The Third Party Litigation Funding Law Review: Australia

Market overview

Australia is home to a sophisticated third party litigation funding market. Initially third party litigation funding was used to support insolvency claims but since the turn of the millennium, it has increasingly been utilised in a broad range of civil and commercial litigation and arbitration matters. The Australian Law Reform Commission (ALRC) estimates there are approximately 33 litigation funders active in the Australian market,2 although that number may have reduced slightly in the past two years. In 2020–2021, the market size of the Australian litigation funding industry, measured by revenue, was estimated at A$128.4 million.3 The industry was estimated to have grown 6.8 per cent per annum between 2016 and 2021 and is anticipated to continue growing at 3.5 per cent per annum over the next five years.4

The use of litigation funding for a broad range of class actions5 is a well known aspect of the Australian market. Class actions are thought to represent just over half of the litigation funding market, with the balance comprising small to large businesses and individuals.6 In the 12 months ending 3 March 2018, approximately 72.5 per cent of the class actions filed in Australia were supported by third party litigation funders.7 Contrary to popular belief, since 2018 there has been a steady decline in funded class actions as a proportion of the overall class actions commenced in Australia, such that they now represent less than half of all class actions filed.8

Despite dealing with covid-19 comparatively well from a public health perspective, Australia has not completely avoided the economic shockwaves from the pandemic experienced around the globe. Factors influencing the demand for litigation funding include the strength of the local economy, the rate of corporate insolvencies, the demand for legal services, regulatory settings and the level of government intervention.9 Yet, despite the biggest economic downturn since the great depression, surprisingly for the Australian business community covid-19 has not resulted in the tsunami of corporate insolvencies originally expected. Largely due to unprecedented levels of government assistance and intervention, external administrations in 2020–2021 were kept at record lows,10 resulting in reduced demand for litigation funding in the insolvency market segment.

Legal and regulatory framework

i The legal basis and limits of third party funding

Prior to 2006, encouraging litigation and funding another's claim for profit were prohibited in Australia by the common law doctrines of maintenance and champerty.11 These doctrines prevented the courts from being used for speculative business ventures. Maintenance and champerty were the foundation for numerous challenges to the legitimacy of litigation funding before being progressively abolished in most Australian states as crimes and torts.12 More than 20 challenges to funding agreements were mounted13 in the eight years prior to the 2006 landmark decision of the High Court in Campbells Cash and Carry Pty Ltd v. Fostif Pty Limited (Fostif).14

In a pivotal moment in the development of the Australian jurisprudence, the High Court held in Fostif that third party litigation funding of a class action was not an abuse of process or contrary to public policy.15 The Court stated that notions of maintenance and champerty could not be used to challenge proceedings simply because they were funded by a litigation funder.16 Following Fostif, litigation funding has become an entrenched part of the Australian legal system, playing a crucial role in providing greater access to the courts and bringing equality of arms to claims against often well-resourced respondents.

Even so, courts may still intervene in funded litigation where funding arrangements are considered to be contrary to the public policy considerations upon which the previous prohibitions were based at common law.17 Fostif reserved the question as to what those public policy considerations might be in the Australian states that have not abolished the torts of maintenance and champerty by statute. Hence challenges to litigation funding agreements still arise from time to time.18 A recent example arose in the Queensland Court of Appeal decision in Gladstone Ports Corp Ltd v. Murphy Operator Pty Ltd19 (Gladstone Ports). That case involved a challenge to the adequacy of security for costs provided by way of a deed of indemnity from the funder. The defendant, Gladstone Ports, joined the funder to the proceeding and sought a declaration that its funding arrangements supporting the class action were unenforceable by reason of public policy. Gladstone argued the funder had been given an impermissible level of control, particularly in relation to settlement and other decision making, in the litigation.

The Court of Appeal rejected these arguments. To the extent that 'maintenance offends against the law', the Court considered this can be adequately dealt with through the doctrine of abuse of process and should be subsumed into that body of law, rather than dealt with as a separate tort of maintenance.20 The Court said a litigation funder was not in a substantially different position from 'an insurer defending a claim or suing to recover under a right of subrogation'.21 An application for special leave to appeal was subsequently dismissed, with the High Court concluding Gladstone's arguments had insufficient prospects of success.22

Likewise, the extent of a lawyer's ability to fund claims, in the same way that third party funders might, has been reviewed by the Court too. With the exception of Victoria, legal practitioners in all other Australian states and territories are prohibited from entering into any arrangement for payment of damages-based contingency fees (where fees are calculated by reference to a percentage of the amount recovered).23 Unsurprisingly, practitioners in all states are still entitled to enter into conditional billing arrangements whereby their ordinary fees are payable upon a successful outcome. These arrangements are known as 'no-win no-fee' agreements and sometimes permit an uplift of up to 25 per cent of the lawyer's ordinary fees where a successful outcome is achieved.24 For obvious reasons, such arrangements are often not commercially viable for practitioners, particularly for larger or more complex claims such as class actions. Victoria has been the only state to address this issue. Victorian practitioners have been permitted to enter into damages-based contingency fee arrangements for class actions since 1 July 2020.25

The extent to which a lawyer may be associated with the litigation funder has been extensively tested by a Melbourne-based solicitor, Mark Elliott (now deceased), who was a sole director and shareholder of Melbourne City Investments Pty Ltd (MCI). In 2014, securities class actions were commenced by MCI, as the representative plaintiff, against ASX listed Treasury Wine Estates (TWE) and Leighton Holdings (LEI). MCI acquired shares in TWE and LEI and other small parcels of shares costing less than A$700 in other ASX-listed companies. Mr Elliott also appointed himself as the legal representative for MCI, which was receiving litigation funding to conduct the claims. In December 2014, the Victorian Court of Appeal stayed the proceedings as an abuse of process. The stay was granted because the proceedings had been commenced with the predominant purpose of earning legal fees for Mr Elliot, rather than the fees being an incident or by-product of the vindication of legal rights. In their majority judgment, Maxwell P and Nettle JA emphasised the importance of maintaining public confidence in the fairness of court processes; confidence that 'would undoubtedly be shaken' if the enrichment of a solicitor were held to be a legitimate purpose for bringing proceedings.26

Separately, Mr Elliott trialled a different funding model for a class action brought against Banksia Securities.27 He again sought to act as the lead plaintiff's solicitor, while also being a director and secretary of the litigation funder and holding an indirect shareholding in the funder. The litigation funding agreement entitled the funder to a 30 per cent commission and to exercise control over the conduct of the proceeding. The Supreme Court of Victoria restrained Mr Elliott from acting in the Banksia Securities class action owing to conflicts of interest. Justice Ferguson considered that the main risk arising from Mr Elliott's pecuniary interest in the outcome of the class action was that he might not fulfil, or might not be perceived to fulfil, his duties to the court or be independent and objective.28 Her Honour found 'it would be inimical to the appearance of justice for lawyers to skirt around the prohibition on contingency fees by this means; particularly where the legal practitioner's interest in the funder is sizeable'.29

In February 2018, a A$64 million settlement of the Banksia Securities class action was approved but was then subject to judicial review following an appeal from a disgruntled group member. The review involved the appointment of a contradictor to assist the Court to consider the amounts to be paid for legal costs and funding commission. In dramatic developments that followed, allegations were presented to the Court suggesting the plaintiff's solicitor and counsel had engaged in serious misconduct in connection with their billing practices. In response, both the plaintiff's senior and junior counsel elected not to dispute the allegations and offered to have their names removed from the bar roll. The review hearing before Supreme Court Justice Dixon, which examined the funder's and lawyers' conduct, including whether they should be ordered to forego all costs and commission and pay additional damages to the 16,000 class members, concluded on 18 March 2021, with judgment delivered on 11 October 2021.30 In his judgment Justice Dixon found that the litigation funder and five lawyers involved engaged in egregious conduct in connection with a fraudulent scheme, intending to claim more than A$19 million in purported legal costs and funding commission from the settlement sum. Justice Dixon noted that their conduct had shattered confidence in, and expectations of, lawyers as an honourable profession, and corrupted the proper administration of justice. The Court concluded that the lawyers' and funder's actions were appalling breaches of their respective duties to the court, particularly the paramount duty and overarching obligations imposed on them by the Civil Procedure Act 2010 (Vic) and ordered that they pay damages of A$11,700,128 to approximately 16,000 group members, plus the costs of the remitter on an indemnity basis. As well as removing some of the lawyers involved from the roll of admitted practitioners, Justice Dixon also referred the matter on to the Director of Public Prosecutions for further investigation and appropriate action.31

ii Post-Fostif developments in litigation funding regulation

As providers of financial services and credit facilities, litigation funders are subject to the consumer provisions of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), which contains protections against unfair contract terms, unconscionable conduct, and misleading and deceptive conduct.32 These provisions provide avenues for redress against unfair or false and misleading terms or omissions in funding agreements. Funders are also subject to the general regulatory requirements under the Corporations Act 2001 (Cth) (the Corporations Act) and the general law, including equity.33

In 2009, litigation funding regulation prompted national debate following the landmark decision in Brookfield Multiplex Funds Management Pty Ltd v. International Litigation Funding Partners Pte Ltd (Multiplex), which determined34 that litigation funding agreements and the lawyer's retainer in a funded class action constituted managed investment schemes within the meaning of Section 9 of the Corporations Act.35 Managed investment schemes are required to be registered36 and managed by a public company holding an Australian Financial Services Licence (AFSL).37 Failure to comply is an offence.38

A second landmark case involving a dispute between a funder and client raised similar questions regarding the nature and regulation of funding arrangements. In Chameleon Mining NL (Receivers and Managers Appointed) (Chameleon) the funded client sought to rescind a funding agreement under Section 925A of the Corporations Act and thereby avoid payment of the funder's commission.39 The client argued that the funding agreement was a financial product and that the funder did not hold an AFSL. The High Court concluded that the funding agreement constituted a 'credit facility' rather than a financial product and, while it did not need an AFSL, the funder did require an Australian credit licence.

In the aftermath of these two landmark decisions the federal government intervened, announcing that it would protect funded class actions from too heavy a regulatory burden.40 In 2010, the Australian Securities and Investments Commission (ASIC) issued class orders granting transitional relief to the lawyers and litigation funders involved in funded class actions, exempting them from the managed investment regulatory obligations. ASIC subsequently granted transitional relief from financial product regulatory requirements of the Corporations Act. Those protections have since been significantly scaled back as discussed below.

