Treasurer Joe Hockey launched a defamation case against Fairfax to protect his reputation. He’s now been hit with a massive legal bill estimated to be up to $500,000.
He has personally felt the consequences of horrendous legal costs in Australia. As a senior member of the Government we are entitled to ask – will he do anything to try and bring those costs down?
As Treasurer, does he recognise that the huge legal costs of launching actions against companies for misdemeanours and losses has the potential to damage and undermine our financial system? It has the potential to turn our financial system into the Wild West.
We think Joe Hockey should be saying in Parliament that the cost of legal actions in Australia is both unacceptable and unaffordable. He should be vocal, based on his personal experience, which something should be done about it.
A $500,000 price tag to protect his reputation
You would probably have seen that Treasurer Joe Hockey launched a defamation action against newspaper publisher Fairfax.
Hockey won part of his case. The Federal Court found that the headline ‘Treasurer for Sale’ had hurt his reputation and awarded him $200,000 in damages.
But the Federal Court later ruled that Fairfax should pay no more than 15 per cent of Mr Hockey’s legal costs.
Media reports suggest that Mr Hockey’s legal fees for the defamation action amounted to between $300,000 and $500,000.
Poor Mr Hockey, but what about investors?
We don’t envy Mr Hockey having to wear those costs.
But it clearly brings into focus the enormous legal costs facing Australians who launch legitimate actions, plus the impact this has on all of our legal rights, the integrity of financial markets and investor protection in general.
Mr Hockey apparently has the means to launch legal actions. The cost of him undertaking legal action to protect his personal rights was huge.
Legal action is unaffordable
But what about the average guy in the street who has been fleeced?
The cost of running a defamation action is nothing compared to the cost of running action against a public company, a financial advisor or a bank.
Investors who want to protect their rights, or seek recovery of losses caused by misdemeanours of public companies, are confronted by the massive costs of doing so.
It is simply unaffordable for the average person or an aggrieved investor to run a legal action.
This has now resulted in the proliferation of class actions or funded legal actions. But who ultimately wins from these? The lawyers, the financiers or the victims?
The costs of the legal system are too high. The cost of advice, of litigation and the court system are too high and it is excessively consuming the financial resources of the community. That should be a concern to the Treasurer!
Investor protection is falling
The situation for investors is exacerbated because an under-resourced ASIC isn’t rigorous in prosecutions.
The regulator admits it is forced to pick and choose prosecutions.
But how does it choose? Does it merely go for easy cases or high profile cases? Does it let some culprits off because it hasn’t got the time or resources or funding?
If it fails to prosecute all wrongful acts then an unfair burden is placed back on individual aggrieved investors who probably cannot afford to act.
The Abbott Government has announced a full-scale audit of ASIC – the first in 17 years – to be completed this year.
The audit could trigger major changes to ASIC funding but we doubt that anything will change.
An underfunded regulator confronted by huge legal fees to do its job means that protection for investors is falling.
Challenge to the Treasurer and indeed the Government
There is a tremendous legal risk being created in Australian financial markets.
We challenge the Treasurer to use his position as a senior member of the Parliament to act against surging legal fees.
In financial markets we suggest that ASIC be split into 3 key offices: first, surveillance and compliance; second, licensing and audit; and thirdly, enforcement.
Indeed, we suggest that enforcement should be run by public legal officers who are less concerned about their fees and more concerned about the integrity of the financial system.
Now that he’s a victim of massive legal costs Joe Hockey surely sees the need to act.