when that entity is the target of the class action; and
• the availability and cost of directors and officers liability cover within the Australian market."

We support this proposal, noting that while there has been examination of issues raised by the increasing number of funded shareholder class actions, there has been no in-depth, empirical research examining the impact.

None of the drafters of Australia's market disclosure laws foresaw how they would be used to fuel today's "model" shareholder class action. Nor did they foresee the compliance burden placed on listed company boards when they're at risk of a class action, or the effects this would have on our economy - from the rising cost of D&O insurance to the inefficiencies caused by defending multiple actions.

As well as calling for a review of whether Australia's continuous disclosure and misleading and deceptive conduct laws require reform in light of the rise of shareholder class actions, our submission also supports, among other things:

• The introduction of a regulatory regime for litigation funders, including the requirement for a funder to maintain a litigation funding licence, and to ensure funders have met certain minimum requirements before being allowed to fund a class action (such as the introduction of capital adequacy standards to protect both class members and target respondents).
• Appropriate regulations and safeguards to limit the possible misuse of any contingency fee arrangements if the current ban on such arrangements is lifted.
• Statutory intervention to manage the difficulties that arise from multiple class actions, applying a multifactorial approach to ensure the interests of applicants, group members, respondents and the administration of justice are served.