The Multiplex and Chameleon cases also led to the introduction of a conflict management regime. In 2012, regulations were enacted exempting litigation funders from the managed investment scheme provisions of the Corporations Act subject to compliance with certain conflict management requirements.41 During this time, litigation funders providing both single-party funding42 (litigation funding arrangements) and multiparty funding43 (litigation funding schemes) were required to conduct reviews and maintain written procedures identifying and managing conflicts of interest.44 In April 2013, ASIC released a regulatory guide detailing how litigation funders may satisfy these obligations.45

However, in a dramatic policy change on 22 May 2020, the federal Treasurer announced significantly expanded regulatory requirements were to be imposed on litigation funding via the Corporations Amendment (Litigation Funding) Regulations 2020 (Cth) (the New Regulations). The stated effect of the New Regulations was twofold: first, to require third party litigation funders to hold an AFSL, and secondly, to require funders to comply with the managed investment scheme regime under Chapter 5C of the Corporations Act. The New Regulations were published on 23 July 2020, under a cloud of controversy46 and took effect on 22 August 2020.47 The New Regulations rejected the detailed recommendations of the ALRC report 'Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders' (the ALRC Report) delivered to the federal Attorney-General on 21 December 2018.48 Since 22 August 2020, a number of applications have been made in connection with funded class actions to determine if they contravene the New Regulations or are protected by the transitional provisions.49 In addition, delays resulting from compliance with the new managed investment scheme regime have already been experienced in some funded class actions.50

iii Reviews into the regulation of litigation funding

The regulation of litigation funding has a history of constant review and remains a heavily debated reform issue.

Productivity Commission Report

In September 2014, the Productivity Commission delivered a comprehensive report regarding access to justice, which favoured two major reforms that, if implemented, would greatly impact litigation funding.51 The two proposed reforms were (1) the introduction of a licensing regime for litigation funders,52 and (2) the removal of the ban on lawyers charging damages-based contingency fees, thereby introducing another funding option for clients.53 Both reforms (and an array of other proposals) received further independent consideration at state and federal level by the Victorian Law Reform Commission (VLRC), and the ALRC.54 Then in mid-2020 a hastily convened55 Parliamentary Joint Committee on Corporations and Financial Services (PJC) gave further consideration to the regulation of 'litigation funding and the class action industry' prior to the federal government responding to the 24 detailed recommendations contained in the ALRC Report.56

VLRC

On 16 December 2016, the Victorian Attorney-General commissioned the VLRC to report on litigation funding and the conduct of class actions and to consider how regulators might better protect litigants from unfair risks or disproportionate costs burdens.57 The VLRC report 'Access to Justice: Litigation Funding and Group Proceedings', tabled in the Victorian parliament on 19 June 2018 (the VLRC Report), recommended that, subject to careful regulation, legal practitioners be permitted to charge contingency fees so as to provide another funding option for clients who are unable to bring proceedings without financial assistance in appropriate cases. The VLRC Report also supported industry-wide, national regulation of litigation funders and recommended that Victoria advocate for stronger national regulation through the Council of Australian Governments.58

ALRC

On 11 December 2017, the federal government announced that the ALRC would conduct a similar federal review into litigation funding and the conduct of class actions. The ALRC Inquiry, led by the Hon Justice Sarah Derrington QC, consulted broadly with judicial and expert panels, regulators, stakeholders and interested parties in the United Kingdom and Canada. A discussion paper released on 1 June 2018 (the ALRC Paper)59 attracted more than 70 formal submissions from a broad range of industry stakeholders, including: funders, law firms, insurers, industry super funds, non-government organisations, business lobby groups, and regulatory bodies and professional associations.

The ALRC Report was delivered to the Attorney-General on 21 December 2018 and tabled in the federal parliament on 24 January 2019. The ALRC Report makes 24 recommendations, predominantly relating to the reform of class action law and procedure.

Consistent with the earlier recommendations of the VLRC and the Productivity Commission, the ALRC Report recommends that 'percentage-based fee arrangements' or contingency fee arrangements for solicitors be permitted in Australian class action proceedings with some limitations.60 This would allow solicitors to receive a proportion of the sum recovered at settlement, subject to court approval, to ensure arrangements are reasonable and proportionate. The four key arguments advanced in favour of contingency fee arrangements are that they will: (1) increase access to justice for prospective group members of medium-sized class actions (between A$30 million and A$60 million); (2) promote competition; (3) increase returns for group members; and (4) provide clarity and certainty for group members.61 The recommended limitations to be placed on contingency fee arrangements include that the contingency fee be the one and only form of funding; the solicitors are precluded from also recovering any professional fees on a time-cost basis; and the solicitors bear the onus of paying for the disbursements and must account for these within the contingency fee.62

Notably, in relation to the regulation of litigation funders, the ALRC Report recommends against the introduction of a licensing regime (contrary to the initial proposal in the ALRC Paper). It suggests improved court oversight of litigation funders on a case-by-case basis.63 The ALRC considers this will 'achieve at least the same level of consumer protection without the regulatory burden of a licensing regime'.64 The ALRC Report suggests a suite of amendments to the Federal Court of Australia Act 1976 (Cth) (the FCA Act) aimed at strengthening the Federal Court's supervision of litigation funders, including to provide that litigation funding agreements for class action proceedings are enforceable only with the approval of the Court; expressly empowering the Court to award costs against litigation funders (and insurers) who fail to comply with the overarching purposes of the FCA Act (to facilitate the just resolution of disputed claims according to law and as quickly, inexpensively, and efficiently as possible); and a statutory presumption that litigation funders who fund class action proceedings will provide security for costs in a form that is enforceable in Australia.65

The ALRC Report also recommends that the ASIC Guide 248 be strengthened to require that litigation funders who fund class action proceedings report annually to ASIC on their compliance with the requirement to implement adequate practices and procedures to manage conflicts of interest.66 In recognition of the wide range of funding models emerging since the 2012 'conflict management' procedures were introduced, the ALRC also recommends that the scope of Regulation 5C.11.01 of the Corporations Regulations 2001 (Cth) be amended to include 'law firm financing' and 'portfolio financing' within the definition of a 'litigation funding scheme', so that litigation funders who provide such funding are also required to implement conflict management procedures.67

Parliamentary Joint Committee Review

Prior to responding to the ALRC Report, in May 2020, the federal government announced yet another review of 'litigation funding and the regulation of the class action industry' – this time via a referral to the PJC.68 A four-week period was allowed for short submissions followed by a series of short hearings in July and August 2020. The stated terms of reference of the inquiry were to consider whether the present level of regulation applying to Australia's growing class action industry is impacting fair and equitable outcomes for plaintiffs.69

On 21 December 2020, precisely two years after the ALRC Report, the PJC delivered its own report (the PJC Report). The PJC recognised that litigation funders close the considerable gap in financial resources between the two sides of a class action, reducing the defendant's ability to defeat the case through superior economic power and recognised that, in many instances, a class action in Australia may not proceed without a litigation funder. However, the PJC Report took a dramatic departure from many of the earlier recommendations of the ALRC Report.

The PJC Report recommends a series of additional legislative, regulatory and practice requirements be introduced with the stated objective of constraining litigation funders and class actions. These recommendations include: (1) a new concept of 'procedural proportionality' be legislated for class actions to require the potential costs and drawbacks of proceedings be balanced against the benefits to class members, as well as the impact on court resources, regulatory outcomes and public interest; (2) a presumption that litigation funders provide security for costs and fully indemnify representative plaintiffs; (3) enhanced Federal Court legislative powers to oversee and reject, vary or amend any term of a litigation funding contract in the interests of justice, including commissions and fees and to require Federal Court approval orders as a condition of the funding agreement being enforceable; (4) to permit the appointment of Court appointed referees with market capital or finance expertise to act as 'litigation funding fee assessors'; (5) legislating to guarantee a minimum return of at least 70 per cent of the gross proceeds to class action members;70 (6) enhanced use of contradictors to appear at class action settlement approval hearings; (7) a review of the ability of lawyers to obtain an uplift fee of 25 per cent of their costs on 'no-win no-fee' retainers; (8) subjecting lawyers to financial services regulation (including AFSL and managed investment scheme compliance obligations) where they conduct class actions on a contingency basis; (9) requiring litigation funders and lawyers to make disclosures to the Federal Court as to any potential conflicts of interest (on an ongoing basis) and to provide their conflict management policy to the Court when applying for approval of funding agreements; (10) imposing on litigation funders the same standards and duties that are owed by lawyers to their clients; (11) limiting the forum for claims brought under the Corporations Act to the Federal Court; and (12) working with state and territory governments to achieve consistent class action regimes across jurisdictions.

In contrast to the ALRC Report, the PJC Report adopts a more aggressive stance on the level of recommended regulatory intervention. The report authors cite evidence of a 'systemic and inappropriate' skewing of successful class action proceeds in favour of litigation funders at the expense of class members' share of the proceeds.71 This conclusion was based on a selected extract from the earlier ALRC Report, which noted the median return to class members in funded claims was 51 per cent, compared to 85 per cent in unfunded claims.72 This somewhat simplistic comparison appears to have formed the basis of some of the more aggressive reform recommendations in the PJC Report. Clearly key differences exist between funded claims and claims pursued without third party funding support that offer no litigation expense assistance, adverse costs protection or security for costs support to class representatives. Rationally these benefits come with a cost. It is hardly surprising then that funded claims result in lower median percentage returns to class members than unfunded claims, (after commissions are factored in). But is that the proper comparator? The PJC Report authors acknowledge that in many instances a class action in Australia may not proceed at all without a litigation funder.73 Yet this simplistic comparison appears to be a primary driver for reforms aimed at constraining, what in the PJC Report authors' view are, 'excessive profits obtained by litigation funders compared to the risk the funders are taking'.74

Structuring the agreement

i Typical structure

Funded litigation can involve a contractual relationship between the litigation funder, the lawyer and the funded client, whereby the funder agrees to provide for some or all of the client's legal costs and disbursements in return for receiving a percentage of any damages recovered. The remuneration can take any form, though more common forms include a multiple of the funding, a percentage of the proceeds, a fixed amount, or a combination of these.75 Percentages typically range between 20 per cent and 45 per cent of the settlement proceeds depending on the risks and time involved and the type of funding required.76 The ALRC Report noted that the median commission rate for third party litigation funding of Federal Court class actions between March 2017 and March 2018 was 30 per cent.77 However, in the context of insolvency litigation funding, commission rates can be considerably higher.78 In contrast, the median rate for 'common fund' orders in class actions during the period October 2016 to December 2019 was 21.9 per cent.79

In class actions, the funder may also assist with project management, administration and pre-claim investigation and may charge a project management fee. Litigation funders routinely agree to provide security for costs and an indemnity to cover the risk of adverse costs orders in the event that the proceeding is unsuccessful.

