Litigation funders in Australia - tighter regulations on the horizon?


[co-author: Jacqueline Norton]

To date, litigation funders in Australia have been subject only to "light touch" external regulation. However, there are increasing calls to see greater scrutiny applied to these funds.

On issue which might prove a turning point for the litigation funding industry is the establishment of litigation funds by leading plaintiff law firms. On such fund, Claims Funding Australia (CFA), has been set up by Maurice Blackburn. That firm has now turned to the Federal Court for a determination on certain pertinent questions regarding conflicts of interest in litigation funding and the potential breach of a ban on lawyers charging contingency fees.

Maurice Blackburn plans to use CFA to fund approximately half the equine influenza class action in respect of which that firm also acts. Because CFA has been established as a discretionary trust, which beneficiaries are the principals of Maurice Blackburn, the Court has been asked to consider whether the firm's potential to benefit from contingency fees recovered by CFA constitutes a conflict of interest and/or a breach of current legislation prohibiting law firms from charging contingency fees. The Court has also been asked to consider whether CFA's involvement in the class action "compromises or impacts on the solicitors' duty to the Court". These arguments have been heard in the face of objections regarding the Federal Court's jurisdiction to hear the application and submissions as to the constitutional limitations of the Court to provide an advisory opinion.

Regardless of what is decided, the outcome will undoubtedly have wide ranging implications for the future of class action litigation funding in Australia.

Quick on the heels of this development, the US Chamber Institute for Legal Reform is in the process of making recommendations that the coalition government consider imposing stricter requirements on litigation funders, including to ban law firms from working on cases which are funded by companies they own. In an attempt to limit the control held by litigation funders over class action proceedings, the Institute will also recommend that lawyers be instructed by a Court appointed representative claimant.  Watch this space.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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