As litigation funders do not act as the legal representatives for the funded litigant, clients generally enter into two agreements: (1) a standard retainer agreement with their lawyer recording the scope and terms under which the legal services are to be provided; and (2) a litigation funding agreement with their funder recording the terms on which litigation funding is to be provided. Commonly, the funder and lawyers have no direct contractual relationship, although clients often authorise their lawyers to report directly to the funder and agree to funder approved 'standard lawyer terms'. Funders may agree to pay a proportion, or all, of the lawyer's fees during the course of the claim. Where legal fees are partially deferred they are generally recovered from any resolution sum if a successful outcome is achieved. The client usually authorises the lawyer to receive any resolution sum on the client's behalf to be applied in accordance with an agreed priority.

Funding agreements often allocate project management responsibilities and day-to-day administrative control over the litigation to the funder, allowing the funder the right to provide instructions and administrative support to the lawyers, subject to the client's overriding instructions. In theory, the ultimate level of control given to the funder might be seen to give rise to potential conflicts between the interests of the client, in achieving the best possible outcome, and the interests of the funder, in resolving the claim for an acceptable return on its investment. In Fostif the Court of Appeal recognised that a high level of control by the funder is expected and permissible but cautioned that it would be contrary to public policy for the lawyers to fully abdicate to the funder the obligation to act for the representative party.80 Therefore, while it is permissible for a funder to maintain day-to-day control of a claim, the legal representatives are expected to consult with the client on key issues. Hence funding agreements often preserve the client's right to override the funder's instructions and commonly include dispute resolution mechanisms.

More recently, some litigation funders have purchased claims as an alternative to traditional litigation funding.81 This has largely occurred in the context of insolvency litigation as a result of amendments to the Corporations Act allowing external administrators (including liquidators) to assign rights to sue.82 The agreement to purchase or assign the claim may be structured in a number of ways, including providing for the funder to pay an upfront payment, a back-end payment contingent on success (such as a percentage of any damages recovered), or a combination of both.

ii Judicial intervention

Somewhat controversially, Australian courts have shown a willingness to scrutinise the commercial terms of litigation funding agreements and, in some instances involving representative proceedings, intervene if they consider funding commissions to be excessive. In Earglow Pty Ltd v. Newcrest Mining Ltd, Justice Murphy considered that the court had power to reduce a litigation funder's commission rate when approving a class action settlement.83 His Honour held that the court was not limited to the binary choice of either approving or rejecting the settlement – instead, the court had power to approve the settlement, while at the same time varying, of its own motion, the amount payable to the funder (thus, in effect, overriding the contractual arrangements between the funder and group members).84 Justice Murphy considered that this power derived from a combination of Sections 23, 33V, 33Z and 33ZF of the FCA Act, and was analogous to the court's power to fix the amount of costs payable to the lawyers.

In deciding whether to exercise that power in the context of a class action settlement approval, Australian courts have also shown a willingness to review and consider legal costs, the amount that funded litigants will receive 'in hand', the risks assumed by the funder, the amount of adverse costs exposure, and the sophistication and experience of funded litigants. Applying these principles to the Newcrest settlement approval application, Justice Murphy concluded that the aggregate funding commission of A$6.78 million, at rates of between 26 per cent and 30 per cent, was fair and reasonable. His Honour considered the published empirical research into the funding commission rates paid in Australian class actions, and previous settlement approval decisions, before concluding that those rates were at the lower end of the range. He also emphasised the need for transparency about matters relating to funding in settlement approval judgments to allow proper benchmarking.

In Mitic v. OZ Minerals Ltd (No. 2), Justice Middleton agreed that the court had power to vary the amount payable to a litigation funder out of a settlement in a class action,85 but preferred to base that view on Section 33V(2) of the FCA Act, rather than on the other provisions referred to by Justice Murphy.86

This issue appears not to be settled though. In Liverpool City Council v. McGraw-Hill Financial Inc (now known as S&P Global Inc),87 Justice Lee approved a comparatively large funding commission of A$92 million out of a total settlement of A$215 million (about 43 per cent) through a funding equalisation order, but, in doing so, considered that Section 33V(2) of the FCA Act did not give the court the power to interfere with the amount of a funding commission to make a settlement reasonable, or to alter a 'valid contract' between parties (including a funding agreement).88 Justice Lee noted that there were no objections or applications to set aside the agreement and that a large portion of the class were sophisticated institutional investors. His Honour did not ultimately decide on whether the court has an inherent power to alter a funding agreement,89 although he did express significant doubt about the existence of such a power, which would allow the court to interfere and vary funding agreements in the context of a settlement by altering the contractual promises of group members to pay a commission.90

Therefore, the question (and extent) of judicial power to vary terms of litigation funding agreements remains somewhat controversial and unresolved in Australia.91 The courts have considered this question in a number of cases since and have either declined to vary the commission rate92 or, in some cases, varied the commission rate.93 The federal government has recently responded to the ALRC Report and PJC Report recommendations that the Federal Court be given an express statutory power to reject, vary or amend the terms (such as the commission rate) of such litigation funding agreements and that litigation funding agreements (for class action proceedings) be enforceable only with the approval of the Federal Court, via the new Treasury Laws Amendment (Measures for Consultation) Bill 2021: Litigation Funders, which amongst other things aims to provide the Court with express statutory power to do so.94

Disclosure

The Federal Court's Class Action Practice Note requires the disclosure of legal costs and any litigation funding charges to current and potential clients in class actions, in clear terms, as soon as is possible.95 Broader disclosure to the court and other parties is also required in any class action.96 Funded applicants are entitled to redact these materials to conceal information that might confer a tactical advantage on another party.97 Commercial terms such as the litigation budget, the commission and costs structure are generally redacted whereas the court is given a complete version.98 On occasion, the Federal Court has been prepared to order production of unredacted litigation funding agreements where relevant, for example, where funding rates were relevant to the respondent's application to set aside the proceeding as an abuse of process,99 or where an application to de-class the proceeding on the ground that a closed class was said to be an abuse of process.100 Significant additional disclosure obligations now apply for funded class actions as a result of the New Regulations, including the requirement to provide a product disclosure statement (PDS) to members of the scheme and provide certain information on a website.101

Conversely, outside the class action realm, there are limited areas of mandatory requirement for disclosure of funding agreements.102 Parties have successfully resisted production of funding agreements and documents associated with the funding relationship, such as investigative reports and correspondence between the funder and a funded party, on the ground of legal professional privilege under Section 119 of the Evidence Act 1995 (NSW) (the Evidence Act). In Hastie Group Ltd (in liq) v. Moore the respondent successfully obtained orders at first instance for production of an expert report that had been provided to the prospective litigation funder.103 However, the NSW Court of Appeal overturned that decision and upheld a claim of legal professional privilege. It did so on the ground that the report was prepared for the dominant purpose of the provision of professional legal services in relation to proceedings or anticipated proceedings under Section 119 of the Evidence Act, having regard to the engagement letter attached. Importantly, the Court of Appeal also held that the disclosure of the report to a litigation funder was not sufficient to waive privilege in circumstances where it was clear that the report was being provided on a confidential basis.104

Costs

Superior Australian courts generally have power to order costs against a non-party, including a third party funder. In Knight v. FP Special Assets Ltd, the High Court held that the relevant provisions of the Supreme Court Act 1867 (Qld) empowered the Court to award costs against a non-party where the party to the litigation is an insolvent person or 'man of straw' and the non-party has played an active part in the conduct of the litigation and has (or some person on whose behalf that non-party has been appointed has) an interest in the subject of the litigation.105

This principle was recently applied in the case of Jin Lian Group Pty Ltd (in liq) v. ACapital Finance Pty Ltd (No. 2)106 where the Court held a third party funder to be jointly and severally liable for the defendant's costs from the date security for costs were provided.107 In this case, security for costs were ordered in the sum of A$149,000. As the plaintiff was an insolvent company and the liquidators were without funds to pay the security, the liquidators entered into a funding agreement pursuant to which the funder provided funding for the security and an adverse costs indemnity up to A$150,000. The plaintiff was ultimately unsuccessful at trial, and the defendant's costs exceeded the amount of security provided. The Court considered the matters relevant in determining whether it is appropriate to make a non-party costs order, including that the funder provided funds for the litigation, had a direct interest in the fruits of the litigation and had agreed to provide an adverse costs indemnity, and determined that each of the matters were present in this case.108 The Court formed the view that 'but for the intervention of the Funder . . . . the proceeding would not have continued'109 and stated that 'Litigation funders should be aware that if they involve themselves in pending court proceedings in circumstances where their intervention is the factor that causes those proceedings to continue and go to trial, they risk an adverse costs order.'110

The limits of this principle have recently been tested on the related question of whether security for costs can, and should, be ordered against third party litigation funders in 'no costs' jurisdictions.111 In Augusta Ventures Ltd v. Mt Arthur Coal Pty Ltd112 (Augusta) the Full Court of the Federal Court was asked to consider whether the Court has power to make a security for costs order against a third party funder in a 'no costs' jurisdiction113 and, if so, whether the order should be made on discretionary grounds.114 The Court reiterated that it retains power to stay proceedings, (including by reference to considerations concerning the exposure of a litigation funder to costs), as part of its power to control its own processes.115 However, the focus is different when exercising discretion to make security for costs orders against third party funders in 'no costs' jurisdictions. It was said the prejudice the claimants themselves would suffer from not being able to vindicate their rights, should the funder not provide such security, is inappropriate where such claimants are not ordinarily liable for costs.116 Accordingly, the Court upheld the appeal and set aside the order for security for costs originally made against the third-party funder. Similarly, in Duck v. Airservices Australia (No. 3)117 the Court considered an application for an order that the third party litigation funder pay the respondent's costs of the proceeding in a 'no costs' jurisdiction. The Court held that the 'no costs' jurisdiction did not prevent a costs order being made against the third party funder, but declined to exercise the discretion to make the costs order sought because it was not in the interests of justice to do so in the particular circumstances of the conduct of the proceedings.118 The Court concluded that the 'no costs' jurisdiction is but one factor to consider in the exercise of the Court's broad costs discretion, and that the conduct of the litigation is always likely to be an important consideration.119 The Court attached considerable weight to the efficient determination of the proceedings, especially by way of a separate question, which saved substantial costs and court time and stated that it was very much in the interests of justice to encourage this sort of conduct, especially by the potent exercise of the costs discretion.120 However, the Court recognised that a costs order might be warranted against a funder in certain circumstances, for example, if the proceeding was instituted vexatiously, without reasonable cause, or if there was an unreasonable act or omission in the conduct of the proceedings that caused the respondent to incur costs.121

However, examples exist where a litigation funder did not provide any contractual indemnity against adverse costs and where the court subsequently refused to order that third party funder to pay adverse costs. In Jeffery & Katauskas Pty Ltd v. SST Consulting Pty Ltd (SST), the High Court held that it was not an abuse of process where a plaintiff was unable to meet an adverse costs order simply because the funder had not assumed any liability for adverse costs.122 In that case, the defendant had not sought adequate security for costs during the proceeding. The High Court clarified that a litigation funder does not always have to put the funded party in a position to meet any adverse costs order.123

At the time, the High Court's SST decision generated apprehension from some quarters, suggesting that funders might refuse to provide indemnities for adverse costs to the detriment of successful respondents. Perhaps as a result of commercial realities and market competition, these fears have not materialised.124 In practice, litigation funders routinely agree to indemnify clients against adverse costs exposure and provide security for costs that may be ordered. Representative applicants in funded class action claims will often not be prepared to assume personal liability for costs without such indemnities.125

Where security for costs has been sought in funded litigation, the adequacy and form of security proposed by some funders has also given rise to disputes. In Domino's Pizza Enterprises Limited v. Precision Tracking Pty Ltd (No. 2), the funded party opposed a security for costs order being made on the grounds that there was no risk that a costs order would not be satisfied because of the combined effect of the litigation funding indemnity, an adverse costs insurance policy and proposed undertakings by Precision Tracking Pty Ltd to notify the parties of any relevant change of funding circumstances.126 The court ordered security for costs to be lodged, concluding that: (1) Precision Tracking did not have the capacity to meet an adverse costs order; (2) the funding agreement restricted the indemnity to a counterclaim in the proceedings; and (3) the adverse costs insurance was taken out for the primary claim. Additionally, the funder had an absolute discretion to terminate its funding arrangements with Precision Tracking at any time, including the adverse costs indemnity and the adverse costs insurance.

The adequacy of adverse costs insurance as a form of security was again tested in Petersen Superannuation Fund Pty Ltd v. Bank of Queensland Ltd (Petersen)127and Equititrust Limited v. Tucker.128 In the Petersen case, Justice Yates accepted that, depending on the circumstances, 'an appropriately worded ATE policy might be capable of providing sufficient security for an opponent's costs'; but on the facts of Petersen concluded that the specific policy offered was not sufficient, noting the beneficiary of the policy was the applicant, not the respondents.129 His Honour also found that there was no mechanism by which the respondents could compel the applicant to sue on the policy if it were breached. Although this could potentially be overcome by direct proceedings against the insurer under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW), there were other potential difficulties, including numerous policy exclusions that might be relied on, and a lack of evidence in relation to procurement of the policy that might have an impact on non-disclosure and avoidance rights.

The costs of providing security, including the costs of obtaining an ATE policy, will typically be borne by funded clients either indirectly in the sense that they are 'absorbed' in the funding commission, or directly in that they are recovered through a payment made to the funder of an amount in addition to the funding commission.130 The ability of a funder to recoup the costs of obtaining an ATE policy in a funded class action was recently considered in Asirifi-Otchere v. Swann Insurance (Aust) Pty Ltd (No. 3).131 In approving a settlement by way of a common fund order, the court decided that the costs of obtaining an ATE policy should not be passed on separately to group members when the court controls the remuneration, but should be incorporated into the commission paid to the funder. The court noted that it is a matter for the funder whether to obtain an ATE policy to defray the risk of providing an adverse costs indemnity.132

The year in review

i Further regulation of funded class actions

A Regulatory Impact Statement issued on 15 June 2020 addressed the basis for the introduction of the federal government's New Regulations. The primary outcome said to be achieved through this government intervention is, 'to subject litigation funders to greater regulatory oversight that ensures they meet certain standards in how they operate their business and their schemes, on a systemic level, beyond the powers exercised by the courts over litigation funders on a case-by-case basis'.133 Arguably these policy announcements added fuel to an already polarised debate as to the need for such significant regulatory reforms, particularly in light of the contrasting recommendations of the ALRC Report and the announcement of a new Parliamentary Joint Committee review of litigation funding and the class action industry, which was not scheduled to report before December 2020.

The New Regulations also resulted in some unintended consequences for non-class action third party litigation funding. Although the Explanatory Memorandum stated that the New Regulations 'do not remove the effect of . . . exemptions that currently apply to certain litigation funding schemes in the insolvency context and litigation funding arrangements (which are used in actions involving a single plaintiff)', it appears that objective has not been achieved. In removing the exemptions previously available to litigation funders and lawyers in respect of funded class actions (defined as litigation funding schemes), the drafters appear to have overlooked the fact that not all multiparty funded litigation is conducted as a class action. Consequently, there is considerable doubt as to the ability of third party litigation funders to enter into funding arrangements with more than one claimant without associated AFSL and managed investment scheme registration requirements required by the New Regulations, notwithstanding that such arrangements may not be constituted as class actions.

ii ASIC Consultation Paper 345 – Litigation funding schemes: Guidance and relief

In July 2021, ASIC published a consultation paper 345 seeking industry feedback in respect of a number of proposals. Two important proposals outlined in the paper concerned ASIC's intention not to renew certain instruments providing critical regulatory relief to clarify that: (1) litigation funding arrangements generally are exempt from the National Credit Code;134 and (2) litigation funding arrangements funded by conditional costs arrangements (no-win no-fee retainers) are exempt from managed investment scheme obligations, AFSL requirements, product disclosure and anti-hawking requirements.135 ASIC proposes to withdraw both relief instruments from January 2023.136

ASIC consultation paper 345 also seeks feedback on the need to continue interim relief from other requirements in the New Regulations mandating disclosure of certain litigation information to be expressed in dollar amounts in relevant PDS for interests in a registered litigation funding scheme. These requirements might otherwise result in disclosure of sensitive costs, fees, charges and benefits in a publicly available PDS, thereby giving up a strategic 'war chest' of information to defendants, such as the estimated sum for which the litigation might be settled for.137 ASIC considers that so long as this information is separately disclosed directly to general members in the litigation funding scheme then this sensitive information should not also be required in a PDS.138

Submissions were also sought on ASIC's proposal to continue with limited relief from the obligation to treat members who hold interests of the same class 'equally'. In proposing this continued relief ASIC recognises that the value of a legal claim will generally vary from member to member. ASIC recognises that the amount to be distributed to each general member from any resolution sum obtained via a class action may be informed by various factors specific to each individual member.139

Amendments to the relevant ASIC instruments foreshadowed in ASIC's consultation paper 345 are expected to be implemented in late 2021. Should the relief from compliance with the National Credit Code and relief in respect of conditional costs agreements be removed in January 2023, this will significantly add to the heavy regulatory burden on litigation funders and likely drive up compliance costs imposed on litigation funders, lawyers and their clients seeking to conduct class actions, multi-party litigation and certain types of conditional costs litigation.

iii Treasurer and Attorney-General Consultation Paper: 'Guaranteeing a minimum return of class action proceeds to class members'

In preparation for further reform, on 28 May 2021 the Australian government announced plans to consult on the recommendations in the PJC Report.140 This announcement was quickly followed on 1 June 2021 with a federal government consultation paper 'Guaranteeing a minimum return of class action proceeds to class members', which focused on recommendation 20 of the PJC Report.141 This paper asks how parliament might best legislate to guarantee a minimum return to class members from the gross proceeds of a class action (including settlements) and questions whether a 70 per cent minimum gross return to members should be legislated. The paper also explores options to allow a further 'graduation' of guaranteed gross returns to class members, accounting for 'risk, complexity, length and likely damages or settlement to flow from the case'. The proposal is said to allow class members a higher portion of gross proceeds in less complex cases.

The federal government will likely legislate some form of guaranteed minimum gross proceeds return to class members in late 2021. Assuming the median return to class members in funded matters is around 51 per cent and legal costs typically represent approximately 15 per cent of gross proceeds,142 the federal government's 70 per cent gross proceeds return proposal may, if legislated, result in some funders exiting this segment of the market due to these additional regulatory constraints and significant compliance costs.

iv Common fund orders

A significant evolutionary step in the Australian system has been the judicial consideration of common fund orders (CFOs) in class actions. CFOs can provide for the legal costs of the proceedings and the commission charge of a litigation funder to be shared by all members of a class who succeed in, or achieve a settlement in, a class action, irrespective of whether they have signed any legal retainer or funding agreement. However, the ability of the court to make a CFO at an early stage of a class action proceeding was successfully challenged in the High Court (by a 5 : 2 majority) in the Lenthall and Brewster class actions on 4 December 2019.143

The first CFO in a class action was made by the Full Court of the Federal Court on 26 October 2016 in the QBE class action.144 The order was made at an early stage of the proceedings to assist group members in making an informed decision as to their participation in the class action prior to opting out. In approving the order, Murphy, Gleeson and Beach JJ stated that upon any successful settlement or judgment in the proceedings the applicant and class members must pay a reasonable court-approved funding commission from any monies received, prior to distribution of those monies.145 The Full Court declined to set the funding commission rate, preferring to determine that issue at a later stage, 'when more probative and more complete information will be available to the Court, probably at the stage of settlement approval or the distribution of damages'.146

Following the QBE class action a number of CFOs were made in a range of class actions, including: Blairgowrie Trading Ltd v. Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) (No. 3);147 Camping Warehouse v. Downer EDI (Approval of Settlement);148 Lenthall v. Westpac Life Insurance Services Limited149 (the Lenthall class action); Catherine Duck v. Airservices Australia.150

The judicial power enabling CFOs at an early stage of the proceeding was ultimately challenged in a landmark series of cases involving the Lenthall class action and Brewster v. BMW Australia Ltd (the Brewster class action),151 where a separate question for determination as to the power to make CFOs was referred directly to the NSW Court of Appeal. In a historic first joint sitting of the Full Federal Court of Australia (via Lenthall) and the NSW Court of Appeal (via Brewster), the Courts heard these challenges. On 1 March 2019, both Courts concluded that there is sufficient statutory power enabling CFOs to be made. Allsop CJ, Middleton and Robertson JJ were unanimous in dismissing the Lenthall appeal, finding that Section 33ZF of the FCA Act (the basis for the general power of the courts to make orders appropriate or necessary to ensure that justice is done in the proceedings) enabled the courts to make such orders.152 Likewise, Meagher JA, Ward JA and Leeming JA agreed that CFOs were authorised pursuant to Section 183 of the Civil Procedure Act 2005 (NSW) (CPA).153 It was held that the making of CFOs was a proper exercise of judicial power and in no way contravened Chapter III of the Commonwealth Constitution.154

The High Court subsequently granted special leave to hear appeals in both the Lenthall and Brewster matters as to whether the Courts had erred in concluding that Section 33ZF of the FCA Act and Section 183 of the CPA validly enabled the making of CFOs. On 4 December 2019, a majority of the High Court of Australia (Kiefel CJ, Bell, Keane, Nettle and Gordon JJ) held that neither Section 33ZF of the FCA Act nor Section 183 of the CPA empowers a court to make a CFO.155 In a joint judgment, Kiefel CJ, Bell and Keane JJ held that although the power conferred on the court by those sections is broad, considerations of text, context and purpose all point to the conclusion that it does not extend to the making of a CFO.156 However, the High Court's judgment left unresolved two questions: (1) whether the court has power to make a CFO at the conclusion of a representative proceeding, pursuant to Section 33ZF of the FCA Act and Section 183 of the CPA (following a judgment) or Section 33V(2) of the FCA Act and Section 173(2) of the CPA (following a settlement); and (2) whether the making of a CFO would be unconstitutional.

Following the High Court's decision in the Brewster and Lenthall class actions, on 20 December 2019 the Federal Court issued a new Class Actions Practice Note (GPN-CA) to indicate that the Court will still consider appropriate applications for orders sharing the costs of class actions at the conclusion of proceedings of this kind.157

Different approaches have been taken by judges in interpreting the scope of the High Court's decision in Brewster and Lenthall.

Justice Beach, Justice Murphy and Justice Lee of the Federal Court, have expressed the view that the court has the power to make CFOs (sometimes referred to as 'expense sharing orders') at the time of settlement under Section 33V(2) of the FCA Act,158 with Justice Murphy and Justice Lee making such orders in recent cases.159 Other Federal Court judges have taken a different view,160 with some considering the majority of the High Court gave strong reasons favouring a funding equalisation order over a CFO.161

The question of whether CFOs can be made at settlement under Section 173 of the CPA was recently referred to the Court of Appeal of the Supreme Court of NSW in Brewster,162 although the Court of Appeal promptly declined to decide the issue because no settlement had been reached and therefore the Court was effectively being asked to deal with the issue in a factual vacuum.163 The Full Court of the Federal Court of Australia, adopted a similar approach when dealing with the equivalent to Section 173 of the CPA under federal legislation in the 7-Eleven class action.164 While not determining the question, Justice Lee took the opportunity to provide some useful guidance on CFOs generally, providing a helpful explanation as to the differences between 'commencement CFOs', 'settlement CFOs' and 'judgment CFOs'.165 With these two decisions, the NSW Court of Appeal and the Federal Court of Australia now unanimously consider that the High Court's earlier decision in Brewster prohibiting CFOs is limited to commencement CFOs and does not address or decide whether settlement CFOs or judgment CFOs are beyond judicial power.166 On 25 June 2021 the High Court of Australia dealt with an application for special leave to the High Court from the decision of the Full Court of the Federal Court of Australia in the 7-Eleven class action. The High Court dismissed the special leave application with costs, finding that it 'does not present a suitable vehicle for the determination of the issue which the applicant seeks to raise'.167

In Pearson168 (the stolen wages class action), Murphy J of the Federal Court also considered whether a CFO made pre-Brewster had continuing effect. His Honour found that although it is apparent, as a result of the decision in Brewster, that the extant CFO made earlier in the proceeding was beyond power, as an order of a superior court, the CFO remained valid until and unless set aside,169 and as no party had sought to have the CFO set aside, it continues in effect.170

The result of the High Court's decision in the Brewster and Lenthall class actions has been to reduce flexibility for the courts to adopt CFOs and to deal with commission rates. With some judges now calling for legislative intervention on the issue,171 there appears to be a strong basis for regulatory change.

v Contingency fees in the Supreme Court of Victoria (class actions)

Another evolutionary step in the Australian system occurred on 18 June 2020 with the introduction of damages-based contingency fees in class actions applicable in the Supreme Court of Victoria. These changes were introduced via a new Section 33ZDA of the Supreme Court Act 1986 (Vic), allowing for group costs orders in class actions. Group costs orders can now be made where it is 'appropriate or necessary to ensure that justice is done'. This is a first in Australia and, consistent with recommendations from academics,172 the Productivity Commission, VLRC and ALRC, permits the court to make orders allowing a plaintiff law firm to charge its fees as a percentage of the amount recovered rather than on a time or scale fee basis. Fundamental to the making of a group costs order is that the plaintiff law firm must assume liability for adverse costs risk as a condition of the order and also be prepared to satisfy any security for costs orders.173 Consequently, comparisons with no-win no-fee contingency fee arrangements (which do not require the plaintiff's lawyers to provide security or cover adverse costs exposure) are not apt. At an early stage in the proceeding, the court will determine the percentage to be allocated to the plaintiff law firm that can be charged as a contingency. It may revisit this percentage at a later stage.174 Guidance as to procedural matters is set out in the Supreme Court's new Practice Note,175 which came into operation on 1 July 2020 with the commencement of Section 33ZDA.

The first ever applications for group costs orders were heard jointly before Justice Nichols in the Supreme Court of Victoria on 3 June 2021 in class actions against Australia and New Zealand Banking Group Limited and Westpac Banking Corporation.176 The plaintiff in each case sought a group costs order pursuant to Section 33ZDA, to the effect that the legal costs payable to the solicitors for the plaintiff and group members (Maurice Blackburn) be calculated at a rate of 25 per cent of the recovered amount.177 Justice Nichols decided that the plaintiffs had not established a sufficient basis for the exercise of the discretion conferred by Section 33ZDA to make a group costs order at the rate proposed and considered it appropriate to adjourn the applications to permit the plaintiffs to consider their respective positions and if so advised, to reapply for group costs orders at a later time.178 Justice Nichols stated that the determination of whether the making of a group costs order is 'appropriate or necessary to ensure that justice is done' (the criterion for the exercise of the discretion), will depend upon a broad evaluative assessment of the relevant facts and evidence before the Court and that the price, or the costs that group members are likely to pay, is a relevant consideration, but not the only consideration.179

Justice Nichols determined that the answer to the statutory question in this case turned on whether the proposed group costs orders were more advantageous to group members than the existing 'no-win no-fee' arrangements with Maurice Blackburn (which included the provision of an indemnity against the risk of adverse costs).180 Justice Nichols rejected the plaintiff's contentions that the existing 'no-win no-fee' arrangements were interim arrangements and that the appropriate comparator was third party litigation funding in which a funder would charge a commission in addition to reimbursement of legal costs.181 The contradictor appointed by Justice Nichols submitted that on the plaintiffs' modelling group members would be better off under a group costs order than under the existing arrangements on some projected recovery scenarios. However, in other scenarios the group would be worse off. Noting that the projections were subject to very considerable uncertainty Justice Nichols concluded that '[o]n the evidence I could not be satisfied that the statutory criterion for the exercise of the discretion to make a group costs order has been met'.182

While the decision provides some guidance on how the Court may approach exercising the discretion to make a group costs order, it also raises practical difficulties as to the form and scope of the funding arrangement that can be entered into prior to commencing a group proceeding and applying for a group costs order. These issues will likely be given further consideration by plaintiffs, practitioners and the Court in the near future, given group costs orders have been foreshadowed in a number of group proceedings commenced in the Supreme Court of Victoria since the introduction of Section 33ZDA.183

Conclusions and outlook

The litigation funding landscape in Australia has now evolved into a mature and sophisticated market. In the past 15 years the common law has steadily refined and clarified the regime's requirements since the High Court's seminal decision in Fostif. Although increased competition coupled with the availability of group costs orders in Victoria have driven innovation and placed downward pressure on funding rates, the past 12 months has seen a dramatic hardening of the regulatory environment, particularly in relation to class action and multiparty litigation funding.

Clearly, an important recent step in the evolution of litigation funding in Australia has been the introduction of damages-based contingency fees for lawyers in Victoria. Although a group costs order is yet to be made since the commencement of Section 33ZDA of the Supreme Court Act 1986 (Vic) in July 2020, the first ever applications for group costs orders were recently heard, and it is likely that such an order will be made in the near future. Changes to harmonise the damages-based contingency fee provisions for class actions in other states and territories and federally present as an opportunity for regulators to enhance consumer choice and outcomes and provide new pathways for access to justice.

Key issues for determination in the year ahead will be the federal parliament's legislative agenda in response to the ALRC Report and the PJC Report. The impact of the likely introduction of a 70 per cent gross proceeds return to class members in funded litigation is likely to have a dramatic impact on the viability of smaller and medium-sized funded class actions, should that proposal be legislated. In addition to further regulatory changes and funder reporting requirements, a new wave of challenges in relation to compliance with the AFSL and managed investment scheme regime requirements for litigation funding schemes seems likely as respondent lawyers look for new and innovative ways to derail claims. These challenges may become commonplace, particularly if ASIC withdraw the regulatory relief for National Credit Code compliance and conditional fee (no-win no-fee) arrangements as from January 2023.

The extent of judicial power available to make CFOs by reference to Section 33V of the FCA Act is also likely to be further tested. Irrespective of the outcome, the adoption of the common fund doctrine in class actions since QBE has arguably improved fairness and equity between class members and enabled funders to more efficiently consider the commercial viability of multiparty claims, while decreasing the need to engage in costly client book-building. Should the High Court further constrain CFOs in class actions, there will be a stronger basis for regulatory change as recommended by the ALRC Report. As Justice Beach lamented in McKay Super Solutions Pty Ltd (Trustee) v. Bellamy's Australia Ltd,184 'Trial judges need flexible tools to regulate these funding arrangements and to tailor solutions to each individual case. And preferably that regulation should take place closer to the outset of proceedings rather than at the other end, particularly where competing class actions are in play.'

In considering the regulatory pathway ahead it is worth reflecting on the objectives outlined in the second reading speech for the introduction of Australia's class actions regime made back in 1992, when the then Attorney General, the Honourable Michael Duffy, said 'the new procedure will enhance access to justice, reduce the cost of proceedings, and promote efficiency in the use of court resources'.185 Despite these noble objectives espoused by parliament almost 30 years ago, the increasing compliance burdens of Australia's now highly regulated litigation funding market seem destined to result in a decline in funded class actions and an increase in costs and delays, which arguably diminish rather than enhance access to justice.

Footnotes

1 Jason Geisker is a principal and Dirk Luff is a special counsel at Maurice Blackburn Lawyers, the legal advisers to Claims Funding Australia Pty Ltd. The authors wish to thank and acknowledge the assistance with earlier editions of this chapter received from Jenny Tallis.

2 Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report No. 134, January 2019) Appendix G.

3 IBISWorld, Litigation Funding in Australia (April 2021), page 9.

4 ibid.

5 A class action is a procedure whereby a single representative can bring or conduct a claim on behalf of others in the same, similar or related circumstances (Part IVA Federal Court of Australia Act 1976 (Cth) Section 33C(1)).

6 IBISWorld, Litigation Funding in Australia (April 2021), page 21.

7 Professor Vince Morabito, 'Courts see record number of class actions as shareholder proceedings drop in significance' Lawyerly (20 May 2021) https://www.lawyerly.com.au/courts-see-record-number-of-class-actions-as-shareholder-proceedings-drop-in-significance/.

8 ibid. In the 12 months ending 3 March 2021 there was a total of 32 funded class actions filed in Australia (approximately 46.3 per cent of all class actions). This number could be lower if group costs orders are secured in some of the nine class actions commenced in Victoria during this period.

9 IBISWorld, Litigation Funding in Australia (April 2021), pages 6 and 10.

10 In FY2021 Australia had 4,235 companies entering external administration and controller appointments, the lowest number in the past 20 years: Australian Securities & Investments Commission, Australian Insolvency Statistics, September 2021, Table 1.1, page 2.

11 Maintenance is assistance in prosecuting or defending a lawsuit by someone with no bona fide interest in the case. Champerty is an agreement to divide litigation proceeds between the owner and another party unrelated to the lawsuit who helps enforce the claim.

12 Civil Law (Wrongs) Act 2002 (ACT) Section 221; Maintenance, Champerty and Barratry Abolition Act 1993 (NSW) Sections 3–4, 6; Criminal Law Consolidation Act 1935 (SA) Schedule 11 cll 1(3), 3; Wrongs Act 1958 (Vic) Section 32; and Crimes Act 1958 (Vic) Section 322A. The torts have not been abolished in Queensland, Western Australia, Tasmania or the Northern Territory. However, the Law Reform Commission of Western Australia has expressed the view that 'legislative abolition of the torts of maintenance and champerty or, at least, modification of the law in relation to their operation, may have merit and that such a course of action would arguably be consistent with the objectives of enhancing access to justice and ensuring that Western Australia is utilised as an appropriate forum for proceedings'.

13 Standing Committee of Attorneys-General, Litigation funding in Australia (Discussion Paper, May 2006), p. 4.

14 (2006) 229 CLR 386; [2006] HCA 41.

15 ibid., at [1].

16 ibid., at [84]–[86].

17 For example, see Wrongs Act 1958 (Vic) Section 32(2).

18 For other examples, see: Murphy Operator Pty Ltd v. Gladstone Ports Corporation Ltd (No. 2) [2019] QSC 012 at [33]–[38]; see also the 13 September 2019 decision in Murphy Operator Pty Ltd v. Gladstone Ports Corporation Ltd (No. 4) [2019] QSC 228, where, in response to a direct challenge to the litigation funding agreements between the funder and the lead applicants and group members, it was held that those agreements are not, by reason of maintenance, champerty or public policy, unenforceable.

19 (2020) 384 ALR 725; [2020] QCA 250.

20 ibid at [81], [82].

21 ibid at [95], [96].

22 Gladstone Ports Corporation Limited v. Murphy Operator Pty Ltd & Ors [2021] HCATrans 114 (25 June 2021).

23 See new Section 33ZDA of the Supreme Court Act 1986 (Vic) applying from 1 July 2020 for the exception in Victoria, and Section 183 of the Legal Profession Uniform Law 2015 (NSW) for a New South Wales example of the common prohibition.

24 See, for example, Section 182(2)(b) of the Legal Profession Uniform Law 2015 (NSW).

25 Justice Legislation Miscellaneous Amendments Bill 2019 (Vic), which received royal assent on 30 June 2020.

26 Treasury Wines Estates Limited v. Melbourne City Investments Pty Ltd (2014) 45 VR 585; [2014] VSCA 351 at [22].

27 Bolitho v. Banksia Securities Ltd (No. 4) [2014] VSC 582.

28 ibid., [53].

29 ibid., [51].

30 Bolitho v. Banksia Securities Ltd (No. 18) (remitter) [2021] VSC 666.

31 ibid., [7].

32 Australian Securities and Investments Commission Act 2001 (Cth), Sections 12BF–12BM, 12CA–12C, 12DA.

33 Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report No. 134, January 2019), p 62.

34 The correctness of this decision is likely to be considered again via an application brought by a funder in Stanwell Corporation Ltd v. LCM Funding Limited QUD 201/2021. A request has been made to refer this (and other) issue directly to the Full Court: Cat Fredenburgh, 'Full Court should decide whether QLD energy class action is managed investment scheme, court told', Lawyerly (2 August 2021) https://www.lawyerly.com.au/full-court-should-decide-whether-qld-energy-class-action-is-managed-investment-scheme-court-told/.

35 Brookfield Multiplex Funds Management Pty Ltd v. International Litigation Funding Partners Pty Ltd (2009) 180 FCR 11; [2009] FCAFC 147.

36 Section.601ED Corporations Act, where any of the criteria in Section 601ED(1) are met, subject to Sections 601ED(2) add (2A).

37 Section 601FA Corporations Act.

38 Section.601ED(5) Corporations Act.

39 International Litigation Partners Pte Ltd v. Chameleon Mining NL (Receivers and Managers Appointed) (2012) 246 CLR 455; [2012] HCA 45.

40 Hon Chris Bowen, Minister for Financial Services, Superannuation and Corporate Law 'Government acts to ensure access to justice for class action members', (Media Release No. 039, 4 May 2010).

41 Corporations Amendment Regulation 2012 (No. 6) (Cth).

42 Corporations Regulations 2001 (Cth), Rule 5C.11.01(d) (now repealed and replaced with Rule 5C.11.01(4) and Rule 5C.11.01(5), which are in materially similar terms).

43 ibid., Rules 5C.11.01(b)–5C.11.01(c) (now repealed).

44 ibid., Rule 7.6.01AB.

45 Australian Securities and Investment Commission, Litigation schemes and proof of debt schemes: Managing conflicts of interest (RG 248, 27 March 2013).

46 See, for example, the criticisms outlined in various submissions by academics, such as Professor Vicki Waye and Professor Vince Morabito in their submissions in response to the 2020 Federal Parliamentary Inquiry into Litigation Funding and the Class Action Industry: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/Litigationfunding/Submissions. The New Regulations were heavily criticised by Beach J of the Federal Court during an interlocutory hearing on 13 September 2021, saying, 'The representative applicant is the one who is supposed to have responsibility . . . subject to the court's supervisory role. If the [representative applicant] doesn't do their job properly then there's the ability to remove them' and '[t]he [MIS regulation] assumes this is all within the purview of the responsible entity, which simply doesn't work with Part IVA action': Lawyers Weekly, (13 September 2021) https://www.lawyerly.com.au/judge-says-mis-regulation-doesnt-work-with-class-action-regime/.

47 Corporations Regulations 2001 (Cth), Regulation 10.38.01.

48 Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report No. 134, January 2019). Page 18 of the ALRC Report summarised the conclusions on regulation of funders noting, '[a] suite of recommendations to improve the regulation of litigation funders and to support the unique role of the Federal Court in protecting the interests of all group members is recommended in lieu of a licensing regime for litigation funders'.

49 See for example Brett Cattle Co Pty Ltd v. Minister for Agriculture (No. 3) [2020] FCA 1628; White v. UGL Operations and Maintenance Pty Ltd [2021] FCA 587; Stanwell Corporation Ltd v. LCM Funding Limited QUD 201/2021.

50 Miklos Bolza, 'Managed investment scheme rules stall $78M class action against NAB, Walton' Lawyerly (30 September 2021) https://www.lawyerly.com.au/managed-investment-scheme-rules-stall-78m-class-action-against-nab-walton/.

51 Productivity Commission, Access to Justice Arrangements (Inquiry Report No. 72, December 2014).

52 ibid., vol 2, p. 633, Recommendation 18.2.

53 ibid., vol 2, p. 629, Recommendation 18.1.

54 Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (Report, March 2018), pp. 17–19, paras. 2.23–2.31 and (Chapter 3); Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third-party Litigation Funders (Discussion Paper 85, June 2018), pp. 48–52, paras. 3.21–3.33 and pp. 83–91, paras. 5.9–5.41.

55 The PJC inquiry into 'Litigation funding and the regulation of the class action industry' was announced on 13 May 2020 with written submissions closing 4 weeks after on 11 June 2020. Written submissions were limited to 4–5 pages.

56 On 13 May 2020, the House referred to the Parliamentary Joint Committee on Corporations and Financial Services an inquiry into litigation funding and the regulation of the class action industry for report by 7 December 2020: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/Litigationfunding.

57 Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (Consultation Paper, July 2017), p. vi.

58 Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (Report, March 2018), p. xvi, paras. 28–31.

59 Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third-party Litigation Funders (Discussion Paper No. 85, June 2018), pp. 4–5, and p. 17, para. 1.17.

60 Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report No. 134, January 2019), p. 28, p. 205.

61 ibid., pp. 199–201; Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third-party Litigation Funders (Discussion Paper No. 85, June 2018), p. 83, paras. 5.10–5.13.

62 Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report No. 134, January 2019), p. 28, p. 205.

63 ibid., p. 163, para. 6.42.

64 ibid., pp. 161–162, para. 6.37.

65 ibid., pp. 153–177.

66 ibid., pp. 177–183.

67 ibid., pp. 183–184.

68 On 13 May 2020, the House referred to the Parliamentary Joint Committee on Corporations and Financial Services an inquiry into litigation funding and the regulation of the class action industry for report by 7 December 2020: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/Litigationfunding.

69 The terms of reference provided that particular reference was to be made to 14 separate considerations:https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/Litigationfunding/Terms_of_Reference.

70 On 28 May 2021 the federal Treasurer announced a consultation process on recommendations of the PJC Report dealing specifically with this proposal: https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/consulting-recommendations-parliamentary-joint.

71 Parliamentary Joint Committee on Corporations and Financial Services, Litigation funding and the regulation of the class action industry, (Report, December 2020), paragraphs [5.23]–[5.24].

72 Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report No. 134, January 2019), page 70.

73 Parliamentary Joint Committee on Corporations and Financial Services, Litigation funding and the regulation of the class action industry, (Report, December 2020), page xiv.

74 ibid.

75 United Nations General Commission on International Trade Law – Working Group III (Investor State Dispute Settlement Reform) Thirty-seventh session, Possible reform of investor-State dispute settlement (ISDS) Third-party funding, UN Doc A/CN.9/WG.III/WP.157 (5 April 2019), page 2.

76 Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (Consultation Paper, July 2017), p. 115, para. 8.25. In securities class actions, commission rates have declined over recent years as competition in that sector has increased. The courts have considered these rates in the context of class actions settlement approvals: Kuterba v. Sirtex Medical Limited (No. 3) [2019] FCA 1374 at [7] to [16]. See also IBISWorld, Litigation Funding in Australia (April 2021), page 20.

77 Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report No. 134, January 2019) p. 70 and Table 3.7. Professor Morabito also examined a similar review period to the ALRC and concluded that the median percentage of settlement funds 'consumed' by funding fees in funded federal class actions settled during the period from January 2013 to December 2018 was 26 per cent, and the median percentage of settlement funds 'consumed' by funding fees in all funded class actions settled during this period was 25.5 per cent: Professor Vince Morabito, 'An Evidence-Based Approach to Class Action Reform in Australia 'Common Fund Orders, Funding Fees and Reimbursement Payments', (January 2019) p. 12.

78 The funding fee in insolvency cases can exceed 50 per cent, and has been as high as 75 per cent: see Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (Report, March 2018), p. 28, para. 2.74; Standing Committee of Attorneys-General, Litigation Funding in Australia (Discussion Paper, May 2006) p. 4. See also: Buiscex Ltd v. Panfida Foods Ltd (in liq) (1998) 28 ACSR 357 at 363–364 where Hodgson CJ in Eq held that a commission as high as 75 per cent was not unreasonable in light of the facts; Re ACN 076 673 875 Ltd (Rec and Mgr Apptd) (2002) 42 ACSR 296 at [33] where Austin J held that commissions of 15 per cent to 40 per cent (where proceedings are commenced) were not excessive in the circumstances of the case; Robinson, re Reed Constructions Australia Pty Ltd (in liq) [2017] FCA 594 (1 May 2017) at [18] where Gleeson J approved the plaintiffs' entry into a funding agreement which entitled the litigation funder to 85 per cent of the settlement amount (less costs incurred in pursuing the claim), but the funder was required by the funding agreement to pay a number of creditors, leaving a final net share of no more than 55 per cent.

79 Professor Vince Morabito, Submission to the Parliamentary Joint Committee on Corporations and Financial Services, Litigation Funding and Regulation of the Class Action Industry (10 June 2020).

80 Fostif v. Campbells Cash & Carry Pty Ltd (2005) 63 NSWLR 203; [2005] NSWCA 83 at [94]–[116].

81 For example, see Supreme Court of New South Wales Proceeding LCM Operations Pty Ltd v. Rabah Enterprises Pty Ltd [2015] NSWSC 1156.

82 Section 100-5 of the Insolvency Practice Schedule (Corporations) at Schedule 2 to the Corporations Act, which commenced on 1 March 2017, allows external administrators (including liquidators) to assign any right to sue that is conferred on them under by the Corporations Act including for example, voidable transaction claims and insolvent trading claims. Previously, liquidators only had the power to sell, or otherwise dispose of, property of the company pursuant to Section 477(2)(c) of the Corporations Act, including common law rights of action such as debts. However, it has been suggested by the courts that not all claims are capable of being assigned including, for example, statutory causes of action for misleading or deceptive conduct: see Pentridge Village Pty Ltd (in liq) v. Capital Finance Australia Ltd [2018] VSC 633.

83 Earglow Pty Ltd v. Newcrest Mining Ltd [2016] FCA 1433 at [7] and [157]. At [165] Murphy J stated that 'the Court's role to protect class members' interests includes protecting them in relation to excessive litigation funding charges'.

84 For contrast see City of Swan v. McGraw-Hill Companies Inc [2016] FCA 343; (2016) 112 ACSR 65 at [30], where it was said that in an appropriate case the court may refuse settlement approval because a funding commission is so disproportionate to the risk and expense to which the funder was exposed in the proceedings that it provides a proper basis for the court to refuse approval.

85 Mitic v. OZ Minerals Ltd (No. 2) [2017] FCA 409 at [28]–[29]; see also Blairgowrie Trading Ltd v. Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) (No. 3) [2017] FCA 330; (2017) 343 ALR 476 at [101]; Petersen Superannuation Fund Pty Ltd v. Bank of Queensland Limited (No. 3) [2018] FCA 1842 at [202].

86 In HFPS Pty Ltd (Trustee) v. Tamaya Resources Ltd (In Liq) (No. 3) [2017] FCA 650 at [105]–[106], Wigney J appeared to accept that the power existed, and so too did the Full Court in Melbourne City Investments Pty Ltd v. Treasury Wine Estates Ltd (2017) 252 FCR 1; [2017] FCAFC 98 at [90].

87 [2018] FCA 1289.

88 ibid., at [51].

89 ibid., at [52]–[58].

90 ibid., at [47].

91 See, for instance, observations of Justice MBJ Lee, 'Varying Funding Agreements and Freedom of Contract: Some Observations' (Speech, IMF Bentham Class Actions Research Initiative with UNSW Law: Resolving Class Actions Effectively and Fairly, 1 June 2017), p. 7. In other instances, the Federal Court has indicated that under Section 33ZF of the FCA Act 1977 it has the power, for example, to effectively modify 'any contractual bargain dealing with the funding commission payable out of any settlement proceeds' in the course of a settlement approval: Blairgowrie Trading Ltd v. Allco Finance Group Ltd (Receivers & Managers Appointed ) (In Liq) (No. 3) (2017) 343 ALR 476, 504. See also Earglow Pty Ltd v. Newcrest Mining Ltd [2016] FCA 1433 at [133]–[134], [157]; Mitic v. OZ Minerals Ltd (No. 2) [2017] FCA 409 at [26]–[31].

92 Clarke v. Sandhurst Trustees Ltd (No. 2) [2018] FCA 511 at [26]–[27].

93 Petersen Superannuation Fund Pty Ltd v. Bank of Queensland Limited (No. 3) [2018] FCA 1842 at [5]–[16], although that reduction was in the context of a common fund order being made, [14], [75], [217]–[227]; See also Endeavour River Pty Ltd v. MG Responsible Entity Ltd (No. 2) [2020] FCA 968, where Murphy J approved a settlement sum of A$42 million inclusive of costs and interest, but initially declined to approve the funder commission of 32.1 per cent and proposed a rate of 25 per cent, which was ultimately agreed by the funder. In providing reasons for approving the settlement and considering the matters that might be relevant to the approval, at [38], Murphy J noted that the Court may 'also take into account the funder's rate of return over time as that may assist in understanding the range of fair and reasonable funding rates'.

94 The new Treasury Laws Amendment (Measures for Consultation) Bill 2021: Litigation Funders proposes the introduction of a new Part 5C.7A to the Corporations Act, which, if passed through federal parliament, will introduce a new statutory regime empowering the Court to review, approve or vary litigation funding agreements in connection with a new statutory concept known as a class action litigation funding scheme. This proposed legislation appears to respond to, but go beyond, the recommendations in the Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report No. 134, January 2019), pp. 169–177; Parliamentary Joint Committee on Corporations and Financial Services, Litigation funding and the regulation of the class action industry, (Report, December 2020), pp. 157–158.

95 Federal Court of Australia, Class Action Practice Note (GPN-CA) – General Practice Note, 20 December 2019, paras. 5.3 and 6.1–6.7.

96 ibid., paras. 6.1, 6.4.

97 ibid., para. 6.4(b).

98 Federal Court of Australia, Class Action Practice Note (GPN-CA) – General Practice Note, 25 October 2016, para. 6.1.

99 Spatialinfo Pty Ltd v. Telstra Corporation Ltd [2005] FCA 455.

100 Dorajay Pty Limited v. Aristocrat Leisure Limited [2005] FCA 588.

101 Section 1012B Corporations Act; see also Australian Securities and Investments Commission, ASIC Corporations (Litigation Funding Scheme) Instrument 2020/787 (28 April 2021) in relation to disclosure obligations for passive general members in litigation funding schemes.

102 See for example Order 9A rules 1 & 2(1) of the Western Australian Rules of the Supreme Court 1971 (WA); See also Section 477(2B) of the Corporations Act 2001 (Cth), which requires approval of agreements entered into by a liquidator exceeding three months in duration.

103 Hastie Group Ltd (in liq) v. Moore [2016] NSWSC 1315.

104 Hastie Group Ltd (in liq) v. Moore (2016) 339 ALR 635; [2016] NSWCA 305 at [59]–[60].

105 Knight v. FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28 at [192]–[193]; see also Gore v. Justice Corporation Pty Ltd (2002) 119 FCR 429; [2002] FCAFC 83; Dymocks Franchise Systems (NSW) Pty Ltd v. Todd (No. 2) [2004] 1 WLR 2807 (on appeal from New Zealand); see also Fostif Pty Ltd v. Campbell's Cash and Carry Pty Ltd [2005] NSWCA 83; 63 NSWLR 203 at 230 [120].

106 [2021] NSWSC 1202.

107 ibid., at [73].

108 ibid., at [23].

109 ibid., at [52].

110 ibid., at [68].

111 See Green (as liquidator of Arimco Mining Pty Ltd) v. CGU Insurance Ltd (2008) 67 ACSR 105; [2008] NSWCA 148 at [51], [61] (Hodgson JA), [85]–[88] (Campbell JA) and [80] (Basten JA).

112 (2020) 384 ALR 340, (2020) 300 IR 446, [2020] FCFCA 194.

113 Under the Fair Work Act 2009 (Cth).

114 In the first instance decision the trial judge found that the Court had power to make such an order and exercised the Court's discretion to order security for costs be provided by the funder: Turner v. Tesa Mining (NSW) Pty Ltd [2019] FCA 1644.

115 Augusta at [83] (Allsop CJ).

116 Augusta at [68]–[73] (Allsop CJ); at [89] (Middleton J); and at [93], [131]–[134] (White J).

117 [2021] FCA 304.

118 Duck v. Airservices Australia (No. 3) [2021] FCA 304 at [9] and [69] per Bromwich J.

119 ibid., at [51] per Bromwich J.

120 ibid., at [9] and [67]–[69] per Bromwich J.

121 ibid., at [47] per Bromwich J.

122 Jeffery & Katauskas Pty Ltd v. SST Consulting Pty Ltd (2009) 239 CLR 75; [2009] HCA 43.

123 See also Grave, Adams and Betts, Class Actions in Australia, (Law Book Co of Australasia, 2nd ed, 2012) para. 17.1000.

124 ibid.

125 ibid.

126 Domino's Pizza Enterprises Limited v. Precision Tracking Pty Ltd (No. 2) [2017] FCA 211.

127 [2017] FCA 699.

128 [2020] QSC 269. In this case, Bond J determined that security in the form of a deed of indemnity between a foreign third-party insurer of the plaintiff's litigation funder and the defendants was not adequate, and ordered that security be provided by way of payment into court, payment into a solicitors' trust account or bank guarantee.

129 Petersen Superannuation Fund Pty Ltd v. Bank of Queensland Ltd (Petersen) [2017] FCA 699 at [92].

130 See Perera v. GetSwift Limited [2018] FCA 732 at [194]–[195] per Lee J; Kelly v. Willmott Forests Ltd (in liquidation) (No. 4) [2016] FCA 323 at [105] per Murphy J; Hardy v. Reckitt Benckiser (Australia) Pty Limited (No. 3) [2017] FCA 1165 at [13]–[15] per Nicholas J.

131 [2020] FCA 1885.

132 Asirifi-Otchere v. Swann Insurance (Aust) Pty Ltd (No. 3) [2020] FCA 1885 at [32].

133 Regulatory Impact Statement – regulating litigation funders under the Corporations Act – 15 June 2020, page 2.

134 Australian Securities and Investments Commission, ASIC Class Order – Funded representative proceedings and funded proof of debt arrangements exclusion from the National Consumer Credit Protection Act 2009 (CO 13/18, 11 January 2013) and, as from January 2020, Australian Securities and Investments Commission, ASIC Credit (Litigation Funding – Exclusion) Instrument 2020/37 (17 January 2020).

135 Australian Securities and Investments Commission, ASIC Class Order – Representative proceedings and proof of debt arrangements funded by conditional costs agreements (CO 13/898, 12 July 2013) and, as from January 2020, Australian Securities and Investments Commission, ASIC Corporations (Conditional Costs Schemes) Instrument 2020/38 (17 January 2020).

136 Australian Securities and Investments Commission, Litigation funding schemes: Guidance and relief (Consultation Paper No. 345, July 2021), proposals C3-C4.

137 ibid., pages 30–31.

138 Various other conditions attach to this relief as set out in Australian Securities and Investments Commission, ASIC Corporations (Disclosure in Dollars) Instrument 2016/767 (28 April 2021), Part 2, section 8.

139 Australian Securities and Investments Commission, Litigation funding schemes: Guidance and relief (Consultation Paper No. 345, July 2021), page 25.

140 Hon Josh Frydenberg, Treasurer of the Commonwealth of Australia 'Consulting on the recommendations of the Parliamentary Joint Committee report on litigation funding and class actions' (Media Release, 28 May 2021).

141 Treasury and Attorney-General's Department, Guaranteeing a minimum return of class action proceeds to class members (Consultation Paper, June 2021).

142 Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report No. 134, January 2019), Table 3.7 Median settlement and return for Part IVA claims finalised in the Federal Court (2013 to October 2018), page 83.

143 BMW Australia Ltd v. Brewster & Anor; Westpac Banking Corporation & Anor v. Lenthall & Ors [2019] HCA 45.

144 Money Max Int Pty Ltd (Trustee) v. QBE Insurance Group Ltd (2016) 245 FCR 191; [2016] FCAFC 148.

145 ibid.

146 ibid., at [11].

147 [2017] FCA 330.

148 [2016] VSC 784.

149 [2018] FCA 1422 at [25].

150 [2018] FCA 1541.

151 [2019] NSWCA 35.

152 Westpac Banking Corporation v. Lenthall [2019] FCAFC 34.

153 Brewster v. BMW Australia Ltd [2019] NSWCA 35 at [56]–[61], [64]–[67].

154 ibid., at [96]–[103].

155 BMW Australia Ltd v. Brewster & Anor; Westpac Banking Corporation & Anor v. Lenthall & Ors [2019] HCA 45 at [3].

156 ibid.,. at [3] to [94].

157 Federal Court of Australia, Class Actions Practice Note (GPN-CA) – General Practice Note, 20 December 2019, [15.4].

158 McKay Super Solutions Pty Ltd (Trustee) v. Bellamy's Australia Ltd (No. 3) [2020] FCA 461 at [31] per Beach J; Uren v. RMBL Investments Ltd (No. 2) [2020] FCA 647 at [47] to [73] per Murphy J; Smith v. Commonwealth of Australia (No. 2) [2020] FCA 837 per Justice Lee; Webster (Trustee) v. Murray Goulburn Co-Operative Co Ltd (No. 4) [2020] FCA 1053 at [113] to [114] per Justice Murphy.

159 Uren v. RMBL Investments Ltd (No. 2) [2020] FCA 647 at [47] to [73] per Murphy J; Smith v. Commonwealth of Australia (No. 2) [2020] FCA 837 per Lee J; Webster (Trustee) v. Murray Goulburn Co-Operative Co Ltd (No. 4) [2020] FCA 1053 at [113] to [114] per Murphy J; Court v. Spotless Group Holdings Ltd [2020] FCA 1730 at [80] per Murphy J; Asirifi-Otchere v. Swann Insurance (Aust) Pty Ltd (No. 3) [2020] FCA 1885 at [13]–[15], [33]–[34] where Lee J ultimately approved the settlement CFO pursuant to Section 33V(1) of the FCA Act, but stated that he would have been prepared to make the order in any event relying on Section 33V(2) or in equity.

160 In Cantor v. Audi Australia Pty Ltd (No. 5) [2020] FCA 637 at [395] to [405], Foster J expressed the view that the court does not have the power to make a CFO at the time of settlement approval under Section 33V(2) of the FCA Act.

161 Clime Capital Ltd v. UGL Pty Ltd [2020] FCA 66 at [13] per Anastassiou J; Fisher (trustee for the Tramik Super Fund Trust) v. Vocus Group Ltd (No. 2) [2020] FCA 579 at [73] per Moshinsky J.

162 Brewster v. BMW Australia Ltd [2020] NSWSC 1261.

163 Brewster v. BMW Australia Ltd [2020] NSWCA 272 at [44]–[47].

164 Davaria Pty Limited v. 7-Eleven Stores Pty Ltd [2020] FCAFC 183.

165 ibid., at [21]–[30].

166 ibid., at [42]; Brewster v. BMW Australia Ltd [2020] NSWCA 272 at [41].

167 7-Eleven Stores Pty Ltd v. Davaria Pty Ltd [2021] HCATrans 113.

168 Pearson v. State of Queensland (No. 2) [2020] FCA 619.

169 In accordance with State of New South Wales v. Kable (2013) 252 CLR 118; [2013] HCA 26.

170 Pearson v. State of Queensland (No. 2) [2020] FCA 619 at [264] to [268].

171 McKay Super Solutions Pty Ltd (Trustee) v. Bellamy's Australia Ltd (No. 3) [2020] FCA 461 at [34] per Beach J.

172 See, for example, the conclusions of Professor Vince Morabito and Jarrah Ekstein, 'Class Actions Filed for the benefit of Vulnerable Persons – An Australian Study' (2016), 35 Civil Justice Quarterly 61.

173 Section 33ZDA(2) of the Supreme Court Act 1986 (Vic).

174 Section 33ZDA(3) of the Supreme Court Act 1986 (Vic), including but not limited to the percentage ordered.

175 Supreme Court of Victoria, SC Gen 10 Conduct of Group Proceeding (Class Action) (First Revision), July 2020.

176 Fox v. Westpac; Crawford v. ANZ [2021] VSC 573.

177 ibid., at [3].

178 ibid., at [8].

179 ibid., at [8].

180 ibid., at [8(f)] and [44].

181 ibid., at [8(d)], [40] and [165].

182 ibid., at [45].

183 ibid., at [4].

184 [2020] FCA 461 at [34].

185 Commonwealth, Parliamentary Debates, House of Representatives, 14 November 1991, 3174–3175 (Duffy).

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